Eversource 2006 Annual Report Download - page 37

NU 2006 ANNUAL REPORT 35
As of December 31, 2005 and for the years ended December 31, 2006
and 2005, the sources of the fair value of retail energy sourcing contracts
and the changes in fair value of these contracts are included in the
following tables:
(Millions of Dollars) Fair Value of Retail Sourcing Contracts at December 31, 2005
Maturity Less Maturity of One Total
Sources of Fair Value Than One Year to Four Years Fair Value
Prices actively quoted $ (8.8) $— $ (8.8)
Prices provided by external sources 25.8 — 25.8
Totals $17.0 $— $17.0
Total Portfolio Fair Value
Year Ended December 31,
(Millions of Dollars) 2006 2005
Fair value of retail sourcing contracts
outstanding at the beginning of the year $17.0 $—
Contracts realized or otherwise settled
during the year (5.8) (25.7)
Changes in fair value recorded:
Other operating expenses (47.6) —
Fuel, purchased and net interchange
power (8.5) 42.7
Transferred to Hess 45.0 —
Fair value of retail sourcing contracts
outstanding at the end of the year $0.1 $17.0
Changes in the fair value of retail contracts until the June 1, 2006 sale
of the retail business totaling a negative $47.6 million were recorded in
other operating expenses on the accompanying consolidated statements
of income/(loss). This charge was recorded as part of the charge to
reduce the retail marketing business’ carrying value to its fair value
lesscost to sell. Any changes in fair value subsequent to the sale for
contracts that were not yet assigned to Hess are recorded against the
fair value less cost to sell and are reflected as other current liabilities
and other deferred credits. During 2006, $45 million of derivatives were
transferred to Hess subsequent to receiving customer consents to the
assignment of their contracts. In connection with the decision to exit
the wholesale marketing business in March of 2005, Select Energy
identified certain contracts previously designated as wholesale and
redesignated them to support its retail marketing business. For the
years ended December 31, 2006 and 2005, a charge of $8.5 million and
abenefit of $42.7 million, respectively, were recorded in fuel, purchased
and net interchange power on the consolidated statements of income/
(loss) related to these contracts.
Competitive Generation Activities: Until November 1, 2006, the
competitive generation assets owned by NU Enterprises were subject
to certain operational risks, including but not limited to the length of
scheduled and non-scheduled outages, bidding and scheduling with
various ISOs, environmental issues and fuel costs. Competitive generation
activities were also subject to various federal, state and local regulations.
On November 1, 2006, all competitive generation derivative assets and
derivative liabilities were transferred to ECP as a result of the sale,
with the exception of certain generation contracts that expired on
December 31, 2006.
The competitive generation business included third-party derivative
generation related sales contracts (third-party generation contracts)
and physical generation from NGC and HWP (physical generation).
At December 31, 2005, Select Energy had generation derivative assets
and derivative liabilities as follows:
(Millions of Dollars) December 31, 2005
Current generation derivative assets $ 9.2
Long-term generation derivative assets —
Current generation derivative liabilities (5.1)
Long-term generation derivative liabilities (15.5)
Total portfolio $(11.4)
The methods used to determine the fair value of generation contracts
are identified and segregated in the table of fair value of contracts
at December 31, 2006 and 2005. A description of each method is as
follows: 1) prices actively quoted primarily represent exchange traded
futures and swaps that are marked to closing exchange prices; and 2)
prices provided by external sources primarily include over-the-counter
forwards, including bilateral contracts for the purchase or sale of
electricity and are marked to the mid-point of bid and ask market prices.
As of December 31, 2005, the sources of the fair value of generation
contracts are included in the following tables:
(Millions of Dollars) Fair Value of Generation Contracts at December 31, 2005
Maturity Less Maturity of One Total
Sources of Fair Value Than One Year to Four Years Fair Value
Prices actively quoted $(1.8) $ — $ (1.8)
Prices provided by external sources 5.9 (15.5) (9.6)
Totals $ 4.1 $(15.5) $(11.4)
For the years ended December 31, 2006 and 2005, the changes in fair
value of these contracts are included in the following tables:
Total Portfolio Fair Value
Year Ended December 31,
(Millions of Dollars) 2006 2005
Fair value of competitive generation contracts
outstanding at the beginning of the year $(11.4) $—
Contracts realized or otherwise settled during
the year (10.6) (0.1)
Changes in fair value recorded:
Transferred to ECP 4.0 —
Discontinued operations 11.5 (15.5)
Fuel, purchased and net interchange power (0.8) —
Operating revenues 7.3 4.2
Fair value of competitive generation contracts
outstanding at the end of the year $—$(11.4)
Changes in the fair value of generation sales contracts that became
marked-to-market as a result of the decision to exit the remainder of
the NU Enterprises’businesses were a positive$11.5 million and a
negative $15.5 million for the years ended December 31, 2006 and
2005, respectively, which are recorded in discontinued operations on
the accompanying consolidated statements of income/(loss). In
November of 2006, $4 million of derivatives was transferred to ECP as
a result of the sale. Changes in fair value of the remaining generation
contracts that weremarked-to-market as a result of the decision to
exit the wholesale marketing business totaled a negative $0.8 million
in 2006 and arerecorded as fuel, purchased and net interchange
power on the accompanying consolidated statements of income/(loss).
Changes in the fair value of energy sales contracts that remain in
continuing operations totaling a positive $7.3 million and $4.2 million
for the yearsended December 31, 2006 and 2005, respectively, are
recorded as revenues on the consolidated statements of income/(loss).