Eversource 2008 Annual Report Download - page 28

constant, we currently estimate that we could be required
to make an additional pre-tax contribution for the 2009
plan year in 2010 of between $150 million and $200 million.
Contributions for the 2009 plan year would be made
quarterly beginning in the second quarter of 2010.
If significant contributions for 2009 or future pension plan
years are required and there is no change in regulatory
recovery mechanisms, then there will likely be an impact
on the timing and amount of our future debt and equity
financings. The majority of our pension expense is
included in rates charged to customers of our regulated
companies.
Transmission Rate Matters and FERC Regulatory Issues
CL&P, PSNH and WMECO and most other 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 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
sta are independent from all market participants, has
served as the Regional Transmission Organization for New
England since February 1, 2005. ISO-NE works to ensure
the reliability of the New England transmission system,
administers the independent system operator tari, subject
to FERC approval, oversees the ecient and competitive
functioning of the regional wholesale power market
and determines the portion of the costs of our major
transmission facilities that are regionalized throughout
New England.
Transmission - Wholesale Rates: Wholesale transmission
revenues are based on formula rates that are approved
by the FERC. Most of our wholesale transmission
revenues are collected under the ISO-NE FERC Electric
Tari No. 3, Transmission, Markets and Services Tari
(Tari No. 3). Tari No. 3 includes Regional Network
Service (RNS) and Schedule 21 - NU rate schedules to
recover fees for transmission and other services. The
RNS rate, administered by ISO-NE and billed to all New
England transmission users, is reset on June 1st of each
year and recovers the revenue requirements associated
with transmission facilities that benefit the New England
region. The Schedule 21 - NU rate, which we administer,
is reset on January 1st and June 1st of each year and
recovers the revenue requirements for local transmission
facilities and other transmission costs not recovered under
the RNS rate, including 100 percent of the CWIP that is
included in rate base on the NEEWS projects discussed
below. The Schedule 21 - NU rate calculation recovers
total transmission revenue requirements net of revenues
received from other sources (i.e., RNS, rentals, etc.),
thereby ensuring that we recover all regional and local
revenue requirements as prescribed in Tari
No. 3. Both the RNS and Schedule 21 - NU rates provide
for annual true-ups to actual costs. The financial impacts
of dierences between actual and projected costs are
deferred for future recovery from or refund to customers.
At December31, 2008, the Schedule 21 - NU rates were in
a total underrecovery position of $4.6 million, which will be
collected from customers in mid-2009.
FERC ROE Decision: On March24, 2008, the FERC issued
a rehearing order confirming its initial decision setting the
base ROE for transmission projects for the New England
transmission owners. Including a final adjustment, the
order provides a base ROE of 11.14 percent for the period
beginning November1, 2006. The order also armed
FERC’s earlier decision granting a 100 basis point adder for
transmission projects that are part of the ISO-NE Regional
System Plan and are completed and on line by December
31, 2008. In 2008, we added $6 million in transmission
segment earnings related to this order. This order has
been appealed to the D.C. Circuit Court of Appeals by
numerous state regulators and consumer advocates. The
Court has set a schedule for briefing to conclude by the
end of the second quarter of 2009. No date has been set
for arguments.
On May 16, 2008, CL&P filed an application with the FERC
to receive ROE incentives for its Middletown-Norwalk
project and to seek a waiver of the “completed and
on line” date of December 31, 2008 to earn incentives,
pursuant to the FERC’s March 24, 2008 order on
rehearing. Alternatively, we requested the FERC to find
that this project met the nexus test requirements for
incentives under FERC’s guidelines for new projects, and
requested an additional 50 basis point adder for advanced
technology used in the project.
The FERC subsequently granted the waiver request and
approved the 100 basis point incentive for the entire
Middletown-Norwalk project. The FERC also found that
the project met the nexus test and granted an additional
50 basis point adder for the advanced technology aspects
of the 24-mile underground portion of the project,
ordering us to file more details regarding the advanced
technology. The 50 basis point adder results in a total ROE
for the underground portion of the Middletown-Norwalk
project of 13.1 percent, which represents the overall ROE
limit established by the FERC. Certain state regulators
and municipal utilities sought rehearing, which were
denied by the FERC, and Connecticut state regulators
have since taken an appeal to the D.C. Circuit Court of
Appeals. A schedule for the appeal has not yet been set.
The technology adder increases CL&P’s annual earnings
beginning in 2009 by approximately $0.9 million.
On August 18, 2008, CL&P made a compliance filing
with the FERC detailing the costs associated with the
underground cables and supporting facilities of the
Middletown-Norwalk project, which qualified as advanced
technology. On September 8, 2008, the DPUC filed a
motion to reject and protest our compliance filing, stating
we did not provide sucient information. There is no
specific deadline for the FERC to respond to this motion.
Our response to the protest has been filed at the FERC.
NEEWS Incentives: On November 17, 2008, the FERC
issued an order granting incentives and rate amendments
to National Grid USA and us for the NEEWS projects. The
approved incentives include:
• An ROE of 12.89 percent, representing an incentive of
125 basis points, 25 basis points lower than requested;
• 100 percent inclusion of prudently incurred CWIP in
rate base; and
• Full recovery of prudently incurred costs if NEEWS, or
any portion thereof, is cancelled as a result of factors
beyond NU’s or National Grid USA’s control.
Our share of NEEWS is estimated to cost $1.49 billion, and
we received incentives on a portion of the transmission
upgrades with a current estimated cost to NU of $1.41
billion. Several parties have sought rehearing of the FERC
order granting incentives for NEEWS, which have not yet
been acted on by the FERC.
Legislative Matters
Environmental Legislation: The Regional Greenhouse Gas
Initiative (RGGI) is a cooperative eort by ten northeastern
and mid-Atlantic states, including Connecticut, New
Hampshire and Massachusetts, to develop a regional
program for stabilizing and reducing carbon dioxide
(CO2) emissions from fossil fuel-fired electric generating
plants. RGGI proposes to stabilize CO2 emissions at
2009 levels and reduce them by 10 percent from these
levels by 2018. RGGI is composed of individual CO2
budget trading programs in each of the participating
states. Each participating state’s CO2 budget trading
program establishes its respective share of the regional
cap, and each state will issue CO2 allowances in a number
equivalent to its portion of the regional cap. Each CO2
allowance represents a permit to emit one ton of CO2
in a specific year. The RGGI states will distribute CO2
allowances primarily through regional auctions. Regulated
power generators are able to purchase CO2 allowances
issued by any of the participating states to demonstrate
compliance with the RGGI program of the state governing
their generating plants. Taken together, the individual
participating state programs will function as a single
regional compliance market for carbon emissions.
Connecticut adopted regulations in July 2008, which
established an auction clearing price threshold of $5 per
CO2 allowance, above which price all auction proceeds will
be rebated to customers. For proceeds up to the clearing
price threshold, 69.5 percent will be directed to the
conservation and load management programs managed
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