Eversource 2003 Annual Report Download - page 32

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Connecticut — Yankee Gas: Yankee Gas has also proposed expansion of
its natural gas distribution system in Connecticut. Yankee Gas’ capital
expenditures totaled $55.2 million in 2003, compared with $70.6 million
in 2002 and $47.8 million in 2001. Yankee Gas expects capital expenditures
to total $60 million in 2004 as it continues to expand its distribution
system and begins work on two major projects; a liquefied natural gas
storage facility in Waterbury, Connecticut and a new 9-mile pipeline in
southeast Connecticut to connect the existing Yankee Gas delivery
system with that of the New England Gas Company (NEGASCO), a
Rhode Island natural gas delivery company. The NEGASCO project would
cost approximately $5 million, provide Yankee Gas with additional revenue,
improve service reliability in the Stonington, Connecticut area, and
expand natural gas delivery into additional areas of southeastern
Connecticut. Construction of this project is contingent upon receiving
satisfactory regulatory approval.
Yankee Gas received a decision from the DPUC supporting the construction
and operation of a 1.2 billion cubic foot liquefied natural gas storage
and production facility in Waterbury, Connecticut. Construction of the
facility, which is expected to take approximately three years, could begin
in the second half of 2004. The decision allows for the deferral of prudently
incurred costs related to the project and requires Yankee Gas to file a
rate case to recover this investment when the facility is placed in service.
This project is also exempt from the State of Connecticut’s moratorium
on the approval of new electric and natural gas transmission projects.
At December 31, 2003, Yankee Gas has capitalized approximately $1.9
million related to this project.
New Hampshire: PSNH capital spending totaled $105.6 million in 2003 and
is projected to total $160 million in 2004. The primary reason for the
increase is PSNH’s proposal to convert a 50 megawatt oil and coal burning
unit at Schiller Station in Portsmouth, New Hampshire to burn wood chips.
The $70 million project will commence if PSNH receives satisfactory
approval from the NHPUC. PSNH believes that the conversion can be
accomplished without impacting retail rates because of certain government
incentives to promote renewable resource projects. Another reason for the
projected increase in capital spending is PSNH’s transmission projects.
Effective January 1, 2004, PSNH completed the purchase of the electric
system and retail franchise of CVEC, a subsidiary of Central Vermont Public
Service Corporation (CVPS), for $30.1 million. CVEC’s 11,000 customers in
western New Hampshire have been added to PSNH’s customer base of
more than 460,000 customers. The purchase price included the book
value of CVEC’s plant assets of approximately $9 million and an additional
$21 million to terminate an above-market wholesale power purchase
agreement CVEC had with CVPS. CVEC is expected to add approximately
$1.1 million to PSNH’s annual earnings.
Massachusetts: WMECO’s capital expenditures totaled $30.4 million in
2003, compared with $23.1 million in 2002 and $30.7 million in 2001.
WMECO’s capital expenditures are expected to total $38 million in 2004.
NU Enterprises: Capital expenditures at NU Enterprises generation
subsidiaries, NGC and HWP, are expected to be modest in 2004, with
$13 million at NGC and $1 million at HWP. In 2003, NGC’s and HWP’s
capital expenditures totaled $11.1 million and $1.8 million, respectively.
NU continues to examine acquisitions in the energy services business.
In 2002, NU acquired Woods Electrical and Woods Network for
$16.3 million.
Regional Transmission Organization
The FERC has required all transmission owning utilities to voluntarily
form RTOs or to state why this process has not begun.
On October 31, 2003, ISO-NE, along with NU and six other New England
transmission companies filed a proposal with the FERC to create a RTO
for New England. The RTO is intended to strengthen the independent
and efficient management of the region’s power system while ensuring
that customers in New England continue to have the most reliable system
possible to realize the benefits of a competitive wholesale energy market.
ISO-NE, as a RTO, will have a new independent governance structure and
will also become the transmission provider for New England by exercising
operational control over New England’s transmission facilities pursuant to a
detailed contractual arrangement with the New England transmission
owners. Under this contractual arrangement, the RTO will have clear
authority to direct the transmission owners to operate their facilities in a
manner that preserves system reliability, including requiring transmission
owners to expand existing transmission lines or build new ones when
needed for reliability. Transmission owners will retain their rights over
revenue requirements, rates and rate designs. The filing requests that the
FERC approve the RTO arrangements for an effective date of March 1, 2004.
In a separate filing made on November 4, 2003, NU along with six other
New England transmission owners requested, consistent with the FERC’s
pricing policy for RTOs and Order-2000-compliant independent system
operators, that the FERC approve a single return on equity (ROE) for
regional and local rates that would consist of a base ROE as well as
incentive adders of 50 basis points for joining a RTO and 100 basis
points for constructing new transmission facilities approved by the RTO.
If the FERC approves the request, then the transmission owners would
receive a 13.3 percent ROE for existing transmission facilities and a 14.3
percent ROE for new transmission facilities. The outcome of this request
and its impact on NU cannot be determined at this time.
Restructuring and Rate Matters
Utility Group: On August 26, 2003, NU’s electric operating companies
filed their first transmission rate case at the FERC since 1995. In the filing,
NU requested implementation of a formula rate that would allow recovery
of increasing transmission expenditures on a timelier basis and that the
changes, including a $23.7 million annual rate increase through 2004,
take effect on October 27, 2003. NU requested that the FERC maintain
NU’s existing 11.75 percent ROE until a ROE for the New England RTO is
established by the FERC. On October 22, 2003, the FERC accepted this
filing implementing the proposed rates subject to refund effective on
October 28, 2003. A final decision in the rate case is expected in 2004.