DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2013

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 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 andqualify for accrual accounting under the applicable accounting guidance. 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.

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 to offset the fair values of derivatives, as costs are recovered from, or refunded to, customers in their respective energy supply rates. For NU's unregulated wholesale marketing contracts that expired on December 31, 2013, changes in fair values of derivatives were included in Net 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, on the 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 categorized by risk type and the net amount recorded as current or long-term derivative asset or liability:

		As of December 31, 2013
		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)	$	1.9	$	(0.3)	$	1.6
Level 3:
	CL&P (1)		17.1		(9.8)		7.3
	NSTAR Electric		1.2		-		1.2
	WMECO		0.1		-		0.1
Total Current Derivative Assets		$	20.3	$	(10.1)	$	10.2
Long-Term Derivative Assets:
Level 2:
	Other	$	0.2	$	-	$	0.2
Level 3:
	CL&P (1)		113.6		(42.2)		71.4
	WMECO		2.6		-		2.6
Total Long-Term Derivative Assets		$	116.4	$	(42.2)	$	74.2
Current Derivative Liabilities:
Level 3:
	CL&P	$	(92.2)	$	-	$	(92.2)
	NSTAR Electric		(1.5)		-		(1.5)
Total Current Derivative Liabilities		$	(93.7)	$	-	$	(93.7)
Long-Term Derivative Liabilities:
Level 3:
	CL&P	$	(617.1)	$	-	$	(617.1)
	NSTAR Electric		(7.0)		-		(7.0)
Total Long-Term Derivative Liabilities		$	(624.1)	$	-	$	(624.1)

		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	$	0.2	$	0	$	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	$	(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)

(1)       Amounts represent derivative assets and liabilities that NU 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 December 31, 2012, NU had $4.1 million of cash posted related to these contracts, which was not offset against the derivative liability and is recorded as Prepayments and Other Current Assets on the balance sheets.

The business activities that result in the recognition of derivative assets also create exposure to various counterparties. As of December 31, 2013, NU and CL&P's derivative assets were exposed to counterpartycredit risk. Of the total derivative assets, $80million and $79million, respectively, were contracted with investment grade entities.

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 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 and a capacity related contract to purchase up to 35 MW per year through 2019.

WMECO has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2029 with a facility that has not yet achieved commercial operation.

As of December 31, 2013 and 2012, NU had NYMEX future contracts in order to reduce variability associated with the purchase price of approximately 9.1 million and 11.5 million MMBtu of natural gas, respectively.

As of December 31, 2012, NU had approximately 24 thousand MWh of supply volumes remaining in its unregulated wholesale portfolio when expected sales were compared with supply contracts. These contracts expired on December 31, 2013.

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 Years Ended December 31,
(Millions of Dollars)		2013		2012		2011
NU
Balance Sheet:
	Regulatory Assets and Liabilities	$	160.6	$	(29.0)	$	(162.0)
Statement of Income:
	Purchased Power, Fuel and Transmission		1.0		(0.7)		0.5

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. As of December 31, 2013, there were no derivative contracts in a net liability position that were subject to credit risk contingent features. As of December 31, 2012, NU had $15.3 million of derivative contracts in a net liability position that were subject to credit risk contingent features and would have been required to post additional collateral of $17.4 million if NU parent's unsecured debt credit ratings had been downgraded to below investment grade.

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 forward contracts to purchase energy. 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 valuations 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 a 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 December 31, 2013						As of December 31, 2012
		Range				Period Covered		Range				Period Covered
Energy Prices:
NU	$	49	-	77	per MWh	2018-2029	$	43	-	90	per MWh	2018 - 2028
CL&P	$	56	-	58	per MWh	2018-2029	$	50	-	55	per MWh	2018 - 2020
WMECO	$	49	-	77	per MWh	2018-2029	$	43	-	90	per MWh	2018 - 2028
Capacity Prices:
NU	$	5.07	-	11.82	per kW-Month	2017-2029	$	1.40	-	10.53	per kW-Month	2016 - 2028
CL&P	$	5.07	-	10.42	per kW-Month	2017-2026	$	1.40	-	9.83	per kW-Month	2016 - 2026
NSTAR Electric	$	5.07	-	7.38	per kW-Month	2017-2019	$	1.40	-	3.39	per kW-Month	2016 - 2019
WMECO	$	5.07	-	11.82	per kW-Month	2017-2029	$	1.40	-	10.53	per kW-Month	2016 - 2028
Forward Reserve:
NU, CL&P	$	3.30	-	3.30	per kW-Month	2014-2024	$	0.35	-	0.90	per kW-Month	2013 - 2024
REC Prices:
NU	$	36	-	87	per REC	2014-2029	$	25	-	85	per REC	2013 - 2028
NSTAR Electric	$	36	-	70	per REC	2014-2018	$	25	-	71	per REC	2013 - 2018
WMECO	$	36	-	87	per REC	2014-2029	$	25	-	85	per REC	2013 - 2028

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

Significant increases or decreases in future energy 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 years ended December 31, 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 in 2012 reflects a transfer 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, which expired on December 31, 2013, were classified within Level 2 of the fair value hierarchy as of December 31, 2012

(Millions of Dollars)		NU (1)		CL&P		NSTAR Electric		WMECO
Derivatives, Net:
Fair Value as of January 1, 2012		$	(962.2)	$	(931.6)	$	(3.4)	$	(7.3)
Liabilities Assumed due to Merger with NSTAR			(5.4)		-		-		-
Transfer to Level 2			32.2		-		-		-
Net Realized/Unrealized Gains/(Losses) Included in:
	Net Income (2)		10.9		-		-		-
	Regulatory Assets and Liabilities		(29.2)		(21.6)		(15.2)		4.3
Settlements			75.1		87.0		3.7		-
Fair Value as of December 31, 2012		$	(878.6)	$	(866.2)	$	(14.9)	$	(3.0)
Net Realized/Unrealized Gains/(Losses) Included in:
	Net Income (2)		10.9		-		-		-
	Regulatory Assets and Liabilities		158.3		148.9		3.5		5.7
Settlements			74.2		86.7		4.1		-
Fair Value as of December 31, 2013		$	(635.2)	$	(630.6)	$	(7.3)	$	2.7

• NSTAR Electric amounts were included in NU beginningApril 10, 2012.
• The Net Income impact for the years ended December 31, 2013 and 2012 related to the unregulated wholesale marketing sales contract that was offset by the gains/(losses) on the unregulated sourcing contracts classified as Level 2 in the fair value hierarchy, resulting in a total net gain of $1 million and net loss of $0.7 million, respectively.