Eversource 2009 Annual Report Download - page 119

FS-34
that would be required by a market participant to arrive at an exit price, using available historical market transaction information.
Valuations of derivative contracts also reflect nonperformance risk, including credit. The derivative contracts classified as Level 3
include NU Enterprises' remaining wholesale marketing contract and its related supply contracts, CL&P's contracts for differences
(CfDs), CL&P's contracts with certain independent power producers (IPPs), PSNH and Yankee Gas physical options and CL&P and
PSNH financial transmission rights (FTRs).
Other derivative contracts recorded at fair value are classified as Level 2 within the fair value hierarchy. An active market for the same
or similar contracts exists for these contracts, which include PSNH forward contracts to purchase energy and interest rate swap
agreements. For these contracts, valuations are based on quoted prices in the market and include some modeling using market-based
assumptions.
For further information on derivative contracts, see Note 3, "Derivative Instruments," to the consolidated financial statements.
Marketable securities: NU and WMECO hold in trust marketable securities, which include equity securities, mutual funds and cash
equivalents, and fixed income securities.
Equity securities, mutual funds and cash equivalents are classified as Level 1 in the fair value hierarchy. These investments are traded
in active markets and quoted prices for identical investments are available and used in NU's fair value measurements.
Fixed income securities classified as Level 2 within the fair value hierarchy include U.S. Treasury securities, corporate bonds,
collateralized mortgage obligations, U.S. pass-through bonds, asset-backed securities, commercial mortgage-backed securities, and
commercial paper. The fair value of these instruments is estimated using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. The pricing models utilize observable inputs such as recent trades for the same or similar
instruments, yield curves, discount margins and bond structures.
For further information see Note 4, "Fair Value Measurements," and Note 9, "Marketable Securities," to the consolidated financial
statements.
There were no changes to the valuation methodologies for derivative instruments or marketable securities for the years ended
December 31, 2009 and 2008.
H. Regulatory Accounting
The accounting policies of the regulated companies conform to GAAP applicable to rate-regulated enterprises and historically reflect the
effects of the rate-making process.
The transmission and distribution segments of CL&P, PSNH (including its generation business) and WMECO, along with Yankee Gas'
distribution segment, continue to be rate-regulated on a cost-of-service basis. Management believes it is probable that NU's regulated
companies will recover their respective investments in long-lived assets, including regulatory assets. All material net regulatory assets
are earning an equity return, except for the majority of deferred benefit cost assets, regulatory assets offsetting derivative liabilities,
securitized regulatory assets and income tax assets, which are not supported by equity. Amortization and deferrals of regulatory
assets/(liabilities) are included on a net basis in Amortization of regulatory assets/(liabilities), net on the accompanying consolidated
statements of income.
Regulatory Assets: The components of regulatory assets are as follows:
As of December 31,
2009 2008
(Millions of Dollars) NU NU
Deferred benefit costs $ 1,132.1 $ 1,140.9
Regulatory assets offsetting derivative liabilities 855.6 844.2
Securitized assets 432.9 677.4
Income taxes, net 363.2 355.4
Unrecovered contractual obligations 149.5 169.1
Regulatory tracker deferrals 104.1 128.6
Storm cost deferral 60.0 19.3
Conditional asset retirement obligations (Note 1M) 42.9 42.3
Losses on reacquired debt 24.0 26.4
Yankee Gas environmental costs 23.3 25.2
Other regulatory assets 57.3 73.8
Totals $ 3,244.9 $ 3,502.6