Eversource 2005 Annual Report Download - page 26

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Environmental Legislation: The RGGI is a cooperative effort by certain
northeastern states to develop a regional program for stabilizing and
ultimately reducing CO2emissions from fossil-fired electric generators.
This initiative proposed to stabilize CO2emissions at current levels and
require a ten percent reduction by 2020. The RGGI agreement was
signed on December 20, 2005 by the states of Connecticut, Delaware,
Maine, New Jersey, New Hampshire, New York, and Vermont. Each
state commits to propose for approval legislative and regulatory
mechanisms to implement the program. RGGI may impact PSNH’s
Merrimack, Newington and Schiller stations. At this time, the impact
of this agreement on NU cannot be determined.
On January 1, 2006 a CO2cap on emissions from fossil-fired electric
generators took effect in Massachusetts, with a separate CO2emissions
rate limit effective in 2008. Affected parties are currently awaiting the
Massachusetts DEP’s proposal concerning a trading or other form of
offset program. HWP’s Mt. Tom plant would be impacted by this
regulation. Given the uncertainty of the future compliance mechanism
under these regulations, the impact of this regulation on NU and the
potential sale of Mt. Tom cannot be determined.
Connecticut:
Transmission Tracking Mechanism: On July 6, 2005, Connecticut adopted
legislation creating a mechanism to allow the DPUC to true-up, at least
annually,the retail transmission charge in local electric distribution
company rates based on changes in FERC-approved charges. This
mechanism allows CL&P to include forward-looking transmission charges
in its retail transmission rate and promptly recover its transmission
expenditures. On December 20, 2005, the DPUC approved CL&P’s
August 1, 2005 proposal to implement the mechanism effective July 1,
2005, which includes two adjustments annually,in Januaryand June.
On January1, 2006, consistent with that approval, CL&P raised its
retail transmission rate to collect $21 million of additional revenues
over the first six months of 2006.
Energy Legislation: Public Act 05-01, an “Act Concerning Energy
Independence,” (Act) was signed by Governor Rell on July 22, 2005.
The new legislation provides incentives to encourage the construction
of distributed generation, new large-scale generation, and conservation
and load management initiatives to reduce FMCC charges. FMCC
charges represent the costs of power market rules approved by the
FERC that are resulting in significantly higher costs for Connecticut.
The most significant cost item in 2005 is reliability must run (RMR)
contracts. The legislation requires regulators to a) implement near-term
measures as soon as possible, and b) commence a new request for
proposals to build customer side distributed resources and contracts for
new or repowered larger generating facilities in the state. Developers
could receive contracts of up to 15 years from the distribution companies.
The legislation provides utilities with the opportunity to earn one-time
awards for generation that is installed in their service territories. Those
awards can be as high as $200 per kilowatt for distributed generation
and $25 per kilowatt for moretraditional generation. It also allows
distribution companies, such as CL&P,to bid as much as 250 MW of
capacity into the request for proposals. If such utility bid was accepted,
then the unit after five years would have to be a) sold, b) have its
capacity sold, or c) both, provided that the DPUC could waive these
requirements. The DPUC is conducting a number of new dockets to
implement this legislation. The legislation also requires the DPUC to
investigate the financial impact on distribution companies of entering
into long-term contracts and to allow distribution companies to recover
through rates any increased costs. The DPUC ruled that at this point
the impact is hypothetical and instructed the utilities to raise the issue
in subsequent rate cases.
New Hampshire:
Environmental Legislation: The New Hampshire legislature is considering a
bill in its 2006 legislative session that would place strict limitations on
the level of mercury that PSNH’s existing generation plants can emit.
Legislation was first proposed in the 2005 session and passed by the
New Hampshire senate in 2005 which would require PSNH to achieve
fixed annual caps as early as 2009. The bill was subsequently defeated
by the New Hampshire House of Representatives early in 2006. The
legislature will now take up a new bill that requires PSNH to reduce
power plant mercury emissions by at least 80 percent by 2013 while
providing incentives for early reductions. Management has been
reviewing the proposed legislation. PSNH’s primary long-term alternative
is to install wet scrubber equipment at its Merrimack Station at a cost
of approximately $250 million. PSNH’s other alternatives include the
use of carbon injection pollution control equipment, reducing operating
capacity of its plants and possible retirement or repowering of one or
moreof its generating units. While state law and PSNH’s restructuring
agreement provide for the recoveryof its generation costs, including
the cost to comply with state environmental regulations, at this time
management is unable to determine the impact of any potential new
legislation on PSNH’snet income or financial position.
Utility Group Regulatory Issues and Rate Matters
Transmission – Wholesale Rates: Wholesale transmission revenues are
based on rates and formulas that areapproved by the FERC. Most
of NU’swholesale transmission revenues are collected through a
combination of the RNS tariff and NU’s LNS tariff. NU’s LNS rate is
reset on January 1 and June 1 of each year.NU’sRNS rate is reset on
June 1 of each year.On January1, 2006, NU’s LNS rates increased NU
wholesale revenues by approximately $18 million on an annualized
basis. The LNS and RNS rates to be effective on June 1, 2006 have
not yet been determined. Additionally, NU’s LNS tariff provides for a
true-up to actual costs, which ensures that NU’s transmission business
recovers its total transmission revenue requirements, including the
allowed ROE. At December 31, 2005, this true-up resulted in the
recognition of a $2.1 million regulatory liability, including approximately
$1.5 million due to NU’selectric distribution companies.
On December 1, 2005, NU filed at the FERC a request to include 50
percent of construction work in progress for its four major southwest
Connecticut transmission projects in its formula rate for transmission
service (Schedule 21 – NU (LNS)). The FERC approved the filing with
new rates effective on February 1, 2006. The new rates allow NU to
collect 50 percent of the construction financing expenses while these
projects areunder construction.
Transmission – Retail Rates: Asignificant portion of the NU transmission
business revenue comes from ISO-NE charges to the distribution
businesses of CL&P,PSNH and WMECO. The distribution businesses
recover these costs through the retail rates that arecharged to their
retail customers. In July of 2005, CL&P began tracking its retail
transmission revenues and expenses and on January1, 2006 raised