Eversource 2013 Annual Report Download - page 69

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57
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Information
Commodity Price Risk Management: Our Regulated companies enter into energy contracts to serve our customers and the economic
impacts of those contracts are passed on to our customers. Accordingly, the Regulated companies have no exposure to loss of future
earnings or fair values due to these market risk-sensitive instruments. NU’s Energy Supply Risk Committee, comprised of senior
officers, reviews and approves all large scale energy related transactions entered into by its Regulated Companies.
The remaining unregulated wholesale marketing contracts expired on December 31, 2013 and therefore, there is no remaining market
risk exposure related to these contracts.
Other Risk Management Activities
We have an Enterprise Risk Management methodology for identifying the principal risks of the Company. Our ERM program involves
the application of a well-defined, enterprise-wide methodology designed to allow our Risk Committee, comprised of our senior officers
and directors to the company, to oversee the identification, management and reporting of the principal risks of the business. Our
management analyzes risks to determine materiality and other attributes such as likelihood and impact and mitigation strategies.
Management broadly considers our business model, the utility industry, the global economy and the current environment to identify
risks. The findings of this process are periodically discussed with the Finance Committee of our Board of Trustees. However, there
can be no assurances that the Enterprise Risk Management process will identify or manage every risk or event that could impact our
financial position, results of operations or cash flows.
Interest Rate Risk Management: As of December 31, 2013, approximately 91 percent of our long-term debt, including fees and interest
due for spent nuclear fuel disposal costs, was at a fixed interest rate. The remaining long-term debt is at variable interest rates and is
subject to interest rate risk that could result in earnings volatility. Assuming a one percentage point increase in our variable interest
rate, annual interest expense would have increased by a pre-tax amount of $7.7 million.
Credit Risk Management: Credit risk relates to the risk of loss that we would incur as a result of non-performance by counterparties
pursuant to the terms of our contractual obligations. We serve a wide variety of customers and transact with suppliers that include
IPPs, industrial companies, gas and electric utilities, oil and gas producers, financial institutions, and other energy marketers. Margin
accounts exist within this diverse group, and we realize interest receipts and payments related to balances outstanding in these margin
accounts. This wide customer and supplier mix generates a need for a variety of contractual structures, products and terms that, in
turn, require us to manage the portfolio of market risk inherent in those transactions in a manner consistent with the parameters
established by our risk management process.
Our Regulated companies are subject to credit risk from certain long-term or high-volume supply contracts with energy marketing
companies. Our Regulated companies manage the credit risk with these counterparties in accordance with established credit risk
practices and monitor contracting risks, including credit risk. As of December 31, 2013, our Regulated companies held collateral from
counterparties related to our standard service contracts. As of December 31, 2013, NU had cash posted with ISO-NE related to energy
purchase transactions.
For further information on cash collateral deposited and posted with counterparties as well, see Note 1G, "Summary of Significant
Accounting Policies- Restricted Cash and Other Deposits," and Note 5, "Derivative Instruments," to the consolidated financial
statements.
If the respective unsecured debt ratings of NU or its subsidiaries were reduced to below investment grade by either Moody’s or S&P,
certain of NU’s contracts would require additional collateral in the form of cash to be provided to counterparties and independent
system operators. NU would have been and remains able to provide that collateral.