National Grid 2006 Annual Report Download - page 52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The gains and losses on the derivatives that are deferred and reported in accumulated other
comprehensive income will be reclassified as purchased energy expense in the periods in which
expense is impacted by the variability of the cash flows of the hedged item. For the twelve months
ended March 31, 2006, the realized net gain of $36 million from hedging instruments, as shown in
the table above, was recorded to gas purchases and was offset by a corresponding increase in
the cost of a comparable amount of gas. For the twelve months ended March 31, 2005, a realized
net gain of $8 million was recorded to gas purchases and was offset by a corresponding decrease
in the cost of a comparable amount of gas.
The actual amounts to be recorded in purchased energy expense are dependent on future
changes in the contract values. The majority of these deferred amounts will be reclassified to
expense within the next twelve months. A nominal amount of the hedging instruments extend into
April 2007. There were no gains or losses recorded during the fiscal year ended March 31, 2006
from the discontinuance of gas futures or electricity swap cash flow hedges.
At March 31, 2006, the deferred gain on NYMEX electric swap contracts to hedge electricity pur-
chases was $0.3 million. There were no open electric swaps at March 31, 2005.
USGen New England Inc. (USGen)
During the fiscal year ended March 31, 2005, NEP resumed the performance and payment obliga-
tions under power supply contracts it was required to assume in connection with USGen’s bank-
ruptcy. These contracts had been transferred to USGen in prior years as part of NEP’s regulatory
restructuring. NEP removed the related liability from the balance sheet and offsetting regulatory
asset for the above market portion of the contracts with USGen. NEP has recorded a derivative
liability of approximately $294 million for the above-market portion of the contracts with an equal
offset to a corresponding regulatory asset. The performance and payment obligations will not
affect the results of operations, as NEP will recover the above-market cost of the contracts from
customers through the CTC.
NOTE F – EMPLOYEE BENEFITS
Summary
National Grid USA companies have non-contributory defined benefit pension plans and post-
retirement benefit plans (the Plans) covering substantially all employees. With the exception of
New England-based union-represented employees, employees hired on or after July 15, 2002
participate under a non-contributory defined benefit cash balance pension plan design. Under that
design, pay-based credits are applied based on service time, and interest credits are applied
based on an average annual 30-year Treasury bond yield. Non-union employees hired by New
England-based companies prior to July 15, 2002 and New England-based union employees gen-
erally participate in the historic final average pay pension plan designs that have been in effect for
several decades. In addition, a large number of employees hired by Niagara Mohawk prior to July
1998 are cash balance design participants who receive a larger benefit if so yielded under pre-
cash balance conversion final average pay formula provisions. Employees hired by Niagara
Mohawk following the August 1998 cash balance design conversion participate under cash bal-
ance design provisions only.
Supplemental nonqualified, non-contributory executive retirement programs provide additional
defined pension benefits for certain executives.
The Company and its subsidiaries provide post-retirement benefits other than pensions (PBOPs).
PBOPs include health care and life insurance coverage to eligible retired employees. Eligibility is
based on certain age and length of service requirements and in some cases retirees must con-
tribute to the cost of their coverage.
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National Grid USA / Annual Report