National Grid 2014 Annual Report Download - page 166

increases. The A&RPSA allows both parties a RoE reopener in
contract years four to six depending on financial market changes,
and National Grid a one-time rate reopener in contract year six.
The A&RPSA also contains new options for modernising the
power plants through retirement or repowering existing facilities
toreduce energy costs and improve environmental performance.
Rhode Island
Rhode Island 2014/15 electricity and gas infrastructure,
safety,and reliability plans (ISR)
Legislation provides our Rhode Island gas and electricity operating
divisions with rate mechanisms that allow for recovery of capital
investment, including a return, outside of base rate proceedings
through the submission of annual ISR plans.
The electricity plan includes electricity operation expenses
forvegetation management and certain inspection and
maintenance costs.
In December 2013, we filed annual petitions seeking approval
ofour 2014/15 ISR plans for the electricity and gas systems.
ThePUC approved the petitions in March 2014.
The electricity ISR plan encompasses a $74.3 million spending
programme for capital investment and $10.7 million for operating
and maintenance expenses for vegetation management and
inspection and maintenance.
The gas ISR plan encompasses a $71.7 million spending for
capital investment and, for the first time, incremental operation
andmaintenance expense for the hiring, training and supervision
of additional personnel to support increases in leak-prone
pipereplacement.
FERC
Complaint on transmission allowed RoE
In September 2011 and December 2012, complaints were filed
withFERC against certain transmission owners, including our
NewEngland transmission business, to lower the base RoE
fromthe FERC approved rate of 11.14% to 9.2% and 8.7%
respectively. Thetransmission owners argued that the
complainants have not proven the existing rate is unjust and
unreasonable and that the 11.14% base RoE should remain in
effect. Non-binding preliminary findings by a FERC administrative
law judge, suggested a 10.6% base RoE for a 15 month refund
and a 9.7% base RoE prospectively.
Short-term borrowing extension
In October 2013, National Grid filed an application with FERC
onbehalf of its electricity public utility subsidiaries seeking an
extension of the Commission’s prior authorisation to issue
short-term debt, as required by Section 204 of the Federal Power
Act. National Grid explained in its extension request that challenges
associated with the implementation of the US enterprise resource
system had delayed the production of certain FERC financial
reports that are required in any Section 204 filing. FERC denied
the extension request on the grounds that the lack of current
FERC financial reports rendered the Commission unable to make
the required findings under Section 204 as to the Company’s
ability to perform certain public utility functions. As a result,
National Grid implemented a contingency plan aimed at ensuring
that each impacted public utility subsidiary would have sufficient
cash resources pending a new short-term borrowing authorisation.
This contingency plan included the receipt of open account
advances and/or capital contributions permitted under the existing
FERC borrowing authorisation. National Grid intends to file its
Section 204 renewal applications as soon as practicable this year.
New York
Upstate New York 2012 rate plan ling
Effective from 1 April 2013, the upstate New York electricity and
gas businesses began the first year of their new three year rate
plan. The new rate plan provides an increase in electricity delivery
revenue of $43.4 million, $51.4 million and $28.3 million for rate
years one to three respectively. For the gas operations, the rate
plan provides a decrease in delivery revenue of $3.3 million in rate
year one and an increase of $5.9 million and $6.3 million in rate
years two and three respectively. The revenue requirements for
Niagara Mohawk’s electricity and gas businesses are based on
aRoE of 9.3%, which includes a stay out premium for the three
year term, and a capital structure that includes a 48% common
equity component. The final agreement also includes annual
reconciliation mechanisms for certain non-controllable costs.
Downstate New York rate plan extension
In 2013, The Brooklyn Union Gas Company (also known as
KeySpan Energy Delivery New York or KEDNY) received approval
from the PSC to extend its existing five year rate plan by two years.
The extension provides a 9.4% RoE, with a 48% equity structure.
Under the agreement, 80% of any earnings over 9.4% will fund
recovery of prior environmental deferrals with the remaining 20%
being retained by KEDNY. The agreement increased capital
expenditure allowances to $320.1 million in 2013 and $293.7million
in 2014 as compared with the prior capital allowances of
$155.4million per year. The agreement also proposed updates
tovarious customer service and other performance metrics.
2013 New York gas management audit
On 13 February 2013, the PSC announced a comprehensive
management and operations audit of National Grid’s three New
York gas distribution utilities. New York law requires periodic
management audits of all utilities at least once every five years.
Welast underwent a management audit in 2009 when the PSC
audited Niagara Mohawk’s electricity business.
The final report is expected to be filed with the PSC this summer.
The report will make recommendations regarding the operation
and management of our New York gas utilities, and will specify
costs and savings associated with each recommendation. In our
next major gas rate proceeding, the Commission will consider our
effectiveness in implementing the audit recommendations and
seek to reflect the costs and savings associated with the
recommendations in rates.
Long Island
LIPA Amended and Restated Power Supply Agreement
(A&RPSA)
We own and manage a number of power plants on Long Island,
with a generation capacity of 3.8 GW. We supply wholesale
capacity and energy to LIPA under an agreement with LIPA that
was renewed in May 2013. LIPA in turn provides retail electricity
tocommunities and businesses on Long Island.
On 23 May 2013, FERC approved the A&RPSA which expires on
30 April 2028 and replaces the original Power Supply Agreement
that was effective from May of 1998 to May of 2013. LIPA may
terminate the agreement as early as 30 April 2025 upon two years’
advance notice. The A&RPSA became effective on 28 May 2013.
The agreement resulted in a rate decrease of $27.4 million
annuallycompared with the rate in effect for the final year of the
previous PSA. The agreement sets a RoE of 9.75% and a capital
structure with an equity component of 50%. The A&RPSA
continues certain annual rate adjustments, such as pension and
other post-retirement benefit expenses, property tax true-up,
adjustments for new plant in service, and certain inflationary
Business
information in detail
continued
164 National Grid Annual Report and Accounts 2013/14