REGULATORY ACCOUNTING

9 Months Ended

Sep. 30, 2020

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, plus a return on investment.

The application of accounting guidance for rate-regulated enterprises results in recording regulatory assets and liabilities. Regulatory assets represent the deferral of incurred costs that are probable of future recovery in customer rates. Regulatory assets are amortized as the incurred costs are recovered through customer rates. Regulatory liabilities represent either revenues received from customers to fund expected costs that have not yet been incurred or probable future refunds to customers.

Management believes it is probable that each of the regulated companies will recover its respective investments in long-lived assets and 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, 2020								As of December 31, 2019
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		Eversource		CL&P		NSTAR Electric		PSNH
Benefit Costs	$	2,256.1	$	483.3	$	601.4	$	205.7	$	2,382.9	$	539.0	$	629.8	$	218.2
Income Taxes, Net	731.2		459.8		110.0		13.7		725.8		458.8		108.0		12.8
Securitized Stranded Costs	532.9		—		—		532.9		565.3		—		—		565.3
Storm Restoration Costs, Net	739.6		510.7		171.4		57.5		540.6		274.6		200.6		65.4
Regulatory Tracker Mechanisms	531.8		174.4		203.0		82.3		411.5		78.3		207.1		65.8
Derivative Liabilities	311.8		311.8		—		—		334.5		329.2		—		—
Goodwill-related	318.9		—		273.8		—		331.5		—		284.6		—
Asset Retirement Obligations	105.8		32.3		56.2		3.8		97.2		30.8		50.3		3.6
Other Regulatory Assets	118.0		34.2		56.9		16.5		125.4		25.2		55.2		14.7
Total Regulatory Assets	5,646.1		2,006.5		1,472.7		912.4		5,514.7		1,735.9		1,535.6		945.8
Less: Current Portion	762.9		273.8		278.6		103.6		651.1		178.6		285.6		84.1
Total Long-Term Regulatory Assets	$	4,883.2	$	1,732.7	$	1,194.1	$	808.8	$	4,863.6	$	1,557.3	$	1,250.0	$	861.7

Storm Event: On August 4, 2020, Tropical Storm Isaias caused catastrophic damage to our electric distribution system, which resulted in significant amounts and durations of customer outages, primarily in Connecticut. In terms of customer outages, this storm was one of the worst in CL&P’s history. PURA has opened an investigation into CL&P's response to Tropical Storm Isaias. PURA will also investigate the prudence of costs incurred by CL&P to restore service as part of its response. CL&P is fully participating in PURA’s investigations and believes that these storm restoration costs were prudently incurred and meet the criteria for cost recovery. As a result, management does not expect the storm costs to have a material impact on the results of operations of Eversource or CL&P.

Based on current estimates, the storm resulted in deferred storm restoration costs of approximately $257 million at CL&P and $276 million at Eversource as of September 30, 2020. The estimated cost of restoration will change as additional cost information becomes available and final storm costs are deferred or capitalized. The majority of incremental storm costs relate to third-party vendors that are external field crews needed to restore power and address municipal priorities. CL&P’s current estimate of total storm costs includes its projection of the cost of such vendors, but that estimate will change as CL&P receives and examines all storm related invoices. On October 12, 2020, CL&P filed a motion requesting an extension of time to submit a final and complete report on storm costs to PURA by July 1, 2021. On October 23, 2020, PURA denied this request, and on November 2, 2020, CL&P filed a request for reconsideration of PURA’s ruling.

CL&P Rate Suspension: On July 31, 2020, PURA temporarily suspended its June 26, 2020 approval of certain delivery rate components effective July 1, 2020, and ordered CL&P to restore rates to those in effect as of June 30, 2020 in order to allow PURA time to reexamine the rates to ensure that CL&P is not over-collecting revenues in the short-term. Rates were adjusted effective August 1, 2020. PURA indicated that this was due to the convergence of a number of recent events, including the COVID-19 crisis and its corresponding effect on customer energy usage, as well as the warmer than normal weather in July. The impact of the temporary suspension of rates is deferred on our balance sheet and results in an increase to our regulatory assets, with no impact on the statement of income, and an expected delay in the collection of our costs. This deferral is reflected within Regulatory Tracker Mechanisms in the table above.

Regulatory Costs in Long-Term Assets: Eversource's regulated companies had $183.9 million (including $84.2 million for CL&P, $55.0 million for NSTAR Electric and $15.3 million for PSNH) and $146.0 million (including $51.8 million for CL&P, $55.7 million for NSTAR Electric and $18.0 million for PSNH) of additional regulatory costs as of September 30, 2020 and December 31, 2019, 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. As of September 30, 2020, net incremental COVID-19 related costs deferred by Eversource totaled $15.1 million, of which $11.4 million was related to uncollectible expense.

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



	As of September 30, 2020								As of December 31, 2019
(Millions of Dollars)	Eversource		CL&P		NSTAR Electric		PSNH		Eversource		CL&P		NSTAR Electric		PSNH
EDIT due to Tax Cuts and Jobs Act	$	2,805.3	$	1,013.9	$	1,050.1	$	388.7	$	2,844.6	$	1,022.8	$	1,071.2	$	392.8
Cost of Removal	610.4		93.0		354.8		12.9		559.8		64.6		330.6		16.3
Benefit Costs	79.5		—		68.7		—		84.5		—		72.2		—
Regulatory Tracker Mechanisms	445.7		171.1		181.9		56.2		325.1		94.8		165.6		57.0
AFUDC - Transmission	77.1		45.0		32.1		—		73.2		46.0		27.2		—
Other Regulatory Liabilities	158.2		38.2		57.9		9.9		132.0		19.6		59.0		13.1
Total Regulatory Liabilities	4,176.2		1,361.2		1,745.5		467.7		4,019.2		1,247.8		1,725.8		479.2
Less: Current Portion	464.7		164.9		210.7		61.5		361.2		82.8		209.2		65.8
Total Long-Term Regulatory Liabilities	$	3,711.5	$	1,196.3	$	1,534.8	$	406.2	$	3,658.0	$	1,165.0	$	1,516.6	$	413.4