Eversource 2012 Annual Report Download - page 99

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(4) As of December 31, 2011, NSTAR Electric had $3.4 million of derivative liabilities classified as Level 3 within the fair value
hierarchy and included in Other Long-Term Liabilities on the accompanying NSTAR Electric consolidated balance sheet. These
amounts are not included in NU consolidated as of December 31, 2011.
The business activities of the Company that resulted in the recognition of derivative assets also create exposure to various
counterparties. As of December 31, 2012, NU and CL&P's derivative assets are exposed to counterparty credit risk. Of these
amounts, $96.5 million and $96.3 million, respectively, is contracted with investment grade entities and the remainder is contracted with
multiple other counterparties.
For further information on the fair value of derivative contracts, see Note 1H, "Summary of Significant Accounting Policies - Fair Value
Measurements," and Note 1I, "Summary of Significant Accounting Policies - Derivative Accounting," to the consolidated financial
statements.
Derivatives Not Designated as Hedges
Commodity Supply and Price Risk Management: As required by regulation, CL&P has capacity-related contracts with generation
facilities. These contracts and similar UI contracts have an expected capacity of 787 MW. CL&P has a sharing agreement with UI, with
80 percent of each contract allocated to CL&P and 20 percent allocated to UI. The capacity contracts extend through 2026 and
obligate the utilities to make or receive payments on a monthly basis to or from the generation facilities based on the difference
between a set capacity price and the forward capacity market price received in the ISO-NE capacity markets. In addition, CL&P has a
contract to purchase 0.1 million MWh of energy per year through 2020.
NSTAR Electric has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2018. NSTAR Electric also
has a capacity related contract for up to 35 MW that extends through 2019.
WMECO has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2028 with a facility that is expected
to achieve commercial operation by November 2013.
As of December 31, 2012 and 2011, NU had approximately 24 thousand MWh and 123 thousand MWh, respectively, of supply volumes
remaining in its unregulated wholesale portfolio when expected sales are compared with supply contracts.
The following table presents the realized and unrealized gains/(losses) associated with NU’s derivative contracts not designated as
hedges (See Level 3 tables in the "Valuations using significant unobservable inputs" section for CL&P, NSTAR Electric and WMECO
gains and losses on derivative contracts):
Location of Amounts
Amounts Recognized on Derivatives
Recognized on Derivatives
For the Years Ended December 31,
(Millions of Dollars)
2012
2011
2010
NU
Balance Sheet:
Regulatory Assets
$
(29.0)
$
(162.0)
$
(95.7)
Statement of Income:
Purchased Power, Fuel and Transmission
(0.7)
0.5
2.7
Hedging Instruments
Fair Value Hedge: NU parent had a fixed to floating interest rate swap on its $263 million, fixed rate senior note that matured on April 1,
2012. This interest rate swap qualified and was designated as a fair value hedge. Prior to the settlement of the swap on April 2, 2012,
$2.5 million of interest benefit was recorded in Net Income in the first quarter of 2012. For the years ended December 31, 2011 and
2010, $10.5 million and $10.9 million of interest benefit was recorded in Net Income, respectively.
Cash Flow Hedges: In 2011, PSNH and WMECO settled interest rate swaps associated with $280 million and $50 million, respectively,
of long-term debt issuances and as a result PSNH and WMECO recorded pre-tax reductions of $18.2 million and $6.9 million,
respectively, to AOCI that are being amortized over the remaining lives of the associated debt. In addition, NU, CL&P, PSNH and
WMECO continue to amortize interest rate swaps settled in prior years from AOCI into Interest Expense over the remaining life of the
associated long-term debt. The pre-tax impact of cash flow hedging instruments on AOCI is as follows:
Gains/(Losses) Recognized on Gains/(Losses) Reclassified from AOCI
Derivative Instruments
into Interest Expense
For the Year Ended December 31,
For the Years Ended December 31,
(Millions of Dollars)
2011
2012
2011
2010
NU
$
(25.1)
$
(3.3)
$
(1.3)
$
(0.4)
CL&P
-
(0.7)
(0.7)
(0.7)
PSNH
(18.2)
(2.0)
(0.8)
(0.2)
WMECO (6.9)
(0.5)
(0.1)
0.1
For further information, see Note 15, "Accumulated Other Comprehensive Income/(Loss)," to the consolidated financial statements.