National Grid 2008 Annual Report Download - page 266

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 46493
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 60
Description: EXH 2(B).6.1
0/1664.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/664/1*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 46493
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 60 Description: EXH 2(B).6.1
0/1664.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/664/1*
Overview of Rate Plans
Revenue for the Issuer’s transmission business is collected from transmission customers, including the Issuer’s electricity
distribution businesses, pursuant to tariffs approved by state utility commissions and by the FERC.
In New York, NMPC operates under a lon
g
term rate plan expirin
g
in 2011 with a 50 per cent. syner
g
y sharin
g
and earnin
g
s
sharin
g
mechanism. Over the period of the plan, capital expenditure in the rate plan for transmission and distribution was based
on forecasts made at the time of the acquisition of NMPC by National Grid, which are si
g
nificantly lower than the capital
expenditure required to maintain a safe and reliable network. For the past three years, the Issuer’s incremental investment in
transmission for example has exceeded the investment included in the forecast underlyin
g
the rate plan by a factor of at least
two.
This coming year, the Issuer’s plans are to spend at a level similar to 2006 and 2007. The rate plan includes provisions for the
Issuer’s upstate New York public utility, NMPC, to petition the NYPSC for recovery of incremental investment. In a recent
NYPSC order on the KeySpan transaction, the NYPSC indicated that NMPC would be allowed to recover up to 50 per cent. of
the revenue requirements associated with incremental capital expenditures during the balance of NMPC’s rate plan. After the
expiration of the rate plan, NMPC will reset rates based on its total investment in transmission and distribution plant.
In New England, the Issuer’s transmission tariff allows for recovery of, and return on, capital expenditures as new investment
enters service, brin
g
in
g
immediate revenue benefits. The distribution operations are covered by lon
g
term rate plans that
include re
g
ular annual adjustments for MECo and a separate factor for incremental investment in New Hampshire.
Narragansett also has a long term rate plan for electric operations, and intends to file for new gas distribution rates in 2008.
The electric distribution operations of NMPC, the Issuer’s upstate New York public utility, MECo in Massachusetts, and
Narragansett in Rhode Island are subject to reliability penalties if the combined performance of National Grid USA’s electricity
distribution and transmission networks in New York fails to meet tar
g
ets associated with the number and duration of
disturbances that impact customers. In addition, the rate plans for these companies are
g
enerally oriented around efficient
operations. To the extent that the companies perform necessary activities and spend less than the forecast operatin
g
costs set
in the rate plan, it equates to increased income for shareholders. Part of the rate plan deals with forecast ener
g
y delivery. To
the extent that more ener
g
y is delivered, the Issuer increases revenue. Conversely, if the Issuer delivers less than forecast, its
revenue goes down.
New York
With respect to the Issuer’s upstate New York subsidiary, the Issuer’s electricity delivery rates for NMPC under a rate plan filed
with and approved by the NYPSC are
g
overned by a 10 year rate plan that be
g
an on 1 February 2002. Under the rate plan,
after reflecting the Issuer’s share of savin
g
s related to the acquisition of NMPC, the Issuer may earn a threshold return on
equity for its electricity distribution business of 10.6 per cent. or 12.0 per cent. if certain customer outreach, education,
competition-related and low income incentive tar
g
ets are met. In the event NMPC earns more than 12 per cent., varyin
g
percenta
g
es of the excess are shared with customers. The return on equity is measured in accordance with
g
enerally accepted
accounting principles in the United States of America (“U.S. GAAP”) and calculated cumulatively from inception to 31
December 2005 and on a two year rolling basis thereafter. The earnings calculation used to determine the regulated
60