Eversource 2008 Annual Report Download - page 32

by December 25, 2008. PSNH utilized its own line crews,
local contractors, line crews from other NU subsidiaries and
numerous other line crews from the eastern United States
and Canada.
The operating cost of storm restorations that meet a
NHPUC specified criteria are funded through the MSCR.
Capital costs for any storm work are charged to property,
plant and equipment and recovered through the normal
distribution ratemaking process. As the December 2008
ice storm met the MSCR criteria, $62.7 million of total
estimated repair costs of $75 million associated with this
storm were charged to the MSCR at December 31, 2008.
PSNH intends to recover these costs as part of its next
delivery rates proceeding with the NHPUC. Out of the
remaining total storm costs incurred through December
31, 2008, $6.5 million of non-incremental costs has been
expensed and $5.6 million has been capitalized to plant
and equipment. PSNH expects to recognize an additional
$10 million in 2009 when the weather is warmer and
additional clean-up and repairs can be performed. We
carry $15 million of storm-related insurance system-wide
and to the extent that any insurance proceeds are received,
a portion would be allocated to PSNH to reduce the
amount of deferred or expensed storm costs. The NHPUC
scheduled public hearings in March and April of 2009 as
part of its review of state and utility operational responses
to the storm. The costs of the December 11, 2008 storm
did not have a material impact on PSNH’s 2008 net
income.
Renewable Portfolio Standards: On May 11, 2007,
Governor Lynch signed into law the “Renewable Energy
Act,” establishing renewable portfolio standards (RPS)
that requires annual increases in the percentage of
electricity with direct ties to renewable sources sold to
New Hampshire retail customers. The renewable sourcing
requirements began in 2008 and increase each year to
reach 23.8 percent in 2025. PSNH plans to meet these
standards, in part, through the purchase of renewable
energy certificates (RECs) from qualified renewable
energy resources. For each MWH of energy produced
from a qualifying resource, the producer will receive one
REC. Energy suppliers, like PSNH, will purchase these
RECs from the producers and will use them to satisfy the
RPS requirements. To the extent that PSNH is unable
to purchase sucient RECs, it will be required to make
up the dierence between the RECs purchased and its
total obligation by making an alternative compliance
payment (ACP) for each REC requirement for which PSNH
is deficient. The $8.7 million in 2008 costs for the RPS
obligation did not impact earnings, as these costs are
being recovered by PSNH through its ES rates.
Massachusetts:
Distribution Rates: On January 1, 2008, WMECO’s
distribution rates increased by $3 million annually as
approved by the DPU in December 2006. WMECO
adjusted its rates to include the distribution increase,
new basic service contracts, and changes in several
tracking mechanisms. On December 29 and 30, 2008,
the DPU approved WMECO’s proposed rate changes
eective January 1, 2009. The rate changes were made in
accordance with WMECO’s various tracking mechanisms.
The overall impact on customers’ bills was a 0.5 percent
increase for residential customers, a 2 percent decrease for
small commercial and industrial customers, and a 3 percent
decrease for medium and large commercial and industrial
customers.
Basic Service Rates: Eective July 1, 2008, the rates
for basic service customers increased due to the rise in
the cost of energy reflected in WMECO’s basic service
solicitations. Basic service rates for residential customers
increased from 10.8 cents per KWH to 12.1 cents per KWH,
small commercial and industrial customers increased from
11.5 cents per KWH to 12.8 cents per KWH and rates for
medium and large commercial and industrial customers
increased from 10.5 cents per KWH to 14.6 cents per
KWH. Eective October 1, 2008, the rates for WMECO’s
medium and large commercial and industrial basic service
customers decreased from 14.6 cents per KWH to 11.1
cents per KWH due to the decline in the cost of energy, as
reflected in its basic service solicitations. Eective January
1, 2009, the rates for all basic service customers decreased
due to the decline in the cost of energy, as reflected in
WMECO’s basic service solicitations. Basic service rates for
residential customers decreased from 12.1 cents per KWH
to 11.8 cents per KWH, small commercial and industrial
customers decreased from 12.8 cents per KWH to 12.1 cents
per KWH and rates for medium and large commercial and
industrial customers decreased from 11.1 cents per KWH to
10.2 cents per KWH.
Transition Cost Reconciliations: On June 20, 2008, the
DPU issued its final decision on WMECO’s 2005 and 2006
transition cost reconciliations, which resulted in a pre-tax
charge of $1.6 million to WMECO’s 2008 consolidated
statements of income. The DPU ordered WMECO to use a
ROE of 11 percent, and not the allowed ROE of 9.85 percent
in 2005 and 2006, for purposes of calculating carrying
cost credits for customers on the stranded cost deferrals.
In addition, the DPU ordered WMECO not to combine
certain overrecoveries and underrecoveries but instead
to keep them separate and to calculate carrying costs
on certain balances using a ROE of 11 percent and to use
customer deposit rates on other balances. The impacts of
this order on WMECO’s calculations of the 2007 and year
to date 2008 transition cost reconciliations were recorded
in the second quarter of 2008.
Decoupling Decision: On July 16, 2008, the DPU issued a
decision in its decoupling generic docket requiring all gas
and electric utilities to file full decoupling proposals with
their next general rate case. The decision rejected calls for
partial decoupling or decoupling by rate design in favor
of full decoupling by rate class. Actual revenues are
to be reconciled to target revenues, as established in
litigated rate cases, on an annual basis. Adjustments per
the reconciliation will be made to the distribution
component of rates. The decision also determined that
the DPU will honor existing long-term rate plans,
performance-based regulation plans and settlements.
On September 2, 2008, WMECO notified the DPU that it
expects to file its next distribution rate case in mid-2010
to be eective January 1, 2011. The distribution rate case
will include a proposal to fully decouple distribution
revenues from KWH sales.
Service Quality Performance Assessment: As part of the
December 2006 rate case settlement agreement approved
by the DPU, WMECO became subject to service quality
(SQ) metrics that measure safety, reliability and customer
service. Any charges incurred are paid to customers
through a method approved by the DPU. WMECO will
likely be required to pay an assessment charge for its 2008
reliability performance against the metrics established
for 2008, primarily as a result of significant storm activity.
WMECO has performed at target for other non-storm
related reliability metrics. WMECO will file its 2008 SQ
results and assessment calculation with the DPU in March
2009. In 2008, WMECO recorded an estimated pre-tax
charge and a regulatory liability of approximately $1.3
million for this assessment.
Storm Costs Reserve: The December11, 2008 ice storm
also impacted areas served by WMECO. As this storm met
the storm costs reserve criteria approved in WMECO’s last
distribution rate case settlement, $11.3 million of the total
$13.8 million estimated repair costs associated with this
storm were recognized as a deferred asset at December 31,
2008. WMECO expects to begin recovery of these costs in
its next distribution rate proceeding. Out of the remaining
total storm costs, $1.4 million has been expensed, including a
significant portion of non-incremental costs, and $1.1 million
has been capitalized to plant and equipment. We carry $15
million of storm-related insurance system-wide and to the
extent that any insurance proceeds are received, a portion
would be allocated to WMECO to reduce the amount of
deferred or expensed storm costs. The DPU has opened
a formal docket to review storm restoration eorts by the
state’s utilities and held public hearings in February 2009.
The costs of the December11, 2008 storm did not have a
material impact on the 2008 earnings of WMECO.
Transfer of Transmission Assets: On December 15, 2008,
the FERC approved the transfer of $4 million in transmission
related assets of our wholly owned subsidiaries’ HWP and
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