RETIREMENT PLAN AND POST-RETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2012

Compensation and Retirement Disclosure [Abstract]

RETIREMENT PLAN AND POST-RETIREMENT BENEFITS

NOTE 10.HYPERLINK \l "Retirement"RETIREMENT PLAN AND POSTRETIREMENT BENEFITS

NVE has a single employer defined benefit pension plan covering substantially all employees of NVE and the Utilities. NVE allocates the unfunded liability and the net periodic benefit costs for its pension benefit and other postretirement benefit plans to NPC and SPPC based upon the current, or in the case of the retirees, previous, employment location. Certain grandfathered and union employees are covered under a benefit formula based on years of service and the employee's highest compensation for a period prior to retirement, while most employees are covered under a cash balance formula with vesting after three years of service. NVE also has other postretirement plans, including a defined contribution plan which provides medical and life insurance benefits for certain retired employees.

Plan Changes

In 2012, NVE offered a voluntary lump sum pension payout to former employees not currently of retirement age but eligible for future benefits and certain retiree participants already receiving benefits under NVE's pension plan in an effort to reduce NVE's future pension obligation. The 2012 payouts, as indicated in the benefits obligations table below, increased benefits paid by approximately $28.9 million. Of the offers still outstanding at December 31, 2012, NVE expects to payout an additional lump sum of approximately $15.6 million from the pension assets during 2013.

During 2011, the sale of California Assets, as discussed in detail in Note 15, Assets Held for Sale, resulted in employees being transferred to CalPeco. Certain employees who did not want to transfer, and who could not obtain comparable positions with NVE, had their service periods bridged to retirement age under the terms of the collective bargaining agreement with IBEW 1245. Amounts recorded for this event were not material.

NVE also has a non-qualified Supplemental Executive Retirement Plan and a Restoration Plan for executives. NVE contributed $26.5 million to establish a rabbi trust for these plans in 2009. See Note 4, Investments in Subsidiaries and Other Property, for details regarding the trust assets. NVE's obligation under these supplemental and restoration plans is included in “Accrued retirement benefits” in NVE's consolidated balance sheet, and amounted to $36.1 million at December 31, 2012. NVE is not required to make contributions to the plans.

Plan Obligations, Plan Assets and Funded Status

The following tables provide a reconciliation of benefit obligations, plan assets and the funded status of the plans. These reconciliations are based on a December 31 measurement date (dollars in thousands):

							Other Postretirement
	Pension Benefits					Benefits
	2012		2011			2012		2011
Change in Benefit Obligations
Benefit obligation at January 1	$	842,045	$	806,034		$	152,039	$	163,423
Service cost		17,627		18,427			2,383		2,611
Interest cost		40,912		40,676			7,620		8,360
Plan participants' contributions		-		-			1,814		2,325
Actuarial loss (gain)		107,936		18,552			13,074		(12,525)
Benefits paid		(73,017)		(42,507)	(1)		(11,187)		(12,255)
Plan amendments		-		577			262		-
Special termination benefits		-		286			-		100
Benefit obligation at December 31	$	935,503	$	842,045		$	166,005	$	152,039
Change in Plan Assets
Fair value of plan net assets at January 1	$	811,480	$	729,940		$	93,196	$	93,648
Actual return on plan assets		86,073		78,104			11,140		8,615
Employer contributions		16,511		41,286			7,370		863
Plan participants' contributions		-		-			1,814		2,325
Benefits paid		(73,017)		(37,850)	(1)		(11,187)		(12,255)
Fair value of plan net assets at December 31	$	841,047	$	811,480		$	102,333	$	93,196
Funded Status at December 31(2)	$	(94,456)	$	(30,565)		$	(63,672)	$	(58,843)

• The 2011 difference between benefits paid in the table of changes in pension obligations and the table of changes in plan assets, is due to a difference in benefit payments recognized by the pension actuary from the actual benefit payments made by the trustee bank in order to facilitate timely benefit payments to participants.
• Amounts recognized as non-current liabilities (accrued retirement benefits) in the consolidated balance sheets as of December 31, 2012 and 2011.

The expected long-term rate of return for both the pension and other postretirement benefit plan assets is 6.15%and 6.75%, and 6.15-7.10% and 6.75-7.10%, respectively, in 2012 and 2011, respectively.

The following amounts would have been recognized in Accumulated Other Comprehensive Income, net of taxes, according to the provisions of the Compensation Retirement Benefits Topic of the FASC. Since NVE is able to recover expenses through rates, the amounts noted below will be recorded as Regulatory Assets for pension plansunder the provisions of the Regulated Operations Topic of the FASC. Amounts recognized as of December 31, consist of (dollars in thousands):

						Other Postretirement
	Pension Benefits				Benefits
	2012		2011		2012		2011
Net actuarial loss	$	(203,942)	$	(238,672)	$	(19,360)	$	(34,501)
Prior service (cost) credit		(60,691)		34,730		(9,474)		15,141
Accumulated other comprehensive loss, pre-tax		(264,633)		(203,942)		(28,834)		(19,360)
Regulatory asset for pension plans		252,114		194,936		28,834		19,360
Accumulated other comprehensive loss, pre-tax, at December 31	$	(12,519)	$	(9,006)	$	-	$	-

The estimated amounts that will be amortized from the regulatory assets for pension plans and accumulated other comprehensive income into net periodic cost in 2013 are as follows (dollars in thousands):

			Other
	Pension		Postretirement
	Benefits		Benefits
Actuarial loss	$	(19,188)	$	(3,561)
Prior service cost	$	(2,882)	$	(3,809)

As of December 31, 2012 and 2011, the projected benefit obligation, accumulated benefit obligation, and fair value of plan net assets for pension plans with a projected benefit obligation in excess of plan net assets, and pension plans with an accumulated benefit obligation in excess of plan assets, were as follows (dollars in thousands):

	2012		2011
Projected benefit obligation, end of year	$	935,503	$	842,045
Accumulated benefit obligation, end of year	$	896,988	$	813,101
Fair value of plan net assets, end of year	$	841,047	$	811,480

Plan Assets

NVE's investment strategy is to ensure the safety of the principal of the assets and obtain asset performance to meet the continuing obligations of the plan. NVE contributed a total of $22.1 million and $40.6 million in 2012 and 2011, respectively, towards the qualified pension and other postretirement benefit plans.

NVE strives to maintain a reasonable and prudent amount of risk, and seeks to limit risk through diversification of assets. Also, NVE considers the ability of the plan to pay all benefit and expense obligations when due, and to control the costs of administering and managing the plan.

NVE's long term strategy for the pension plan assets is to maximize risk adjusted returns while maintaining adequate liquidity to pay plan benefits. NVE is committed to prudent investments with ample diversification in terms of asset types, fund strategies, and investment managers. As such, NVE has elected to include an appropriate mix of indexed and actively managed investments to accomplish its strategy. The allocation for pension plan net assets at December 31, 2012 is 61% fixed income, 26% U.S. equity, 7% international equity and 6% cash. The allocation for pension plan net assets at December 31, 2011 is 61% fixed income, 19% U.S. equity, 14% international equity, 5% cash and 1% other. The long-term target allocation for pension plan net assets is 65% fixed income, 20% U.S. equity, and 15% international equity. The fixed income investments are benchmarked against government and corporate credit bond indices. U.S. equity investments include large cap, mid-cap, and small-cap companies with an emphasis towards small and mid-cap investments relative to the Russell 3000 Index. International equity is currently actively managed and includes investments in both established and emerging markets.

The allocation for the other postretirement benefit plan net assets at December 31, 2012 is 49% equity securities, 48% fixed income and 3% cash. The allocation for other postretirement benefit plan net assets at December 31, 2011 is 51% equity securities, 46% fixed income and 3% cash. The long-term strategy for the other postretirement benefit plan net assets is similar to the pension plan net assets strategy as described above. The target allocation for other postretirement benefit assets is 60% equity and 40% fixed income. The equity is invested in indexed securities that track the S&P 500 Index. The fixed income is indexed and benchmarked against government and corporate credit bond indices.

The fair values of NVE's pension plan and other postretirement benefits assets at December 31, 2012 and 2011, within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASC, by asset category are as follows (dollars in thousands):

2012 Pension Plan Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents(1)			$	376	$	49,580	$	-	$	49,956
Equity:
	U.S. Equity Securities(2)			63,538		166,702		-		230,240
	International Equity Securities			63,936		-		-		63,936
Fixed Income:
	U.S. Preferred Securities			75		-		-		75
	International Preferred Securities			1,382		-		-		1,382
	U.S. Fixed Income Securities(4)			125,165		372,290		-		497,455
	International Fixed Income Securities			4,957		36,669		-		41,626
Other:
	U.S. Future Contracts			(47)		-		-		(47)
	Administrative Trust Net Liabilities(5)			(43,576)		-		-		(43,576)
		Total Pension Plan Assets	$	215,806	$	625,241	$	-	$	841,047

2012 Other Postretirement Benefit Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents(1)			$	1,978	$	1,362	$	-	$	3,340
Equity:
	U.S. Equity Securities(2)			44,296		4,581		-		48,877
	International Equity Securities			1,757		-		-		1,757
Fixed Income:
	U.S. Preferred Securities			2		-		-		2
	International Preferred Securities			38		-		-		38
	U.S. Fixed Income Securities(4)			12,152		36,222		-		48,374
	International Fixed Income Securities			136		1,008		-		1,144
Other:
	U.S. Future Contracts			(1)		-		-		(1)
	Administrative Trust Net Liabilities(5)			(1,198)		-		-		(1,198)
		Total Other Postretirement Benefit Assets	$	59,160	$	43,173	$	-	$	102,333

2011 Pension Plan Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents (1)			$	4,795	$	39,431	$	-	$	44,226
Equity:
	U.S. Equity Securities (3)			52,204		101,231		-		153,435
	International Equity Securities			110,837		-		-		110,837
Fixed Income:
	U.S. Preferred Securities			64		-		-		64
	International Preferred Securities			842		-		-		842
	U.S. Fixed Income Securities (4)			98,311		339,816		-		438,127
	International Fixed Income Securities			3,135		51,902		-		55,037
Other:
	U.S. Future Contracts			(92)		-		-		(92)
	Administrative Trust Net Assets (5)			9,004		-		-		9,004
		Total Pension Plan Assets	$	279,100	$	532,380	$	-	$	811,480

2011 Other Postretirement Benefit Assets
Asset Category			Level 1		Level 2		Level 3		Total
Cash & Cash equivalents (1)			$	105	$	2,756	$	-	$	2,861
Equity:
	U.S. Equity Securities (3)			42,848		2,200		-		45,048
	International Equity Securities			2,409		-		-		2,409
Fixed Income:
	U.S. Preferred Securities			1		-		-		1
	International Preferred Securities			18		-		-		18
	U.S. Fixed Income Securities (4)			10,168		31,301		-		41,469
	International Fixed Income Securities			68		1,128		-		1,196
Other:
	U.S. Future Contracts			(2)		-		-		(2)
	Administrative Trust Net Assets (5)			196		-		-		196
		Total Other Postretirement Benefit Assets	$	55,811	$	37,385	$	-	$	93,196

(1)Cash and cash equivalents consist of investment in commingled funds that are primarily comprised of money market holdings and marketable securities, U.S. Treasury bills and commercial paper valued and redeemable at cost.

(2)This category includes approximately 27% small and mid-cap and 73% broad market domestic equity investments.

(3)This category includes approximately 26% small and mid-cap and 74% broad market domestic equity investments.

(4)Level 1 investments are comprised of fixed income securities that primarily invest in U.S. Treasury bonds. Level 2 investments consist of commingled funds that track the Barclays Capital Long Government and Corporate Credit Index and the Barclays Capital Aggregate US Fixed Income Index.

(5)The administrative trust net assets/liabilities are primarily comprised of amounts payable to and from brokers for sold and purchased securities.

The actuarial assumptions used to determine December 31 benefit obligations and net periodic benefit costs were as follows:

	Benefit Obligations			Net Periodic Benefit Costs
	2012		2011	2012	2011	2010
Discount rate-pension	4.01	%	4.91%	4.91%	5.09%	5.79%
Discount rate-other benefits	4.09	%	5.09%	5.09%	5.20%	5.75%
Rate of compensation increase	4.00	%	4.00%	4.00%	4.00%	4.50%
Expected long-term return on plan assets-pension	N/A		N/A	6.15%	6.75%	6.75%
Expected long-term return on plan assets-other benefits	N/A		N/A	6.15-7.1%	6.75-7.1%	6.75-7.1%
Initial health care cost trend rate	7.75	%	8.00%	8.00%	8.00%	8.00%
Ultimate health care cost trend rate	4.75	%	4.75%	4.75%	4.75%	5.00%
Number of years to ultimate trend rate	6		7	7	8	7

The discount rates for 2012 and 2011 related to the benefit obligations were determined by identifying a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plans projected benefit payments.

The discount rates for 2012 related to the net periodic benefit costs were determined by identifying a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plans projected benefit payments. However, to determine the discount rates for 2011 and 2010 related to the net periodic benefit costs, NVE's projected benefit payments were matched to the yield curve derived from a portfolio of over 300 high quality Aa bonds with yields within the 10th to 90th percentiles of these bond yields.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:

	1-Percentage		1-Percentage
	Point Increase		Point Decrease
Effect on the postretirement benefit obligation	$	7,260	$	(5,801)
Effect on total of service and interest cost components	$	552	$	(433)

The expected ROR on plan assets was determined by considering a realistic projection of what assets can earn, given existing capital market conditions, historical equity and bond premiums over inflation, the effect of “normative” economic conditions that may differ from existing conditions, and projected ROR on reinvested assets.

       There were no significant transactions between the plan and the employer or related parties during 2012, 2011, or 2010.

Net Periodic Cost

The components of net periodic pension and other postretirement benefit costs for NVE, NPC and SPPC for the years ended December 31, are presented below (dollars in thousands):

NVE
		Pension Benefits						Other Postretirement Benefits
		2012		2011		2010		2012		2011		2010
Service cost		$	17,627	$	18,427	$	18,910	$	2,383	$	2,611	$	2,466
Interest cost			40,912		40,676		42,872		7,620		8,360		8,736
Expected return on plan assets			(49,789)		(48,767)		(44,275)		(6,253)		(6,386)		(6,223)
Amortization of:
	Prior service (credit)/cost		(2,897)		(2,952)		(1,794)		(3,947)		(3,947)		(3,890)
	Actuarial (gain)/loss		13,891		16,620		15,106		2,924		4,333		4,342
Total net benefit cost		$	19,744	$	24,004	$	30,819	$	2,727	$	4,971	$	5,431

The average percentage of NVE net periodic costs capitalized during 2012, 2011 and 2010 was 34.6%, 33.4% and 34.0%, respectively.

NPC
		Pension Benefits						Other Postretirement Benefits
		2012		2011		2010		2012		2011		2010
Service cost		$	9,429	$	9,781	$	9,567	$	1,400	$	1,454	$	1,413
Interest cost			19,524		19,521		20,092		2,409		2,459		2,474
Expected return on plan assets			(24,948)		(24,677)		(21,447)		(2,366)		(2,360)		(2,270)
Amortization of:
	Prior service (credit)/cost		(1,823)		(1,879)		(1,733)		916		916		946
	Actuarial (gain)/loss		5,452		6,758		7,056		883		1,208		1,199
Total net benefit cost		$	7,634	$	9,504	$	13,535	$	3,242	$	3,677	$	3,762

The average percentage of NPC net periodic costs capitalized during 2012, 2011 and 2010 was 37.0%, 36.9% and 37.0%, respectively.

SPPC
		Pension Benefits						Other Postretirement Benefits
		2012		2011		2010		2012		2011		2010
Service cost		$	6,781	$	7,361	$	8,016	$	910	$	1,086	$	977
Interest cost			20,173		20,050		21,557		5,131		5,830		6,187
Expected return on plan assets			(23,751)		(22,964)		(21,723)		(3,763)		(3,905)		(3,844)
Amortization of:
	Prior service (credit)/cost		(1,108)		(1,108)		(104)		(4,878)		(4,878)		(4,851)
	Actuarial (gain)/loss		8,105		9,647		7,876		2,014		3,092		3,109
Total net benefit cost		$	10,200	$	12,986	$	15,622	$	(586)	$	1,225	$	1,578

The average percentage of SPPC net periodic costs capitalized during 2012, 2011 and 2010 was 35.3%, 31.7% and 34.2%, respectively.

The expected cash flows for the plans, including trust accounts, are as follows (dollars in thousands):

			Other			Expected
	Pension Benefit		Postretirement			Federal
	Payments		Benefit Payments			Subsidy
2013	$	57,488	$	9,497	$	-
2014		59,705		9,891		-
2015		58,211		9,974		-
2016		66,837		10,108		-
2017		56,057		10,052		-
2018-2022		311,999		49,872		-

The above benefit payments are obligations of the indicated plan, and reflect payments which do not include employee contributions. The expected benefit payment information that reflects the employee obligation is almost exclusively paid from plan assets. A small portion of the pension benefit obligation is paid from the plansponsor's assets.