Eversource 2009 Annual Report Download - page 137

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available funds of other member companies, including funds borrowed by NU. NU may lend to the Pool but may not borrow. Funds
may be withdrawn from or repaid to the Pool at any time without prior notice. Investing and borrowing subsidiaries receive or pay
interest based on the average daily federal funds rate. Borrowings based on external loans of NU, however, bear interest at NU's cost
and must be repaid based upon the terms of NU's original borrowing. In NU's consolidated financial statements, Pool amounts payable
or receivable to or from members eliminate in consolidation. By order, the FERC has exempted all holding company system money
pools from active regulation. As of December 31, 2009 and 2008, CL&P, PSNH and WMECO had the following borrowings
from/(contributions to) the Pool with the respective weighted-average interest rate on borrowings from the Pool:
As of and for the Years Ended December 31,
2009 2008
(Millions of Dollars, except percentage) CL&P PSNH WMECO CL&P PSNH WMECO
Borrowings from/(contributions to) $ (97.8) $ 26.7 $ 136.1 $ 102.7 $ (53.8) $ 31.6
Weighted-average interest rate 0.22 % 0.15 % 0.15 % 1.57 % 2.24 % 2.22 %
The net borrowings from/contributions to the Pool are recorded in Notes payable to/Notes receivable from affiliated companies,
respectively.
3. Derivative Instruments (NU, NU Enterprises, CL&P, PSNH, Yankee Gas)
The costs and benefits of derivative contracts that meet the definition of and are designated as normal are recognized in Operating
expenses or Operating revenues on the accompanying consolidated statements of income, as applicable, as electricity or natural gas is
delivered.
Derivative contracts that are not designated as accounting hedges, or as normal, are recorded at fair value as current or long-term
derivative assets or liabilities. Changes in fair values of NU Enterprises' derivatives are included in Net income. For the regulated
companies, including CL&P, PSNH, and Yankee Gas, regulatory assets or liabilities are recorded for the changes in fair values of
derivatives, as these contracts are part of current regulated operating costs, or have an allowed recovery mechanism, and management
believes that these costs will continue to be recovered from or refunded to customers in cost-of-service, regulated rates. See below for
discussion of "Derivatives designated as hedging instruments."
CL&P, PSNH, WMECO, and Yankee Gas are exposed to the volatility of the prices of energy and energy-related products in procuring
energy supply for their customers. The costs associated with supplying energy to customers are recoverable through customer rates.
The Company manages the risks associated with the price volatility of energy and energy-related products through the use of derivative
contracts, many of which are accounted for as normal (for WMECO all derivative contracts are accounted for as normal) and the use of
nonderivative contracts.
CL&P mitigates the risks associated with the price volatility of energy and energy-related products through the use of standard or last
resort service contracts, which fix the price of electricity purchased for customers for periods of time ranging from three months to three
years and are accounted for as normal. CL&P has entered into derivatives, including FTR contracts and bilateral basis swaps, to
manage the risk of congestion costs associated with its standard offer and last resort service contracts. As required by regulation,
CL&P has also entered into derivative and nonderivative contracts for the purchase of energy and energy-related products and
contracts related to capacity. While the risks managed by these contracts are regional congestion costs and capacity price risks that
are not specific to CL&P, Connecticut's electric distribution companies, including CL&P, are required to enter into these contracts. The
derivative contracts not accounted for as normal are accounted for at fair value. Management believes any costs or benefits from these
contracts are recoverable from or refunded to CL&P's customers, and, therefore any changes in fair value are recorded as Regulatory
assets and Regulatory liabilities on the accompanying consolidated balance sheets.
WMECO mitigates the risks associated with the volatility of the prices of energy and energy-related products in procuring energy supply
for its customers through the use of default service contracts, which fix the price of electricity purchased for customers for periods of
time ranging from three months to three years and are accounted for as normal.
PSNH mitigates the risks associated with the volatility of energy prices in procuring energy supply for its customers through its
generation facilities and the use of derivative contracts, including energy forward contracts, options and FTRs. PSNH enters into these
contracts in order to stabilize electricity prices for customers. The derivative contracts not accounted for as normal are accounted for at
fair value. Management believes any costs or benefits from these contracts are recoverable from or will be refunded to PSNH's
customers, and, therefore any changes in fair value are recorded as Regulatory assets and Regulatory liabilities on the accompanying
consolidated balance sheets.
Yankee Gas mitigates the risks associated with supply availability and volatility of natural gas prices through the use of storage facilities
and long-term agreements to purchase gas supply for customers that include nonderivative contracts and contracts that are accounted
for as normal. Yankee Gas also manages supply risk through the use of options contracts. The derivative contracts not accounted for
as normal are accounted for at fair value. Management believes any costs or benefits from these contracts are recoverable from or
refundable to Yankee Gas' customers, and, therefore, any changes in fair value are recorded as Regulatory assets and Regulatory
liabilities on the accompanying consolidated balance sheets.
NU Enterprises, through Select Energy, has one remaining fixed price forward sales contract that was part of its wholesale energy
marketing business. NU Enterprises mitigates the price risk associated with this contract through the use of forward purchase