Eversource 2003 Annual Report Download - page 33

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Increasing transmission rates are generally recovered from distribution
companies through FERC-approved transmission rates. Electric distribution
companies pass through higher transmission rates to retail customers as
approved by the appropriate state regulatory commission. Distribution
companies need to file for retail rate increases if transmission costs exceed
what is currently allowed in rates. Currently, WMECO has a tracking
mechanism to reset rates annually for transmission costs with overcollections
refunded to customers and undercollections deferred and then collected
from customers in later years. In its 2003 rate case, CL&P sought a tracking
mechanism to allow it to recover changes in transmission expenses on
a timely basis. While the DPUC approved a $28.4 million increase in
transmission rates for CL&P’s retail customers effective January 1, 2004,
it did not grant a tracking mechanism in rates. As a result, CL&P will need
to reapply to the DPUC to adjust transmission rates when its revenues
are not adequate to recover transmission costs. PSNH requested a tracking
mechanism from the NHPUC when it filed its rate case on December 29,
2003, which will allow it to recover changes in transmission expenses on
a timely basis.
Connecticut — CL&P:
Public Act No. 03-135 and Rate Proceedings: On June 25, 2003, the
Governor of Connecticut signed into law Public Act No. 03-135 (Act) that
amended Connecticut’s 1998 electric utility industry legislation. Among
key features, the Act created a TSO period from 2004 through 2006 that
allowed the base rate cap to return to 1996 levels, which represented a
potential increase of up to 11.1 percent. Additional costs related to
Federally Mandated Congestion Charges (FMCC) are not included in
the cap. Additionally, if energy supply costs were to exceed levels
established in the TSO rate, these costs could be recovered through an
energy adjustment clause or through the FMCC. The Act also allowed
CL&P to collect a procurement fee of at least 0.50 mills per kilowatt-hour
(kWh) from customers who continue to purchase TSO service. That fee
can increase to 0.75 mills if CL&P beats certain regional benchmarks.
Management expects that the procurement fee will be between $11 million
and $12 million annually, which will add $6 million to $7 million to
CL&P’s net income. One mill is equal to one-tenth of a cent.
ISO-NE and the New England Power Pool are currently debating the
implementation of locational installed capacity (LICAP). LICAP is the
requirement that CL&P support enough generation to meet peak demand
(plus a reserve to protect against higher demand than expected or
generating plant outages) in its service territory. Connecticut, because of
its lack of sufficient generation and transmission, is expected to have high
LICAP costs. LICAP rules are subject to the jurisdiction of the FERC. ISO-NE
filed a proposal with the FERC on March 1, 2004 for implementation in
June 2004. Until the exact proposal is approved by the FERC, the financial
impact on CL&P’s customers cannot be determined. CL&P expects to
recover LICAP from its customers as a FMCC.
On July 1, 2003, CL&P filed with the DPUC to establish TSO service and
to set the TSO rates equal to December 31, 1996 total rate levels. On
December 19, 2003, the DPUC issued a final decision setting the average
TSO rate at $0.1076 per kWh for 2004, which the DPUC found to be
within the statutory cap. That rate incorporated nine key elements,
which combined produced the average TSO rate. The most significant
element was an average GSC of $0.05744 per kWh. That charge will
allow CL&P to fully recover from customers the amounts to be paid in
2004 to its five TSO suppliers. These suppliers include Select Energy,
which was awarded 37.5 percent of CL&P’s TSO load through a request
for proposal process overseen by the DPUC, and four other suppliers, all
of which are investment grade rated by major rating agencies.
The Act also required CL&P to file a four-year transmission and
distribution plan with the DPUC. Accordingly, on August 1, 2003, CL&P
filed a rate case that amended rate schedules and proposed changes to
increase distribution rates. On December 19, 2003, the DPUC issued its
final decision in the rate case. In that decision, the DPUC chose to apply
$120 million of overcollections from CL&P’s customers in prior years
against higher distribution rates in the form of credits of $30 million per
year. Net of those overcollections, the DPUC ordered that distribution
rates be lowered by $1.9 million in 2004 and be raised by $25.1 million
in 2005, $11.9 million in 2006, and $7 million in 2007. The decision
approved a transmission rate increase of $28.4 million in 2004, but did
not allow the tracking mechanism and did not set transmission rates
beyond 2004. The DPUC also approved rate recovery of approximately
$900 million of CL&P’s proposed $1 billion distribution capital budget
over the four-year period. The decision set CL&P’s authorized ROE at
9.85 percent. Earnings above 9.85 percent will be shared equally by
shareholders and ratepayers. The sharing mechanism is not affected by
earnings from the procurement fee.
CL&P filed a petition for reconsideration of certain items in the rate case
on December 31, 2003. Other parties also filed petitions for reconsideration.
On January 21, 2004, the DPUC agreed to reconsider CL&P’s items; however,
CL&P also filed an appeal with the Connecticut Superior Court on
January 30, 2004, which was within the time frame required by law. The
appeal was filed in the event that the DPUC’s reconsideration is still not
acceptable to CL&P.
Disposition of Seabrook Proceeds: CL&P sold its share of the Seabrook
nuclear unit on November 1, 2002. The net proceeds in excess of the
book value of Seabrook of $16 million were recorded as a regulatory
liability and, after being offset by accelerated decommissioning funding
and other adjustments, will be refunded to customers. On May 1, 2003,
CL&P filed its application with the DPUC for approval of the disposition
of the proceeds from the sale. This filing described CL&P’s treatment of
its share of the proceeds from the sale. Hearings in this docket were held
in September 2003, and a draft decision was received on February 3,
2004. The final decision, which was received on March 3, 2004, did not
have a material effect on CL&P’s net income or financial position.
CTA and SBC Reconciliation Filing: On April 3, 2003, CL&P filed its
annual CTA and SBC reconciliation with the DPUC. For the year ended
December 31, 2002, total CTA revenues and excess GSC revenues
exceeded the CTA revenue requirement by $93.5 million. This amount
was recorded as a regulatory liability. For the same period, SBC revenues
exceeded the SBC revenue requirement by $22.4 million. In compliance
with a prior decision of the DPUC, a portion of the SBC overcollection
reduced regulatory assets, and the remaining overcollection of $18.6 million
was applied to the CTA. The DPUC’s December 19, 2003 TSO decision
addressed $41 million of SBC overcollections and $64 million of CTA
overcollections that had been estimated as of December 31, 2003. In its
decision, the DPUC ordered that $80 million of the overcollections be
used to reduce CTA costs during the 2004 through 2006 TSO period.
The DPUC also ordered that $25 million of the overcollections be used
to offset SBC costs during the TSO period. The DPUC also ordered that
$37 million of GSC overcollections be used to pay CL&P’s 0.50 mill per
kWh procurement fee during the TSO period.