Eversource 2006 Annual Report Download - page 36

34 NU 2006 ANNUAL REPORT
As of and for the years ended December 31, 2006 and 2005, the sources
of the fair value of wholesale contracts and the changes in fair value of
these contracts are included in the following tables:
(Millions of Dollars) Fair Value of Wholesale Contracts at December 31, 2006
Maturity in
Maturity Less Maturity of One Excess Total Fair
Sources of Fair Value than One Year to Four Years of Four Years Value
Prices actively quoted $(6.9) $(11.2) $ (1.9) $ (20.0)
Prices provided by
external sources (32.2) (44.8) (12.7) (89.7)
Model-based 0.4 3.5 (20.7) (16.8)
Totals $(38.7) $(52.5) $(35.3) $(126.5)
(Millions of Dollars) Fair Value of Wholesale Contracts at December 31, 2005
Maturity in
Maturity Less Maturity of One Excess Total Fair
Sources of Fair Value than One Year to Four Years of Four Years Value
Prices actively quoted $ 31.3 $ 19.1 $ — $ 50.4
Prices provided by
external sources (147.5) (94.7) (2.8) (245.0)
Model-based 0.7 (10.3) (25.9) (35.5)
Totals $(115.5) $(85.9) $(28.7) $(230.1)
Total Portfolio Fair Value
Year Ended December 31,
(Millions of Dollars) 2006 2005
Fair value of wholesale contracts outstanding
at the beginning of the year $(230.1) $(48.9)
Contracts realized or otherwise settled
during the year 118.9 254.2
Changes in fair value recorded:
Fuel, purchased and net interchange power (15.4) (462.7)
Operating revenues 0.1 13.1
Changes in model-based assumption included
in operating revenues —14.2
Fair value of wholesale contracts outstanding
at the end of the year $(126.5) $(230.1)
Select Energy has a wholesale non-derivative generation purchase
contract expiring in 2012. At December 31, 2006, this contract had a
positive fair value of approximately $100 million, that, as a non-derivative
contract, has not been recorded in the financial statements.
Changes in the fair value of wholesale contracts that were marked-to-
market as a result of the decision to exit the wholesale marketing
business totaled a negative $10.9 million and $419 million for the years
ended December 31, 2006 and 2005, respectively, and are recorded as
fuel, purchased and net interchange power on the accompanying
consolidated statements of income/(loss). Changes in the fair value of
contracts within the New England and PJM portfolio and a generation
purchase contract in New York totaling a negative $4.5 million and $43.7
million for the years ended December 31, 2006 and 2005, respectively,
are also recorded as fuel, purchased and net interchange power.
Changes in fair value of contracts formerly designated as trading totaling
apositive$0.1 million and $13.1 million for the years ended December
31, 2006 and 2005, respectively, are recorded as revenue on the
consolidated statements of income/(loss).
In the first quarter of 2005, the mark-to-market of Select Energy’s
wholesale contracts increased by $14.2 million as a result of removing
amodeling reserve for one of its trading contracts. The change in fair
value associated with this removal is included in the changes in
model-based assumption included in operating revenues category in
the table above. This contract was subsequently sold to a third-party
wholesale marketer in the third quarter of 2005.
During the fourth quarter of 2005, Select Energy assigned a wholesale
contract for $55.9 million with payments commencing in January of
2006 and ending in December of 2008. This amount is included in the
2005 contracts realized or otherwise settled during the year amount
of $254.2 million. At December 31, 2005, this contractual assignment
was reclassified from short and long-term derivative liabilities to
other current liabilities ($18.5 million) and other long-term liabilities
($37.4 million) on the consolidated balance sheets. The payments
under this assignment bear interest at 12.5 percent. If certain
conditions are met, these payments could be accelerated.
Retail Marketing Activities: Select Energy sold its retail marketing
business to Hess on June 1, 2006.
At December 31, 2006, Select Energy had derivative assets and
liabilities totaling $0.2 million and $0.1 million, respectively, related
to administrative agreements for electric and gas contracts for which
Select Energy has not yet received customer consents to transfer to
Hess. These derivative assets and liabilities are classified as assets
held for sale and liabilities of assets held for sale, respectively, on
the accompanying consolidated balance sheets.
At December 31, 2006 and 2005, Select Energy had retail derivative
assets and derivativeliabilities as follows:
December 31,
(Millions of Dollars) 2006 2005
Current retail derivative assets $0.2 $55.0
Long-term retail derivative assets —12.9
Current retail derivative liabilities (0.1) (27.2)
Long-term retail derivative liabilities —0.4
Total retail 0.1 41.1
Retail hedges —(24.1)
Mark-to-market portfolio $0.1 $17.0
At December 31, 2006, the $0.1 million of the retail portfolio had a
maturity of less than one year and was valued based on actively quoted
prices. The methods used todetermine the fair value of retail energy
sourcing contracts areidentified and segregated in the table of fair
value of contracts at December 31, 2005. A description of each method
is as follows: 1) prices actively quoted primarily represent NYMEX
futures and swaps that aremarked to closing exchange prices; and 2)
prices provided by external sources primarily include over-the-counter
forwards, including bilateral contracts for the purchase or sale of
electricity or natural gas, and aremarked tothe mid-point of bid and
ask market prices.