Eversource 2010 Annual Report Download - page 123

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Unrecognized Tax Benefits: As of December 31, 2010, NU and CL&P had unrecognized tax benefits totaling $101.2 million and $80.8
million, respectively, all of which would impact the effective tax rate if recognized. As of December 31, 2009, NU and CL&P had
unrecognized tax benefits totaling $124.3 million and $89 million, respectively, all of which would impact the effective tax rate if
recognized. As of December 31, 2008, the portion of NU and CL&P unrecognized tax benefits that would impact the effective tax rate,
if recognized, were $120 million and $87 million, respectively. A reconciliation of the activity in unrecognized tax benefits from
January 1, 2008 to December 31, 2010 is as follows:
(Millions of Dollars) NU CL&P PSNH WMECO
Balance as of January 1, 2008 $ 121.1 $ 75.9 $ 10.6 $ 2.9
Gross Increases - Current Year 28.6 24.9 - -
Gross Increases - Prior Year 7.4 5.6 1.8 0.9
Lapse of Statute of Limitations (0.8) - - -
Balance as of December 31, 2008 156.3 106.4 12.4 3.8
Gross Increases - Current Year 12.3 8.6 - -
Settlement (44.2) (26.0) (12.4) (3.8)
Lapse of Statute of Limitations (0.1) - - -
Balance as of December 31, 2009 124.3 89.0 - -
Gross Increases - Current Year 10.8 5.3 - -
Gross Increases - Prior Year 0.8 - - -
Settlement (34.3) (13.5) - -
Lapse of Statute of Limitations (0.4) - - -
Balance as of December 31, 2010 $ 101.2 $ 80.8 $ - $ -
Interest and Penalties: Interest on uncertain tax positions is recorded and generally classified as a component of Other Interest
Expense. However, when resolution of uncertainties results in the Company receiving interest income, any related interest benefit is
recorded in Other Income, Net on the accompanying consolidated statements of income. No penalties have been recorded. The
components of interest on uncertain tax positions by company in 2010, 2009 and 2008 are as follows:
Other Interest For the Years Ended December 31, Accrued Interest As of December 31,
Expense/(Income) 2010 2009 2008 Expense/(Income) 2010 2009
(Millions of Dollars) (Millions of Dollars)
CL&P $ (7.4) $ (4.2) $ 4.8 CL&P $ 6.4 $ 13.8
PSNH 0.1 (1.3) - PSNH 0.6 0.5
WMECO - (0.4) 0.2 WMECO - -
NU Parent and Other (17.5) 1.9 3.2 NU Parent and Other 2.9 20.4
Total $ (24.8) $ (4.0) $ 8.2 Total $ 9.9 $ 34.7
Tax Positions: During 2010, NU settled various tax matters including state obligations, which resulted in the recognition during the year
of an after-tax gain of approximately $35 million. This gain is recorded as a reduction to both interest expense and income tax expense
(including NU and CL&P tax expense reductions of approximately $6 million and $4 million, respectively). NU is currently working to
resolve the treatments of certain timing and other costs in the remaining open periods.
Tax Years: The following table summarizes NU, CL&P, PSNH and WMECO's tax years that remain subject to examination by major
tax jurisdictions as of December 31, 2010:
Description Tax Years
Federal 2009-2010
Connecticut 2005-2010
New Hampshire 2007-2010
Massachusetts 2007-2010
While tax audits are currently ongoing, it is reasonably possible that one or more of these open tax years could be resolved within the
next twelve months. Management estimates that potential resolutions of differences of a non-timing nature, could result in a zero to
$77 million decrease in unrecognized tax benefits by NU and a zero to $67 million decrease in unrecognized tax benefits by CL&P.
These estimated changes could have an impact on NU's and CL&P's 2011 earnings of zero to $38 million and zero to $34 million,
respectively. Other companies’ impacts are not expected to be material.
2010 Federal Legislation: On March 23, 2010, President Obama signed into law the 2010 Healthcare Act. The 2010 Healthcare Act
was amended by a Reconciliation Bill signed into law on March 30, 2010. The 2010 Healthcare Act includes a provision that eliminated
the tax deductibility of certain PBOP contributions equal to the amount of the federal subsidy received by companies like NU, which
sponsor retiree health care benefit plans with a prescription drug benefit that is actuarially equivalent to Medicare Part D. The tax
deduction eliminated by this legislation represented a loss of previously recognized deferred income tax assets established through
2009 and as a result, these assets were written down by approximately $18 million in 2010. Since the electric and natural gas
distribution companies are cost-of-service and rate-regulated, a portion of the $18 million is able to be deferred and recovered through
future rates. For the year ended December 31, 2010, NU deferred approximately $15 million of recoverable write-offs related to these
businesses and reduced 2010 earnings on a net basis by approximately $3 million of non-recoverable costs. In addition, as a result of
the elimination of the tax deduction in 2010, NU was not able to recognize approximately $2 million of net annual benefits.