NOTE 5 - FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments at December 31 follows (dollars in thousands):

	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Power contract derivative assets (includes current portion)	$	4	$	4	$	28	$	28
Power contract derivative liabilities (includes current portion)	$	4,940	$	4,940	$	0	$	0

First mortgage bonds	$	187,500	$	239,026	$	167,500	$	188,467
Industrial/Economic Development bonds	$	40,800	$	42,691	$	40,800	$	40,521
Credit facility borrowings (2010 classified as Notes Payable)	$	12,278	$	12,278	$	13,695	$	13,695

At December 31, 2011, our power-related derivatives consisted of FTRs and forward energy contracts. In 2011, related unrealized losses of $4.9 million were recorded as other deferred charges – regulatory on the Consolidated Balance Sheet and there were no related unrealized gains. In 2010, there were no related unrealized gains or losses. For a discussion of the valuation techniques used for power contract derivatives see Note 6 - Fair Value.

The fair values of our first mortgage bonds and fixed rate industrial/economic development bonds are estimated based on quoted market prices for the same or similar issues with similar remaining time to maturity or on current rates offered to us. Fair values are estimated to meet disclosure requirements and do not necessarily represent the amounts at which obligations would be settled.

The table above does not include cash, special deposits, receivables and payables as the carrying values of those instruments approximate fair value because of their short duration. The carrying values of our variable rate industrial/economic development bonds approximate fair value since the rates are adjusted at least monthly. The carrying value of our credit facility borrowings approximate fair value since the rates can change daily. The fair value of our cash equivalents and restricted cash are included in Note 6 - Fair Value.

Concentration Risk Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash, cash equivalents, special deposits and accounts receivable.

Our restricted cash is primarily invested with one issuer. However, the issuer is highly rated and the investment is very short-term, maturing in less than 30 days.

Our accounts receivable are not collateralized. As of December 31, 2011, approximately 4.7 percent of total accounts receivable are with wholesale entities engaged in the energy industry. This industry concentration could affect our overall exposure to credit risk, positively or negatively, since customers may be similarly affected by changes in economic, industry or other conditions.

Our practice to mitigate credit risk arising from our energy industry concentration with wholesale entities is to contract with creditworthy power and transmission counterparties or obtain letters of credit or guarantees from their creditworthy affiliates. We may also enter into third-party power purchase and sales contracts that require collateral based on credit rating or contain master netting arrangements in the event of nonpayment. Currently, we hold parental guarantees and/or letters of credit from certain transmission customers and forward power sale counterparties.

Our material power supply contracts and arrangements are principally with Hydro-Québec and VYNPC. These contracts comprise the majority of our total energy (MWh) purchases. These supplier concentrations could have a material impact on our power costs, if one or both of these sources were unavailable over an extended period of time. We do not have the ability to seek collateral under these two contracts, but the contracts provide the ability to seek damages for non-performance.