STATEMENT OF ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2013 |
STATEMENT OF ACCOUNTING POLICIES [Abstract] | ' |
STATEMENT OF ACCOUNTING POLICIES | ' |
(A) STATEMENT OF ACCOUNTING POLICIES |
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UIL Holdings is headquartered in New Haven, Connecticut, where its senior management maintains offices and is responsible for overall planning, operating and financial functions. The primary business of UIL Holdings is ownership of its operating regulated utility businesses. The utility businesses consist of the electric distribution and transmission operations of The United Illuminating Company (UI) and the natural gas transportation, distribution and sales operations of The Southern Connecticut Gas Company (SCG), Connecticut Natural Gas Corporation (CNG) and The Berkshire Gas Company (Berkshire, and together with SCG and CNG, the Gas Companies). |
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UI is also a party to a joint venture with certain affiliates of NRG Energy, Inc. (NRG affiliates) pursuant to which UI holds 50% of the membership interests in GCE Holding LLC, whose wholly owned subsidiary, GenConn Energy LLC (collectively with GCE Holding LLC, GenConn) operates peaking generation plants in Devon, Connecticut (GenConn Devon) and Middletown, Connecticut (GenConn Middletown). |
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Accounting Records |
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The accounting records of UIL Holdings are maintained in conformity with generally accepted accounting principles in the United States of America (GAAP). |
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The accounting records for UI and the Gas Companies are also maintained in accordance with the uniform systems of accounts prescribed by the Federal Energy Regulatory Commission (FERC), the Connecticut Public Utilities Regulatory Authority (PURA), and the Massachusetts Department of Public Utilities (DPU), as applicable. |
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Basis of Presentation |
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The financial statements of UIL Holdings are prepared on a consolidated basis and therefore include the accounts of UIL Holdings’ majority-owned subsidiaries noted above. Intercompany accounts and transactions have been eliminated in consolidation. |
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The preparation of financial statements in conformity with GAAP requires management to use estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and (2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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The Company has revised its previously issued annual financial statements to correct an error in the 2012 Consolidated Balance Sheet. The effect of this revision is a $59.8 million adjustment increasing net property, plant and equipment and increasing non-current regulatory liabilities in the Consolidated Balance Sheet as of December 31, 2012. The Company has also revised the 2012 Consolidated Balance sheet for an adjustment, the effect of which is a $13.1 million adjustment increasing accounts payable and decreasing accrued liabilities in the Consolidated Balance Sheet as of December 31, 2012. These adjustments are not considered to be material individually or in the aggregate to previously issued financial statements. These adjustments did not have an impact on the Consolidated Statements of Income, Comprehensive Income, Cash Flows and Changes in Stockholders' Equity. Additionally certain immaterial amounts that were reported as such in the Consolidated Financial Statements in previous periods have been reclassified to conform to the current presentation. |
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Allowance for Funds Used During Construction |
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In accordance with the uniform systems of accounts, the Company capitalizes allowance for funds used during construction (AFUDC) , which represents the approximate cost of debt and equity capital devoted to plant under construction. The portion of the allowance applicable to borrowed funds and the allowance applicable to equity funds are presented as other income in the Consolidated Statement of Income. Although the allowance does not represent current cash income, it has been recoverable under the ratemaking process over the service lives of the related properties. Weighted-average AFUDC rates for 2013, 2012 and 2011 were 9.63%, 5.61% and 5.75%, respectively. |
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Asset Retirement Obligations |
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The fair value of the liability for an asset retirement obligation (ARO) and/or a conditional ARO is recorded in the period in which it is incurred and the cost is capitalized by increasing the carrying amount of the related long-lived asset. The liability is adjusted to its present value periodically over time, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement, the obligation is settled either at its recorded amount or a gain or a loss is incurred. |
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Any timing differences between rate recovery and depreciation expense are deferred as either a regulatory asset or a regulatory liability. |
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The term conditional ARO refers to an entity's legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. If an entity has sufficient information to reasonably estimate the fair value of the liability for a conditional ARO, it must recognize that liability at the time the liability is incurred. |
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As of December 31, 2013 and 2012, UIL Holdings’ ARO, including estimated conditional AROs, was $18.5 million and $18.3 million, respectively, and consisted primarily of obligations related to the removal or retirement of asbestos, polychlorinated biphenyl (PCB)-contaminated equipment, gas pipeline and cast iron gas mains. The long-lived assets associated with the AROs are gas storage property, distribution property and other property. UIL Holdings’ ARO is carried on the balance sheet as other long-term liabilities. |
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ARO activity for 2013 and 2012 is as follows: |
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| | 2013 | | | 2012 | | | | | |
| | (In Thousands) | | | | | |
Balance as of December 31 | | $ | 18,289 | | | $ | 18,058 | | | | | |
Liabilities incurred during the year | | | - | | | | - | | | | | |
Liabilities settled during the year | | | (740 | ) | | | (718 | ) | | | | |
Accretion | | | 961 | | | | 949 | | | | | |
Balance as of December 31 | | $ | 18,510 | | | $ | 18,289 | | | | | |
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Cash and Temporary Cash Investments |
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UIL Holdings considers all of its highly liquid debt instruments with an original maturity of three months or less at the date of purchase to be cash and temporary cash investments. |
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Depreciation |
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Provisions for depreciation on utility plant for book purposes are computed on a straight‑line basis, using estimated service lives. For utility plant other than software, service lives are determined by independent engineers and subject to review and approval by PURA and DPU. Software service life is based upon management’s estimate of useful life. The aggregate annual provisions for depreciation for the years 2013, 2012 and 2011 were approximately 3.4%, 3.5%, and 3.3%, respectively, of the original cost of depreciable property. |
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Derivatives |
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UIL Holdings’ regulated subsidiaries are parties to contracts, and involved in transactions, that are derivatives. The values of the gross derivative assets and liabilities as of December 31, 2013 and 2012 were as follows: |
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| | December 31, | | | December 31, | | | | | |
2013 | 2012 | | | | |
| | (In Thousands) | | | | | | | | |
Gross derivative assets: | | | | | | | | | | |
Current Assets | | $ | 9,098 | | | $ | 12,671 | | | | | |
Deferred Charges and Other Assets | | $ | 44,349 | | | $ | 67,167 | | | | | |
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Gross derivative liabilties: | | | | | | | | | | | | |
Current Liabilities | | $ | 26,976 | | | $ | 30,804 | | | | | |
Noncurrent Liabilities | | $ | 169,327 | | | $ | 224,639 | | | | | |
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Contracts for Differences (CfDs) |
Pursuant to Connecticut’s 2005 Energy Independence Act, the Connecticut Public Utilities Regulatory Authority (PURA) solicited bids to create new or incremental capacity resources in order to reduce federally mandated congestion charges, and selected four new capacity resources. To facilitate the transactions between the selected capacity resources and Connecticut electric customers, and provide the commitment necessary for owners of these resources to obtain necessary financing, PURA required that UI and The Connecticut Light and Power Company (CL&P) execute long-term contracts with the selected resources. In August 2007, PURA approved four CfDs, each of which specifies a capacity quantity and a monthly settlement that reflects the difference between a forward market price and the contract price. UI executed two of the contracts and CL&P executed the other two contracts. The costs or benefits of each contract will be paid by or allocated to customers and will be subject to a cost-sharing agreement whereby approximately 20% of the cost or benefit is borne by or allocated to UI customers and approximately 80% is borne by or allocated to CL&P customers. |
PURA has determined that costs associated with these CfDs will be recoverable by UI and CL&P, and in accordance with ASC 980 “Regulated Operations,” UI has deferred recognition of costs (a regulatory asset) or obligations (a regulatory liability). The CfDs are marked-to-market in accordance with ASC 815 “Derivatives and Hedging.” For those CfDs signed by CL&P, UI records its approximate 20% portion pursuant to the cost-sharing agreement noted above. As of December 31, 2013, UI has recorded a gross derivative asset of $53.4 million, a regulatory asset of $142.7 million, and a gross derivative liability of $196.2 million ($129.4 million of which is related to UI’s portion of CL&P’s derivative liabilities). See Note (K) “Fair Value of Financial Instruments” for additional CfD information. |
The unrealized gains and losses from fair value adjustments to these derivatives recorded in regulatory assets or regulatory liabilities for years ended December 31, 2013 and 2012 were as follows: |
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| | Year Ended | | | | | |
December 31, | | | | |
| | 2013 | | | 2012 | | | | | |
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Regulatory Assets - Derivative liabilities | | $ | (33,819 | ) | | $ | (7,500 | ) | | | | |
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Regulatory Liabilities - Derivative assets | | $ | - | | | $ | 12 | | | | | |
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The increase in unrealized losses in the year ended December 31, 2013 compared to 2012 is due to increases in forward pricing. |
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Weather Insurance Contracts |
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On an annual basis, the Gas Companies each assess the need for weather insurance contracts for the upcoming heating season in order to provide financial protection from significant weather fluctuations. According to the terms of such contracts, if temperatures are warmer than normal at a prescribed level for the contract period, a payment is received by the gas company; in addition, under certain of the contracts, if temperatures are colder than normal at a prescribed level for the contract period, the gas company is required to make a payment. The premiums paid are amortized over the terms of the contracts. The intrinsic value of the contracts is carried on the balance sheet with changes in value recorded in the income statement as Other Income and (Deductions). |
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In October of 2013, CNG entered into a weather insurance contract for the period of November 1, 2013 through December 31, 2013. If temperatures were warmer than normal, CNG would receive a payment, up to a maximum of $1.5 million; however, if temperatures were colder than normal, CNG would make a payment of up to a maximum of $1 million. As a result of PURA’s approval for a decoupling mechanism which went into effect on January 10, 2014, the contract did not extend into the 2014 portion of the heating season. The intrinsic value of the contract, which is carried on the balance sheet as a derivative liability, totaled $0.1 million at December 31, 2013, and was subsequently paid. |
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In October 2013, Berkshire entered into a weather insurance contract for the winter period of November 1, 2013 through April 30, 2014. If temperatures are warmer than normal, Berkshire will receive a payment, up to a maximum of $1 million; however, if temperatures are colder than normal, Berkshire will make a payment of up to a maximum of $0.2 million. The contract had no value at December 31, 2013 since the variation from normal weather through December 31, 2013 did not reach the prescribed level stated in the contract. |
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In September 2013, SCG entered into a weather insurance contract for the winter period of November 1, 2013 through April 30, 2014. If temperatures are warmer than normal, SCG will receive a payment, up to a maximum of $3 million; however, if temperatures are colder than normal, SCG will make a payment of up to a maximum of $2 million. The contract had no value at December 31, 2013 since the variation from normal weather through December 31, 2013 did not reach the prescribed level stated in the contract. |
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In October 2012, SCG and CNG each entered into weather insurance contracts for the winter period of November 1, 2012 through April 30, 2013. If temperatures were warmer than normal, SCG and CNG each would have received a payment, up to a maximum of $3 million; however, if temperatures were colder than normal, SCG and CNG each would have made a payment of up to a maximum of $2 million. Upon the expiration of their respective contracts, SCG and CNG neither received nor made a payment since the variation from normal weather during the contract period did not reach the prescribed level stated in the contracts. |
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In November 2011, Berkshire entered into a weather insurance contract for calendar year 2012. According to the terms of the contract, because temperatures were warmer than normal for the contract period, Berkshire received a payment of $1 million on January 8, 2013. The premiums paid were amortized over the term of the contract. The intrinsic value of the contract, $1 million at December 31, 2012, was carried on the balance sheet with changes in value recorded in the income statement as Other Income and (Deductions). |
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Earnings per Share |
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The following table presents a reconciliation of the basic and diluted earnings per share calculations for the years 2013, 2012 and 2011: |
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| | Year Ended December 31, | |
| | 2013 | | | 2012 | | | 2011 | |
| | (In Thousands, except per share amounts) | |
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Numerator: | | | | | | | | | |
Net income attributable to UIL Holdings | | $ | 115,265 | | | $ | 103,637 | | | $ | 99,656 | |
Less: Net income allocated to unvested units | | | 117 | | | | 184 | | | | 210 | |
Net income attributable to common shareholders | | $ | 115,148 | | | $ | 103,453 | | | $ | 99,446 | |
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Denominator: | | | | | | | | | | | | |
Basic average number of shares outstanding | | | 52,415 | | | | 50,831 | | | | 50,609 | |
Effect of dilutive securities | | | 296 | | | | 277 | | | | 317 | |
Diluted average number of shares outstanding | | | 52,711 | | | | 51,108 | | | | 50,926 | |
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Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 2.2 | | | $ | 2.04 | | | $ | 1.96 | |
Diluted | | $ | 2.18 | | | $ | 2.02 | | | $ | 1.95 | |
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All outstanding options to purchase shares of common stock during 2013 and 2012 were included in the computation of diluted earnings per share because the options’ exercise prices were lower than the average market price of the common shares during such period. Options to purchase 89,336 shares of common stock were outstanding during 2011 but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares during such period. |
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Equity Investments |
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UI is party to a 50-50 joint venture with NRG affiliates in GenConn, which operates two peaking generation plants in Connecticut. UI’s investment in GenConn is being accounted for as an equity investment, the carrying value of which was $118.2 million and $124.8 million as of December 31, 2013 and 2012, respectively. As of December 31, 2013, there were approximately $0.1 million of undistributed earnings from UI’s equity investment in GenConn. |
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UI’s pre-tax income from its equity investment in GenConn was $15.3 million, $15.3 million and $11.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. |
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Cash distributions from GenConn are reflected as either distributions of earnings or as returns of capital in the operating and investing sections of the Consolidated Statement of Cash Flows, respectively. During the years ended December 31, 2013, 2012 and 2011, UI received cash distributions from GenConn of approximately $21.8 million, $21.5 million and $8.0 million. |
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Goodwill |
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UIL Holdings may be required to recognize an impairment of goodwill in the future due to market conditions or other factors related to its results of operations and performance. Those market events could include a decline in the forecasted results in the company business plan, significant adverse rate case results, changes in capital investment budgets or changes in interest rates that could impair the fair value of a reporting unit. Recognition of impairments of a significant portion of goodwill would negatively affect reported results of operations and total capitalization, the effect of which could be material and could make it more difficult to maintain credit ratings, secure financing on attractive terms, maintain compliance with debt covenants and meet expectations of regulators. |
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A goodwill impairment test is performed each year and the test will be updated between annual tests if events or circumstances occur that may reduce the fair value of a reporting unit below its carrying value. The annual analysis of the potential impairment of goodwill is a two-step process. Step one of the impairment test consists of comparing the fair values of reporting units with their aggregate carrying values, including goodwill. The estimated fair values for the reporting units are determined by using the income approach and the market approach methodologies. |
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The income approach is based on discounted cash flows which are derived from internal forecasts and economic expectations. Key assumptions used to determine fair value under the income approach include the cash flow period, terminal values based on a terminal growth rate, and the discount rate. The discount rate represents the estimated cost of debt and equity financing weighted by the percentage of debt and equity in a company's target capital structure. |
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The market approach utilizes the guideline company method, which calculates valuation multiples based on operating and valuation metrics from publicly traded guideline companies in the regulated natural gas distribution industry. Multiples derived from the guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for an investment in a similar company. These multiples are then applied to the appropriate operating metric to determine indications of fair value. |
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If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment loss. If the carrying amount is less than fair value, further testing of goodwill impairment is not performed. |
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Step two of the goodwill impairment test consists of comparing the implied fair value of the reporting unit’s goodwill against the carrying value of the goodwill. Determining the implied fair value of goodwill requires the valuation of a reporting unit’s identifiable tangible and intangible assets and liabilities as if the reporting unit had been acquired in a business combination on the testing date. The difference between the fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities represents the implied fair value of goodwill. A goodwill impairment charge, if any, would be the difference between the carrying amount of goodwill and the implied fair value of goodwill upon the completion of step two. |
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As of October 1, 2013, the fair values of UIL Holdings’ applicable reporting units exceeded their carrying values and therefore no impairment was recognized. No events or circumstances occurred subsequent to October 1, 2013 that would make it more likely than not that the fair value of the reporting units fell below their respective carrying values. |
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Impairment of Long‑Lived Assets and Investments |
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ASC 360 “Property, Plant, and Equipment” requires the recognition of impairment losses on long‑lived assets when the book value of an asset exceeds the sum of the expected future undiscounted cash flows that result from the use of the asset and its eventual disposition. If impairment arises, then the amount of any impairment is measured based on discounted cash flows or estimated fair value. |
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ASC 360 also requires that rate‑regulated companies recognize an impairment loss when a regulator excludes all or part of a cost from rates, even if the regulator allows the company to earn a return on the remaining costs allowed. Under this standard, the probability of recovery and the recognition of regulatory assets under the criteria of ASC 980 must be assessed on an ongoing basis. As discussed in the description of ASC 980 in this Note (A) under “Regulatory Accounting,” determination that certain regulatory assets no longer qualify for accounting as such could have a material impact on the financial condition of UI, the Gas Companies and UIL Holdings. As a result of UI’s 2013 distribution rate proceeding, a portion of UI’s deferred storm costs and capital costs related to UI’s recently constructed administrative and operations buildings were written off. See – Note (C), Regulatory Proceedings, Electric Distribution and Transmission – Rates, for additional information. |
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ASC 323 “Investments” requires that a loss in the value of an investment that is other than a temporary decline should be recognized. In accordance with ASC 323, UIL Holdings reviews its investments accounted for by the equity method for impairment by identifying and measuring losses in the value based upon a comparison of fair value to carrying value. At December 31, 2013, UIL Holdings did not have any equity investments that were impaired under this standard. |
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Income Taxes |
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In accordance with ASC 740 “Income Taxes,” UIL Holdings has provided deferred taxes for all temporary book‑tax differences using the liability method. The liability method requires that deferred tax balances be adjusted to reflect enacted future tax rates that are anticipated to be in effect when the temporary differences reverse. In accordance with generally accepted accounting principles for regulated industries, UIL Holdings’ regulated subsidiaries have established a regulatory asset for the net revenue requirements to be recovered from customers for the related future tax expense associated with certain of these temporary differences. For ratemaking purposes, UIL Holdings’ regulated subsidiaries normalize all investment tax credits (ITCs) related to recoverable plant investments. |
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Under ASC 740, UIL Holdings may recognize the tax benefit of an uncertain tax position only if management believes it is more likely than not that the tax position will be sustained on examination by the taxing authority based upon the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based upon the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. UIL Holdings’ policy is to recognize interest accrued and penalties associated with uncertain tax positions as a component of operating expense. See – Note (E), Income Taxes for additional information. |
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UIL Holdings files a consolidated federal tax return which includes all of the activities of its subsidiaries. Each subsidiary company is treated as a member of the consolidated group and each subsidiary company’s current and deferred tax expense or benefit is calculated based on the separate return method. |
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Pension and Other Postretirement Benefits |
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UIL Holdings accounts for pension plan costs and other postretirement benefits, consisting principally of health and life insurance, in accordance with the provisions of ASC 715 “Compensation - Retirement Benefits.” See – Note (G), Pension and Other Benefits. |
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Property, Plant and Equipment |
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The cost of additions to property, plant and equipment and the cost of renewals and betterments are capitalized. Cost consists of labor, materials, services and certain indirect construction costs, including AFUDC. The costs of current repairs, major maintenance projects and minor replacements are charged to appropriate operating expense accounts as incurred. The original cost of utility property, plant and equipment retired or otherwise disposed of and the cost of removal, less salvage, are charged to the accumulated provision for depreciation. |
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UI and the Gas Companies accrue for estimated costs of removal for certain of their plant-in-service. Such removal costs are included in the approved rates used to depreciate these assets. At the end of the service life of the applicable assets, the accumulated depreciation in excess of the historical cost of the asset provides for the estimated cost of removal. In accordance with ASC 980 “Regulated Operations,” the accrued costs of removal have been recorded as a regulatory liability. |
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UIL Holdings’ property, plant and equipment as of December 31, 2013 and 2012 were comprised as follows: |
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| | 2013 | | | 2012 | | | | | |
| | (In Thousands) | | | | | |
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Electric distribution plant | | $ | 979,526 | | | $ | 860,096 | | | | | |
Electric transmission plant | | | 630,834 | | | | 577,669 | | | | | |
Gas distribution plant | | | 1,444,837 | | | | 1,386,288 | | | | | |
Software | | | 144,494 | | | | 136,219 | | | | | |
Building and improvements | | | 235,002 | | | | 220,821 | | | | | |
Land | | | 64,848 | | | | 64,421 | | | | | |
Other plant | | | 192,219 | | | | 184,061 | | | | | |
Total property, plant & equipment | | | 3,691,760 | | | | 3,429,575 | | | | | |
Less accumulated depreciation | | | 944,399 | | | | 893,764 | | | | | |
| | | 2,747,361 | | | | 2,535,811 | | | | | |
Construction work in progress | | | 321,319 | | | | 311,340 | | | | | |
Net property, plant & equipment | | $ | 3,068,680 | | | $ | 2,847,151 | | | | | |
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Regulatory Accounting |
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Generally accepted accounting principles for regulated entities in the United States of America allow UIL Holdings’ regulated subsidiaries to give accounting recognition to the actions of regulatory authorities in accordance with the provisions of Accounting Standards Codification (ASC) 980 “Regulated Operations.” In accordance with ASC 980, UIL Holdings’ regulated utilities have deferred recognition of costs (a regulatory asset) or have recognized obligations (a regulatory liability) if it is probable that such costs will be recovered or obligations relieved in the future through the ratemaking process. UIL Holdings’ regulated utilities are allowed to recover all such deferred costs through its regulated rates. See Note (C), “Regulatory Proceedings,” for a discussion of the recovery of certain deferred costs, as well as a discussion of the regulatory decisions that provide for such recovery. |
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UI also has obligations under long‑term power contracts, the recovery of which is subject to regulation. If UIL Holdings’ regulated utilities, or a portion of their assets or operations, were to cease meeting the criteria for application of these accounting rules, accounting standards for businesses in general would become applicable and immediate recognition of any previously deferred costs would be required in the year in which such criteria are no longer met (if such deferred costs are not recoverable in the portion of the business that continues to meet the criteria for application of ASC 980). UIL Holdings expects its regulated utilities to continue to meet the criteria for application of ASC 980 for the foreseeable future. If a change in accounting were to occur, it could have a material adverse effect on the earnings and retained earnings of the applicable regulated utility and UIL Holdings in that year and could also have a material adverse effect on the ongoing financial condition of the applicable regulated utility and UIL Holdings. |
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Unless otherwise stated below, all of UIL Holdings’ regulatory assets earn a return. UIL Holdings’ regulatory assets and liabilities as of December 31, 2013 and 2012 included the following: |
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| Remaining | | December 31, | | | December 31, | | | | |
| Period | | 2013 | | | 2012 | | | | |
| | | (In Thousands) | | | | |
Regulatory Assets: | | | | | | | | | | |
Nuclear plant investments – above market | (a) | | $ | 238,868 | | | $ | 252,498 | | | | |
Connecticut Yankee | Not applicable | | | - | | | | 11,129 | | | | |
Unamortized redemption costs | 8 to 20 years | | | 11,301 | | | | 12,103 | | | | |
Pension and other post-retirement benefit plans | (b) | | | 316,076 | | | | 458,019 | | | | |
Environmental remediation costs | 3 years | | | 14,953 | | | | 14,772 | | | | |
Hardship programs | (c) | | | 25,019 | | | | 29,852 | | | | |
Debt premium | 1 to 24 years | | | 34,178 | | | | 41,016 | | | | |
Deferred purchased gas | (d) | | | 2,556 | | | | 12,444 | | | | |
Income taxes due principally to book-tax differences | (m) | | | 149,015 | | | | - | | | | |
Deferred income taxes | (e) | | | 861 | | | | - | | | | |
Unfunded future income taxes | (e) | | | 31,656 | | | | 17,319 | | | | |
Contracts for differences | (f) | | | 142,743 | | | | 176,597 | | | | |
Excess generation service charge | (g) | | | 6,909 | | | | 8,864 | | | | |
Deferred transmission expense | (h) | | | 9,615 | | | | 21,379 | | | | |
Storm Costs | (i) | | | 14,752 | | | | 52,009 | | | | |
Other | (j) | | | 37,628 | | | | 27,449 | | | | |
Total regulatory assets | | | | 1,036,130 | | | | 1,135,450 | | | | |
Less current portion of regulatory assets | | | | 332,391 | | | | 120,935 | | | | |
Regulatory Assets, Net | | | $ | 703,739 | | | $ | 1,014,515 | | | | |
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Regulatory Liabilities: | | | | | | | | | | | | |
Accumulated deferred investment tax credits | 30 years | | $ | 4,465 | | | $ | 4,612 | | | | |
Income taxes due principally to book-tax differences | (m) | | | 200,673 | | | | 41,928 | | | | |
Deferred gain on sale of property | (a) | | | 37,933 | | | | 37,933 | | | | |
Middletown/Norwalk local transmission network service collections | 36 years | | | 21,402 | | | | 21,975 | | | | |
Pension and other post-retirement benefit plans | 6 years | | | 27,686 | | | | 15,016 | | | | |
Deferred income taxes | (e) | | | 43,421 | | | | 41,816 | | | | |
Asset retirement obligation | (k) | | | 5,593 | | | | 4,995 | | | | |
Low income programs | (l) | | | 25,300 | | | | 17,651 | | | | |
Asset removal costs | (j) | | | 319,530 | | | | 303,651 | | | | |
Other | (j) | | | 20,818 | | | | 36,660 | | | | |
Total regulatory liabilities | | | | 706,821 | | | | 526,237 | | | | |
Less current portion of regulatory liabilities | | | | 261,729 | | | | 21,284 | | | | |
Regulatory Liabilities, Net | | | $ | 445,092 | | | $ | 504,953 | | | | |
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a) Asset/Liability relates to the Competitive Transition Assessment (CTA). Total CTA costs recovery and stranded cost amortization are complete. The remaining balances are fully offset by amounts primarily included in income taxes, due principally to book-tax differences. As a result of the outcome of UI’s 2013 distribution rate request, PURA approved UI’s proposed rate treatment to leave CTA rates unchanged until January 1, 2014 at which point the charge ended. The remaining balances will be extinguished upon the completion of the final reconciliation hearing in 2014 and have been reclassified to current regulatory assets and liabilities on the balance sheet as of December 31, 2013. |
(b) Life is dependent upon timing of final pension plan distribution; balance, which is fully offset by a corresponding asset/liability, is recalculated each year in accordance with ASC 715 "Compensation-Retirement Benefits." See Note (G) “Pension and Other Benefits” for additional information. |
(c) Hardship customer accounts deferred for future recovery to the extent they exceed the amount in rates. |
(d) Deferred purchase gas costs balances at the end of the rate year are normally recorded/returned in the next year. |
(e) The balance will be extinguished when the asset, which is fully offset by a corresponding liability, or liability has been realized or settled, respectively. |
(f) Asset life is equal to delivery term of related contracts (which vary from approximately 6 - 13 years); balance fluctuates based upon quarterly market analysis performed on the related derivatives (Note K); amount, which does not earn a return, is fully offset by corresponding derivative asset/liability. See “-Contracts for Differences” discussion above for additional information. |
(g) Working capital allowance for generation service charge; this amount fluctuates based upon cash inflows and outflows in a given period. |
(h) Regulatory asset or liability which defers transmission income or expense and fluctuates based upon actual revenues and revenue requirements. |
(i) Storm costs include accumulated costs for major storms occurring from January 2009 forward. See Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – Rates” for a discussion of the recovery of these costs. |
(j) Amortization period and/or balance vary depending on the nature, cost of removal and/or remaining life of the underlying assets/liabilities; asset amount includes decoupling ($11.6 million) and certain other amounts that are not currently earning a return. See Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – Rates” for a discussion of the decoupling recovery period. |
(k) The liability will be extinguished simultaneous with the retirement of the assets and settlement of the corresponding asset retirement obligation. |
(l) Various hardship and payment plan programs approved for recovery. |
(m) Amortization period and/or balance vary depending on the nature and/or remaining life of the underlying assets/liabilities; balances contain regulatory liabilities related to the CTA as well as regulatory assets not related to the CTA. In prior periods, these amounts were presented on a net basis in long-term regulatory liabilities. In the current period, due to the end of the CTA charge, the CTA regulatory liabilities have been reclassified to current regulatory liabilities and the regulatory assets not related to the CTA have been reclassified to long-term regulatory assets. |
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Restricted Cash |
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UIL Holdings’ restricted cash at December 31, 2013 and 2012 totaled $2.0 million and $2.8 million, respectively, which primarily relates to electric distribution and transmission capital projects, which have been withheld by UI and will remain in place until the verification of fulfillment of contractor obligations. |
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Revenues |
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Regulated utility revenues are based on authorized rates applied to each customer. These retail rates are approved by regulatory bodies and can be changed only through formal proceedings. |
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UI utilizes a customer accounting software package integrated with the network meter reading system to estimate unbilled revenue on a customer-by-customer basis, utilizing actual daily meter readings at the end of each month to calculate consumption and pricing for each customer. A significant portion of utility retail kilowatt-hour consumption is read through the network meter reading system. For those customers still requiring manual meter readings, consumption is estimated based upon historical usage and actual pricing for each customer. |
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The Gas Companies’ unbilled revenues represent estimates of receivables for products and services provided but not yet billed. The estimates are determined based on various assumptions, such as current month energy load requirements, billing rates by customer classification and weather. |
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Stock-Based Compensation |
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Certain members of management have the opportunity to earn a pre-determined number of performance shares, the number of which is predicated upon the achievement of various pre-defined performance measures over a three-year period. These performance shares are issued under the UIL Holdings 2008 Stock and Incentive Compensation Plan (2008 Stock Plan). Each award of performance shares vests at the end of a three-year cycle with the actual issuance of UIL Holdings’ common stock in respect of such performance shares following the end of each three-year cycle. A new three-year cycle begins in January of each year. |
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UIL Holdings records compensation expense for these performance shares ratably over the three-year period, except in the case of retirement-eligible employees, for whom compensation expense is immediately recognized in accordance with ASC 718 “Compensation-Stock Compensation,” based on the value of the expected payout at the end of each year relative to the performance measures achieved. |
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Pursuant to the 2008 Stock Plan, target amounts of 101,150 and 5,860 performance shares were granted to certain members of management in March and May of 2013, respectively; the averages of the high and low market prices on the grant dates, which approximates fair value, were $38.73 and $41.34 per share, respectively. |
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Also in March 2013, UIL Holdings granted a total of 2,033 shares of restricted stock to its President and Chief Executive Officer under the 2008 Stock Plan and in accordance with his employment agreement; the average of the high and low market price on the date of grant, which approximates fair value, was $38.73 per share. Such shares vest in equal annual installments over a five-year period. In May 2013, UIL Holdings granted a total of 2,177 shares of restricted stock to an executive under the Amended and Restated UIL Holdings 2008 Stock and Incentive Compensation Plan; the average of the high and low market price on the date of grant, which approximates fair value, was $41.34 per share. Such shares vest in May 2016. |
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Also in May 2013, UIL Holdings granted a total of 21,558 shares of restricted stock to non-employee directors under the 2008 Stock Plan; the average of the high and low market price on the date of grant, which approximates fair value, was $40.69 per share. Such shares vest in May 2014. |
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As of December 31, 2013, the total number of shares authorized for stock-based compensation plans was 4,150,000. Total stock-based compensation expense for the years ended December 31, 2013, 2012 and 2011 was $5.3 million, $4.9 million and $5.3 million, respectively. |
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Variable Interest Entities |
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UIL Holdings has identified GenConn as a variable interest entity (VIE), which is accounted for under the equity method. UIL Holdings is not the primary beneficiary of GenConn, as defined in ASC 810 “Consolidation,” because it shares control of all significant activities of GenConn with its joint venturer, NRG affiliates. As such, GenConn is not subject to consolidation. GenConn recovers its costs through CfDs, which are cost of service-based and have been approved by PURA. As a result, with the achievement of commercial operation by GenConn Devon and GenConn Middletown, UIL Holdings’ exposure to loss is primarily related to the potential for unrecovered GenConn operating or capital costs in a regulatory proceeding, the effect of which would be reflected in the carrying value of UIL Holdings’ 50% ownership position in GenConn and through “Income from Equity Investments” in UIL Holdings’ Consolidated Financial Statements. Such exposure to loss cannot be determined at this time. For further discussion of GenConn, see “–Equity Investments” as well as Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – Equity Investment in Peaking Generation.” |
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UIL Holdings has identified the selected capacity resources with which UI has CfDs as VIEs and has concluded that UI is not the primary beneficiary as UI does not have the power to direct any of the significant activities of these capacity resources. As such, UIL Holdings has not consolidated the selected capacity resources. UI’s maximum exposure to loss through these agreements is limited to the settlement amount under the CfDs as described in “–Derivatives – Contracts for Differences (CfDs)” above. UI has no requirement to absorb additional losses nor has UI provided any financial or other support during the periods presented that were not previously contractually required. |
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UIL Holdings has identified the entities for which UI is required to enter into long-term contracts to purchase Renewable Energy Credits (RECs) as VIEs. In assessing these contracts for VIE identification and reporting purposes, UIL Holdings has aggregated the contracts based on similar risk characteristics and significance to UI. UI is not the primary beneficiary as UI does not have the power to direct any of the significant activities of these entities. UI’s exposure to loss is primarily related to the purchase and resale of the RECs, but, any losses incurred are recoverable through electric rates. For further discussion of RECs, see Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – New Renewable Source Generation.” |
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New Accounting Standards |
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In February 2013, the FASB issued updated guidance to ASC 220 “Comprehensive Income” which requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the Consolidated Statements of Income or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The guidance was effective prospectively for the first quarter of 2013. The adoption of this update did not have a material impact on UIL Holdings’ consolidated financial statements. |
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In July 2013, the FASB issued updated guidance to ASC 740 “Income Taxes” which prescribes the presentation of an unrecognized tax benefit when a net operating loss carry forward, a similar tax loss, or a tax credit carry forward exists. This guidance is effective during interim and annual periods beginning after December 15, 2013 and is to be applied on a prospective basis. The implementation of this guidance is not expected to have a material impact on UIL Holdings’ consolidated financial statements. |