Eversource 2006 Annual Report Download - page 28

26 NU 2006 ANNUAL REPORT
the purchasers of these businesses. See Note 8H, “Commitments and
Contingencies – Guarantees and Indemnifications,” for information
regarding these items.
NU Enterprises Items Not Sold: Businesses and items that have not
yet either been sold or placed under contract to be sold by NU
Enterprises are as follows:
• Select Energy wholesale contracts (five PJM sales contracts – four of
which expire in May of 2007 and one of which expires in May of 2008,
one NYMPA sales contract that expires in 2013 and three power
purchase contracts – two of which expire in 2007 and one of which
expires in 2012);
• Remaining assets, liabilities, and contingencies associated with
previously exited businesses or companies, including a contract to
complete a cogeneration facility;
• Contracts associated with the wind down of NGS, Woods Electrical –
Other and SECI-CT; and
• Boulos
See Note3, “Assets Held for Sale and Discontinued Operations,” for
information regarding what businesses are held for sale and discontinued
operations at December 31, 2006, and additional information regarding
Select Energy’scontracts included in the “NU Enterprises” section of
this management’s discussion and analysis.
At December 31, 2006, $10.7 million in total assets and $15.8 million in
total liabilities of NGC, Mt. Tom, SESI, Woods Electrical – Services, SECI-
NH, and Woods Network are retained by NU Enterprises. These assets
and liabilities are primarily comprised of accounts receivable and unbilled
revenues, accounts payable and long-term and short-term debt.
Transmission RateMatters and FERC Regulatory Issues
CL&P, PSNH and WMECO and mostother New England utilities,
generation owners and marketers are parties to a series of agreements
that provide for coordinated planning and operation of the region’s
generation and transmission facilities and the market rules by which
these parties participate in the wholesale markets and acquire
transmission services. Under these arrangements, ISO-NE, a non-
profit corporation whose board of directors and staff are independent
from all market participants, has served as the Regional Transmission
Operator (RTO) for New England since February 1, 2005. ISO-NE
ensures the reliability of the New England transmission system,
administers the independent system operator tariff (ISO Tariff), subject
to FERC approval, and oversees the efficient and competitive functioning
of the regional wholesale power market.
Transmission – Wholesale Rates: Wholesale transmission revenues
are based on rates and formulas that are approved by the FERC. Most
of NU’s wholesale transmission revenues are collected through a
combination of ISO-NE FERC Electric Tariff No. 3, Open Access
Transmission Tariff (RNS), and Schedule 21 – NU (LNS) to that tariff.
The RNS tariff is administered by ISO-NE and is billed to all New
England transmission users. RNS recovers the revenue requirements
associated with facilities that are deemed to provide a regional benefit,
or pool transmission facilities (PTF). The RNS rate is reset on June 1st
of each year and NU collects approximately 75 percent of its wholesale
transmission revenues under its RNS tariff. NU’s LNS rate is reset on
January 1st and June 1st of each year and provides for a true-up to
actual costs, which ensures that NU’s transmission business
recovers its total transmission revenue requirements, including
the allowed ROE.
FERC ROE Decision: On October 31, 2006, the FERC issued its decision
on the RTO ROE and incentives for the New England transmission
owners. The FERC set the base ROE (beforeincentives) at 10.2 percent
for the historical locked-in period of February 1, 2005 (when the New
England RTO was activated) to October 31, 2006. Effective November 1,
2006, the FERC also added 70 basis points for the true-up tothe 10-year
treasury rate, bringing the going forward base ROE to 10.9 percent. In
addition, the FERC approved a 50 basis point adder for joining an RTO
and approved a 100 basis point adder for all newtransmission investment
wherethe projects have been identified as necessary by the ISO-NE
regional planning process. Both ROE adders for certain projects were
retroactive to February 1, 2005.
The following is a summary of the ROEs for the applicable periods and
facilities:
NewISO-NE
LNS RNS Approved Projects
RTO – February 1, 2005 to October 31, 2006 10.2% (base) 10.7% (10.2% base plus 11.7% (10.7% for RNS plus
0.5% for RTO membership) 100 basis adder)
RTO – November 1, 2006 forward 10.9% (10.2% base plus 11.4% (10.2% base plus 12.4% (11.4% for RNS plus
0.7% true-up) 0.5% for RTOmembership plus 100 basis adder)
0.7% true-up)
On a going forwardbasis, NU’stransmission capital program will be
largely comprised of regional infrastructure that is included within the
regional planning process. Over 90 percent of the company’s projected
$2.5 billion capital program for 2007 through 2011 is expected to be in
this category and is expected to earn the 12.4 percent ROE for regional
infrastructure projects as opposed to the 10.9 percent base ROE.
Prior to this decision, the base ROE being utilized in the calculation of
LNS transmission wholesale rates was 12.8 percent. The ROE being
utilized in the calculation of RNS transmission wholesale rates was
12.8 percent base plus a 50 basis point adder for joining an RTO, or a
total of 13.3 percent, plus an additional 100 basis point adder on new
regional transmission investment.
In calculating the refunds owed to customers as a result of this FERC
ROE decision, the New England Transmission Owners (NETOs) applied
the “lastclean rate” doctrine. The doctrine provides that FERC may not
order refunds down to the rate level determined in the rate proceeding
but can only order refunds down to the “last clean rate” authorized by
FERC. This creates a refund floor for the locked-in period from
February 1, 2005 to October 31, 2006. During this locked-in period, the
refund floor is the higher of the ROE level established by FERC’s