National Grid 2008 Annual Report Download - page 308

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 53301
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: 102
Description: EXH 2(B).6.1
0/2706.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/706/2*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 53301
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: 102 Description: EXH 2(B).6.1
0/2706.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/706/2*
F-17
recover their revenue requirements. FERC issued two orders in 2004 and two in 2005 that approved the establishment of the
RTO and resolved certain issues concerning the proposed return on common equity (ROE) for New En
g
land PTOs. Other
return issues were set for hearin
g
. A number of parties, includin
g
NEP, have filed appeals from one or more of those orders
with the U.S. Court of Appeals for the District of Columbia Circuit.
Effective on the RTO operations date of February 1, 2005, NEP’s transmission rates be
g
an to reflect a proposed base ROE of
12.8 percent, subject to refund, plus an additional 0.5 percent incentive return on re
g
ional network service (RNS) rates that
FERC approved in March 2004. Approximately 70 per cent. of the Company’s transmission costs are recovered throu
g
h RNS
rates. An additional 1.0 per cent. incentive adder was also applicable to new RNS transmission investment, subject to refund.
NEP and the other New En
g
land Transmission Owners (NETOs) participated in FERC proceedin
g
s to determine outstandin
g
ROE issues, includin
g
base return on ROE and the proposed 1 percent ROE incentive for new transmission investment. On
May 27, 2005, a FERC administrative law jud
g
e (ALJ) issued an initial decision which concluded that the base ROE should be
10.72
p
ercent and that NEP and other NETOs are not entitled to the
p
ro
p
osed 1
p
er cent. ROE incentive.
On October 31, 2006, FERC issued an order establishin
g
the ROE for the NETOs, includin
g
NEP. Over the dissent of two
Commissioners and overturnin
g
the initial decision by the ALJ, FERC approved, as an incentive to build new transmission
infrastructure, the proposed 1 percent ROE adder for all new transmission investment approved throu
g
h the re
g
ional system
plannin
g
process. Althou
g
h FERC lowered the base ROE recommended by the ALJ by 0.5 percent, it also increased the ROE
by 0.7 per cent. on a going-forward basis to reflect chan
g
in
g
markets since the time that hearin
g
s were held in 2005. Thus, the
ROE approved by the order differs for the locked-in period (February 2005 to October 2006) and for the prospective period
(November 2006
g
oin
g
forward). The ROE also varies dependin
g
on whether costs are recovered throu
g
h RNS rates or local
network service (LNS) rates, and whether the costs are for existing or new facilities. For the locked-in period, the resultin
g
ROEs are 10.7 percent (includin
g
a 0.5 percent RTO participation adder) for recovery of existin
g
transmission throu
g
h RNS
rates; 11.7 percent (includin
g
0.5 percent and 1 percent adders) for new transmission costs recovered throu
g
h RNS; and
10.2 percent (base ROE only) for LNS. For the prospective period be
g
innin
g
November 1, 2006, those ROEs increased to
11.4 percent, 12.4 percent and 10.9 percent respectively. Overall, the ROEs approved by FERC represent an increase from
NEP’s last authorized ROE of 10.25
p
ercent.
The NETOs and opposing parties to the NETOs have requested rehearing of various aspects of the Commission’s order. The
NETOs have argued that FERC made an error in its analysis, the correction of which would increase transmission owners’
base return on equity by 0.3 percent. The opposing parties have challenged the Commission’s approval of the 0.7 percent
increase on a
g
oin
g
forward basis and the additional 1 percent return incentive premium that was approved for new
investment.
Niagara Mohawk
Under its Mer
g
er Rate Plan (MRP) for electric rates, the Company is authorized to recover actual amounts deferred under the
plan for each two-year period, as well as deferrals projected to accrue over the subsequent two-year period that are in excess
of a $100 million threshold. The deferrals are subject to re
g
ulatory review and approval. On July 29, 2005, the Company made
its biannual deferral account recovery filin
g
for balances in the deferral account as of June 30, 2005 plus projected deferrals.
On December 27, 2005, the New York State Public Service Commission (PSC) approved recovery of deferral account
amounts of $100 million in calendar year 2006 and $200 million in calendar year 2007, and established a timeline for the
Department of Public Service Staff (Staff) to perform its audit of the deferral account. For 2006, the deferral surchar
g
e was
included in rates be
g
innin
g
in April and the $100 million was collected over the last nine months of the 2006 calendar year.
The Staff filed testimony on Au
g
ust 2, 2006, proposin
g
in excess of $200 million of initial adjustments to the deferral balance
and projected deferrals. After replies from the Staff and the Company, an evidentiary hearin
g
was held on October 5, 2006.
U
p
on the conclusion of the evidentiar
y
hearin
g
s, the Com
p
an
y
and the Staff a
g
reed to