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83
The realized and unrealized gains/(losses) related to changes in fair value of the swap and Long-Term Debt as well as pre-tax Interest
Expense, recorded in Net Income, were as follows:
For the Years Ended
December 31, 2010 December 31, 2009
(Millions of Dollars) Swap Hedged Debt Swap Hedged Debt
Changes in Fair Value $ 9.5 $ (9.5)
$ 1.6 $ (1.6)
Interest Recorded in Net Income - 10.9
- 9.1
There were no cash flow hedges outstanding as of or during the years ended December 31, 2010 and 2009 and no ineffectiveness was
recorded during these periods. From time to time, NU, including CL&P, PSNH and WMECO, enters into forward starting interest rate
swap agreements on proposed debt issuances that qualify and are designated as cash flow hedges. Cash flow hedges are recorded at
fair value, and the changes in the fair value of the effective portion of those contracts are recognized in Accumulated Other
Comprehensive Income/(Loss). Cash flow hedges impact Net Income when hedge ineffectiveness is measured and recorded, when
the forecasted transaction being hedged is improbable of occurring, or when the transaction is settled. When a cash flow hedge is
terminated, the settlement amount is recorded in Accumulated Other Comprehensive Income/(Loss) and is amortized into Net Income
over the term of the underlying debt instrument.
Pre-tax gains/(losses) amortized from Accumulated Other Comprehensive Income/(Loss) into Interest Expense on the accompanying
consolidated statements of income were as follows:
For the Years Ended
(Millions of Dollars) December 31, 2010 December 31, 2009
CL&P $ (0.7) $ (0.7)
PSNH (0.2) (0.2)
WMECO 0.1 0.1
Other 0.4 0.4
NU $ (0.4) $ (0.4)
For further information, see Note 16, "Accumulated Other Comprehensive Income/(Loss)," to the consolidated financial statements.
Credit Risk
Certain derivative contracts that are accounted for at fair value, including PSNH's electricity procurement contracts and NU Enterprises'
electricity sourcing contracts, contain credit risk contingent features. These features require these companies or, in NU Enterprises'
case, NU parent, to maintain investment grade credit ratings from the major rating agencies and to post cash or standby LOCs as
collateral for contracts in a net liability position over specified credit limits. NU parent provides standby LOCs under its revolving credit
agreement for NU subsidiaries to post with counterparties. The following summarizes the fair value of derivative contracts that are in a
liability position and subject to credit risk contingent features, and the fair value of cash collateral and standby LOCs posted with
counterparties as of December 31, 2010 and 2009:
As of December 31, 2010
(Millions of Dollars)
Fair Value Subject
to Credit Risk
Contingent Features
Cash
Collateral Posted
Standby
LOCs Posted
PSNH $ (12.8) $ - $ 24.0
NU Enterprises (18.1) 0.5 -
NU $ (30.9) $ 0.5 $ 24.0
As of December 31, 2009
(Millions of Dollars)
Fair Value Subject
to Credit Risk
Contingent Features
Cash
Collateral Posted
Standby
LOCs Posted
PSNH $ (26.4) $ - $ 25.0
NU Enterprises (20.0) 2.1 -
NU $ (46.4) $ 2.1 $ 25.0
Additional collateral is required to be posted by NU Enterprises or PSNH, if the respective unsecured debt credit ratings of NU parent or
PSNH are downgraded below investment grade. As of December 31, 2010, NU Enterprises and PSNH would not have been required
to post any additional cash collateral if credit ratings had been downgraded below investment grade. However, if the senior unsecured
debt of NU parent had been downgraded to below investment grade, additional standby LOCs in the amount of $18.5 million would
have been required to be posted on derivative contracts for Select Energy. As of December 31, 2009, no additional cash collateral
would have been required to be posted if credit ratings had been downgraded below investment grade. However, if the senior
unsecured debt of PSNH or NU parent had been downgraded to below investment grade, additional standby LOCs in the amount of
$1.8 million and $17.8 million would have been required to be posted on derivative contracts for PSNH and Select Energy, respectively.
For further information, see Note 1H, "Summary of Significant Accounting Policies - Special Deposits and Counterparty Deposits," to
the consolidated financial statements.