National Grid 2005 Annual Report Download - page 44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Taxes on other comprehensive income for the following periods were (in thousands of $’s):
NOTE E – DERIVATIVES AND HEDGING ACTIVITIES
In the normal course of business, Niagara Mohawk is a party to derivative financial instruments
(derivatives) that are principally used to manage commodity prices associated with its natural gas
and electric operations. These financial exposures are monitored and managed as an integral part
of Niagara Mohawk’s overall financial risk-management policy. At the core of the policy is a condi-
tion that Niagara Mohawk will engage in activities at risk only to the extent that those activities fall
within commodities and financial markets to which it has a physical market exposure in terms and
volumes consistent with its core business. Niagara Mohawk does not issue or intend to hold
derivative instruments for speculative trading purposes. Derivatives are accounted for according to
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (FAS
133), which requires derivatives to be reported at fair value as assets or liabilities on the balance
sheet. Changes in the fair value of instruments that qualify for hedge accounting are deferred in
Accumulated Other Comprehensive Income and will be reclassified through purchased electricity
or gas expense in the hedge months. Niagara Mohawk’s rate agreements allow for the pass-
through of the commodity costs of electricity and natural gas, including the costs of the hedging
programs.
Niagara Mohawk has eight indexed swap contracts, expiring in June 2008 that resulted from the
Master Restructuring Agreement (MRA). These derivatives are not designated as hedging instru-
ments and are covered by regulatory rulings that allow the gains and losses to be recorded as
regulatory assets or regulatory liabilities. As of March 31, 2005 Niagara Mohawk has recorded lia-
bilities of $619 million versus $715.4 million at March 31, 2004 for these swap contracts and has
recorded a corresponding swap contracts regulatory asset. The asset and liability are amortized
over the remaining term of the swaps as nominal energy quantities are settled and are adjusted as
periodic reassessments are made of energy price forecasts.
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National Grid USA / Annual Report
Unrealized Additional Total
Gains and Minimum Accumulated
(in 000's) (Losses) on Pension Other
Available-for- Liability Cash Flow Comprehensive
Sale Securites Adjustment Hedges Income (Loss)
March 31, 2003 (4,115)$ (251,504)$ 600$ (255,019)$
Other comprehensive income (loss):
Unrealized gains on securities,
net of taxes 7,457 7,457
Hedging activity, net of taxes 2,425 2,425
Change in additional minimum pension liability,
net of taxes 67,292 67,292
March 31, 2004 3,342 (184,212) 3,025 (177,845)
Other comprehensive income (loss):
Unrealized gains on securities,
net of taxes 526 526
Hedging activity, net of taxes 9,787 9,787
Change in additional minimum pension liability,
net of taxes (4,629) (4,629)
March 31, 2005 3,868$ (188,841)$ 12,812$ (172,161)$
For the year ended For the year ended For the year ended
March 31, March 31, March 31,
2005 2004 2003
Unrealized gain/(losses) on securities 351$ 4,972$ (2,590)$
Hedging activities 6,525 1,617 452
Change in additional minimum pension liability (3,086)$ 45,527$ (165,752)$