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:



	As of September 30, 2018								As of December 31, 2017
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		Eversource		CL&P		NSTAR Electric		PSNH
Benefit Costs	$	1,988.4	$	447.4	$	541.2	$	172.0	$	2,068.8	$	469.2	$	560.7	$	212.3
Income Taxes, Net	720.7		448.1		112.9		15.6		768.9		453.8		113.2		21.7
Securitized Stranded Costs	618.6		—		—		618.6		—		—		—		—
Deferred Costs from Generation Asset Sale	—		—		—		—		516.1		—		—		516.1
Storm Restoration Costs, Net	598.5		319.7		222.1		56.7		404.8		216.7		146.6		41.5
Regulatory Tracker Mechanisms	257.8		39.5		128.4		74.9		509.9		85.3		273.0		116.4
Derivative Liabilities	360.0		359.9		—		—		367.2		362.3		—		—
Goodwill-related	352.6		—		302.7		—		365.2		—		313.6		—
Asset Retirement Obligations	87.5		31.8		41.3		3.3		101.0		30.3		39.0		17.0
Other Regulatory Assets	169.2		27.4		71.7		12.4		137.4		27.6		78.4		15.8
Total Regulatory Assets	5,153.3		1,673.8		1,420.3		953.5		5,239.3		1,645.2		1,524.5		940.8
Less: Current Portion	436.7		128.8		193.5		61.4		741.9		200.3		333.9		130.1
Total Long-Term Regulatory Assets	$	4,716.6	$	1,545.0	$	1,226.8	$	892.1	$	4,497.4	$	1,444.9	$	1,190.6	$	810.7

Securitized Stranded Costs: On May 8, 2018, a subsidiary of PSNH issued $635.7 million of securitized RRBs to finance PSNH's unrecovered stranded costs associated with the divestiture of its generation assets. Securitized regulatory assets, which are not earning an equity return, are being recovered over the amortization period of the associated RRBs. The PSNH RRBs are expected to be repaid by February 1, 2033. The stranded costs related to the difference between the carrying value and the fair value less costs to sell the thermal generation assets were reflected as a deferred cost in the table above as of December 31, 2017, and are reflected in the securitized stranded costs balance as of September 30, 2018.

Storm Restoration Costs, Net:

2018 Storms: In 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 for deferral and recovery with the criteria specific to each state jurisdiction and utility company. Once a storm qualifies for recovery, all qualifying expenses incurred during storm restoration efforts are deferred and recovered from customers. Costs for storms that do not meet the specific criteria are expensed as incurred. The 2018 storms resulted in deferred storm restoration costs of approximately $266 million ($149 million for CL&P, $101 million for NSTAR Electric, and $16 million for PSNH), which were reflected in Storm Restoration Costs, Net in the table above as of September 30, 2018. 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 processes.

On September 17, 2018, the NHPUC approved the recovery of $49 million, plus carrying charges, in storm costs incurred from August 2011 through March 2013 and the transfer of funding from PSNH’s major storm funding reserve to offset those costs. The costs of these storms (excluding the equity return component of the carrying charges) were deferred as regulatory assets, and the funding reserve collected from customers was accrued as a regulatory liability. The storm cost deferral is separate from the major storm funding reserve that is being collected from customers. As a result of the approval, PSNH recognized $8.7 million (pre-tax) within Other Income, Net on our statement of income in the third quarter of 2018 for the equity return component of the carrying charges, which have been billed and collected. Storm costs incurred from March 2013 through 2016 are currently being audited by the NHPUC staff.

Regulatory Costs in Long-Term Assets: Eversource's regulated companies had $104.6 million (including $27.6 million for CL&P, $53.3 million for NSTAR Electric and $3.9 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 September 30, 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.

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



	As of September 30, 2018								As of December 31, 2017
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		Eversource		CL&P		NSTAR Electric		PSNH
Excess ADIT due to Tax Cuts and Jobs Act	$	2,876.9	$	1,026.3	$	1,100.5	$	397.4	$	2,882.0	$	1,031.6	$	1,087.9	$	405.1
Cost of Removal	516.4		37.8		305.7		24.9		502.1		23.2		293.8		37.9
Benefit Costs	127.1		—		107.2		0.5		132.3		—		112.6		—
Regulatory Tracker Mechanisms	345.6		111.9		168.3		38.5		136.7		34.6		77.8		5.0
AFUDC - Transmission	68.6		47.8		20.8		—		67.1		48.8		18.3		—
Revenue Subject to Refund	36.2		8.3		3.7		9.4		—		—		—		—
Other Regulatory Liabilities	80.7		25.7		28.3		2.8		45.2		12.9		3.7		2.7
Total Regulatory Liabilities	4,051.5		1,257.8		1,734.5		473.5		3,765.4		1,151.1		1,594.1		450.7
Less: Current Portion	344.7		126.6		168.2		39.7		128.1		39.0		79.6		6.3
Total Long-Term Regulatory Liabilities	$	3,706.8	$	1,131.2	$	1,566.3	$	433.8	$	3,637.3	$	1,112.1	$	1,514.5	$	444.4

Revenue Subject to Refund: The regulatory liability balance represents 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 for NSTAR Electric, May 1, 2018 for CL&P and July 1, 2018 for NSTAR Gas, base rates charged to customers have been adjusted to reflect the new federal income tax rate. As part of CL&P's 2018 rate case settlement, a new capital tracker regulatory mechanism was established, which includes the refund of the reserve for the higher federal corporate income tax rate to customers between January 1, 2018 through April 30, 2018 in rates, from July 1, 2018 through December 31, 2018.