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 components of income tax expense are as follows:

NU	For the Years Ended December 31,
(Millions of Dollars)	2012		2011		2010
Current Income Taxes:
Federal	$	(30.9)	$	3.0	$	9.0
State		17.6		(26.0)		(6.5)
Total Current		(13.3)		(23.0)		2.5
Deferred Income Taxes, Net:
Federal		291.3		187.7		201.2
State		0.8		9.1		9.7
Total Deferred		292.1		196.8		210.9
Investment Tax Credits, Net		(3.9)		(2.8)		(3.0)
Income Tax Expense	$	274.9	$	171.0	$	210.4

		For the Years Ended December 31,
		2012								2011								2010
				NSTAR								NSTAR								NSTAR
(Millions of Dollars)		CL&P		Electric ⁽¹⁾		PSNH		WMECO		CL&P		Electric⁽¹⁾		PSNH		WMECO		CL&P		Electric⁽¹⁾		PSNH		WMECO
Current Income Taxes:
	Federal	$	(47.8)	$	93.5	$	(0.9)	$	(24.7)	$	13.9	$	64.9	$	(25.8)	$	0.1	$	20.7	$	94.8	$	6.1	$	3.1
	State		3.1		27.6		3.4		3.4		(34.4)		30.2		0.1		0.3		(1.1)		27.0		5.6		2.5
Total Current			(44.7)		121.1		2.5		(21.3)		(20.5)		95.1		(25.7)		0.4		19.6		121.8		11.7		5.6
Deferred Income
	Taxes, Net:
	Federal		141.5		11.4		46.5		51.2		106.4		74.8		67.7		22.1		108.1		41.7		37.6		11.0
	State		(0.5)		(7.1)		12.0		2.7		6.2		(2.8)		7.9		1.0		7.0		(0.1)		1.6		-
Total Deferred			141.0		4.3		58.5		53.9		112.6		72.0		75.6		23.1		115.1		41.6		39.2		11.0
Investment Tax
	Credits, Net		(1.9)		(1.4)		0.0		(0.5)		(2.1)		(1.4)		-		(0.3)		(2.3)		(1.4)		(0.1)		(0.3)
Income Tax Expense		$	94.4	$	124.0	$	61.0	$	32.1	$	90.0	$	165.7	$	49.9	$	23.2	$	132.4	$	162.0	$	50.8	$	16.3

⁽¹⁾	NSTAR Electric amounts are included in NU consolidated from the date of the merger, April 10, 2012, through December 31, 2012. NSTAR Electric amounts are not included in NU consolidated for the years ended December 31, 2011 and 2010.

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

NU		For the Years Ended December 31,
(Millions of Dollars, except percentages)		2012		2011		2010
Income Before Income Tax Expense		$	808.0	$	571.5	$	604.5

Statutory Federal Income Tax Expense at 35%			282.8		200.0		211.6
Tax Effect of Differences:
	Depreciation		(10.8)		(14.2)		(9.5)
	Investment Tax Credit Amortization		(3.9)		(2.8)		(3.0)
	Other Federal Tax Credits		(3.8)		(3.5)		(3.8)
	State Income Taxes, Net of Federal Impact		4.4		22.1		12.5
	Medicare Subsidy		0.0		-		15.6
	Tax Asset Valuation Allowance/Reserve Adjustments		7.6		(33.1)		(10.5)
	Other, Net		(1.4)		2.5		(2.5)
Income Tax Expense		$	274.9	$	171.0	$	210.4
Effective Tax Rate			34.0%		29.9%		34.8%

		For the Years Ended December 31,
		2012								2011								2010
(Millions of Dollars,				NSTAR								NSTAR								NSTAR
	except percentages)	CL&P		Electric⁽¹⁾		PSNH		WMECO		CL&P		Electric⁽¹⁾		PSNH		WMECO		CL&P		Electric⁽¹⁾		PSNH		WMECO
Income Before Income
	Tax Expense	$	304.2	$	314.2	$	157.9	$	86.6	$	340.2	$	418.2	$	150.2	$	66.2	$	376.6	$	410.6	$	140.9	$	39.4

Statutory Federal Income
	Tax Expense at 35%		106.5		110.0		55.3		30.3		119.1		146.4		52.6		23.2		131.8		143.7		49.3		13.8
Tax Effect of Differences:
	Depreciation		(9.0)		0.0		(0.3)		0.2		(8.1)		0.0		(4.4)		0.1		(6.1)		0.0		(3.2)		0.2
	Investment Tax Credit
	Amortization		(1.9)		(1.4)		0.0		(0.5)		(2.1)		(1.4)		-		(0.3)		(2.3)		(1.4)		(0.1)		(0.3)
	Other Federal Tax Credits		0.0		0.0		(3.8)		0.0		(0.1)		0.0		(3.4)		0.0		(0.1)		0.0		(3.6)		-
	State Income Taxes, Net
	of Federal Impact		0.1		13.4		10.0		4.0		4.0		17.9		5.2		0.9		8.5		17.4		4.7		1.6
	Medicare Subsidy		0.0		0.0		0.0		0.0		-		0.0		-		-		7.8		0.0		3.8		1.5
	Tax Asset Valuation
	Allowance/Reserve
	Adjustments		1.6		0.0		0.0		0.0		(22.3)		0.0		-		-		(4.7)		0.0		-		-
	Regulatory Decision Non-
	Plant flow through		0.0		0.0		0.0		(1.3)		0.0		0.0		-		-		0.0		0.0		-		-
	Other, Net		(2.9)		2.0		(0.2)		(0.6)		(0.5)		2.8		(0.1)		(0.7)		(2.5)		2.3		(0.1)		(0.5)
Income Tax Expense		$	94.4	$	124.0	$	61.0	$	32.1	$	90.0	$	165.7	$	49.9	$	23.2	$	132.4	$	162.0	$	50.8	$	16.3
Effective Tax Rate			31.0%		39.5%		38.6%		37.1%		26.5%		39.6%		33.2%		35.0%		35.2%		39.5%		36.1%		41.4%

NU, 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 effects of temporary differences that give rise to the net accumulated deferred tax obligations are as follows:

NU			As of December 31,
(Millions of Dollars)			2012		2011
Deferred Tax Assets:
	Employee Benefits		$	811.4	$	539.6
	Derivative Liabilities and Change in Fair Value of Energy Contracts			380.6		415.3
	Regulatory Deferrals			257.9		157.9
	Allowance for Uncollectible Accounts			64.2		45.4
	Tax Effect - Tax Regulatory Assets			17.2		15.5
	Federal Net Operating Loss Carryforwards			214.6		178.6
	Purchase Accounting Adjustment			146.4		-
	Other			242.4		204.2
Total Deferred Tax Assets				2,134.7		1,556.5
Less: Valuation Allowance				4.2		4.6
Net Deferred Tax Assets			$	2,130.5	$	1,551.9
Deferred Tax Liabilities:
	Accelerated Depreciation and Other Plant-Related Differences		$	3,468.8	$	1,920.5
	Property Tax Accruals			89.6		58.9
	Regulatory Amounts:
		Other Regulatory Deferrals		1,561.1		1,135.0
		Tax Effect - Tax Regulatory Assets		217.2		184.6
		Goodwill - 1999 Merger		210.9		-
		Derivative Assets		36.2		39.1
		Securitized Contract Termination Costs		16.6		39.6
		Other		136.1		24.5
Total Deferred Tax Liabilities			$	5,736.5	$	3,402.2

			As of December 31,
			2012								2011
					NSTAR								NSTAR
(Millions of Dollars)			CL&P		Electric		PSNH		WMECO		CL&P		Electric ⁽¹⁾		PSNH		WMECO
Deferred Tax Assets:
	Derivative Liabilities and Change in
		Fair Value of Energy Contracts	$	375.9	$	5.8	$	-	$	(1.7)	$	412.2	$	1.3	$	-	$	2.9
	Allowance for Uncollectible Accounts			30.4		16.2		2.9		3.2		32.4		9.5		3.0		3.9
	Regulatory Deferrals			35.5		123.6		43.9		6.3		78.4		114.9		39.3		15.0
	Employee Benefits			141.2		116.3		64.8		16.3		121.4		115.3		87.9		13.3
	Tax Effect - Tax Regulatory Assets			5.2		6.0		1.7		1.7		6.4		6.9		1.6		6.5
	Federal Net Operating Loss Carryforwards			82.0		-		71.4		15.1		85.5		-		60.8		-
	Other			82.8		26.0		33.7		8.0		76.0		36.1		26.0		17.6
Total Deferred Tax Assets			$	753.0	$	293.9	$	218.4	$	48.9	$	812.3	$	284.0	$	218.6	$	59.2
Deferred Tax Liabilities:
	Accelerated Depreciation and Other
	Plant-Related Differences		$	1,194.7	$	1,079.3	$	476.5	$	261.3	$	1,046.9	$	987.8	$	423.8	$	194.9
	Property Tax Accruals			44.4		23.1		6.8		5.1		41.9		21.8		4.5		3.4
	Regulatory Amounts:
		Other Regulatory Deferrals		677.7		379.6		149.3		74.5		734.2		400.6		122.5		79.3
		Tax Effect - Tax Regulatory Assets		151.8		20.9		15.8		13.9		141.8		21.9		16.1		13.7
		Goodwill - 1999 Merger		-		181.0		-		-		-		187.8		-		-
		Derivative Assets		36.2		-		-		-		39.1		-		-		-
		Securitized Contract Termination Costs		-		5.5		7.9		3.3		-		41.3		29.7		10.0
		Other		10.1		30.2		14.1		2.3		8.2		34.8		14.0		1.1
Total Deferred Tax Liabilities			$	2,114.9	$	1,719.6	$	670.4	$	360.4	$	2,012.1	$	1,696.0	$	610.6	$	302.4

⁽¹⁾		NSTAR Electric amounts are not included in NU consolidated as of December 31, 2011.

Carryforwards: Amounts are as follows:

	As of December 31, 2012
					NSTAR						Year
(Millions of Dollars)	NU		CL&P		Electric		PSNH		WMECO		Expiration Begins
State Credit Carryforwards	$	110.2	$	75.2	$	0.0	$	0.0	$	0.0	2013
State Net Operating Loss Carryforward		74.9		0.0		0.0		0.0		0.0	2013
Federal Net Operating Loss Carryforward		606.9		234.3		0.0		204.0		43.3	2031
Federal Credit Carryforwards		3.8		0.0		0.0		3.8		0.0	2031

	As of December 31, 2011
					NSTAR						Year
(Millions of Dollars)	NU		CL&P		Electric		PSNH		WMECO		Expiration Begins
State Credit Carryforwards	$	101.4	$	68.6	$	0.0	$	0.0	$	0.0	2013
Federal Net Operating Loss Carryforward		510.2		244.2		0.0		173.8		0.0	2031
Federal Credit Carryforwards		6.6		0.0		0.0		3.4		3.2	2031

For 2012, the state net operating loss carryforward has been partially reserved by a valuation allowance of $0.3 million (net of federal income tax).

Unrecognized Tax Benefits: A reconciliation of the activity in unrecognized tax benefits from January 1, 2010 to December 31, 2012, all of which would impact the effective tax rate, if recognized, is as follows:

						NSTAR
(Millions of Dollars)		NU		CL&P		Electric ⁽¹⁾
Balance as of January 1, 2010		$	124.3	$	89.0	$	13.8
	Gross Increases - Current Year		10.8		5.3		-
	Gross Increases - Prior Year		0.8		-		-
	Settlement		(34.3)		(13.5)		(13.8)
	Lapse of Statute of Limitations		(0.4)		-		-
Balance as of December 31, 2010			101.2		80.8		-
	Gross Increases - Current Year		8.0		1.4		-
	Gross Decreases - Prior Year		(35.7)		(35.7)		-
Balance as of December 31, 2011			73.5		46.5		-
	Gross Increases - Current Year		10.3		2.5		-
	Gross Increases - Prior Year		0.1		-		-
	Gross Decreases - Prior Year		(0.8)		-		-
Balance as of December 31, 2012		$	83.1	$	49.0	$	-

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

Other Interest	For the Years Ended December 31,						Accrued Interest	As of December 31,
Expense/(Income)	2012		2011		2010		Expense	2012		2011
(Millions of Dollars)							(Millions of Dollars)
NU	$	3.1	$	(2.8)	$	(24.8)	NU	$	10.1	$	7.1
CL&P		1.3		(3.7)		(7.4)	CL&P		4.0		2.7
NSTAR Electric ⁽¹⁾		0.0		2.0		(7.4)	NSTAR Electric ⁽¹⁾		0.0		0.7
PSNH		0.0		(0.6)		0.1	PSNH		0.0		-

(1) NSTAR Electric amounts are included in NU consolidated from the date of the merger, April 10, 2012, through December 31, 2012. NSTAR Electric amounts are not included in NU consolidated for the years ended December 31, 2011 and 2010.

Tax Positions: During 2012, NU did not resolve any of its uncertain tax positions.

During 2011, NU recorded an after-tax benefit of $29.1 million related to various state tax settlements and certain other adjustments. This benefit was recorded as a reduction to both interest expense and income tax expense (including NU and CL&P tax expense reductions of approximately $22.4 million).

During 2010, NU settled various tax matters including state obligations, which resulted in the recognition during the year of an after-tax gain of approximately $35 million. This gain was recorded as a reduction to both interest expense and income tax expense (including NU and CL&P tax expense reductions of approximately $6 million and $4 million, respectively).

Open Tax Years: The following table summarizes NU, CL&P, NSTAR Electric, PSNH and WMECO's tax years that remain subject to examination by major tax jurisdictions as of December 31, 2012:

Receipt of Federal Tax Refund: During 2011, NSTAR Electric received a $166.8 million refund from the IRS relating to the 2001 through 2007 tax years. The approved settlement and the receipt of the refund resolved all outstanding tax matters for these years.

NU is currently working to resolve the treatments and certain timing and other costs in the remaining open periods. While tax audits are currently ongoing, it is reasonably possible that one or more of these open tax years could be resolved within the next twelve months. Management estimates that potential resolutions of differences of a non-timing nature could result in a zero to $50 million decrease in unrecognized tax benefits by NU and a zero to $39 million decrease in unrecognized tax benefits by CL&P. These estimated changes could have an impact on NU's and CL&P's 2013 earnings of zero to $6 million and zero to $16 million, respectively. Other companies' impacts are not expected to be material.

2013 Federal Legislation: On January 2, 2013, President Obama signed into law the “American Taxpayer Relief Act of 2012,” which extends certain tax rules allowing the accelerated deduction of depreciation from the “American Recovery and Reinvestment Act of 2009” to businesses through 2013. This extended stimulus is expected to provide cash flow benefits of approximately $200 million to $250 million in 2013 and 2014. Management is still evaluating the other provisions of this legislation, which are not expected to have a significant impact on its future financial position, results of operations, or cash flows.