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G. DPU Safety and Reliability Programs - CPSL (NSTAR Electric)
Since 2006, NSTAR Electric has been recovering incremental costs related to the Double Pole Inspection, Replacement/Restoration
and Transfer Program and the Underground Electric Safety Program, which included stray-voltage remediation, manhole inspections,
repairs, and upgrades, in accordance with this DPU approved program. Recovery of these CPSL costs is subject to review and
approval by the DPU through a rate-reconciling mechanism. From 2006 through December 31, 2011, cumulative costs associated with
the CPSL program resulted in an incremental revenue requirement to customers of approximately $83 million. These amounts included
incremental operations and maintenance costs and the related revenue requirement for specific capital investments relative to the
CPSL programs.
On May 28, 2010, the DPU issued an order on NSTAR Electric’s 2006 CPSL cost recovery filing (the May 2010 Order). The May 2010
Order was the basis NSTAR Electric used for recognizing revenue for the CPSL programs. On October 8, 2010, NSTAR Electric
submitted a Compliance Filing with the DPU reconciling the cumulative CPSL program activity for the periods 2006 through 2009 in
order to determine a proposed rate adjustment effective on January 1, 2011. The DPU allowed the proposed rates for the CPSL
programs to go into effect on that date, subject to final reconciliation of CPSL program costs through a future DPU proceeding. NSTAR
Electric updated the October 2010 filing with final activity through 2011 in February 2013.
NSTAR Electric cannot predict the timing of any subsequent DPU order related to its CPSL filings for the period 2006 through 2011.
Therefore, NSTAR Electric continued to record its 2006 through 2011 revenues under the CPSL programs based on the May 2010
Order. While we do not believe that any subsequent DPU order would result in revenue recognition that is materially different than the
amounts already recognized, it is reasonably possible that an order could have a material impact on NSTAR Electric’s results of
operations, financial position and cash flows.
The April 4, 2012 DPU-approved comprehensive settlement agreement with the Massachusetts Attorney General concerning the
merger stipulates that NSTAR Electric must incur a revenue requirement of at least $15 million per year for 2012 through 2015 in order
to continue these programs. CPSL revenues will end once NSTAR Electric has recovered its 2015-related CPSL costs. Realization of
these revenues is subject to maintaining certain performance metrics over the four-year period and DPU approval. As of December 31,
2012, NSTAR Electric was in compliance with the performance metrics and has recognized the entire $15 million revenue requirement
during 2012, which we believe is probable of approval from the DPU.
H. Basic Service Bad Debt Adder (NSTAR Electric)
In accordance with a generic DPU order, electric utilities in Massachusetts recover the energy-related portion of bad debt costs in their
Basic Service rates. On February 7, 2007, NSTAR Electric filed its 2006 Basic Service reconciliation with the DPU proposing an
adjustment related to the increase of its Basic Service bad debt charge-offs. On June 28, 2007, the DPU issued an order approving the
implementation of a revised Basic Service rate. However, the DPU instructed NSTAR Electric to reduce distribution rates by an amount
equal to the increase in its Basic Service bad debt charge-offs. This adjustment to NSTAR Electric’s distribution rates would eliminate
the fully reconciling nature of the Basic Service bad debt adder.
NSTAR Electric deferred the unrecovered costs associated with energy-related bad debt as a regulatory asset, which totaled
approximately $34 million as of December 31, 2011, as NSTAR Electric had concluded that these costs were probable of recovery in
future rates. On June 18, 2010, NSTAR Electric filed an appeal of the DPU’s order with the SJC, which was heard by the SJC in
December 2011. On April 11, 2012, the SJC issued a procedural order waiving its standing 130-day rule for issuance of an order on
the matter. Due to the delay, NSTAR Electric concluded that while an ultimate outcome on the matter in its favor remained "more likely
than not," it could no longer be deemed "probable." As a result, NSTAR Electric recognized a reserve of $28 million ($17 million after-
tax) as a charge to Operations and Maintenance in the first quarter of 2012 to reserve the related regulatory asset on its balance sheet.
On June 4, 2012, the SJC vacated the DPU's June 28, 2007 order and remanded the matter to the DPU for a "statement of reasons,
including subsidiary findings, of its conclusion of law and relevant facts." The continued uncertainty of the outcome of the DPU’s
proceeding leaves NU and NSTAR Electric unable to conclude that it is probable that the previously reserved amount will ultimately be
recovered and therefore NSTAR Electric will continue to maintain a reserve on this amount until the ultimate outcome is determined by
the DPU.