Entity information:
INCOME TAXES

The components of income tax expense are as follows:
Eversource
(Millions of Dollars)
For the Years Ended December 31,
2017
 
2016
 
2015
Current Income Taxes:
 

 
 

 
 

Federal
$
58.9

 
$
38.9

 
$
6.2

State
31.6

 
53.0

 
45.7

Total Current
90.5

 
91.9

 
51.9

Deferred Income Taxes, Net:
 

 
 

 
 

Federal
433.0

 
427.9

 
436.1

State
58.6

 
38.6

 
55.6

Total Deferred
491.6

 
466.5

 
491.7

Investment Tax Credits, Net
(3.2
)
 
(3.4
)
 
(3.6
)
Income Tax Expense
$
578.9

 
$
555.0

 
$
540.0

 
For the Years Ended December 31,
 
2017
 
2016
 
2015
(Millions of Dollars)
CL&P
 
NSTAR
Electric
 
PSNH
 
CL&P
 
NSTAR Electric
 
PSNH
 
CL&P
 
NSTAR Electric
 
PSNH
Current Income Taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal
$
50.9

 
$
107.8

 
$
18.6

 
$
27.3

 
$
86.4

 
$
(13.7
)
 
$
26.9

 
$
32.8

 
$
(16.7
)
State
17.4

 
25.6

 
6.2

 
13.3

 
39.5

 
8.8

 
15.8

 
21.4

 
6.0

Total Current
68.3

 
133.4

 
24.8

 
40.6

 
125.9

 
(4.9
)
 
42.7

 
54.2

 
(10.7
)
Deferred Income
   Taxes, Net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal
123.9

 
88.1

 
52.7

 
157.6

 
96.6

 
79.5

 
135.8

 
180.9

 
74.5

State
(4.6
)
 
22.4

 
11.2

 
11.3

 
5.1

 
7.8

 
0.2

 
31.7

 
9.3

Total Deferred
119.3

 
110.5

 
63.9

 
168.9

 
101.7

 
87.3

 
136.0

 
212.6

 
83.8

Investment Tax
   Credits, Net
(1.0
)
 
(1.8
)
 
—

 
(1.2
)
 
(1.8
)
 
—

 
(1.3
)
 
(1.8
)
 
—

Income Tax Expense
$
186.6

 
$
242.1

 
$
88.7

 
$
208.3

 
$
225.8

 
$
82.4

 
$
177.4

 
$
265.0

 
$
73.1



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,
2017
 
2016
 
2015
Income Before Income Tax Expense
$
1,574.4

 
$
1,504.8

 
$
1,425.9

 
 
 
 
 
 
Statutory Federal Income Tax Expense at 35%
551.0

 
526.7

 
499.1

Tax Effect of Differences:
 
 
 
 
 
Depreciation
(10.8
)
 
(3.4
)
 
(4.6
)
Investment Tax Credit Amortization
(3.2
)
 
(3.4
)
 
(3.6
)
Other Federal Tax Credits
—

 
(3.5
)
 
(3.8
)
State Income Taxes, Net of Federal Impact
47.7

 
56.2

 
61.1

Dividends on ESOP
(8.4
)
 
(8.4
)
 
(8.1
)
Tax Asset Valuation Allowance/Reserve Adjustments
7.0

 
3.3

 
4.7

Excess Stock Benefit (1)
(2.9
)
 
(19.1
)
 
—

Other, Net
(1.5
)
 
6.6

 
(4.8
)
Income Tax Expense
$
578.9

 
$
555.0

 
$
540.0

Effective Tax Rate
36.8
%
 
36.9
%
 
37.9
%
 
For the Years Ended December 31,
 
2017
 
2016
 
2015
(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
$
563.4

 
$
616.8

 
$
224.7

 
$
542.6

 
$
576.6

 
$
214.3

 
$
476.8

 
$
666.1

 
$
187.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statutory Federal Income
   Tax Expense at 35%
197.2

 
215.9

 
78.6

 
189.9

 
201.8

 
75.0

 
166.9

 
233.1

 
65.6

Tax Effect of Differences:
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
(5.2
)
 
(3.0
)
 
1.1

 
1.6

 
(3.1
)
 
1.0

 
(1.7
)
 
(1.7
)
 
0.5

Investment Tax Credit
  Amortization
(1.0
)
 
(1.8
)
 
—

 
(1.2
)
 
(1.8
)
 
—

 
(1.3
)
 
(1.8
)
 
—

Other Federal Tax
  Credits
—

 
—

 
—

 
—

 
—

 
(3.5
)
 
—

 
—

 
(3.8
)
State Income Taxes,
  Net of Federal Impact
4.5

 
31.2

 
11.3

 
14.5

 
29.0

 
10.8

 
9.2

 
34.5

 
9.9

Tax Asset Valuation
  Allowance/Reserve
 Adjustments
(9.5
)
 
—

 
—

 
1.5

 
—

 
—

 
1.2

 
—

 
—

Excess Stock Benefit (1)
(0.7
)
 
(0.7
)
 
(0.3
)
 
(0.9
)
 
(1.2
)
 
(0.4
)
 
—

 
—

 
—

Other, Net
1.3

 
0.5

 
(2.0
)
 
2.9

 
1.1

 
(0.5
)
 
3.1

 
0.9

 
0.9

Income Tax Expense
$
186.6

 
$
242.1

 
$
88.7

 
$
208.3

 
$
225.8

 
$
82.4

 
$
177.4

 
$
265.0

 
$
73.1

Effective Tax Rate
33.1
%
 
39.2
%
 
39.5
%
 
38.4
%
 
39.2
%
 
38.4
%
 
37.2
%
 
39.8
%
 
39.0
%


(1)
In 2016, the Company adopted new accounting guidance, which prospectively changed the accounting for excess tax benefits associated with the distribution of stock compensation awards, previously recognized in Capital Surplus, Paid In within Common Shareholders' Equity on the balance sheet, to recognition within income tax expense in the income statement.  See Note 1D, "Summary of Significant Accounting Policies - Accounting Standards," for further information.

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:
Eversource
(Millions of Dollars)
As of December 31,
2017
 
2016
Deferred Tax Assets:
 
 
 
Employee Benefits
$
442.1

 
$
640.6

Derivative Liabilities
111.8

 
192.6

Regulatory Deferrals - Liabilities
205.6

 
290.9

Allowance for Uncollectible Accounts
50.1

 
76.6

Tax Effect - Tax Regulatory Liabilities
832.6

 
11.8

Federal Net Operating Loss Carryforwards
47.8

 
—

Purchase Accounting Adjustment
69.9

 
112.2

Other
149.5

 
170.5

Total Deferred Tax Assets
1,909.4

 
1,495.2

Less:  Valuation Allowance
14.6

 
5.1

Net Deferred Tax Assets
$
1,894.8

 
$
1,490.1

Deferred Tax Liabilities:
 
 
 
Accelerated Depreciation and Other Plant-Related Differences
$
3,562.0

 
$
5,001.2

Property Tax Accruals
56.7

 
81.9

Regulatory Amounts:
 
 
 
Regulatory Deferrals - Assets
924.9

 
1,321.8

Tax Effect - Tax Regulatory Assets
243.1

 
252.6

Goodwill Regulatory Asset - 1999 Merger
99.8

 
186.7

Derivative Assets
17.4

 
29.5

Other
288.4

 
223.6

Total Deferred Tax Liabilities
$
5,192.3

 
$
7,097.3

 
As of December 31,
 
2017
 
2016
(Millions of Dollars)
CL&P
 
NSTAR
Electric
 
PSNH
 
CL&P
 
NSTAR
Electric
 
PSNH
Deferred Tax Assets:
 
 
 
 
 
 
 
 
 
 
 
Employee Benefits
$
112.3

 
$
34.0

 
$
38.0

 
$
138.8

 
$
69.5

 
$
46.5

Derivative Liabilities
110.5

 
0.3

 
—

 
191.5

 
1.1

 
—

Regulatory Deferrals - Liabilities
12.0

 
139.8

 
17.9

 
6.3

 
194.9

 
36.7

Allowance for Uncollectible Accounts
20.6

 
17.3

 
2.9

 
33.0

 
25.7

 
4.1

Tax Effect - Tax Regulatory Liabilities
337.2

 
281.2

 
116.8

 
4.9

 
3.3

 
2.6

Other
70.7

 
4.9

 
49.6

 
59.4

 
6.6

 
56.4

Total Deferred Tax Assets
663.3

 
477.5

 
225.2

 
433.9

 
301.1

 
146.3

Less:  Valuation Allowance
6.3

 
—

 
—

 
4.5

 
—

 
—

Net Deferred Tax Assets
$
657.0

 
$
477.5

 
$
225.2

 
$
429.4

 
$
301.1

 
$
146.3

Deferred Tax Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accelerated Depreciation and Other
  Plant-Related Differences
$
1,224.9

 
$
1,229.2

 
$
502.5

 
$
1,700.3

 
$
1,901.9

 
$
726.3

Property Tax Accruals
20.7

 
24.2

 
5.5

 
29.7

 
36.8

 
8.0

Regulatory Amounts:
 
 
 
 
 
 
 
 
 
 
 
Regulatory Deferrals - Assets
310.6

 
267.1

 
103.6

 
473.4

 
381.7

 
142.1

Tax Effect - Tax Regulatory Assets
173.1

 
9.8

 
11.4

 
170.4

 
44.8

 
12.2

Goodwill Regulatory Asset - 1999 Merger
—

 
85.7

 
—

 
—

 
160.3

 
—

Derivative Assets
17.4

 
—

 
—

 
27.0

 
—

 
—

Other
13.7

 
137.3

 
45.7

 
16.3

 
102.7

 
43.1

Total Deferred Tax Liabilities
$
1,760.4

 
$
1,753.3

 
$
668.7

 
$
2,417.1

 
$
2,628.2

 
$
931.7



2017 Federal Legislation: On December 22, 2017, the "Tax Cuts and Jobs Act" (the "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. In terms of the impacts to the regulated companies, the most significant changes will be (1) the benefit of incurring a lower federal income tax expense, which we expect to be passed back to customers, and (2) the provisional regulated excess ADIT liabilities that we expect to benefit customers in future periods, which were estimated to be approximately $2.9 billion (approximately $1.0 billion at CL&P, $1.1 billion at NSTAR Electric and $0.4 billion at PSNH) as of December 31, 2017 and recognized as regulatory liabilities on the balance sheet.

The Eversource regulated companies are currently working with their applicable state regulatory commissions, who have opened investigations to examine the impact of the Act on customer rates. FERC has yet to address how the Act would impact transmission rates. Eversource, CL&P, NSTAR Electric, and PSNH will continue to evaluate the impacts of the Act, which will vary depending on the ultimate amount and timing of when certain income tax benefits will benefit customers, and will vary by jurisdiction.

Although the impacts could not be finalized upon the issuance of this combined Annual Report on Form 10-K, reasonable provisional estimates were recognized as of December 31, 2017. In accordance with SEC Staff Accounting Bulletin No. 118 ("SAB 118"), additional re-measurement may occur based on final analysis, computations, technical corrections, or other forms of guidance issued from regulatory agencies or commissions. While the Company believes the impacts of the Act were appropriately accounted for in accordance with the applicable authoritative guidance, the ultimate outcome may be different from the provisional estimates recorded, and those differences may materially impact its future statement of financial position, results of operations, and cash flows.

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, 2017
(Millions of Dollars)
Eversource
 
CL&P
 
NSTAR
Electric
 
PSNH
 
Expiration Range
Federal Net Operating Loss
$
197.3

 
$
—

 
$
—

 
$
—

 
2027-2037
Federal Charitable Contribution
18.7

 
—

 
—

 
—

 
2017-2022
State Net Operating Loss
82.8

 
—

 
—

 
—

 
2028-2037
State Tax Credit
139.0

 
94.5

 
—

 
—

 
2017-2022
State Charitable Contribution
31.4

 
—

 
—

 
—

 
2017-2022
 
As of December 31, 2016
(Millions of Dollars)
Eversource
 
CL&P
 
NSTAR
Electric
 
PSNH
 
Expiration Range
Federal Tax Credit
8.6

 
—

 
—

 
—

 
—
Federal Charitable Contribution
27.8

 
—

 
—

 
—

 
2016 - 2019
State Tax Credit
111.1

 
80.5

 
—

 
—

 
2016 - 2021
State Charitable Contribution
36.5

 
—

 
—

 
—

 
2016 - 2020


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 and update for expired tax credits. In 2016, the Company increased its valuation allowance reserve for state credits by $1.3 million ($1.3 million for CL&P), net of tax, to reflect an update for expired tax credits.

For 2017 and 2016, state credit and state loss carryforwards have been partially reserved by a valuation allowance of $14.4 million and $4.5 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, 2015
$
46.2

 
$
14.3

Gross Increases - Current Year
9.9

 
2.6

Gross Increases - Prior Year
0.1

 
—

Lapse of Statute of Limitations
(8.2
)
 
(3.4
)
Balance as of December 31, 2015
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



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)
2017
 
2016
 
2015
 
2017
 
2016
Eversource
$
—

 
$
(0.2
)
 
$
0.1

 
$
1.8

 
$
1.8



Tax Positions:  During 2017 and 2016, 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, 2017:
Description
Tax Years
Federal
2017
Connecticut
2014 - 2017
Massachusetts
2014 - 2017
New Hampshire
2015 - 2017


Eversource estimates that during the next twelve months, differences of a non-timing nature could be resolved, resulting in a zero to $2.2 million decrease in unrecognized tax benefits by Eversource. These estimated changes are not expected to have a material impact on the earnings of Eversource. Other companies' impacts are not expected to be material.