Eversource 2015 Annual Report Download - page 52

40
New Hampshire: On July 9, 2015, the Governor of New Hampshire signed “An Act Relative to Electric Rate Reduction Financing” (the Act)
permitting the NHPUC to issue finance orders that authorize the issuance of rate reduction bonds in accordance with the PSNH divestiture agreement
and the expected NHPUC divestiture order, regarding cost recovery of the Clean Air project and divestiture of PSNH’s remaining generation plants.
Connecticut: In 2015, the state of Connecticut enacted several changes to its corporate tax laws. Among the changes, commencing as of January 1,
2015, is the reduction in the amount of tax credits that corporations can utilize against its tax liability in a year and a continuation of the corporate
income tax surcharge through 2018, which effectively increases the state corporate tax rate to 9 percent for the years 2016 and 2017 and 8.25 percent
for 2018. Also, effective January 1, 2016, all Connecticut companies have a mandatory unitary tax filing requirement. We continue to review the tax
law changes and their impact on the effective tax rates of Eversource and CL&P.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and, at times, difficult,
subjective or complex judgments. Changes in these estimates, assumptions and judgments, in and of themselves, could materially impact our
financial position, results of operations or cash flows. Our management discusses with the Audit Committee of our Board of Trustees significant
matters relating to critical accounting policies. Our critical accounting policies are discussed below. See the combined notes to our financial
statements for further information concerning the accounting policies, estimates and assumptions used in the preparation of our financial statements.
Regulatory Accounting: Our Regulated companies are subject to rate-regulation that is based on cost recovery and meets the criteria for application
of accounting guidance for rate-regulated operations, which considers the effect of regulation on the timing of the recognition of certain revenues and
expenses. The Regulated companies’ financial statements reflect the effects of the rate-making process.
The application of accounting guidance for rate-regulated enterprises results in recording regulatory assets and liabilities. Regulatory assets represent
the deferral of incurred costs that are probable of future recovery in customer rates. Regulatory assets are amortized as the incurred costs are
recovered through customer rates. In some cases, we record regulatory assets before approval for recovery has been received from the applicable
regulatory commission. We must use judgment to conclude that costs deferred as regulatory assets are probable of future recovery. We base our
conclusion on certain factors, including, but not limited to, regulatory precedent. Regulatory liabilities represent revenues received from customers
to fund expected costs that have not yet been incurred or probable future refunds to customers.
We use our best judgment when recording regulatory assets and liabilities; however, regulatory commissions can reach different conclusions about
the recovery of costs, and those conclusions could have a material impact on our financial statements. We believe it is probable that each of the
Regulated companies will recover the regulatory assets that have been recorded. If we determine that we can no longer apply the accounting
guidance applicable to rate-regulated enterprises to our operations, or that we cannot conclude it is probable that costs will be recovered from
customers in future rates, the costs would be charged to earnings in the period in which the determination is made.
Unbilled Revenues: The determination of retail energy sales to residential, commercial and industrial customers is based on the reading of meters,
which occurs regularly throughout the month. Billed revenues are based on these meter readings, and the majority of our recorded annual revenues is
based on actual billings. Because customers are billed throughout the month based on pre-determined cycles rather than on a calendar month basis,
an estimate of electricity or natural gas delivered to customers for which the customers have not yet been billed is calculated as of the balance sheet
date.
Unbilled revenues represent an estimate of electricity or natural gas delivered to customers but not yet billed. Unbilled revenues are included in
Operating Revenues on the statement of income and are assets on the balance sheet that are reclassified to Accounts Receivable in the following
month as customers are billed. Such estimates are subject to adjustment when actual meter readings become available or when there is a change in
our estimates.
The Regulated companies estimate unbilled sales monthly using the daily load cycle method. The daily load cycle method allocates billed sales to
the current calendar month based on the daily load for each billing cycle. The billed sales are subtracted from total month load, net of delivery
losses, to estimate unbilled sales. Unbilled revenues are estimated by first allocating unbilled sales to the respective customer classes, then applying
an estimated rate by customer class to those sales. The estimate of unbilled revenues is sensitive to factors such as energy demand, weather and
changes in the composition of customer classes that can significantly impact the amount of revenues recorded at NSTAR Electric and PSNH because
they do not have a revenue decoupling mechanism. CL&P and WMECO record a regulatory deferral to reflect the actual allowed amount of revenue
for decoupling, and unbilled revenues estimation is not critical to CL&P and WMECO.
Pension and PBOP: We sponsor Pension and PBOP Plans to provide retirement benefits to our employees. Effective January 1, 2015, the two
Pension Plans were merged into one Pension Plan, sponsored by Eversource Service, and our PBOP Plans were merged into one PBOP Plan,
sponsored by Eversource Service. For each of these plans, several significant assumptions are used to determine the projected benefit obligation,
funded status and net periodic benefit cost. These assumptions include the expected long-term rate of return on plan assets, discount rate,
compensation/progression rate, mortality assumptions, and health care cost trend rates. We evaluate these assumptions at least annually and adjust
them as necessary. Changes in these assumptions could have a material impact on our financial position, results of operations or cash flows.
Pre-tax net periodic benefit expense for the Pension Plan (excluding the SERP Plans) was $124.2 million, $118.4 million and $236.3 million for the
years ended December 31, 2015, 2014 and 2013, respectively. The pre-tax net periodic benefit expense for the PBOP Plan was $2.4 million, $8.1
million and $32.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.