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for execution in future storm response in determining any potential penalties. CL&P believes such steps to improve current storm
preparation and response practices have been successfully executed in recent storms. At this time, management cannot estimate the
impact on CL&P’s financial position, results of operations or cash flows. CL&P continues to believe that its response to these 2011
storms was prudent, was consistent with industry standards, and that it is probable that it will be able to recover its deferred costs.
See Note 12E, "Commitments and Contingencies – DPU Penalties for 2011 Storm Responses," for a discussion of NSTAR Electric and
WMECO's 2011 storm response.
On October 29, 2012, Hurricane Sandy caused extensive damage to NU’s electric distribution system across all three states. The cost
of restoration that was deferred for future recovery from customers and recorded as a regulatory asset as of December 31, 2012 for
CL&P, NSTAR Electric, and WMECO totaled $159.9 million, $27.8 million and $4.2 million, respectively. PSNH recorded $12.1 million
in Other-Long Term Assets, as previously described. Management believes its response to the storm damage was prudent and
therefore believes it is probable that CL&P, NSTAR Electric, PSNH and WMECO will be allowed to recover these deferred storm
restoration costs. Accordingly, the storm did not have a material impact to the results of operations of CL&P, NSTAR Electric, PSNH
or WMECO. Each operating company will seek recovery of these deferred storm restoration costs through its applicable regulatory
recovery process.
The PSNH storm restoration costs deferral as of December 31, 2012 and 2011 related to costs incurred for a major storm in December
2008 and the February 2010 wind storm, both of which were approved for recovery and are included in rate base.
Income Taxes, Net: The tax effect of temporary book-tax differences (differences between the periods in which transactions affect
income in the financial statements and the periods in which they affect the determination of taxable income, including those differences
relating to uncertain tax positions) is accounted for in accordance with the rate-making treatment of the applicable regulatory
commissions and accounting guidance for income taxes. Differences in income taxes between the accounting guidance and the rate-
making treatment of the applicable regulatory commissions are recorded as regulatory assets. As these assets are offset by deferred
income tax liabilities, no carrying charge is collected. For further information regarding income taxes, see Note 11, "Income Taxes," to
the consolidated financial statements.
Securitized Assets: In March 2005, NSTAR Electric issued $674.5 million RRBs and used the majority of the proceeds from that
issuance to effect purchase power contract buyouts. The collateralized amounts reflected as securitized regulatory assets for NSTAR
Electric as of December 31, 2012 and 2011 were $14.1 million and $98.4 million, respectively. In April 2001, PSNH issued $525
million RRBs and used the majority of the proceeds from that issuance to buydown its power contracts with an affiliate, North Atlantic
Energy Corporation. In May 2001, WMECO issued $155 million RRBs and used the majority of the proceeds from that issuance to
buyout an IPP contract. These assets are not earning an equity return and are being recovered over the amortization period of their
associated RRBs. NSTAR Electric RRBs are scheduled to fully amortize by March 15, 2013, PSNH RRBs are scheduled to fully
amortize by May 1, 2013, and WMECO RRBs are scheduled to fully amortize by June 1, 2013.
NSTAR Electric's remaining balance primarily includes other costs related to purchase power contract divestitures and certain costs
related to NSTAR Electric’s former generation business that are recovered with a return through the transition charge and amounted to
$186.1 million and $259.8 million as of December 31, 2012 and 2011, respectively. These cost recoveries primarily occur through
September 2016 for NSTAR Electric and are subject to adjustment by the DPU.
Contractual Obligations: Under the terms of contracts with CYAPC, YAEC and MYAPC, CL&P, NSTAR Electric, PSNH and WMECO
are responsible for their proportionate share of the remaining costs of the nuclear facilities, including decommissioning. A portion of
these amounts was recorded as contractual obligations regulatory assets. These obligations for CL&P are earning a return and are
being recovered through the CTA. Amounts for NSTAR Electric are being recovered without a return through the transition charge and
are anticipated to be recovered by 2015. Amounts for WMECO are being recovered without a return and are anticipated to be
recovered by 2013, the scheduled completion date of stranded cost recovery. Amounts for PSNH were fully recovered by 2006. As a
result of the April 10, 2012 merger with NSTAR and consolidation of CYAPC and YAEC, NU's regulatory asset balance also includes
the regulatory assets of CYAPC and YAEC, which amounted to $214 million as of December 31, 2012. At the NU consolidated level,
intercompany transactions between CL&P, NSTAR Electric, PSNH and WMECO and the CYAPC and YAEC companies are eliminated
in consolidation.
Power Contracts Buy Out Agreements: NSTAR Electric's balance represents the recorded contract termination liability related to
certain purchase power contract buy out agreements that NSTAR Electric executed in 2004 and their future recovery through NSTAR
Electric’s transition charge. NSTAR Electric does not earn a return on this regulatory asset. The contracts’ termination payments will
occur over time and will be collected from customers through NSTAR Electric’s transition charge over the same time period. The cost
recovery period of these terminated contracts is through September 2016. PSNH's balance represents payments associated with the
termination of various power purchase contracts that were recorded as regulatory assets and are amortized over the remaining life of
the contracts.
Regulatory Tracker Deferrals: Regulatory tracker deferrals are approved rate mechanisms that allow utilities to recover costs in specific
business segments through reconcilable tracking mechanisms that are reviewed at least annually by the applicable regulatory
commission. The reconciliation process produces deferrals for future recovery or refund, which can be either under or over-collections
to be included in future customer rates each year. Regulatory tracker deferrals are recorded as regulatory assets if costs are in excess
of collections from customers and are recorded as regulatory liabilities if collections from customers are in excess of costs. All material