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)	2018			2017			2016
Current Income Taxes:
Federal	$	106.5		$	58.9		$	38.9
State	10.6			31.6			53.0
Total Current	117.1			90.5			91.9
Deferred Income Taxes, Net:
Federal	122.6			433.0			427.9
State	52.2			58.6			38.6
Total Deferred	174.8			491.6			466.5
Investment Tax Credits, Net	(2.9		)	(3.2		)	(3.4		)
Income Tax Expense	$	289.0		$	578.9		$	555.0



	For the Years Ended December 31,
	2018									2017								2016
(Millions of Dollars)	CL&P			NSTAR Electric			PSNH			CL&P			NSTAR Electric			PSNH		CL&P			NSTAR Electric			PSNH
Current Income Taxes:
Federal	$	54.2		$	79.3		$	12.2		$	50.9		$	107.8		$	18.6	$	27.3		$	86.4		$	(13.7	)
State	20.9			30.0			(0.5		)	17.4			25.6			6.2		13.3			39.5			8.8
Total Current	75.1			109.3			11.7			68.3			133.4			24.8		40.6			125.9			(4.9		)
Deferred Income Taxes, Net:
Federal	48.5			27.9			15.4			123.9			88.1			52.7		157.6			96.6			79.5
State	6.4			13.5			20.5			(4.6		)	22.4			11.2		11.3			5.1			7.8
Total Deferred	54.9			41.4			35.9			119.3			110.5			63.9		168.9			101.7			87.3
Investment Tax Credits, Net	(0.9		)	(1.8		)	—			(1.0		)	(1.8		)	—		(1.2		)	(1.8		)	—
Income Tax Expense	$	129.1		$	148.9		$	47.6		$	186.6		$	242.1		$	88.7	$	208.3		$	225.8		$	82.4

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)	2018			2017			2016
Income Before Income Tax Expense	$	1,329.5		$	1,574.4		$	1,504.8

Statutory Federal Income Tax Expense at 21% in 2018 and 35% in 2017 and 2016	279.2			551.0			526.7
Tax Effect of Differences:
Depreciation	(30.8		)	(10.8		)	(3.4		)
Investment Tax Credit Amortization	(2.9		)	(3.2		)	(3.4		)
Other Federal Tax Credits	—			—			(3.5		)
State Income Taxes, Net of Federal Impact	44.4			47.7			56.2
Dividends on ESOP	(5.1		)	(8.4		)	(8.4		)
Tax Asset Valuation Allowance/Reserve Adjustments	5.2			7.0			3.3
Excess Stock Benefit	(1.5		)	(2.9		)	(19.1		)
Other, Net	0.5			(1.5		)	6.6
Income Tax Expense	$	289.0		$	578.9		$	555.0
Effective Tax Rate	21.7		%	36.8		%	36.9		%



	For the Years Ended December 31,
	2018									2017									2016
(Millions of Dollars, except percentages)	CL&P			NSTAR Electric			PSNH			CL&P			NSTAR Electric			PSNH			CL&P			NSTAR Electric			PSNH
Income Before Income Tax Expense	$	506.8		$	532.0		$	163.5		$	563.4		$	616.8		$	224.7		$	542.6		$	576.6		$	214.3

Statutory Federal Income Tax Expense at 21% in 2018 and 35% in 2017 and 2016	106.4			111.7			34.3			197.2			215.9			78.6			189.9			201.8			75.0
Tax Effect of Differences:
Depreciation	(1.2		)	(2.8		)	0.1			(5.2		)	(3.0		)	1.1			1.6			(3.1		)	1.0
Investment Tax Credit Amortization	(0.9		)	(1.8		)	—			(1.0		)	(1.8		)	—			(1.2		)	(1.8		)	—
Other Federal Tax Credits	—			—			—			—			—			—			—			—			(3.5		)
State Income Taxes, Net of Federal Impact	14.5			33.2			15.8			4.5			31.2			11.3			14.5			29.0			10.8
Tax Asset Valuation Allowance/Reserve Adjustments	7.1			1.2			—			(9.5		)	—			—			1.5			—			—
Excess Stock Benefit	(0.1		)	(0.1		)	(0.1		)	(0.7		)	(0.7		)	(0.3		)	(0.9		)	(1.2		)	(0.4		)
Other, Net	3.3			7.5			(2.5		)	1.3			0.5			(2.0		)	2.9			1.1			(0.5		)
Income Tax Expense	$	129.1		$	148.9		$	47.6		$	186.6		$	242.1		$	88.7		$	208.3		$	225.8		$	82.4
Effective Tax Rate	25.5		%	28.0		%	29.1		%	33.1		%	39.2		%	39.5		%	38.4		%	39.2		%	38.4		%

Eversource, CL&P, NSTAR Electric and PSNH 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:



	As of December 31,
	2018								2017
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		Eversource		CL&P		NSTAR Electric		PSNH
Deferred Tax Assets:
Employee Benefits	$	388.2	$	94.5	$	35.0	$	31.1	$	442.1	$	112.3	$	34.0	$	38.0
Derivative Liabilities	111.4		111.4		—		—		111.8		110.5		0.3		—
Regulatory Deferrals - Liabilities	299.3		38.6		195.5		16.1		205.6		12.0		139.8		17.9
Allowance for Uncollectible Accounts	54.0		23.1		17.8		3.0		50.1		20.6		17.3		2.9
Tax Effect - Tax Regulatory Liabilities	830.3		336.8		288.9		111.7		832.6		337.2		281.2		116.8
Net Operating Loss Carryforwards	28.5		—		—		0.6		47.8		—		—		—
Purchase Accounting Adjustment	64.2		—		—		—		69.9		—		—		—
Other	166.2		81.1		15.6		33.4		149.5		70.7		4.9		49.6
Total Deferred Tax Assets	1,942.1		685.5		552.8		195.9		1,909.4		663.3		477.5		225.2
Less: Valuation Allowance	19.5		10.7		—		—		14.6		6.3		—		—
Net Deferred Tax Assets	$	1,922.6	$	674.8	$	552.8	$	195.9	$	1,894.8	$	657.0	$	477.5	$	225.2
Deferred Tax Liabilities:
Accelerated Depreciation and Other Plant-Related Differences	$	3,724.2	$	1,293.3	$	1,342.4	$	410.6	$	3,562.0	$	1,224.9	$	1,229.2	$	502.5
Property Tax Accruals	73.2		35.4		26.3		5.2		56.7		20.7		24.2		5.5
Regulatory Amounts:
Regulatory Deferrals - Assets	1,025.9		320.1		277.4		213.8		924.9		310.6		267.1		103.6
Tax Effect - Tax Regulatory Assets	238.9		167.0		9.7		8.1		243.1		173.1		9.8		11.4
Goodwill Regulatory Asset - 1999 Merger	95.2		—		81.7		—		99.8		—		85.7		—
Derivative Assets	20.1		19.9		—		—		17.4		17.4		—		—
Other	251.1		5.9		109.8		39.4		288.4		13.7		137.3		45.7
Total Deferred Tax Liabilities	$	5,428.6	$	1,841.6	$	1,847.3	$	677.1	$	5,192.3	$	1,760.4	$	1,753.3	$	668.7

2017 Federal Legislation: On December 22, 2017, the Tax Cuts and Jobs Act became law, which amended existing federal tax rules and included numerous provisions that impacted corporations. In particular, the act reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. For our regulated companies, the most significant changes are (1) the benefit of incurring a lower federal income tax expense and (2) the reduction in ADIT liabilities (now excess ADIT or EDIT), which were estimated to be approximately $2.9 billion and included in regulatory liabilities as of December 31, 2018. In 2018, Eversource refunded $5.0 million ($4.4 million at PSNH and $0.6 million at Yankee Gas) to customers. See Note 2, "Regulatory Accounting," to the financial statements for further information.

The Company assessed the applicable provisions in the act and recorded the associated impacts as of December 31, 2017. The Company recorded the provisional income tax amounts as of December 31, 2017 in accordance with SEC Staff Accounting Bulletin No. 118 ("SAB 118") issued by the SEC in December 2017, for changes pursuant to the act because the impacts could not be finalized upon issuance of the financial statements, but for which reasonable estimates could be determined. The Company has completed its evaluation of the impacts of the act as of December 31, 2018. The ultimate outcome was not materially different from the provisional estimates recorded as of December 31, 2017. While the Company has recorded the impacts of the act based on interpretation of the provisions as enacted, it is expected the U.S. Department of Treasury and the IRS will issue additional interpretative guidance in the future that could result in changes to previously finalized provisions. At this time, some of the states in which the Company does business have issued guidance regarding the act and the impact was not material.

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,
	2018									2017
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		Expiration Range	Eversource		CL&P		NSTAR Electric		PSNH		Expiration Range
Federal Net Operating Loss	$	103.6	$	—	$	—	$	—	2033 - 2037	$	197.3	$	—	$	—	$	—	2027 - 2037
Federal Charitable Contribution	2.2		—		—		—		2020 - 2022	18.7		—		—		—		2017 - 2022
State Net Operating Loss	80.7		—		—		—		2019 - 2038	82.8		—		—		—		2028 - 2037
State Tax Credit	148.9		107.0		—		—		2018 - 2023	139.0		94.5		—		—		2017 - 2022
State Charitable Contribution	9.6		—		—		—		2019 - 2023	31.4		—		—		—		2017 - 2022

In 2018, the company increased its valuation allowance reserve for state credits by $5.2 million ($4.4 million for CL&P), net of tax, to reflect an update for expired tax credits. In 2017, the Company increased its valuation allowance reserve for state credits by $9.9 million ($1.8 million for CL&P), net of tax, to reflect an update for expired tax credits.

For 2018 and 2017, state credit and state loss carryforwards have been partially reserved by a valuation allowance of $19.5 million and $14.4 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, 2016	$	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
Gross Increases - Current Year	11.4			4.7
Gross Decreases - Prior Year	(0.9		)	(0.5		)
Lapse of Statute of Limitations	(7.2		)	(1.4		)
Balance as of December 31, 2017	51.7			18.1
Gross Increases - Current Year	9.2			3.2
Gross Decreases - Prior Year	(6.5		)	(0.9		)
Lapse of Statute of Limitations	(8.5		)	(2.2		)
Balance as of December 31, 2018	$	45.9		$	18.2

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)	2018			2017		2016			2018		2017
Eversource	$	(1.7	)	$	—	$	(0.2	)	$	0.1	$	1.8

Tax Positions: During 2018 and 2017, Eversource did not resolve any of its uncertain tax positions.

Open Tax Years: The following table summarizes Eversource, CL&P, NSTAR Electric and PSNH's tax years that remain subject to examination by major tax jurisdictions as of December 31, 2018:



Description	Tax Years
Federal	2018
Connecticut	2015 - 2018
Massachusetts	2015 - 2018
New Hampshire	2016 - 2018

Eversource does not estimate to have an earnings impact related to unrecognized tax benefits during the next twelve months.