Eversource 1999 Annual Report Download - page 26

CONNECTICUT
During April 1999, CL&P filed its standard offer service plan
with the DPUC and received a decision on October 1, 1999,
as amended on December 15, 1999. In that decision, the DPUC
approved the recovery of CL&P’s regulatory assets and certain
stranded costs associated with CL&P’s nuclear generation assets
and established the methodology for setting CL&P’s standard
offer rates, including the transition charge and transmission and
distribution rates. The DPUC ruled on CL&P’s stranded cost
filing in July 1999 approving $3.5 billion of stranded cost recov-
ery, which is utilized, in part, in the determination of the
transition charge.
As provided for in the electric utility restructuring legislation
enacted in April 1998, 35 percent of CL&P’s customers were
able to choose their electric generation supplier on January 1,
2000, with the remaining 65 percent having choice on July 1,
2000. The major components of rates are a transmission and
distribution charge, a generation charge and a transition charge.
For those customers who do not or are unable to choose another
competitive electric generation supplier, CL&P will supply
standard offer or generation service at an average rate of $0.04813
per kilowatt-hour (kWh) through December 31, 2003. The reve-
nues attributable to standard offer (generation) service are expected
to exceed the actual cost of providing generation and the dif-
ference will be applied against stranded costs. In accordance
with a plan approved by the DPUC, one-half of the CL&P stan-
dard offer load was procured through a competitive bidding
process, with the remaining one-half of the power being sup-
plied by an affiliated company. The contracts are in place through
the end of 2003. For further information regarding commitments
and contingencies related to the Connecticut restructuring order,
see Note 7A, “Commitments and Contingencies — Restructuring
— Connecticut,” to the consolidated financial statements.
MASSACHUSETTS
Massachusetts enacted electric utility restructuring legislation in
November 1997. Based on an interim order approving WMECO’s
restructuring plan filed in December 1997, WMECO’s customers
were able to choose an alternative retail electricity supplier begin-
ning on March 1, 1998. In 1999, the Massachusetts Department
of Telecommunications and Energy (DTE) issued its final decision
on WMECO’s restructuring plan. In that decision, the DTE
permitted WMECO to recover its generation-related regula-
tory asset balances and its nuclear decommissioning costs.
However, the DTE disallowed any return on Millstone 2 and 3
starting March 1, 1998, until they returned to service and on
Millstone 1 for its remaining life. The pretax impact of these
disallowances was $41 million. The DTE also approved one-
year contracts with the winning bidders of the standard offer and
default service supply auction. For further information regarding
commitments and contingencies related to the Massachusetts
restructuring order, see Note 7A, “Commitments and Contingencies
— Restructuring — Massachusetts,” to the consolidated
financial statements.
In late 1999, NU arranged forward purchase transactions for
approximately 10 million NU common shares with two finan-
cial institutions (counterparties). To effect these transactions, the
counterparties purchased on the open market between November
1999 and January 2000, NU common shares, at an average price
per share of $21.26, in a total aggregate amount of $215 mil-
lion. The counterparties maintain ownership of the shares until
the transactions are settled. Additionally, NU will continue to
accrue fees on the total aggregate amount at LIBOR plus 2.5
percent per annum, until the transactions are settled. These trans-
actions can be settled in cash or NU common shares at the
company’s discretion. As required under the terms of the contracts,
NU must settle the transactions no later than December 31,
2000, for an aggregate purchase price equal to $215 million.
However, NU expects to settle these purchase transactions with
the proceeds from restructuring in the second half of 2000. If prior
to the settlement date, NU’s share price falls below $15.80 per
share, NU may be required to provide the counterparties with
additional collateral.
During 2000, the NU system companies hope to receive reg-
ulatory approval to begin the process of securitizing approximately
$2.5 billion of approved stranded costs. Securitization involves
issuing rate reduction bonds with interest rates lower than the
company’s weighted average cost of capital. Proceeds from
securitization will be used to significantly reduce the capitalization
of NU’s regulated subsidiaries and buyout or buydown certain
purchased-power contracts with a number of nonutility generators.
RESTRUCTURING
During 1999, Connecticut and Massachusetts made significant
progress in resolving industry restructuring issues. Restructuring
orders issued in Connecticut and Massachusetts allowed NU to
determine the impacts of discontinuing Statement of Financial
Accounting Standards (SFAS) No. 71, “Accounting for the Effects
of Certain Types of Regulation,” for the generation portion of
CL&P’s and WMECO’s businesses. In both states, the transmis-
sion and distribution portion of those businesses will continue
to be cost-of-service regulated. In addition, the restructuring
orders provided for a transition charge which allows for the
recovery of CL&P’s and WMECO’s generation-related
regulatory assets and prudently incurred stranded costs.
The process of restructuring the electric utility industry in
New Hampshire has not yet been concluded, however, signifi-
cant progress has been made over the past year. In August 1999,
PSNH and state officials reached a Settlement Agreement,
addressing all rate and restructuring issues involving PSNH,
which is awaiting New Hampshire Public Utilities Commission
(NHPUC) approval.
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