Eversource 2014 Annual Report Download - page 55

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Sensitivity Analysis:The following represents the hypothetical increase to the Pension Plans'(excluding SERP) and PBOP Plans'reported annual
cost as a result of a change in the following assumptions by 50 basis points:
Increase in Pension Plan Cost Increase in PBOP Plan Cost
 As of December 31,
Assumption Change 2014 2013 2014 2013
NU
Lower expected long-term rate of return $19.3 $17.2 $4.0 $3.4
Lower discount rate $19.1 $22.3 $2.2 $6.8
Higher compensation rate $10.2 $12.4 N/A N/A
Health Care Cost: As of December 31, 2014, the health care cost trend rate assumption used to determine the PBOP Plans'year end funded status
was 6.5 percent, subsequently decreasing to an ultimate rate of 4.5 percent in 2023. The effect of a hypothetical increase in the health care cost trend
rate by one percentage point would be an increase to the service and interest cost components of PBOP Plan expense by $5.3 million in 2014, and a
$111.2 million increase to the PBOP obligation.
 We have recorded approximately $3.5 billion of goodwill associated with previous mergers and acquisitions. We have identified our
reporting units for purposes of allocating and testing goodwill as Electric Distribution, Electric Transmission and Natural Gas Distribution. These
reporting units are consistent with our operating segments underlying our reportable segments. Electric Distribution and Electric Transmission
reporting units include carrying values for the respective components of CL&P, NSTAR Electric, PSNH and WMECO. The Natural Gas
Distribution reporting unit includes the carrying values of NSTAR Gas and Yankee Gas. As of December 31, 2014, goodwill was allocated to the
reporting units as follows: $2.5 billion to Electric Distribution, $0.6 billion to Electric Transmission, and $0.4 billion to Natural Gas Distribution.
We are required to test goodwill balances for impairment at least annually by considering the fair values of the reporting units, which requires us to
use estimates and judgments. We have selected October 1st of each year as the annual goodwill impairment testing date. Goodwill impairment is
deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value and if the implied fair value of goodwill based on the
estimated fair values of the reporting units'assets and liabilities is less than the carrying amount of the goodwill. If goodwill were deemed to be
impaired, it would be written down in the current period to the extent of the impairment.
We performed an impairment test of goodwill as of October 1, 2014 for the Electric Distribution, Electric Transmission and Natural Gas Distribution
reporting units. This evaluation required the test of several factors that impact the fair value of the reporting units, including conditions and
assumptions that affect the future cash flows of the reporting units. The 2014 goodwill impairment test resulted in a conclusion that goodwill is not
impaired and none of the reporting units is at risk of a goodwill impairment.
 Income tax expense is estimated annually for each of the jurisdictions in which we operate. This process involves estimating current
and deferred income tax expense or benefit and the impact of temporary differences resulting from differing treatment of items for financial reporting
and income tax return reporting purposes. Such differences are the result of timing of the deduction for expenses, as well as any impact of permanent
differences, non-tax deductible expenses, or other items, including items that directly impact our tax return as a result of a regulatory activity (flow-
through items). The temporary differences and flow-through items result in deferred tax assets and liabilities that are included in the balance sheets.
The income tax estimation process impacts all of our segments. We record income tax expense quarterly using an estimated annualized effective tax
rate.
We also account for uncertainty in income taxes, which applies to all income tax positions previously filed in a tax return and income tax positions
expected to be taken in a future tax return that have been reflected on our balance sheets. The determination of whether a tax position meets the
recognition threshold under applicable accounting guidance is based on facts and circumstances available to us. Once a tax position meets the
recognition threshold, the tax benefit is measured using a cumulative probability assessment. Assigning probabilities in measuring a recognized tax
position and evaluating new information or events in subsequent periods requires significant judgment and could change previous conclusions used
to measure the tax position estimate. New information or events may include tax examinations or appeals (including information gained from those
examinations), developments in case law, settlements of tax positions, changes in tax law and regulations, rulings by taxing authorities and statute of
limitation expirations. Such information or events may have a significant impact on our financial position, results of operations and cash flows.
 Environmental reserves are accrued when assessments indicate it is probable that a liability has been
incurred and an amount can be reasonably estimated. Adjustments made to estimates of environmental liabilities could have a significant impact on
earnings. We estimate these liabilities based on findings through various phases of the assessment, considering the most likely action plan from a
variety of available remediation options (ranging from no action required to full site remediation and long-term monitoring), current site information
from our site assessments, remediation estimates from third party engineering and remediation contractors, and our prior experience in remediating
contaminated sites. If a most likely action plan cannot yet be determined, we estimate the liability based on the low end of a range of possible action
plans. Our estimates incorporate currently enacted state and federal environmental laws and regulations and data released by the EPA and other
organizations. The estimates associated with each possible action plan are judgmental in nature partly because there are usually several different
remediation options from which to choose. Our estimates are subject to revision in future periods based on actual costs or new information from
other sources, including the level of contamination at the site, the extent of our responsibility or the extent of remediation required, recently enacted
laws and regulations or a change in cost estimates due to certain economic factors.
  We follow fair value measurement guidance that defines fair value as the price that would be received for the sale of an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We have applied this
guidance to our Company's derivative contracts that are not elected or designated as "normal purchases or normal sales" (normal), to marketable
securities held in trusts, our valuations of investments in our Pension and PBOP Plans, and nonrecurring fair value measurements of nonfinancial
assets such as goodwill and AROs.