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CTA and SBC Reconciliation: The CTA allows CL&P to recover stranded
costs, such as securitization costs associated with its rate reduction
bonds, amortization of regulatory assets, and IPP over-market costs,
while the SBC allows CL&P to recover certain regulatory and energy
public policy costs, such as public education outreach costs, hardship
protection costs, transition period property taxes, and displaced worker
protection costs.
On March 31, 2006, CL&P filed its 2005 CTA and SBC reconciliation,
which compared CTA and SBC revenues to revenue requirements, with
the DPUC. For the year ended December 31, 2005, total CTA revenues
exceeded the CTA cost of service by $60.1 million. This amount was
recorded as a regulatory liability on the accompanying consolidated
balance sheets. For the same period, the SBC cost of service exceeded
SBC revenues by $1.3 million. On July 24, 2006, the DPUC issued a
final decision that approved the reconciliation of the CTA and SBC
rates for the year 2005.
In CL&P’s 2001 CTA and SBC reconciliation, and subsequently in a
September 10, 2002 petition to reopen related proceedings, CL&P
requested that a deferred intercompany tax liability associated with the
intercompany sale of generation assets be excluded from the calculation
of CTAcost of service. This liability was included as a reduction in the
calculation of CTA cost of service. On September 10, 2003, the DPUC
issued a final decision denying CL&P’s request and on October 24,
2003, CL&P appealed the DPUC’sfinal decision to the Connecticut
Superior Court. On June 20, 2006, the Connecticut Superior Court
denied CL&P’s appeal. On November 1, 2006, the aforementioned
generation assets were sold by NGC. As a result of this sale, the
intercompany liability and its related decrease to revenue requirements
will no longer be reflected as a component of the CTA effective with
the November 1, 2006 sale date.
Purchased Gas Adjustment: On September 9, 2005, the DPUC issued
adraft decision regarding Yankee Gas PGA clause charges for the
period of September 1, 2003 through August31, 2004. The draft
decision disallowed approximately $9 million in previously recovered
PGA revenues associated with two separate Yankee Gas unbilled sales
and revenue adjustments. At the request of Yankee Gas, the DPUC
reopened the PGA hearings on September 20, 2005 and requested that
Yankee Gas filesupplemental information regarding the two adjustments.
Yankee Gas complied with this request. The DPUC issued a new
decision on April 20, 2006 requiring an audit of Yankee Gas’ previously
recovered PGAcosts and deferred any conclusion on the $9 million of
previously recovered revenues until the completion of the audit. In a
recent draft decision regarding Yankee Gas PGA charges for the period
September 1, 2004 through August31, 2005, an additional $2 million
related to previously recovered revenues was also identified, bringing
the total maximum amount at issue with regard to PGA clause charges
under audit to$11 million.
The DPUC has hired a consulting firm who has begun an audit of
Yankee Gas’ previously recovered PGA costs. The company expects
that the audit will be completed in the first half of 2007. Management
believes the unbilled sales and revenue adjustments and resulting
charges to customers through the PGA clause for both periods were
appropriate. Based on the facts of the case and the supplemental
information provided tothe DPUC, management believes the
appropriateness of the PGA charges to customers for the time period
under review will be approved, and has not reserved for any loss.
New Hampshire:
SCRC Reconciliation and SCRC Rates: On an annual basis, PSNH
files with the NHPUC an SCRC reconciliation filing for the preceding
calendar year. The NHPUC reviews the filing, including a prudence
review of the operations within PSNH’s generation business. On May 1,
2006, PSNH filed its 2005 SCRC reconciliation with the NHPUC. On
October 25, 2006, PSNH, the NHPUC staff and the OCA filed a settlement
agreement with the NHPUC which resolved all outstanding issues
associated with the 2005 reconciliation. After the NHPUC hearings
held in October of 2006, the NHPUC issued its order affirming the
settlement agreement. The terms of the settlement agreement had
virtually no impact on PSNH’s financial statements.
Environmental Legislation: In April of 2006, New Hampshire adopted
legislation requiring PSNH to reduce the level of mercury emissions
from its coal-fired plants by 2013 with incentives for early reductions.
To comply with the legislation, PSNH intends to install wet scrubber
technology by mid-2013 at its two Merrimack coal units, which
combined generate 433 megawatts (MW). PSNH currently anticipates
the cost to comply with this law to be $250 million, but this amount
has the potential to increase materially as the project is undertaken,
primarily as a result of changes in commodity prices and labor costs.
NU expects that this project will have a positive impact on NU’s
earnings, as state law and PSNH’s restructuring settlement agreement
provide for the recovery of its generation costs from its customers,
including the cost to comply with state environmental regulations.
Coal Procurement Docket: During 2006, the NHPUC opened a docket
to review PSNH’s coal procurement and coal transportation policies
and procedures. PSNH has responded to data requests from the
NHPUC’s outside consultant. While management believes its coal
procurement and transportation policies and procedures are prudent
and consistent with industry practice, it is unable to determine the
impact, if any, of the NHPUC’s review on PSNH’s earnings, financial
position or cash flows.
Massachusetts:
Transition Cost Reconciliation: On October 24, 2006, the Massachusetts
Department of Telecommunications and Energy (DTE) issued its decision
in WMECO’s2003 and 2004 transition cost reconciliation filing. The
DTE decision in this combined docket resolves all outstanding issues
through 2004 for transition, retail transmission, standard offer and
default service costs/revenues and did not have a significant impact on
WMECO’s earnings, financial position or cash flows.
WMECO filed its 2005 transition cost reconciliation with the DTE on
March 31, 2006. The DTE has not yet reviewed this filing or issued a
schedule for review, and the timing of a decision is uncertain.
Management does not expect the outcome of the DTE’s review to have
asignificant adverse impact on WMECO’s earnings, financial position
or cash flows.
B. Environmental Matters
General: NU is subject toenvironmental laws and regulations intended
to mitigate or remove the effect of past operations and improve or
maintain the quality of the environment. These laws and regulations
requirethe removal or the remedy of the effect on the environment of
the disposal or release of certain specified hazardous substances at
current and former operating sites. As such, NU has an active
82 NU 2006 ANNUAL REPORT