National Grid 2006 Annual Report Download - page 44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In December 2004, the Massachusetts Department of Telecommunications and Energy (MDTE)
approved a comprehensive settlement agreement between Massachusetts Electric, its wholesale
affiliate, NEP, and the Massachusetts Attorney General, which addressed contract termination
charges from NEP to Massachusetts Electric as well as the recovery of certain supply-related
costs. For Massachusetts Electric, the settlement provided for (i) deferred rate recovery of about
$66 million of power supply-related costs (of which $44.9 million has been recognized on the bal-
ance sheet at March 31, 2006), with interest, until 2010 and (ii) one-time customer credits of
about $10 million, reflecting $8.5 million of reduced costs due to recent federal tax law changes
and $1.4 million to reflect increased supply costs resulting from reclassifying certain customers
from default service to standard offer service. For NEP, the settlement resolved a broad range of
outstanding wholesale rate issues, including the reasonableness of the proceeds from the litigation
and sale associated with the NEP settlement on the Millstone 3 nuclear generating unit, for a set-
tlement credit of about $10 million.
Nantucket Electric’s distribution rates are linked to Massachusetts Electric’s rates and became
effective on May 1, 2000.
The Narragansett Electric Company
In Rhode Island, Narragansett Electric’s distribution rates are governed by a long-term rate plan.
Between May 2000 and the end of October 2004 pursuant to a merger agreement and rate plan
implemented at the time of the Company’s merger with Eastern Utilities Associates, distribution
rates were frozen and Narragansett was permitted to retain 100% of its earnings up to an allowed
ROE of 12%. Narragansett kept 50% of earnings between 12% and 13%, and 25% of earnings in
excess of 13%. Under a new long-term rate plan, effective from November 2004 until December
2009, Narragansett Electric agreed to reduce its distribution rates by $10.2 million (pre-tax) per
year. Beginning in January 2005, Narragansett has been able to keep an amount equal to 100%
of its earnings up to an allowed ROE of 10.5%, plus $4.65 million (pre-tax), which represents its
share of demonstrated savings subsequent to the acquisition of Eastern Utilities Associates in
2000. Earnings above that amount up to an additional 1% ROE are to be shared equally between
Narragansett and its customers, while additional earnings will be allocated 75% to customers and
25% to Narragansett. This regulatory mechanism offers the potential to achieve returns in excess
of traditional regulatory allowed returns.
In addition, Narragansett has implemented a customer credit totaling $27.6 million on most of its
customers’ bills from November 2004 through December 2005. This credit was designed to return
customers’ share of the excess earnings accrued under the merger rate plan approved and imple-
mented in 2000 governing the merger of Narragansett with Blackstone Valley Electric Company
and Newport Electric Corporation.
Granite State Electric Company
The current distribution rates for Granite State Electric are subject to regulation by the New
Hampshire Public Utilities Commission and became effective in July 1998.
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National Grid USA / Annual Report