Eversource 2012 Annual Report Download - page 85

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I. Derivative Accounting
Many of CL&P's, NSTAR Electric's, PSNH's and WMECO’s contracts for the purchase and sale of energy or energy-related products
are derivatives, along with NU Enterprises' remaining wholesale marketing contracts and NSTAR Gas' NYMEX futures. The accounting
treatment for energy contracts entered into varies and depends on the intended use of the particular contract and on whether or not the
contract is a derivative.
The application of derivative accounting is complex and requires management judgment in the following respects: identification of
derivatives and embedded derivatives, election and designation of the "normal purchases or normal sales" (normal) exception,
identifying, electing and designating hedge relationships, assessing and measuring hedge effectiveness, and determining the fair value
of derivatives. All of these judgments can have a significant impact on the consolidated financial statements. Any change in the fair
value of derivatives related to the Regulated companies is offset by a regulatory asset or liability, as this change will be recovered from
or refunded to customers in future rates.
The fair value of derivatives is based upon the contract terms and conditions and the underlying market price or fair value per unit.
When quantities are not specified in the contract, the Company determines whether the contract has a determinable quantity by using
amounts referenced in default provisions and other relevant sections of the contract. The fair value of derivative assets and liabilities
with the same counterparty are offset and recorded as a net derivative asset or liability on the consolidated balance sheets.
The judgment applied in the election of the normal exception (and resulting accrual accounting) includes the conclusion that it is
probable at the inception of the contract and throughout its term that it will result in physical delivery of the underlying product and that
the quantities will be used or sold by the business in the normal course of business. If facts and circumstances change and
management can no longer support this conclusion, then the normal exception and accrual accounting is terminated and fair value
accounting is applied prospectively.
The remaining wholesale marketing contracts that are marked-to-market derivative contracts are not considered to be held for trading
purposes, and sales and purchase activity is reported on a net basis in Purchased Power, Fuel and Transmission on the accompanying
consolidated statements of income.
For further information regarding derivative contracts of NU, CL&P, NSTAR Electric and WMECO and their accounting, see Note 5,
"Derivative Instruments," to the consolidated financial statements.
J. Equity Method Investments
Regional Decommissioned Nuclear Companies: CL&P, NSTAR Electric, PSNH and WMECO own common stock in three regional
nuclear generation companies (CYAPC, YAEC and MYAPC, collectively referred to as the Yankee Companies), each of which owned a
single nuclear generating facility that has been decommissioned. On April 10, 2012, upon consummation of the merger with NSTAR,
NSTAR Electric's ownership in CYAPC and YAEC combined with CL&P's, PSNH's and WMECO's respective ownership interests in
CYAPC and YAEC totaled greater than 50 percent, requiring NU to consolidate CYAPC and YAEC from April 10, 2012 and forward.
The investment in CYAPC and YAEC had previously been accounted for under the equity method of accounting by NU. For CL&P,
NSTAR Electric, PSNH and WMECO, the investment in CYAPC and YAEC continues to be accounted for under the equity method. At
the NU consolidated level, intercompany transactions between CL&P, NSTAR Electric, PSNH and WMECO and the CYAPC and YAEC
companies have been eliminated in consolidation.
Ownership interests in the Yankee Companies as of December 31, 2012 and 2011 were as follows:
(Percent)
CYAPC
YAEC
MYAPC
CL&P 34.5 24.5 12.0
NSTAR Electric
14.0
14.0
4.0
PSNH
5.0
7.0
5.0
WMECO
9.5
7.0
3.0
The total carrying values of CL&P's, NSTAR Electric's, PSNH's and WMECO's ownership interests in CYAPC, YAEC and MYAPC,
which are included in Other Long-Term Assets on their respective accompanying consolidated balance sheets are as follows:
As of December 31,
(Millions of Dollars)
2012
2011 (1)
CL&P
$
1.4
$
1.4
NSTAR Electric
0.6
0.6
PSNH
0.3
0.3
WMECO
0.4
0.4
(1) The NSTAR Electric carrying value was not included in NU consolidated as of December 31, 2011.
For further information on the Yankee Companies, see Note 12C, "Commitments and Contingencies - Deferred Contractual
Obligations," to the consolidated financial statements.
Other Investments: As of December 31, 2012, NU had a 37.2 percent (14.5 percent of which related to NSTAR Electric) equity
ownership interest in two companies that transmit electricity imported from the Hydro-Québec system in Canada. Prior to the merger
with NSTAR on April 10, 2012, NU had a 22.7 percent equity ownership interest in these companies. These investments are accounted