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Deferred Contractual Obligations
FERC Proceedings: In 2003, the Connecticut Yankee Atomic Power
Company (CYAPC) increased the estimated decommissioning and
plant closure costs for the period 2000 through 2023 by approximately
$395 million over the April 2000 estimate of $436 million approved by
the FERC in a 2000 rate case settlement. The revised estimate reflects
the increases in the projected costs of spent fuel storage, increased
security and liability and property insurance costs, and the fact that
CYAPC is now self performing all work to complete the decommissioning
of the plant due to the termination of the decommissioning contract with
Bechtel Power Corporation (Bechtel) in July of 2003. NU’s share of CYAPC’s
increase in decommissioning and plant closure costs is approximately
$194 million. On July 1, 2004, CYAPC filed with the FERC for recovery
seeking to increase its annual decommissioning collections from
$16.7 million to $93 million for a six-year period beginning on January 1,
2005. On August 30, 2004, the FERC issued an order accepting the
rates, with collection beginning on February 1, 2005, subject to refund.
Both the DPUC and Bechtel filed testimony in the FERC proceeding
claiming that CYAPC was imprudent in its management of the
decommissioning project. In its testimony, the DPUC recommended
adisallowance of $225 million to $234 million out of CYAPC’s requested
rate increase of approximately $395 million. NU’s share of the DPUC’s
recommended disallowance would be between $110 million to
$115 million. The FERC staff also filed testimony that recommended
a$38 million decrease in the requested rate increase claiming that
CYAPC should have used a different gross domestic product (GDP)
escalator. NU’s share of this recommended decrease is $18.6 million.
On November 22, 2005, a FERC administrative law judge issued an
initial decision finding no imprudence on CYAPC’s part. However, the
administrative law judge did agree with the FERC staff’s position that a
lower GDP escalator should be used for calculating the rate increase
and found that CYAPC should recalculate its decommissioning charges
to reflect the lower escalator. Briefs to the full FERC addressing these
issues were filed in January and February of 2006, and a final order is
expected later in 2006. Management expects that if the FERC staff’s
position on the decommissioning GDP cost escalator is found by the
FERC to be more appropriate than that used by CYAPC to develop
its proposed rates, then CYAPC would review whether to reduce its
estimated decommissioning obligation and reduce the customers’
obligation, including CL&P, PSNH and WMECO.
The company cannot at this time predict the timing or outcome of the
FERC proceeding required for the collection of the increased CYAPC
decommissioning costs. The company believes that the costs have
been prudently incurred and will ultimately be recovered from the
customers of CL&P,PSNH and WMECO. However,there is a risk that
some portion of these increased costs may not be recovered, or will
have to be refunded if recovered, as a result of the FERC proceedings.
On June 10, 2004, the DPUC and the Connecticut OCC filed a petition
seeking a declaratoryorder that CYAPC be allowed to recover all
decommissioning costs from its wholesale purchasers, including CL&P,
PSNH and WMECO, but that such purchasers may not be allowed to
recover in their retail rates any costs that the FERC might determine to
have been imprudently incurred. On August 30, 2004, the FERC denied
this petition. On September 29, 2004, the DPUC and OCC asked the
FERC to reconsider the petition and on October 20, 2005, the FERC
denied the reconsideration, holding that the sponsor companies are
only obligated to pay CYAPC for prudently incurred decommissioning
costs and the FERC has no jurisdiction over the sponsors’ rates to
their retail customers. On December 12, 2005, the DPUC sought review
of these orders by the United States Court of Appeals for the D.C.
Circuit. The FERC and CYAPC have asked the court to dismiss the
case and the DPUC has objected to a dismissal. NU cannot predict
the timing or the outcome of these proceedings.
Bechtel Litigation: CYAPC and Bechtel commenced litigation in
Connecticut Superior Court over CYAPC’s termination of Bechtel’s
contract for the decommissioning of CYAPC’s nuclear generating
plant. After CYAPC terminated the contract, responsibility for
decommissioning was transitioned to CYAPC, which recommenced
the decommissioning process.
On March 7, 2006, CYAPC and Bechtel executed a settlement
agreement terminating this litigation. Bechtel has agreed to pay
CYAPC $15 million, and CYAPC will withdraw its termination of the
contract for default and deem it terminated by agreement.
Spent Nuclear Fuel Litigation: CYAPC, the Yankee Atomic Electric Company
(YAEC) and Maine Yankee Atomic Power Company (MYAPC) (Yankee
Companies) also commenced litigation in 1998 charging that the federal
government breached contracts it entered into with each company in
1983 under the Act. Under the Act, the DOE was to begin removing
spent nuclear fuel from the nuclear plants of the Yankee Companies no
later than January 31, 1998 in return for payments by each company
into the nuclear waste fund. No fuel has been collected by the DOE,
and spent nuclear fuel is stored on the sites of the Yankee Companies’
plants. The Yankee Companies collected the funds for payments into
the nuclear waste fund from wholesale utility customers under FERC-
approved contract rates. The wholesale utility customers in turn collect
these payments from their retail electric customers. The Yankee
Companies’ individual damage claims attributed to the government’s
breach ranging between $523 million and $543 million are specific to
each plant and include incremental storage, security, construction and
other costs through 2010. The CYAPC damage claim ranges from $186
million to $198 million, the YAEC damage claim ranges from $177 million
to $185 million and the MYAPC damage claim is $160 million. The DOE
trial ended on August 31, 2004 and a verdict has not been reached.
Post-trial findings of facts and final briefs were filed by the parties in
Januaryof 2005. The Yankee Companies’ current rates do not include
an amount for recovery of damages in this matter. Management can
predict neither the outcome of this matter nor its ultimate impact on NU.
YAEC: In November of 2005, YAEC established an updated estimate of
the cost of completing the decommissioning of its plant resulting in an
increase of approximately $85 million. NU’s share of the increase in
estimated costs is $32.7 million. This estimate reflects the cost of
completing site closureactivities from October of 2005 forward and
storing spent nuclear fuel and other high level waste on site until 2020.
This estimate projects a total cost of $192.1 million for the completion
of decommissioning and long-termfuel storage. Tofund these costs,
on November 23, 2005, YAEC submitted an application to the FERC to
increase YAEC’s wholesale decommissioning charges. The DPUC and
the Massachusetts attorney general protested these increases. On
January 31, 2006, the FERC issued an order accepting the rate increase,
effective February 1, 2006, subject to refund after hearings and settlement
judge proceedings. The hearings have been suspended pending settlement
discussions between YAEC, the FERC and other intervenors in the case.
NU has a 38.5 percent ownership interest in YAEC and can predict
neither the outcome of this matter nor its ultimate impact on NU.