Eversource 2012 Annual Report Download - page 84

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SO2, CO2, and NOx emissions allowances are recorded within Fuel, Materials and Supplies and are classified on the balance sheet as
short-term or long-term depending on the period in which they are expected to be utilized against actual emissions. As of
December 31, 2012 and 2011, PSNH had $0.4 million and $0.8 million, respectively, of short-term SO2, CO2, and NOx emissions
allowances classified as Fuel, Materials and Supplies on the accompanying consolidated balance sheets and $19.4 million and $19.4
million, respectively, of long-term SO2 and CO2 emissions allowances classified as Other Long-Term Assets on the accompanying
consolidated balance sheets.
SO2, CO2, and NOx emissions allowances are charged to expense based on their weighted average cost as they are utilized against
emissions volumes at PSNH's generating units. PSNH recorded expenses of $0.4 million, $5.1 million and $6.6 million for the years
ended December 31, 2012, 2011, and 2010, respectively, which were included in Purchased Power, Fuel and Transmission on the
accompanying consolidated statements of income. These costs are recovered from customers through energy supply revenues.
G. Restricted Cash and Other Deposits
As of December 31, 2012, NU, CL&P and PSNH had $3.3 million, $1.3 million and $1.7 million, respectively, of restricted cash,
primarily relating to amounts held in escrow, insurance proceeds on bondable property at PSNH and amounts related to the sale of
land, which were included in Prepayments and Other Current Assets on the accompanying consolidated balance sheets. As of
December 31, 2011, these amounts were $17.9 million, $9.4 million and $7 million for NU, CL&P and PSNH, respectively.
As of December 31, 2012, NU had $14.6 million of cash collateral posted not subject to master netting agreements, primarily with ISO-
NE. As of December 31, 2011, there was no cash posted with ISO-NE and $10.9 million posted with other counterparties.
As of December 31, 2012, NU, NSTAR Electric, PSNH and WMECO had $69.4 million, $42.2 million, $22 million and $5.1 million,
respectively, on deposit related to subsidiaries used to facilitate the issuance of RRBs. As of December 31, 2011, these amounts were
$29.5 million, $40.9 million, $24.4 million and $5.1 million, respectively. These amounts are included in Prepayments and Other
Current Assets and Other Long-Term Assets on the accompanying consolidated balance sheets. As of December 31, 2011, the
NSTAR Electric amount was not included in NU consolidated.
H. Fair Value Measurements
NU, including CL&P, NSTAR Electric, PSNH, and WMECO, applies fair value measurement guidance to derivative contracts recorded
at fair value and to the marketable securities held in the NU supplemental benefit trust, WMECO's spent nuclear fuel trust and CYAPC's
and YAEC's nuclear decommissioning trusts. Fair value measurement guidance is also applied to investment valuations used to
calculate the funded status of NU's Pension and PBOP Plans, including NSTAR Electric's Pension Plan, and nonrecurring fair value
measurements of nonfinancial assets such as goodwill and AROs.
Fair Value Hierarchy: In measuring fair value, NU uses observable market data when available and minimizes the use of unobservable
inputs. Inputs used in fair value measurements are categorized into three fair value hierarchy levels for disclosure purposes. The
entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement. NU
evaluates the classification of assets and liabilities measured at fair value on a quarterly basis, and NU's policy is to recognize transfers
between levels of the fair value hierarchy as of the end of the reporting period. The three levels of the fair value hierarchy are
described below:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.
Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide
pricing information on an ongoing basis.
Level 2 - Inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-derived valuations in which all significant inputs are observable.
Level 3 - Quoted market prices are not available. Fair value is derived from valuation techniques in which one or more
significant inputs or assumptions are unobservable. Where possible, valuation techniques incorporate observable market
inputs that can be validated to external sources such as industry exchanges, including prices of energy and energy-related
products.
Determination of Fair Value: The valuation techniques and inputs used in NU's fair value measurements are described in Note 2,
"Merger of NU and NSTAR," Note 5, "Derivative Instruments," Note 6, "Marketable Securities," Note 7, "Asset Retirement Obligations,"
and Note 14, "Fair Value of Financial Instruments," to the consolidated financial statements.