DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2014

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, which are subject to price volatility, for their customers. 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 and qualify 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. 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 September 30, 2014
		Commodity Supply and				Net Amount Recorded as
(Millions of Dollars)		Price Risk Management		Netting (1)		Derivative Asset/(Liability)
Current Derivative Assets:
Level 2:
	NU (1)	$	0.4	$	-	$	0.4
Level 3:
	NU (1)		17.4		(6.8)		10.6
	CL&P (1)		16.4		(6.8)		9.6
	NSTAR Electric		1.0		-		1.0
Long-Term Derivative Assets:
Level 3:
	NU (1)	$	96.0	$	(20.9)	$	75.1
	CL&P (1)		95.1		(20.9)		74.2
	NSTAR Electric		0.9		-		0.9
Current Derivative Liabilities:
Level 2:
	NU (1)	$	(2.4)	$	0.4	$	(2.0)
Level 3:
	NU		(88.3)		-		(88.3)
	CL&P		(86.8)		-		(86.8)
	NSTAR Electric		(1.5)		-		(1.5)
Long-Term Derivative Liabilities:
Level 3:
	NU	$	(420.9)	$	-	$	(420.9)
	CL&P		(418.1)		-		(418.1)
	NSTAR Electric		(2.8)		-		(2.8)

		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:
	NU (1)	$	1.9	$	(0.3)	$	1.6
Level 3:
	NU (1)		18.4		(9.8)		8.6
	CL&P (1)		17.1		(9.8)		7.3
	NSTAR Electric		1.2		-		1.2
Long-Term Derivative Assets:
Level 2:
	NU	$	0.2	$	-	$	0.2
Level 3:
	NU (1)		116.2		(42.2)		74.0
	CL&P (1)		113.6		(42.2)		71.4
Current Derivative Liabilities:
Level 3:
	NU	$	(93.7)	$	-	$	(93.7)
	CL&P		(92.2)		-		(92.2)
	NSTAR Electric		(1.5)		-		(1.5)
Long-Term Derivative Liabilities:
Level 3:
	NU	$	(624.1)	$	-	$	(624.1)
	CL&P		(617.1)		-		(617.1)
	NSTAR Electric		(7.0)		-		(7.0)

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.

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 At Fair Value with Offsetting Regulatory Amounts

Commodity Supply and Price Risk Management: As required by regulation, CL&P, along with UI, has capacity-related contracts with generation facilities. 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 combined capacity of these contracts is 787 MW. 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.

As of September 30, 2014 and December 31, 2013, NU had NYMEX future contracts in order to reduce variability associated with the purchase price of approximately 9.7 million and 9.1million MMBtu of natural gas, respectively.

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:

		Amounts Recognized on Derivatives
		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Millions of Dollars)		2014		2013		2014		2013
NU
Balance Sheets:
	Regulatory Assets and Liabilities	$	(15.7)	$	0.3	$	149.9	$	48.8
Statements of Income:
	Purchased Power, Fuel and Transmission		-		0.2		-		0.9

Valuation of Derivative Instruments

Derivative contracts classified as Level 2 in the fair value hierarchy relate to the financial contracts for natural gas futures. Prices are obtained from broker quotes and are based on actual market activity. The contracts are valued using NYMEX natural gas prices. 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 and NSTAR Electric'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, 2014							As of December 31, 2013
		Range					Period Covered		Range					Period Covered
Energy Prices:
NU	$	66	-	68	per MWh		2018 - 2020	$	49	-	77	per MWh		2018 - 2029
CL&P	$	66	-	68	per MWh		2018 - 2020	$	56	-	58	per MWh		2018 - 2029
Capacity Prices:
NU	$	7.03	-	12.98		per kW-Month	2016 - 2026	$	5.07	-	11.82		per kW-Month	2017 - 2029
CL&P	$	7.03	-	12.98		per kW-Month	2018 - 2026	$	5.07	-	10.42		per kW-Month	2017 - 2026
NSTAR Electric	$	11.00	-	11.10		per kW-Month	2016 - 2019	$	5.07	-	7.38		per kW-Month	2017 - 2019
Forward Reserve:
NU, CL&P	$	5.80	-	9.50		per kW-Month	2014 - 2024	$	3.30	-	3.30		per kW-Month	2014 - 2024
REC Prices:
NU	$	41	-	70	per REC		2014 - 2018	$	36	-	87	per REC		2014 - 2029
NSTAR Electric	$	41	-	70	per REC		2014 - 2018	$	36	-	70	per REC		2014 - 2018

Exit price premiums of 8 percent through 25 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 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.

		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2014		2013		2014		2013
(Millions of Dollars)		NU		NU		NU		NU
Derivatives, Net:
Fair Value as of Beginning of Period		$	(430.9)	$	(788.1)	$	(635.2)	$	(878.6)
Net Realized/Unrealized Gains Included in:
	Net Income		-		1.2		-		8.3
	Regulatory Assets and Liabilities		(13.6)		0.8		147.6		49.6
Settlements			21.0		21.3		64.1		55.9
Fair Value as of End of Period		$	(423.5)	$	(764.8)	$	(423.5)	$	(764.8)

	For the Three Months Ended September 30,
	2014				2013
(Millions of Dollars)	CL&P		NSTAR Electric		CL&P		NSTAR Electric
Derivatives, Net:
Fair Value as of Beginning of Period	$	(424.6)	$	(6.3)	$	(775.8)	$	(13.1)
Net Realized/Unrealized Gains/(Losses) Included in Regulatory Assets and Liabilities		(15.0)		1.4		(1.2)		0.5
Settlements		18.5		2.5		21.7		1.0
Fair Value as of End of Period	$	(421.1)	$	(2.4)	$	(755.3)	$	(11.6)
	For the Nine Months Ended September 30,
	2014				2013
(Millions of Dollars)	CL&P		NSTAR Electric		CL&P		NSTAR Electric
Derivatives, Net:
Fair Value as of Beginning of Period	$	(630.6)	$	(7.3)	$	(866.2)	$	(14.9)
Net Realized/Unrealized Gains/(Losses) Included in Regulatory Assets and Liabilities		149.4		0.9		45.1		0.6
Settlements		60.1		4.0		65.8		2.7
Fair Value as of End of Period	$	(421.1)	$	(2.4)	$	(755.3)	$	(11.6)