Eversource 2012 Annual Report Download - page 22

9
Rates
PSNH is subject to regulation by the NHPUC, which has jurisdiction over, among other things, rates, certain dispositions of property
and plant, mergers and consolidations, issuances of securities, standards of service, management efficiency and construction and
operation of facilities. New Hampshire 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 New Hampshire law, all of PSNH's customers are entitled to choose competitive energy suppliers, with PSNH providing default
energy service under its ES rate for those customers who do not elect to use a third party supplier. Prior to 2009, PSNH experienced
only a minimal amount of customer migration. However, customer migration levels began to increase significantly in 2009 as energy
costs decreased from their historic high levels and competitive energy suppliers with more pricing flexibility were able to offer electricity
supply at lower prices than PSNH. By the end of 2012, approximately 9.4 percent of all of PSNH’s customers (approximately 44
percent of load), mostly large commercial and industrial customers, had switched to competitive energy suppliers. This was an
increase from 2011, when 2.6 percent of customers (approximately 36 percent of load) had switched to competitive energy suppliers.
The increased level of migration has caused an 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 choose a third party supplier, predominately
residential and small commercial and industrial customers, are now paying a larger proportion of these fixed costs. On July 26, 2011,
the NHPUC ordered PSNH to file a rate proposal that would mitigate the impact of customer migration expected to occur when the ES
rate is higher than market prices. On January 26, 2012, the NHPUC rejected the PSNH proposal and ordered PSNH to file a new
proposal no later than June 30, 2012, addressing certain issues raised by the NHPUC. On April 27, 2012, PSNH filed its proposed
Alternative Default Energy Service Rate that addresses customer migration, with an effective date of July 1, 2012. The proposal, if
implemented, would result in no impact to earnings and would allow for an increased contribution to fixed costs for all ES customers.
Hearings were held on October 18, 2012 and November 26, 2012. A final decision is expected in the first quarter of 2013.
PSNH cannot predict if the upward pressure on ES rates due to customer migration will continue into the future, as future migration
levels are dependent on market prices and supplier alternatives. 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.
The distribution rates established by the NHPUC for PSNH are comprised of the following:
 ES charge, which recovers PSNH’s generation and purchased power costs from customers on a current basis and allows for
an ROE of 9.81 percent on its generation investment.
 SCRC, which allows PSNH to recover its stranded costs, including above-market expenses incurred under mandated power
purchase obligations and other long-term investments and obligations. PSNH has financed a significant portion of its stranded
costs through securitization by issuing RRBs secured by the right to recover these stranded costs from customers over time.
PSNH recovers the costs of these RRBs through the SCRC rate. The amount of the RRB obligation decreases each quarter
and the RRBs are scheduled to be retired as of May 1, 2013.
 TCAM, which allows PSNH to recover its transmission related costs on a fully reconciling basis. The TCAM is adjusted on
July 1 of each year.
On an annual basis, PSNH files with the NHPUC an ES/SCRC cost reconciliation filing for the preceding year. The difference between
revenues and costs are included in the ES/SCRC rate calculations and refunded to or recovered from customers in the subsequent
period approved by the NHPUC. On December 28, 2012, the NHPUC issued orders approving PSNH’s requests to adjust its ES and
SCRC rates effective with service rendered on and after January 1, 2013. The orders approve an increase to the ES billing rate to
reflect projected costs for 2013 and a decrease to the SCRC billing rate to reflect the full amortization of RRBs as of May 1, 2013. The
impact to customers that purchase energy from PSNH is a net increase of 1.287 cents per kWh in total rates.
On June 28, 2010, the NHPUC approved a joint settlement of PSNH's rate case. Under the approved settlement, if PSNH's 12-month
rolling average ROE for distribution exceeds 10 percent, amounts over the 10 percent level are to be allocated 75 percent to customers
and 25 percent to PSNH. Additionally, the settlement provided that the authorized regulatory ROE on distribution plant would continue
at the previously allowed level of 9.67 percent, and also permitted PSNH to file a request to collect certain exogenous costs and step
increases on an annual basis. In 2012, PSNH filed for a step increase and a change in its accrual to its major storm reserve fund. On
June 27, 2012, the NHPUC approved an annualized distribution rate increase of $7.1 million effective July 1, 2012, for the step
increase. Additionally, PSNH was allowed a $3.5 million increase in the annual accrual to its major storm reserve fund effective July 1,
2012.
On November 22, 2011, the NHPUC opened a docket to review the Clean Air Project including the establishment of temporary rates for
near-term recovery of Clean Air Project costs, a prudence review of PSNH's overall construction program, and establishment of
permanent rates for recovery of prudently incurred Clean Air Project costs. On April 10, 2012, the NHPUC issued an order authorizing
temporary rates, effective April 16, 2012, which recover a significant portion of the Clean Air Project costs, including a return on equity.
The docket will continue for a comprehensive prudence review of the Clean Air Project and the establishment of a permanent rate. The
temporary rates will remain in effect until a permanent rate allowing full recovery of all prudently incurred costs is approved. At that time,
the NHPUC will reconcile recoveries collected under the temporary rates with final approved rates. PSNH expects hearings to
commence in this proceeding on or about the third quarter of 2013. PSNH believes that its actions related to Clean Air Project