Eversource 2009 Annual Report Download - page 50

42
In December 2006, the DOE appealed the ruling, and the Yankee Companies filed a cross-appeal. The Court of Appeals issued its
decision on August 7, 2008, effectively agreeing with the trial court’s findings as to the liability of the DOE but disagreeing with the
method that the trial court used to calculate damages. The Court of Appeals vacated the decision and remanded the case for new
findings consistent with its decision.
The refund to CL&P, PSNH and WMECO of any damages that may be recovered from the DOE will be realized through the Yankee
Companies' FERC-approved rate settlement agreements, subject to final determination of the FERC. CL&P, PSNH and WMECO
cannot at this time determine the timing or amount of any ultimate recovery from the DOE, through the Yankee Companies, on this
matter. However, we believe that any net settlement proceeds we receive would be incorporated into FERC-approved recoveries,
which would be passed on to our customers through reduced charges.
NU Enterprises Divestitures
We have exited most of our competitive businesses. NU Enterprises continues to manage to completion its remaining wholesale
marketing contracts and to manage its electrical contracting business.
Wholesale Marketing: During 2009, Select Energy continued to manage its long-term wholesale energy sales contract with the New
York Municipal Power Agency (NYMPA), an agency comprised of municipalities, that expires in 2013, and related energy supply
contracts. In addition to the NYMPA portfolio, Select Energy has a contract to operate and purchase the output of a generating facility
in New England through mid-2012.
Energy Services: Most of NU Enterprises' energy services businesses were sold in 2005 and 2006. Certain other businesses were
wound down in 2007, and we continue to wind down minimal activity at the other energy services businesses other than E.S. Boulos
Company (Boulos), an electrical contractor based in Maine that we continue to own and manage.
NU Enterprises Contracts
Wholesale Energy Contracts: NU Enterprises' wholesale energy contracts (managed through its subsidiary Select Energy), which are
accounted for as derivatives, are subject to mark-to-market accounting. Numerous factors could either positively or negatively affect the
realization of the net fair value amounts of these energy contracts to cash. These factors include: 1) volatility of commodity prices until
the derivative contracts result in deliveries, are exited or expire; 2) differences between expected and actual volumes; 3) the
performance of counterparties; and 4) other factors.
Select Energy has policies and procedures requiring all of its wholesale energy positions to be valued daily and segregating
responsibilities between the individuals actually transacting (front office) and those confirming the trades (middle office). The middle
office is responsible for determining the portfolio's fair value independent from the front office.
The methods Select Energy used to determine the fair value of its wholesale energy contracts are identified and segregated in the table
of fair value of wholesale derivative contracts as of December 31, 2009 and 2008. A description of each method is as follows: 1) prices
actively quoted primarily represent NYMEX futures and swaps that are marked to closing exchange prices; and 2) prices provided by
external sources primarily include over-the-counter forwards and options, including bilateral contracts for the purchase or sale of
electricity, and are marked to the mid-point of bid and ask market prices. The mid-points of market prices are adjusted to include all
applicable market information, such as historical experience with intra-month price volatility and exit pricing assumptions. Currently, a
portion of the NYMPA contract's fair value related to intra-month volatility and an exit price premium are determined based upon a
model.
Generally, valuations of short-term derivative contracts derived from quotes or other external sources are more reliable should there be
a need to liquidate the contracts, while valuations for longer-term derivative contracts are less certain. Accordingly, there is a risk that
derivative contracts will not be realized at the amounts recorded.
The tables below disaggregate the estimated fair value of the wholesale energy derivative contracts. Valuations of individual contracts
are broken into their component parts based upon prices actively quoted, prices provided by external sources and model-based
amounts. Under accounting guidance for fair value measurements, contracts are classified in their entirety according to the lowest level
for which there is at least one input that is significant to the valuation. Therefore, all of these contracts are classified as Level 3 under
this guidance. As of December 31, 2009 and 2008, the sources of the fair value of wholesale energy derivative contracts are included
in the following tables:
(Millions of Dollars) Fair Value of Wholesale Contracts as of December 31, 2009
Sources of Fair Value
Maturity Less
than One Year
Maturity of One
to Four Years
Maturity in
Excess
of Four Years
Total Fair
Value
Prices actively quoted $ (5.5) $(18.8) $- $ (24.3)
Prices provided by external sources (3.3) (8.1) - (11.4)
Model-based (2.0) (7.5) - (9.5)
Totals (1) $ (10.8) $(34.4) $- $ (45.2)