National Grid 2013 Annual Report Download - page 25

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FERC approved rate of 11.5% which includes a NYISO participation incentive adder, lowered to 9.49%. Similarly, on
November 2, 2012 the Municipal Electric Utilities Association (“MEUA”) filed a Section 206 complaint with the FERC
seeking to lower Niagara Mohawk’ s ROE to 9.25% including the NYISO participation adder. MEUA also challenges
certain aspects of Niagara Mohawk’ s transmission formula rate. At this time, Niagara Mohawk cannot predict the
outcome of the complaint. Any change in the ROE would not have an impact on net income because the retail rate plan
fully reconciles any increase or decrease in wholesale transmission revenue under the FERC Transmission Service
Charge rate through a Transmission Revenue Adjustment Clause mechanism.
Wholesale Transmission Service Charge
On March 29, 2013, Niagara Mohawk filed with the FERC to amend Niagara Mohawk’ s Scheduling, System Control
and Dispatch Costs formula under the Wholesale Transmission Service Charge to incorporate costs incurred by Niagara
Mohawk for Reliability Support Services (“RSS”), which are for the purpose of securing the ongoing reliability of
NGUSA’ s transmission system. On August 30, 2013, the FERC rejected the Company's request without prejudice to
make a new filing to provide additional support for recovery of RSS costs. The Company plans to submit the additional
filing in fiscal year 2014.
Other Regulatory Matters
The NYPSC’ s January 2011 Order in Niagara Mohawk’ s 2010 electric rate case (the “January 2011 Electric Rate Case
Order”) required an audit relating to Niagara Mohawk’ s service company cost allocations, policies and procedures. In
February 2011, the NYPSC selected Overland Consulting Inc. (“Overland”), a management consulting firm, to perform
the audit of Niagara Mohawk, KeySpan Gas East Corporation and Brooklyn Union Gas Company. Management has
evaluated the need for and amount of a reserve based on consideration of the matters set out in the audit and taking into
account all known information about the audit related to transaction testing, normalization adjustments, efficiency
adjustments and the impact of our new cost allocation methodologies. As of December 31, 2011, Niagara Mohawk had
reserved $50 million based on the identified issues above. Overland issued a final report identifying approximately $5
million of service company overcharges to Niagara Mohawk based on extrapolated test results, which Niagara Mohawk
is contesting. On January 18, 2013 the NYPSC issued an order commencing a new proceeding to determine what, if any,
ratemaking adjustments are appropriate. The Company determined that the revenue subject to refund that was previously
contingent in the amount of $44.7 million is no longer probable of refund and has been recognized in income. A reserve
of $5.3 million has been recorded in Niagara Mohawk’ s financial statements as of March 31, 2013 and $5.0 million and
$15.0 million have been recorded in KeySpan Gas East Corporation’ s and Brooklyn Union Gas Company’ s financial
statements, respectively. Niagara Mohawk does not believe that the outcome of this matter will have a material impact
on its financial position, results of operations, or cash flows.
In February 2013, the NYPSC initiated a comprehensive management and operational audit of NGUSA’ s New York gas
businesses, including Niagara Mohawk, pursuant to the Public Service Law requirement that major electric and gas
utilities undergo an audit every five years. On June 13, 2013, the NYPSC selected NorthStar Consulting Group to
conduct the audit, which commenced in July 2013. At the time of the issuance of these financial statements, the
Company cannot predict the outcome of this management and operational audit.
On August 15, 2013, the NYPSC initiated a focused operations audit of the investor owned New York utilities, including
Niagara Mohawk, KeySpan Gas East Corporation and The Brooklyn Union Gas Company. The purpose of the audit is
to review the accuracy of electric interruption, gas safety, and customer service data reported to the NYPSC. An auditor
is scheduled to be selected by the NYPSC in November 2013 with the audit commencing in December. At the time of
the issuance of these financial statements, the Company cannot predict the outcome of this operations audit.
Temporary State Assessment Pursuant to PSL Section 18-a
In June 2009, Niagara Mohawk made a gas and electric compliance filing with the NYPSC regarding the implementation
of the Temporary State Energy & Utility Conservation Assessment (“Temporary State Assessment”). The NYPSC
authorized recovery of the costs required for payment of the Temporary State Assessment, including carrying charges,
subject to reconciliation over the five years of July 1, 2009 through June 30, 2014. On June 14, 2013, Niagara Mohawk
submitted a compliance filing proposing to maintain the currently effective surcharge. The estimated Temporary State
Assessment filed amounted to $55.1 million and $15.0 million for electric and gas, respectively.