DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2012

Notes To Consolidated Financial Statements [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5.       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 Company manages the risks associated with the price volatility of energy and energy-related products through the use of derivative contracts, many of which meet the definition of and are designated as "normal purchases or normal sales," (normal), and the use of nonderivative contracts.

Derivative contracts that are not recorded as normal under the applicable accounting guidance are recorded at fair value as current or long-term derivative assets or liabilities. For the Regulated companies, regulatory assets or liabilities are recorded for the changes in fair values of derivatives, as these contracts are part of current regulated operating costs, or have an allowed recovery mechanism, and management believes that these costs will continue to be recovered from or refunded to customers in cost-of-service, regulated rates. Changes in fair values of NU's remaining unregulated wholesale marketing contracts 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 accompanying unaudited condensed consolidated statements of income, as applicable, as electricity or natural gas is delivered.

CL&P, NSTAR Electric and WMECO mitigate the risks associated with the price volatility of energy and energy-related products through the use of SS, LRS, and basic service contracts, which fix the price of electricity purchased for customers and are accounted for as normal. CL&P has entered into derivatives, including FTR contracts, to manage the risk of congestion costs associated with its SS and LRS contracts. As required by regulation, CL&P has also entered into derivative and nonderivative contracts for the purchase of energy and energy-related products and contracts related to capacity. NSTAR Electric and WMECO have contracts to purchase renewable energy that are derivatives. NSTAR Electric also has a capacity related contract. While the risks managed by these contracts relate to capacity prices, regional congestion costs, and the development of renewable energy that are not specific to CL&P, NSTAR Electric and WMECO, electric distribution companies are required to enter into these contracts.NU also has NYMEX future contracts in order to reduce variability associated with the purchase price of approximately 6.2 million MMBtu of natural gas.

The costs or benefits from all of these derivative contracts are recoverable from or refundable to customers, and, therefore changes in fair value are recorded as Regulatory Assets or Regulatory Liabilities on the accompanying unaudited condensed consolidated balance sheets.

NU, through Select Energy, has one remaining fixed price forward sales contract to serve electrical load that is part of its remaining unregulated wholesale energy marketing portfolio. NU mitigates the price risk associated with this contract through the use of forward purchase contracts. The contracts are accounted for at fair value, and changes in their fair values are recorded in Purchased Power, Fuel and Transmission on the accompanying unaudited condensed consolidated statements of income.

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, in the accompanying unaudited condensed consolidated balance 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, including capacity contracts required by regulation, and the net amounts recorded as current or long-term derivative liability or asset, by primary underlying risk exposure or purpose:

		As of June 30, 2012
			Commodity				Net Amount
			Supply and				Recorded as
			Price Risk		Collateral		Derivative
(Millions of Dollars)			Management		and Netting (1)		Asset/(Liability) (2)
Current Derivative Assets:
Level 2:
	PSNH		$	1.0	$	-	$	1.0
Level 3:
	CL&P			18.1		(12.1)		6.0
	Other			5.8		-		5.8
Total Current Derivative Assets			$	24.9	$	(12.1)	$	12.8
Long-Term Derivative Assets:
Level 2:
	Other		$	0.5	$	(0.1)	$	0.4
Level 3:
	CL&P			167.2		(76.1)		91.1
	Other			2.1		-		2.1
Total Long-Term Derivative Assets			$	169.8	$	(76.2)	$	93.6
Current Derivative Liabilities:
Level 2:
	Other		$	(18.5)	$	4.6	$	(13.9)
Level 3:
	CL&P			(97.7)		-		(97.7)
	NSTAR Electric			(0.7)		-		(0.7)
	WMECO			(0.9)		-		(0.9)
Total Current Derivative Liabilities			$	(117.8)	$	4.6	$	(113.2)
Long-Term Derivative Liabilities:
Level 2:
	Other		$	(8.8)	$	-	$	(8.8)
Level 3:
	CL&P			(910.1)		-		(910.1)
	NSTAR Electric			(15.1)		-		(15.1)
	WMECO			(12.6)		-		(12.6)
Total Long-Term Derivative Liabilities			$	(946.6)	$	-	$	(946.6)

		As of December 31, 2011
			Commodity				Net Amount
			Supply and				Recorded as
			Price Risk		Collateral		Derivative
(Millions of Dollars)			Management		and Netting (1)		Asset/(Liability) (2)
Current Derivative Assets:
Level 3:
	CL&P		$	17.9	$	(11.6)	$	6.3
	Other			4.7		-		4.7
Total Current Derivative Assets(3)			$	22.6	$	(11.6)	$	11.0
Long-Term Derivative Assets:
Level 3:
	CL&P		$	174.2	$	(80.4)	$	93.8
	Other			4.6		-		4.6
Total Long-Term Derivative Assets			$	178.8	$	(80.4)	$	98.4
Current Derivative Liabilities:
Level 3:
	CL&P		$	(95.9)	$	-	$	(95.9)
	WMECO			(0.1)		-		(0.1)
	Other			(16.1)		4.5		(11.6)
Total Current Derivative Liabilities			$	(112.1)	$	4.5	$	(107.6)
Long-Term Derivative Liabilities:
Level 3:
	CL&P		$	(935.8)	$	-	$	(935.8)
	WMECO			(7.2)		-		(7.2)
	Other			(17.3)		0.4		(16.9)
Total Long-Term Derivative Liabilities(4)			$	(960.3)	$	0.4	$	(959.9)

(1)       Amounts represent cash collateral posted under master netting agreements and the netting of derivative assets and liabilities. See "Credit Risk" below for discussion of cash collateral posted under master netting agreements.

(2)       Current derivative assets are included in Prepayments and Other Current Assets on the accompanying unaudited condensed consolidated balance sheets. NSTAR Electric and WMECO derivative liabilities are included in Other Current Liabilities and Other Long-Term Liabilities on their accompanying unaudited condensed consolidated balance sheets.The NSTAR Electric amounts are not included in NU consolidated as of December31, 2011.

(3)In addition to the amounts reflected in the table, as of December 31, 2011, NU had $2.3 million of hedging instruments that were classified as Level 2 in the fair value hierarchy, which related to a fair value hedge that expired on April 2, 2012 and was included in Prepayments and Other Current Assets on the accompanying unaudited condensed consolidated balance sheet.

(4)       As of December 31, 2011, NSTAR Electric had $3.4million of derivative liabilities classified as Level 3 within the fair value hierarchy and included in Other Long-Term Liabilities on the accompanying NSTAR Electric unaudited condensed consolidated balance sheet. These amounts are not included in NU consolidated as of December31, 2011.

For further information on the fair value of derivative contracts, see Note 1E, "Summary of Significant Accounting Policies - Fair Value Measurements."

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 have terms up to 15 years 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 approximately 60 thousand MWh of energy per year through 2017. NSTAR Electric also has a capacity related contract for approximately 25 MW to 35 MW that extends through 2019.

WMECO has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2027 with a facility that is expected to achieve commercial operation by December 2012.

As of June 30, 2012 and December 31, 2011, NU had approximately 37 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 below for CL&P, NSTAR Electric and WMECO gains and losses on derivative contracts):

		Amounts Recognized on Derivative
Location of Amount		For the Three Months Ended				For the Six Months Ended
Recognized on Derivative		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
(Millions of Dollars)
NU
Balance Sheet:
	Regulatory Assets		(40.8)		(14.7)		(33.5)		(45.2)
Statement of Income:
	Purchased Power, Fuel and Transmission		(0.2)		0.5		(1.0)		0.8

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 three and six months ended June 30, 2011, $2.7 million and $5.4 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 $50million, 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. NU reclassified $0.7million and $1.6million of losses from AOCI into interest expense for the three and six months ended June 30, 2012, respectively. These amounts were $0.1 million and $0.2 million for the three and six months ended June 30, 2011, respectively.

Credit Risk

Certain of NU's contracts contain credit risk contingent features. These features require NU to maintain investment grade credit ratings from the major rating agencies and to post cash or standby LOCs as 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 liability position and subject to credit risk contingent features, the fair value of cash collateral, and the additional collateral in the form of LOCs 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 June 30, 2012 and December 31, 2011:

As of June 30, 2012

As of December 31, 2011

Additional Standby

Additional Standby

Fair Value

LOCs Required if

Fair Value

LOCs Required if

Subject to Credit

Cash

Downgraded

Subject to Credit

Cash

Downgraded

Risk Contingent

Collateral

Below Investment

Risk Contingent

Collateral

Below Investment

(Millions of Dollars)

Features

Posted

Grade

Features

Posted

Grade

NU

$

(21.1)

$

4.3

$

17.3

$

(23.5)

$

4.1

$

19.9

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 and the remaining unregulated wholesale marketing sourcing contracts to purchase energy for periods in which prices are quoted in an active market. 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 utilize 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

	Range	Period Covered
Energy Prices:
NU	$41 - $78 per MWh	2017 - 2027
CL&P	$47 - $52 per MWh	2017 - 2020
WMECO	$41 - $78 per MWh	2017 - 2027
Capacity Prices:
NU	$1.40 - $10.18 per kW-Month	2016 - 2027
CL&P	$1.40 - $9.51 per kW-Month	2016 - 2026
NSTAR Electric	$1.40 - $10.18 per kW-Month	2016 - 2027
WMECO	$1.40 - $10.18 per kW-Month	2016 - 2027
Forward Reserve:
NU, CL&P	$0.50 per kW-Month	2012 - 2024
REC Prices:
NU	$25 - $84 per REC	2012 - 2027
NSTAR Electric	$25 - $60 per REC	2012 - 2017
WMECO	$25 - $84 per REC	2012 - 2027

Exit price premiums of 10 percent through 32 percent are also applied on these 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 six months ended June 30, 2012 and 2011 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 January1, 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				For the Six Months Ended
		June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
(Millions of Dollars)		NU		NU		NU		NU
Derivatives, Net:
Fair Value as of Beginning of Period		$	(901.5)	$	(872.7)	$	(962.2)	$	(840.2)
Increase due to Merger with NSTAR			(5.4)		-		(5.4)		-
Transfer to Level 2			-		-		32.2		-
Net Realized/Unrealized Gains/(Losses) Included in:
	Net Income(2)		(0.7)		0.5		7.4		0.8
	Regulatory Assets		(42.6)		(13.9)		(35.4)		(45.2)
Settlements			18.1		(0.1)		31.3		(1.6)
Fair Value as of End of Period		$	(932.1)	$	(886.2)	$	(932.1)	$	(886.2)

		For the Three Months Ended
		June 30, 2012						June 30, 2011
(Millions of Dollars)		CL&P		NSTAR Electric		WMECO		CL&P		NSTAR Electric(1)
Derivatives, Net:
Fair Value as of Beginning of Period		$	(899.6)	$	(5.4)	$	(12.3)	$	(842.6)	$	(2.1)
Net Realized/Unrealized Gains/(Losses)
	Included in Regulatory Assets		(31.8)		(9.6)		(1.2)		(13.9)		1.9
Settlements			20.7		(0.8)		-		(2.2)		(0.8)
Fair Value as of End of Period		$	(910.7)	$	(15.8)	$	(13.5)	$	(858.7)	$	(1.0)
		For the Six Months Ended
		June 30, 2012						June 30, 2011
(Millions of Dollars)		CL&P		NSTAR Electric(1)		WMECO		CL&P		NSTAR Electric(1)
Derivatives, Net:
Fair Value as of Beginning of Period		$	(931.6)	$	(3.4)	$	(7.3)	$	(806.1)	$	(2.4)
Net Realized/Unrealized Gains/(Losses)
	Included in Regulatory Assets		(21.0)		(10.2)		(6.2)		(45.1)		3.0
Settlements			41.9		(2.2)		-		(7.5)		(1.6)
Fair Value as of End of Period		$	(910.7)	$	(15.8)	$	(13.5)	$	(858.7)	$	(1.0)

• NSTAR Electric amounts are included in NU consolidated from the date of the merger, April 10, 2012, through June 30, 2012.
• The Net Income impact for the three and six months ended June 30, 2012 relate to the unregulated wholesale marketing sales contract and are offset by the gains/(losses) on the unregulated sourcing contracts classified as Level 2 in the fair value hierarchy, resulting in total losses of $0.2 million and $1 million for the three and six months ended June30, 2012, respectively.