INCOME TAXES

The components of income tax expense are as follows:



Eversource (Millions of Dollars)	For the Years Ended December 31,
Eversource (Millions of Dollars)	2016			2015			2014
Current Income Taxes:
Federal	$	38.9		$	6.2		$	4.4
State	53.0			45.7			24.5
Total Current	91.9			51.9			28.9
Deferred Income Taxes, Net:
Federal	427.9			436.1			406.8
State	38.6			55.6			36.5
Total Deferred	466.5			491.7			443.3
Investment Tax Credits, Net	(3.4		)	(3.6		)	(3.9		)
Income Tax Expense	$	555.0		$	540.0		$	468.3



	For the Years Ended December 31,
	2016												2015												2014
(Millions of Dollars)	CL&P			NSTAR Electric			PSNH			WMECO			CL&P			NSTAR Electric			PSNH			WMECO			CL&P			NSTAR Electric			PSNH			WMECO
Current Income Taxes:
Federal	$	27.3		$	73.9		$	(13.7	)	$	12.5		$	26.9		$	36.3		$	(16.7	)	$	(3.5	)	$	(0.2	)	$	75.0		$	(22.6	)	$	1.9
State	13.3			35.0			8.8			4.5			15.8			19.8			6.0			1.6			4.3			20.2			(0.1		)	1.8
Total Current	40.6			108.9			(4.9		)	17.0			42.7			56.1			(10.7		)	(1.9		)	4.1			95.2			(22.7		)	3.7
Deferred Income Taxes, Net:
Federal	157.6			78.3			79.5			18.3			135.8			147.5			74.5			33.4			138.0			88.0			79.6			28.1
State	11.3			1.9			7.8			3.2			0.2			25.7			9.3			6.0			(7.1		)	20.1			15.2			6.0
Total Deferred	168.9			80.2			87.3			21.5			136.0			173.2			83.8			39.4			130.9			108.1			94.8			34.1
Investment Tax Credits, Net	(1.2		)	(1.3		)	—			(0.5		)	(1.3		)	(1.3		)	—			(0.5		)	(1.5		)	(1.3		)	—			(0.5		)
Income Tax Expense	$	208.3		$	187.8		$	82.4		$	38.0		$	177.4		$	228.0		$	73.1		$	37.0		$	133.5		$	202.0		$	72.1		$	37.3

A reconciliation between income tax expense and the expected tax expense at the statutory rate is as follows:



Eversource (Millions of Dollars, except percentages)	For the Years Ended December 31,
Eversource (Millions of Dollars, except percentages)	2016			2015			2014
Income Before Income Tax Expense	$	1,504.8		$	1,425.9		$	1,295.4

Statutory Federal Income Tax Expense at 35%	526.7			499.1			453.4
Tax Effect of Differences:
Depreciation	(3.4		)	(4.6		)	(5.6		)
Investment Tax Credit Amortization	(3.4		)	(3.6		)	(3.9		)
Other Federal Tax Credits	(3.5		)	(3.8		)	(3.5		)
State Income Taxes, Net of Federal Impact	56.2			61.1			42.5
Dividends on ESOP	(8.4		)	(8.1		)	(8.0		)
Tax Asset Valuation Allowance/Reserve Adjustments	3.3			4.7			(2.9		)
Excess Stock Benefit ⁽¹⁾	(19.1		)	—			—
Other, Net	6.6			(4.8		)	(3.7		)
Income Tax Expense	$	555.0		$	540.0		$	468.3
Effective Tax Rate	36.9		%	37.9		%	36.2		%



	For the Years Ended December 31,
	2016												2015												2014
(Millions of Dollars, except percentages)	CL&P			NSTAR Electric			PSNH			WMECO			CL&P			NSTAR Electric			PSNH			WMECO			CL&P			NSTAR Electric			PSNH			WMECO
Income Before Income Tax Expense	$	542.6		$	480.5		$	214.3		$	96.1		$	476.8		$	572.6		$	187.5		$	93.5		$	421.2		$	505.1		$	186.1		$	95.1

Statutory Federal Income Tax Expense at 35%	189.9			168.2			75.0			33.6			166.9			200.4			65.6			32.7			147.4			176.8			65.1			33.3
Tax Effect of Differences:
Depreciation	1.6			(3.4		)	1.0			0.3			(1.7		)	(1.4		)	0.5			(0.3		)	(3.6		)	(1.3		)	0.3			(0.2		)
Investment Tax Credit Amortization	(1.2		)	(1.3		)	—			(0.5		)	(1.3		)	(1.3		)	—			(0.5		)	(1.5		)	(1.3		)	—			(0.5		)
Other Federal Tax Credits	—			—			(3.5		)	—			—			—			(3.8		)	—			—			—			(3.5		)	—
State Income Taxes, Net of Federal Impact	14.5			24.0			10.8			5.0			9.2			29.6			9.9			4.9			4.4			26.2			9.8			5.0
Tax Asset Valuation Allowance/Reserve Adjustments	1.5			—			—			—			1.2			—			—			—			(6.3		)	—			—			—
Excess Stock Benefit ⁽¹⁾	(0.9		)	(1.0		)	(0.4		)	(0.2		)	—			—			—			—			—			—			—			—
Other, Net	2.9			1.3			(0.5		)	(0.2		)	3.1			0.7			0.9			0.2			(6.9		)	1.6			0.4			(0.3		)
Income Tax Expense	$	208.3		$	187.8		$	82.4		$	38.0		$	177.4		$	228.0		$	73.1		$	37.0		$	133.5		$	202.0		$	72.1		$	37.3
Effective Tax Rate	38.4		%	39.1		%	38.4		%	39.6		%	37.2		%	39.8		%	39.0		%	39.6		%	31.7		%	40.0		%	38.7		%	39.2		%

⁽¹⁾

In 2016, the Company adopted new accounting guidance, which prospectively changed the accounting for excess tax benefits associated with the distribution of stock compensation awards, previously recognized in Capital Surplus, Paid In within Common Shareholders' Equity on the balance sheet, to recognition within income tax expense in the income statement. See Note 1C, "Summary of Significant Accounting Policies - Accounting Standards," for further information.

Eversource, CL&P, NSTAR Electric, PSNH and WMECO file a consolidated federal income tax return and unitary, combined and separate state income tax returns. These entities are also parties to a tax allocation agreement under which taxable subsidiaries do not pay any more taxes than they would have otherwise paid had they filed a separate company tax return, and subsidiaries generating tax losses, if any, are paid for their losses when utilized.

Deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The tax effect of temporary differences is accounted for in accordance with the rate-making treatment of the applicable regulatory commissions and relevant accounting authoritative literature. The tax effects of temporary differences that give rise to the net accumulated deferred income tax obligations are as follows:



Eversource (Millions of Dollars)	As of December 31,
Eversource (Millions of Dollars)	2016		2015
Deferred Tax Assets:
Employee Benefits	$	640.6	$	637.5
Derivative Liabilities	192.6		172.7
Regulatory Deferrals - Liabilities	290.9		243.5
Allowance for Uncollectible Accounts	76.6		60.5
Tax Effect - Tax Regulatory Liabilities	11.8		9.7
Federal Net Operating Loss Carryforwards	—		5.4
Purchase Accounting Adjustment	112.2		119.3
Other	170.5		197.1
Total Deferred Tax Assets	1,495.2		1,445.7
Less: Valuation Allowance	5.1		3.7
Net Deferred Tax Assets	$	1,490.1	$	1,442.0
Deferred Tax Liabilities:
Accelerated Depreciation and Other Plant-Related Differences	$	5,001.2	$	4,602.6
Property Tax Accruals	81.9		76.7
Regulatory Amounts:
Regulatory Deferrals - Assets	1,321.8		1,289.1
Tax Effect - Tax Regulatory Assets	252.6		249.3
Goodwill Regulatory Asset - 1999 Merger	186.7		194.9
Derivative Assets	29.5		17.7
Other	223.6		159.4
Total Deferred Tax Liabilities	$	7,097.3	$	6,589.7



	As of December 31,
	2016								2015
(Millions of Dollars)	CL&P		NSTAR Electric		PSNH		WMECO		CL&P		NSTAR Electric		PSNH		WMECO
Deferred Tax Assets:
Employee Benefits	$	138.8	$	58.4	$	46.5	$	11.1	$	126.1	$	91.3	$	37.1	$	10.0
Derivative Liabilities	191.5		1.1		—		—		165.7		0.6		—		—
Regulatory Deferrals - Liabilities	6.3		186.4		36.7		8.5		36.0		109.4		42.1		6.1
Allowance for Uncollectible Accounts	33.0		20.0		4.1		5.7		30.4		8.5		3.6		4.5
Tax Effect - Tax Regulatory Liabilities	4.9		1.1		2.6		2.2		3.1		1.5		2.3		2.4
Federal Net Operating Loss Carryforwards	—		—		—		—		—		—		2.4		0.4
Other	59.4		2.2		56.4		4.4		55.5		3.4		61.1		5.0
Total Deferred Tax Assets	433.9		269.2		146.3		31.9		416.8		214.7		148.6		28.4
Less: Valuation Allowance	4.5		—		—		—		3.1		—		—		—
Net Deferred Tax Assets	$	429.4	$	269.2	$	146.3	$	31.9	$	413.7	$	214.7	$	148.6	$	28.4
Deferred Tax Liabilities:
Accelerated Depreciation and Other Plant-Related Differences	$	1,700.3	$	1,463.5	$	726.3	$	438.4	$	1,545.6	$	1,387.1	$	655.3	$	416.1
Property Tax Accruals	29.7		25.6		8.0		11.2		27.3		22.8		7.3		10.6
Regulatory Amounts:
Regulatory Deferrals - Assets	473.4		322.3		142.1		59.4		456.8		339.7		137.9		60.5
Tax Effect - Tax Regulatory Assets	170.4		36.1		12.2		8.7		168.7		36.0		15.4		9.0
Goodwill Regulatory Asset - 1999 Merger	—		160.3		—		—		—		167.4		—		—
Derivative Assets	27.0		—		—		—		17.7		—		—		—
Other	16.3		97.7		43.1		5.0		18.5		22.0		38.6		2.7
Total Deferred Tax Liabilities	$	2,417.1	$	2,105.5	$	931.7	$	522.7	$	2,234.6	$	1,975.0	$	854.5	$	498.9

Carryforwards: The following tables provide the amounts and expiration dates of state tax credit and loss carryforwards and federal tax credit and net operating loss carryforwards:



	As of December 31, 2016
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		WMECO		Expiration Range
Federal Tax Credit	$	8.6	$	—	$	—	$	—	$	—	—
Federal Charitable Contribution	27.8		—		—		—		—		2016 - 2019
State Tax Credit	111.1		80.5		—		—		—		2016 - 2021
State Charitable Contribution	36.5		—		—		—		—		2016 - 2020



	As of December 31, 2015
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		WMECO		Expiration Range
Federal Net Operating Loss	$	15.5	$	—	$	—	$	7.0	$	1.0	2032
Federal Tax Credit	26.1		0.1		0.2		15.0		—		2031 - 2035
Federal Charitable Contribution	14.9		—		—		—		—		2016 - 2018
State Tax Credit	101.2		73.8		—		—		—		2015 - 2020
State Charitable Contribution	3.0		—		—		—		—		2015 - 2019

In 2016, the Company increased its valuation allowance reserve for state credits by $1.3 million ($1.3 million for CL&P), net of tax, to reflect an update for expired tax credits. In 2015, the Company decreased its valuation allowance reserve for state credits and state loss carryforwards by $1.3 million ($0.9 million for CL&P), net of tax, to reflect an update for expired state tax credits and loss carryforwards.

For 2016 and 2015, state credit and state loss carryforwards have been partially reserved by a valuation allowance of $4.5 million and $3.1 million (net of tax), respectively.

Unrecognized Tax Benefits: A reconciliation of the activity in unrecognized tax benefits, all of which would impact the effective tax rate if recognized, is as follows:



(Millions of Dollars)	Eversource			CL&P
Balance as of January 1, 2014	$	38.2		$	11.4
Gross Increases - Current Year	9.3			2.7
Gross Increases - Prior Year	0.3			0.2
Lapse of Statute of Limitations	(1.6		)	—
Balance as of December 31, 2014	46.2			14.3
Gross Increases - Current Year	9.9			2.6
Gross Increases - Prior Year	0.1			—
Lapse of Statute of Limitations	(8.2		)	(3.4		)
Balance as of December 31, 2015	48.0			13.5
Gross Increases - Current Year	9.9			3.9
Gross Increases - Prior Year	0.2			0.2
Lapse of Statute of Limitations	(9.7		)	(2.3		)
Balance as of December 31, 2016	$	48.4		$	15.3

Interest and Penalties: Interest on uncertain tax positions is recorded and generally classified as a component of Other Interest Expense on the statements of income. However, when resolution of uncertainties results in the Company receiving interest income, any related interest benefit is recorded in Other Income, Net on the statements of income. No penalties have been recorded. The amount of interest expense/(income) on uncertain tax positions recognized and the related accrued interest payable/(receivable) are as follows:



	Other Interest Expense/(Income)							Accrued Interest Expense
	For the Years Ended December 31,							As of December 31,
(Millions of Dollars)	2016			2015		2014		2016		2015
Eversource	$	(0.2	)	$	0.1	$	0.4	$	1.8	$	2.0

Tax Positions: During 2016 and 2015, Eversource did not resolve any of its uncertain tax positions.

Open Tax Years: The following table summarizes Eversource, CL&P, NSTAR Electric, PSNH and WMECO's tax years that remain subject to examination by major tax jurisdictions as of December 31, 2016:



Description	Tax Years
Federal	2016
Connecticut	2013 - 2016
Massachusetts	2013 - 2016
New Hampshire	2014 - 2016

Eversource estimates that during the next twelve months, differences of a non-timing nature could be resolved, resulting in a zero to $1.6 million decrease in unrecognized tax benefits by Eversource. These estimated changes are not expected to have a material impact on the earnings of Eversource. Other companies' impacts are not expected to be material.

2015 Federal Legislation: On December 18, 2015, the "Protecting Americans from Tax Hikes" Act became law, which extended the accelerated deduction of depreciation to businesses from 2015 through 2019. This extended stimulus provided Eversource with cash flow benefits in 2016 of approximately $275 million (including approximately $105 million for CL&P, $72 million for NSTAR Electric, $46 million for PSNH, and $25 million for WMECO) due to a refund of taxes paid in 2015 and lower tax payments in 2016 of approximately $300 million.

2015 Connecticut Legislation: 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.