REGULATORY ACCOUNTING

Eversource's utility 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 rates charged to the customers of Eversource's regulated companies are designed to collect each company's costs to provide service, including a return on investment.

Management believes it is probable that each of the regulated companies will recover its respective investments in long-lived assets, including regulatory assets. If management were to determine that it could no longer apply the accounting guidance applicable to rate-regulated enterprises to any of the regulated companies' operations, or if management could not conclude it is probable that costs would be recovered from customers in future rates, the costs would be charged to net income in the period in which the determination is made.

Regulatory Assets: The components of regulatory assets were as follows:



Eversource	As of March 31, 2018		As of December 31, 2017
(Millions of Dollars)	As of March 31, 2018		As of December 31, 2017
Benefit Costs	$	2,033.5	$	2,068.8
Income Taxes, Net	727.1		768.9
Deferred Costs from Generation Asset Sale	539.6		516.1
Storm Restoration Costs	544.4		404.8
Regulatory Tracker Mechanisms	461.1		509.9
Derivative Liabilities	388.0		367.2
Goodwill-related	361.0		365.2
Asset Retirement Obligations	88.9		101.0
Other Regulatory Assets	195.1		137.4
Total Regulatory Assets	5,338.7		5,239.3
Less: Current Portion	683.2		741.9
Total Long-Term Regulatory Assets	$	4,655.5	$	4,497.4



	As of March 31, 2018						As of December 31, 2017
(Millions of Dollars)	CL&P		NSTAR Electric		PSNH		CL&P		NSTAR Electric		PSNH
Benefit Costs	$	460.6	$	549.9	$	208.6	$	469.2	$	560.7	$	212.3
Income Taxes, Net	451.8		115.6		20.5		453.8		113.2		21.7
Deferred Costs from Generation Asset Sale	—		—		539.6		—		—		516.1
Storm Restoration Costs	254.4		246.4		43.6		216.7		146.6		41.5
Regulatory Tracker Mechanisms	118.0		221.4		107.7		85.3		273.0		116.4
Derivative Liabilities	386.5		—		—		362.3		—		—
Goodwill-related	—		310.0		—		—		313.6		—
Asset Retirement Obligations	30.8		39.8		3.4		30.3		39.0		17.0
Other Regulatory Assets	27.2		81.2		15.3		27.6		78.4		15.8
Total Regulatory Assets	1,729.3		1,564.3		938.7		1,645.2		1,524.5		940.8
Less: Current Portion	229.7		277.0		122.5		200.3		333.9		130.1
Total Long-Term Regulatory Assets	$	1,499.6	$	1,287.3	$	816.2	$	1,444.9	$	1,190.6	$	810.7

Regulatory Costs in Long-Term Assets: Eversource's regulated companies had $123.3 million (including $21.4 million for CL&P, $43.6 million for NSTAR Electric and $38.7 million for PSNH) and $105.8 million (including $18.2 million for CL&P, $42.7 million for NSTAR Electric and $27.2 million for PSNH) of additional regulatory costs as of March 31, 2018 and December 31, 2017, respectively, that were included in long-term assets on the balance sheets. These amounts represent incurred costs for which recovery has not yet been specifically approved by the applicable regulatory agency. However, based on regulatory policies or past precedent on similar costs, management believes it is probable that these costs will ultimately be approved and recovered from customers in rates.

Storms: In March 2018, several significant storms caused extensive damage to our electric distribution systems and significant customer outages across all three states. A storm must meet certain criteria to qualify as a major storm with the criteria specific to each state jurisdiction and utility company. Once a storm qualifies as a major storm, all qualifying expenses incurred during storm restoration efforts are deferred and recovered from customers. Costs for storms that do not meet this criteria are not separately recoverable from customers and are expensed as incurred. These March 2018 storms resulted in deferred storm restoration costs of approximately $156 million ($52 million for CL&P, $100 million for NSTAR Electric, and $4 million for PSNH). Management believes the storm restoration costs were prudent and meet the criteria for specific cost recovery in Connecticut, Massachusetts and New Hampshire, and that recovery from customers is probable through the applicable regulatory recovery process.

Regulatory Liabilities: The components of regulatory liabilities were as follows:



Eversource	As of March 31, 2018		As of December 31, 2017
(Millions of Dollars)	As of March 31, 2018		As of December 31, 2017
Excess ADIT due to Tax Cuts and Jobs Act	$	2,895.9	$	2,882.0
Cost of Removal	522.8		502.1
Benefit Costs	128.0		132.3
Regulatory Tracker Mechanisms	216.8		136.7
AFUDC - Transmission	67.6		67.1
Revenue Subject to Refund ⁽¹⁾	26.0		—
Other Regulatory Liabilities	52.6		45.2
Total Regulatory Liabilities	3,909.7		3,765.4
Less: Current Portion	206.0		128.1
Total Long-Term Regulatory Liabilities	$	3,703.7	$	3,637.3



	As of March 31, 2018						As of December 31, 2017
(Millions of Dollars)	CL&P		NSTAR Electric		PSNH		CL&P		NSTAR Electric		PSNH
Excess ADIT due to Tax Cuts and Jobs Act	$	1,031.6	$	1,091.1	$	405.1	$	1,031.6	$	1,087.9	$	405.1
Cost of Removal	34.4		298.5		39.0		23.2		293.8		37.9
Benefit Costs	—		109.0		—		—		112.6		—
Regulatory Tracker Mechanisms	55.9		89.2		15.1		34.6		77.8		5.0
AFUDC - Transmission	48.5		19.1		—		48.8		18.3		—
Revenue Subject to Refund ⁽¹⁾	12.5		3.7		3.1		—		—		—
Other Regulatory Liabilities	20.4		8.7		2.9		12.9		3.7		2.7
Total Regulatory Liabilities	1,203.3		1,619.3		465.2		1,151.1		1,594.1		450.7
Less: Current Portion	66.9		89.2		15.6		39.0		79.6		6.3
Total Long-Term Regulatory Liabilities	$	1,136.4	$	1,530.1	$	449.6	$	1,112.1	$	1,514.5	$	444.4

(1)

The regulatory liability balance represents a reserve established to reflect the difference between the 35 percent federal corporate income tax rate included in rates charged to customers and the 21 percent federal income tax rate, effective January 1, 2018 as a result of the Tax Cuts and Jobs Act. Effective February 1, 2018, NSTAR Electric's base rates charged to customers have been adjusted to reflect the new federal income tax rate.