Eversource 2010 Annual Report Download - page 25

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Yankee Gas’ firm natural gas sales are subject to many of the same influences as our retail electric sales, but they have recently
benefitted from a favorable price for natural gas relative to competing fuels resulting in commercial and industrial customers switching
from interruptible service to firm service, and the addition of gas-fired distributed generation in Yankee Gas’ service territory. Actual
firm natural gas sales in 2010 were higher than 2009 despite the milder weather during the first quarter 2010 heating season. Firm
natural gas sales benefitted from these trends and from a large commercial customer who began to take service from Yankee Gas mid-
way through the third quarter of 2009 and continued to take service throughout all of 2010.
In April 2010, Yankee Gas commenced construction of its WWL project, a 16-mile gas pipeline between Waterbury and Wallingford,
Connecticut coupled with the increase of vaporization output of its LNG plant. The project is expected to cost approximately $57.6
million. In 2010, approximately $26.6 million was spent on construction of the WWL project, which included construction of a segment
of pipeline connecting the Cheshire and Wallingford distribution systems. The remainder of the pipeline construction and the expansion
of the vaporization capacity of the LNG facility are expected to be completed in the fourth quarter of 2011
Rates
Yankee Gas is subject to regulation by the DPUC, which has jurisdiction over, among other things, rates, accounting procedures,
certain dispositions of property and plant, mergers and consolidations, issuances of long-term securities, standards of service,
management efficiency and construction and operation of distribution, production and storage facilities.
Distribution Rates: On January 7, 2011, Yankee Gas filed an application with the DPUC to raise natural gas distribution rates by $32.8
million, or 7.3 percent, to be effective July 1, 2011, and by an additional $13 million, or 2.8 percent, to be effective July 1, 2012. Among
other items, Yankee Gas requested to maintain its current authorized ROE of 10.1 percent, that $57.6 million of costs associated with
the WWL project be placed into rates, and that a substantial increase in capital funding to replace bare steel and cast iron pipe on
Yankee Gas' system. A final decision is expected in June 2011. Yankee Gas’ regulatory ROE was 8.6 percent in 2010 compared to 6.6
percent in 2009. We expect Yankee Gas’ distribution segment regulatory ROE to be approximately 9 percent in 2011.
Sources and Availability of Natural Gas Supply
The DPUC requires that Yankee Gas meet the needs of its firm customers under all weather conditions. Specifically, Yankee Gas must
structure its portfolio to meet firm customer needs under a design day scenario (defined as the coldest day in 30 years) and under a
design year scenario (defined as the average of the four coldest years in the last 30 years). Yankee Gas’ LNG facility enables Yankee
Gas to buy natural gas in periods of low demand, store it and use it during peak demand periods when prices are typically higher.
Yankee Gas’ on-system stored LNG and underground storage supplies help to meet consumption needs during the coldest days of
winter. Yankee Gas obtains its interstate capacity from the three interstate pipelines that currently directly serve Connecticut: the
Algonquin, Tennessee and Iroquois Pipelines. Yankee Gas has long-term firm contracts for capacity on TransCanada Pipelines
Limited pipeline, Vector Pipeline, L.P., Tennessee Gas Pipeline, Iroquois Gas Transmission Pipeline, Algonquin Pipeline, Union Gas
Limited, Dominion Transmission, Inc., National Fuel Gas Supply Corporation, Transcontinental Gas Pipeline Company, and Texas
Eastern Transmission, L.P. pipelines. Yankee Gas considers such transportation arrangements adequate for its needs.
ELECTRIC TRANSMISSION
General
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 they 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 of all market participants, has served since 2005 as the RTO of the New
England transmission system. ISO-NE works to ensure the reliability of the system, administers, subject to FERC approval, the
independent system operator tariff, oversees the efficient and competitive functioning of the regional wholesale power market and
determines which costs of all regional major transmission facilities are shared by consumers throughout New England.
Wholesale Transmission Rates
Wholesale transmission revenues are recovered through formula rates that are approved by the FERC. Our transmission revenues are
recovered from New England customers through ISO-NE charges which recover costs of transmission and other transmission-related
services provided by all regional transmission owners, with a portion of those revenues collected from the distribution segments of
CL&P, PSNH and WMECO.
FERC ROE Decision
Pursuant to a series of orders involving the ROE for regionally planned New England transmission projects, the FERC set the base
ROE at 11.14 percent and approved incentives that increased the ROE to 12.64 percent for those projects that were in-service by the
end of 2008. In addition, certain projects were granted additional ROE incentives by FERC under its transmission incentive policy. As
a result, CL&P earns between 12.64 percent and 13.1 percent on its major transmission projects. All appeals of FERC's orders on the
ROE for New England transmission owners have been denied.