DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2013

Notes To Consolidated Financial Statements [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.       DERIVATIVE INSTRUMENTS

The Regulated companies purchase and procure energy and energy-related products for their customers, which are subject to price volatility. The costs associated with supplying energy to customers are recoverable through customer rates. The Regulated companies manage the risks associated with the price volatility of energy and energy-related products through the use of derivative and nonderivative contracts. Many of the derivative contracts meet the definition of, and are designated as, "normal purchases or normal sales" (normal) under the applicable accounting guidance.

Derivative contracts that are not designated as normal are recorded at fair value as current or long-term Derivative Assets or Derivative Liabilities on the balance sheets. For the Regulated companies, Regulatory Assets or Regulatory Liabilities are recorded for the fair values of derivatives, as costs arerecovered from, or refunded to, customers in their respective energy supply rates. For NU's remaining unregulated wholesale marketing contracts, changes in fair values of derivatives are included in Net Income. The costs and benefits of derivative contracts that meet the definition of normal are recognized in Operating Expenses or Operating Revenues on the statements of income, as applicable, as electricity or natural gas is delivered.

The gross fair values of derivative assets and liabilities with the same counterparty are offset and reported as net Derivative Assets or Derivative Liabilities, with current and long-term portions, on thebalance sheets. Cash collateral posted or collected under master netting agreements is recorded as an offset to the derivative asset or liability. The following tables present the gross fair values of contracts categorized by risk type and the net amounts recorded as current or long-term derivative asset or liability:

		As of September 30, 2013
		Commodity Supply and				Net Amount Recorded as
(Millions of Dollars)		Price Risk Management		Netting (1)		Derivative Asset/(Liability)
Current Derivative Assets:
Level 3:
	CL&P (1)	$	17.3	$	(10.1)	$	7.2
	NSTAR Electric		0.4		-		0.4
	Other		1.3		-		1.3
Total Current Derivative Assets		$	19.0	$	(10.1)	$	8.9
Long-Term Derivative Assets:
Level 3:
	CL&P (1)	$	139.5	$	(51.5)	$	88.0
	WMECO		0.9		-		0.9
Total Long-Term Derivative Assets		$	140.4	$	(51.5)	$	88.9
Current Derivative Liabilities:
Level 2:
	PSNH (1)	$	(0.5)	$	0.2	$	(0.3)
	Other (1) (2)		(7.4)		-		(7.4)
Level 3:
	CL&P		(94.1)		-		(94.1)
	NSTAR Electric		(1.6)		-		(1.6)
	WMECO		(0.1)		-		(0.1)
Total Current Derivative Liabilities		$	(103.7)	$	0.2	$	(103.5)
Long-Term Derivative Liabilities:
Level 3:
	CL&P	$	(756.4)	$	-	$	(756.4)
	NSTAR Electric		(10.4)		-		(10.4)
Total Long-Term Derivative Liabilities		$	(766.8)	$	-	$	(766.8)

		As of December 31, 2012
		Commodity Supply and				Net Amount Recorded as
(Millions of Dollars)		Price Risk Management		Netting (1)		Derivative Asset/(Liability)
Current Derivative Assets:
Level 2:
	Other (1)	$	0.2	$	-	$	0.2
Level 3:
	CL&P (1)		17.7		(12.0)		5.7
	Other		5.5		-		5.5
Total Current Derivative Assets		$	23.4	$	(12.0)	$	11.4
Long-Term Derivative Assets:
Level 3:
	CL&P (1)	$	159.7	$	(69.1)	$	90.6
Total Long-Term Derivative Assets		$	159.7	$	(69.1)	$	90.6
Current Derivative Liabilities:
Level 2:
	Other (1) (2)	$	(19.9)	$	0.6	$	(19.3)
Level 3:
	CL&P		(96.9)		-		(96.9)
	NSTAR Electric		(1.0)		-		(1.0)
Total Current Derivative Liabilities		$	(117.8)	$	0.6	$	(117.2)
Long-Term Derivative Liabilities:
Level 2:
	Other (1)	$	(0.2)	$	-	$	(0.2)
Level 3:
	CL&P		(865.6)		-		(865.6)
	NSTAR Electric		(13.9)		-		(13.9)
	WMECO		(3.0)		-		(3.0)
Total Long-Term Derivative Liabilities		$	(882.7)	$	-	$	(882.7)

Amounts represent derivative assets and liabilities which NU has elected to record net on the balance sheets. These amounts are subject to master netting agreements or similar agreements for which the right of offset exists.

(2)As of September 30, 2013 and December 31, 2012, NU had $1million and $4.1 million, respectively, of cash posted related to these contracts, whichwas not offset against the derivative liability and is recorded as Prepayments and Other Current Assets on the balance sheets.

For further information on the fair value of derivative contracts, see Note 1D, "Summary of Significant Accounting Policies -Fair Value Measurements," to the 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 both CL&P and UI 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 per year that extends through 2019.

PSNH has electricity procurement contracts to purchase 0.2 million MWh of energy through November 2013.

WMECO has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2029 with a facility that is expected to achieve commercial operation by June 2014.

As of September 30, 2013 and December 31, 2012, NU had NYMEX future contracts in order to reduce variability associated with the purchase price of approximately 10.2 million and 11.5 millionMMBtuof natural gas, respectively.

As of September 30, 2013 and December 31, 2012, NU had approximately 5thousand MWh and 24 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 current change in fair value, primarily recovered through rates from customers, associated with NU's derivative contracts not designated as hedges:

Location of Amounts		Amounts Recognized on Derivatives
Recognized on Derivatives		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Millions of Dollars)		2013		2012		2013		2012
NU
Balance Sheet:
	Regulatory Assets	$	0.3	$	11.7	$	48.8	$	(25.0)
Statement of Income:
	Purchased Power, Fuel and Transmission		0.2		0.2		0.9		(0.8)

Credit Risk

Certain of NU's derivative contracts contain credit risk contingent features. These features require NU to maintain investment grade credit ratings from the major rating agencies and to post collateral for contracts in a net liability position over specified credit limits. The following summarizes the fair value of derivative contracts that were in a net liability position and subject to credit risk contingent features and the additional collateral that would be required to be posted by NU if the unsecured debt credit ratings of NU parent were downgraded to below investment grade:

	As of September 30, 2013						As of December 31, 2012
			Additional Collateral				Additional Collateral
	Fair Value Subject		Required if		Fair Value Subject		Required if
	to Credit Risk		Downgraded Below		to Credit Risk		Downgraded Below
(Millions of Dollars)	Contingent Features		Investment Grade		Contingent Features		Investment Grade
NU	$	(6.7)	$	13.4	$	(15.3)	$	17.4

Fair Value Measurements of Derivative Instruments

Valuation of Derivative Instruments:Derivative contracts classified as Level 2 in the fair value hierarchy relate to the financial contracts for natural gas futures, forward contracts to purchase energy at PSNH and the remaining unregulated wholesale marketing sourcing contracts. Prices are obtained from broker quotes and are based on actual market activity. The contracts are valued using the mid-point of the bid-ask spread. Valuations of these contracts also incorporate discount rates using the yield curve approach.

The fair value of derivative contracts classified as Level 3 utilizes significant unobservable inputs. The fair value is modeled using income techniques, such as discounted cash flow approaches adjusted for assumptions relating to exit price. Significant observable inputs for valuations of these contracts include energy and energy-related product prices in future years for which quoted prices in an active market exist. Fair value measurements categorized in Level 3 of the fair value hierarchy are prepared by individuals with expertise in valuation techniques, pricing of energy and energy-related products, and accounting requirements. The future power and capacity prices for periods that are not quoted in an active market or established at auction are based on available market data and are escalated based on estimates of inflation to address the full time period of the contract.

Valuations of derivative contracts using discounted cash flow methodology include assumptions regarding the timing and likelihood of scheduled payments and also reflect non-performance risk, including credit, using the default probability approach based on the counterparty's credit rating for assets and the company's credit rating for liabilities. Valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using historical market transactions adjusted for the terms of the contract.

The following is a summary of NU's, including CL&P's, NSTAR Electric's and WMECO's, Level 3 derivative contracts and the range of the significant unobservable inputs utilized in the valuations over the duration of the contracts:

	As of September 30, 2013		As of December 31, 2012
	Range	Period Covered	Range	Period Covered
Energy Prices:
NU	$45 - $93 per MWh	2018 - 2029	$43 - $90 per MWh	2018 - 2028
CL&P	$52 - $56 per MWh	2018 - 2020	$50 - $55 per MWh	2018 - 2020
WMECO	$45 - $93 per MWh	2018 - 2029	$43 - $90 per MWh	2018 - 2028
Capacity Prices:
NU	$1.40 - $10.53 per kW-Month	2017 - 2029	$1.40 - $10.53 per kW-Month	2016 - 2028
CL&P	$1.40 - $9.51 per kW-Month	2017 - 2026	$1.40 - $9.83 per kW-Month	2016 - 2026
NSTAR Electric	$1.40 - $3.39 per kW-Month	2017 - 2019	$1.40 - $3.39 per kW-Month	2016 - 2019
WMECO	$1.40 - $10.53 per kW-Month	2017 - 2029	$1.40 - $10.53 per kW-Month	2016 - 2028
Forward Reserve:
NU, CL&P	$3.00 per kW-Month	2013 - 2024	$0.35 - $0.90 per kW-Month	2013 - 2024
REC Prices:
NU	$25 - $87 per REC	2013 - 2029	$25 - $85 per REC	2013 - 2028
NSTAR Electric	$25 - $71 per REC	2013 - 2018	$25 - $71 per REC	2013 - 2018
WMECO	$25 - $87 per REC	2014 - 2029	$25 - $85 per REC	2013 - 2028

Exit price premiums of 10percent through 32percent are also applied on these contracts and reflect the most recent market activity available for similar type contracts.

Significant increases or decreases in future power or capacity prices in isolation would decrease or increase, respectively, the fair value of the derivative liability. Any increases in the risk premiums would increase the fair value of the derivative liabilities. Changes in these fair values are recorded as a regulatory asset or liability and would not impact net income.

Valuations using significant unobservable inputs: The following tables present changes for the three and nine months ended September 30, 2013 and 2012 in the Level 3 category of derivative assets and derivative liabilities measured at fair value on a recurring basis. The derivative assets and liabilities are presented on a net basis. The fair value as of January 1, 2012 reflects a reclassification of remaining unregulated wholesale marketing sourcing contracts that had previously been presented as a portfolio along with the unregulated wholesale marketing sales contract as Level 3 under the highest and best use valuation premise. These contracts are now classified within Level 2 of the fair value hierarchy.

		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2013		2012		2013		2012
(Millions of Dollars)		NU		NU		NU		NU
Derivatives, Net:
Fair Value as of Beginning of Period		$	(788.1)	$	(932.1)	$	(878.6)	$	(962.2)
Liabilities Assumed due to Merger with NSTAR			-		-		-		(5.4)
Transfer to Level 2			-		-		-		32.2
Net Realized/Unrealized Gains/(Losses) Included in:
	Net Income		1.2		(0.2)		8.3		7.2
	Regulatory Assets		0.8		8.5		49.6		(30.1)
Settlements			21.3		21.5		55.9		56.0
Fair Value as of End of Period		$	(764.8)	$	(902.3)	$	(764.8)	$	(902.3)

		For the Three Months Ended
		September 30, 2013						September 30, 2012
(Millions of Dollars)		CL&P		NSTAR Electric		WMECO		CL&P		NSTAR Electric(1)		WMECO
Derivatives, Net:
Fair Value as of Beginning of Period		$	(775.8)	$	(13.1)	$	(0.7)	$	(910.7)	$	(15.8)	$	(13.5)
Net Realized/Unrealized Gains/(Losses)
	Included in Regulatory Assets		(1.2)		0.5		1.5		(2.8)		1.4		9.8
Settlements			21.7		1.0		-		22.6		0.6		-
Fair Value as of End of Period		$	(755.3)	$	(11.6)	$	0.8	$	(890.9)	$	(13.8)	$	(3.7)
		For the Nine Months Ended
		September 30, 2013						September 30, 2012
(Millions of Dollars)		CL&P		NSTAR Electric		WMECO		CL&P		NSTAR Electric(1)		WMECO
Derivatives, Net:
Fair Value as of Beginning of Period		$	(866.2)	$	(14.9)	$	(3.0)	$	(931.6)	$	(3.4)	$	(7.3)
Net Realized/Unrealized Gains/(Losses)
	Included in Regulatory Assets		45.1		0.6		3.8		(23.8)		(13.2)		3.6
Settlements			65.8		2.7		-		64.5		2.8		-
Fair Value as of End of Period		$	(755.3)	$	(11.6)	$	0.8	$	(890.9)	$	(13.8)	$	(3.7)

• NSTAR Electric amounts are included in NU consolidated from the date of the merger, April 10, 2012, through September 30, 2012.