Eversource 2010 Annual Report Download - page 23

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increase in the ES rate, as fixed costs of PSNH’s generation assets must be spread over a smaller group of customers and lower sales
volume. The customers that did not switch to a third party supplier, predominately residential and small commercial and industrial
customers, are now paying a larger proportion of these fixed costs.
The NHPUC opened a proceeding in 2010 to consider the effect of customer migration on ES rates for customers, principally residential
and small commercial and industrial customers, remaining on PSNH default energy service. As part of this docket, the NHPUC stated
its intention to explore the interplay of customer choice, migration issues and power procurement options for PSNH.
PSNH cannot predict if the upward pressure on ES rates will continue into the future, as future customer migration levels, which are
dependent on market prices and supplier alternatives, are uncertain. If future market prices once more exceed the average ES rate
level, some or all of these customers on third party supply may migrate back to PSNH.
Sources and Availability of Electric Power Supply
During 2010, about 88 percent of PSNH’s load was met through its own generation, long-term power supply provided pursuant to
orders of the NHPUC, and contracts with third parties. The remaining 12 percent of PSNH's load was met by short-term (less than one
year) purchases and spot purchases in the competitive New England wholesale power market. PSNH expects to meet its load
requirements in 2011 in a similar manner.
WESTERN MASSACHUSETTS ELECTRIC COMPANY - DISTRIBUTION
WMECO’s distribution business consists primarily of the purchase, delivery and sale of electricity to residential, commercial and
industrial customers. At December 31, 2010, WMECO furnished retail franchise electric service to approximately 206,000 retail
customers in 59 cities and towns in the western third of Massachusetts. Following electric industry restructuring in the 1990s, WMECO
sold all of its generating facilities and now purchases its energy requirements from competitive suppliers. In 2009, pursuant to the
Massachusetts Green Communities Act, WMECO was authorized to install 6 MW of solar energy generation in its service territory. In
October 2010, WMECO completed construction of a 1.8 MW solar generation facility at a site in Pittsfield, Massachusetts, which began
producing electricity in late 2010. In January 2011, WMECO announced its plans to develop a second solar generation facility at a site
in Springfield, Massachusetts. This facility will accommodate 17,000 solar panels, producing up to 4.2 MW of solar energy. WMECO
will sell all energy and other products from its solar generation facilities into the ISO New England market. WMECO had a contract with
one IPP generator in 2010, the output of which WMECO sold into the ISO New England market. The term of this contract ended on
December 31, 2010.
The following table shows the sources of 2010 electric franchise retail revenues based on categories of customers:
Sources of
Revenue
% of Total
Revenues
Residential 57%
Commercial 33%
Industrial 9%
Other 1%
Total 100%
Rates
WMECO is subject to regulation by the Massachusetts DPU, which has jurisdiction over, among other things, rates, accounting
procedures, certain dispositions of property and plant, mergers and consolidations, issuances of long-term securities, acquisition of
securities, standards of service, management efficiency and construction and operation of distribution, production and storage facilities.
WMECO's present general rate structure consists of various rate and service classifications covering residential, commercial and
industrial services. Massachusetts utilities are entitled under state law to charge rates that are sufficient to allow them an opportunity to
recover their reasonable operation and capital costs, to attract needed capital and maintain their financial integrity, while also protecting
relevant public interests.
Under state law, WMECO's customers are entitled to choose their energy suppliers, while WMECO remains their distribution company.
WMECO purchases electric power from competitive suppliers for, and passes through the cost to, those customers who do not choose
a competitive energy supplier (basic service). Basic service charges are adjusted and reconciled on an annual basis. Most of
WMECO's residential and small commercial and industrial customers have continued to buy their power from WMECO at basic service
rates. A greater proportion of large commercial and industrial customers have opted for a competitive energy supplier.
WMECO continues to supply approximately 50 percent of its customer load at basic service rates while the other 50 percent of its
customer load has migrated to competitive energy suppliers. Because this customer migration is only for energy supply service, it has
no impact on WMECO’s delivery business or its operating income.
WMECO recovers certain costs through various tracking mechanisms in its retail rates, including transmission costs, pension costs and
prudently incurred stranded costs (a portion of which have been financed through securitization by issuing RRBs) with periodic true-up
adjustments.