Eversource 2004 Annual Report Download - page 28

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Yankee Gas: On September 3, 2004, the DPUC approved the application
by Yankee Gas to construct a LNG storage facility in Waterbury,
Connecticut, at an expected cost of $108 million that is capable of
storing the equivalent of 1.2 billion cubic feet of natural gas. On
October 15, 2004, Yankee Gas signed a contract for the design and
building of the facility, which will be filled through both liquefaction of
natural gas on-site and the transportation of LNG from off-site locations.
Formal groundbreaking for the project occurred on January 27, 2005,
and management expects the facility to become operational in time for
the 2007/2008 heating season. At December 31, 2004, Yankee Gas has
capitalized $12.9 million of costs related to this project.
On November 1, 2004, Yankee Gas placed in service a new nine-mile
gas line to connect its system in southeast Connecticut to the New
England Gas Company (NEGASCO) system in Rhode Island. The
construction project and a 20-year contract between Yankee Gas and
NEGASCO were previously approved by the DPUC and related interstate
transportation services by the FERC.
PSNH: In 2004, PSNH’s capital expenditures totaled $143.6 million,
compared with $105.4 million in 2003 and $107 million in 2002. PSNH’s
capital expenditures are projected to increase to approximately $150
million in 2005, primarily as a result of the conversion of one of three
50 megawatt units at the coal-fired Schiller Station to burn wood
(Northern Wood Power Project). Construction of the $75 million
Northern Wood Power Project has begun and is expected to be
completed by late 2006. The NHPUC’s 2004 approval of the project has
been appealed to the New Hampshire Supreme Court brought by some
of New Hampshire’s existing wood-fired generating plant owners.
Management does not believe that the appeal will negatively affect
PSNH’s ability to complete the Northern Wood Power Project.
In addition to the Northern Wood Power Project, PSNH’s capital spending
in 2005 will be driven in part by its agreement in its delivery charge
2004 rate case settlement to invest approximately $60 million annually
in its distribution capital improvement program.
WMECO: In 2004, WMECO’s capital expenditures totaled $38.6 million,
compared with $33.3 million in 2003 and $26.5 million in 2002. As part
of WMECO’s rate settlement approved by the DTE on December 29, 2004,
WMECO agreed to invest not less than $24 million in capital expenditures
in 2005 and 2006 related to reliability improvements.
For further information regarding rate matters associated with
business development and capital expenditures, see “Utility Group
Regulatory Issues and Rate Matters,” in this Management’s
Discussion and Analysis.
NU Enterprises: In 2004, capital expenditures totaled $11.8 million at
NGC, $1.5 million at HWP, and $4.3 million at other NU Enterprises
businesses. Capital expenditures at NGC in 2004 included the final
work on a $25 million project to increase the capacity of the Cabot
conventional hydroelectric station in Massachusetts by 9 MW to 62 MW.
HWP is evaluating spending approximately $14 million in 2005 and
2006 to meet new Massachusetts clean air requirements without which
HWP’s Mt. Tom coal-fired generating station would be required to
cease operation in October 2006. NGC’s capital expenditures in 2005
are projected to total approximately $10 million.
Transmission Access and FERC Regulatory Changes
NU companies CL&P, WMECO and PSNH are members of the New
England Power Pool (NEPOOL) and, since 1997, have provided regional
open access transmission service over their combined transmission
system under the NEPOOL Open Access Transmission Tariff, which is
administered by ISO-NE and local open access transmission service
under the NU Companies Open Access Tariff No. 10, which the NU
companies administer.
On October 31, 2003, ISO-NE, along with NU and six other New
England transmission owning companies, filed a proposal with the
FERC to create a Regional Transmission Organization (RTO) for New
England in compliance with a 1999 FERC order calling on all transmission
owners to voluntarily join RTOs (Order 2000). The RTO is intended to
strengthen the independent and efficient management of the region’s
power system while ensuring that customers in New England continue
to have highly reliable service and realize the benefits of a competitive
wholesale energy market.
In a separate filing made on November 4, 2003, the New England
transmission owning companies requested, consistent with the FERC’s
proposed pricing policy for RTOs, that the FERC approve a single ROE
for regional and local transmission service rates that would consist of
a proposed 12.8 percent base ROE as well as incentive adders of
0.5 percent for joining a RTO and 1.0 percent for constructing new
transmission facilities approved by the RTO.
On March 24, 2004, the FERC issued an order conditionally accepting
the New England RTO proposal but set for hearing the determination
of the appropriate base ROE for transmission rates under the RTO
and the clarification as to which facilities the 1.0 percent incentive
adder should apply. The 0.5 percent ROE adder was accepted for
regional rates.
On November 3, 2004, the FERC issued an order that 1) determined
that the New England transmission owners’ methodology used to
calculate the proposed ROE is appropriate, 2) clarified the application
of the 0.5 percent incentive adder for joining a RTO for regional assets
and reaffirmed the appropriateness of the 1.0 percent incentive adder
for new investments; however, it left still unresolved the type of
investments to which the 1.0 percent incentive adder should apply,
and 3) approved certain compliance items that were required by the
FERC’s March 24, 2004 order.
While the order approved the methodology that had been proposed by
the transmission owners for calculating the base ROE, it determined
that the actual base ROE would be determined following the conclusion
of an ordered hearing, which commenced on January 25, 2005. As part
of the hearing procedures, the New England transmission owners
submitted supplemental testimony supporting their ROE proposal on
January 10, 2005 that, among other things, updated the ROE calculations
submitted with the November filing. The decision on the ROE incentive
adders could result in a different ROE being utilized in the calculation
of Regional Network Service (RNS) tariffs than the ROE utilized in the
calculation of Local Network Service (LNS) tariffs. An initial administrative
law judge decision on these issues is expected in May 2005, and a final
ruling regarding these issues is expected by the first quarter of 2006.