National Grid 2005 Annual Report Download - page 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
100% of its earnings up to an allowed return on equity of 12%. Narragansett kept 50% of earn-
ings between 12% and 13%, and 25% of earnings in excess of 13%. In effect from November
2004 until December 2009, Narragansett Electric has agreed to freeze its rates after an initial
reduction of $10.2 million. Beginning in January 2005, it will be able to keep an amount equal to
100% of its earnings up to an allowed return on equity of 10.5%, plus $4.65 million (pre-tax),
which represents its share of earned savings. Earnings above that amount up to an additional 1%
return on equity are to be shared equally between Narragansett and its customers, while addition-
al earnings will be allocated 75% to customers and 25% to Narragansett.
Granite State Electric Company
The current rates for Granite State Electric are subject to regulation by the New Hampshire Public
Utilities Commission and became effective in July 1998.
NOTE C – COMMITMENTS AND CONTINGENCIES
Environmental issues:
The normal ongoing operations and historic activities of Niagara Mohawk, Massachusetts Electric,
Narragansett Electric, Granite State Electric and NEP are subject to various federal, state and local
environmental laws and regulations. Like most other industrial companies, our transmission and
distribution companies use or generate a broad range of hazardous materials. Under federal and
state Superfund laws, potential liability for the historic contamination of property may be imposed
on responsible parties jointly and severally, without fault, even if the activities were lawful when
they occurred.
Federal and state environmental regulators, as well as private parties, have alleged that our transmis-
sion and distribution companies are potentially responsible parties under Superfund for the remedia-
tion of over 180 contaminated sites in New England and New York, and for resulting damages. Our
greatest potential Superfund liabilities relate to former manufactured gas plant, or MGP, facilities for-
merly owned or operated by our subsidiaries or their predecessors from the mid 1800s until the
divestiture of generation assets in the mid 1990s. MGP byproducts included fuel oils, hydrocarbons,
coal tar, purifier waste and other waste products that may pose a risk to human health and the envi-
ronment. We are investigating or remediating these sites, or both, as appropriate.
We believe that our ongoing operations and our response to the impact of our historic operations
are in substantial compliance with environmental laws, and that the obligations imposed on us are
not likely to have a material adverse impact on our financial condition or results of operations
because we recover a majority of these costs under our rate plans. We are pursuing claims
against insurance carriers and potentially responsible parties to recover investigation and remedia-
tion costs, but we cannot predict the success of such claims. To the extent that prudently incurred
costs cannot be recovered through insurance or otherwise, these are recoverable under applicable
rate plans. As of March 31, 2005 and 2004, the Company has recorded an obligation of $605 mil-
lion and $418 million, respectively, along with an offsetting regulatory asset, on its balance sheet.
The increase in the liability follows a recent review and reflects experience by the National Grid
Companies in restoring similar sites. The potential high end of the range at March 31, 2005 is
presently estimated at approximately $632 million.
Decommissioning Nuclear Units:
NEP has minority interests in three nuclear generating companies: Yankee Atomic Electric
Company, Connecticut Yankee Atomic Power Company, and Maine Yankee Atomic Power
Company (together, the Yankees). These ownership interests are accounted for on the equity
method. The Yankees own nuclear generating units that have been permanently retired and are
conducting decommissioning operations. The three units are as follows:
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National Grid USA / Annual Report
NEP's Equity Investment Future Estimated
as of March 31, 2005 Date Billings to NEP
Nuclear Unit % Ownership $ (millions) Retired $ (millions)
Yankee Atomic 34.5 0.3 February 1992 37
Connecticut Yankee 19.5 8.7 December 1996 118
Maine Yankee 24.0 8.7 August 1997 67