Eversource 2012 Annual Report Download - page 26

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ELECTRIC TRANSMISSION SEGMENT
General
CL&P, NSTAR Electric, 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
regional transmission organization 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 charges that 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 businesses of CL&P,
NSTAR Electric, PSNH and WMECO. These rates provide for the annual reconciliation and recovery or refund of estimated costs to
actual costs. The difference between estimated and actual costs is deferred for future recovery from, or refunded to, transmission
customers.
FERC ROE Proceedings
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. Beginning in 2009, the ROE for all regional transmission investment approved by ISO-NE is 11.64 percent, which
includes 50 basis points for joining a regional transmission organization. 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, NSTAR Electric earns between 11.64 percent and 12.64 percent on its major transmission projects, and
WMECO earns 12.89 percent on the Massachusetts portion of GSRP.
On September 30, 2011, several New England state attorneys general, state regulatory commissions, consumer advocates and other
parties filed a joint complaint with the FERC under Sections 206 and 306 of the Federal Power Act alleging that the base ROE used in
calculating formula rates for transmission service under the ISO-NE Open Access Transmission Tariff by New England transmission
owners, including CL&P, NSTAR Electric, PSNH and WMECO, is unjust and unreasonable. The complainants asserted that the current
11.14 percent rate, which became effective in 2006, is excessive due to changes in the capital markets and are seeking an order to
reduce the rate, which would be effective September 30, 2011 through December 31, 2012. In response, the New England
transmission owners filed testimony and analysis based on standard FERC methodology and precedent, demonstrating that the base
ROE of 11.14 percent remained just and reasonable.
On May 3, 2012, the FERC issued an order establishing hearing and settlement procedures for the complaint. The settlement
proceedings were subsequently terminated, as the parties had reached an impasse in their efforts to reach a settlement. In August
2012, the FERC trial judge assigned to the complaint established a schedule for the trial phase of the proceedings. Complainant
testimony supporting a base ROE of 9 percent was filed on October 1, 2012. Additional testimony was filed on October 1, 2012 by a
group of Massachusetts municipal electric companies, which recommended a base ROE of 8.2 percent. The New England
transmission owners filed testimony and analysis on November 20, 2012, demonstrating they believe that the current base ROE
continues to be just and reasonable. On January 18, 2013, the FERC trial staff filed testimony and analysis recommending a base
ROE of 9.66 percent based on the midpoint of their analysis with a range of reasonableness of 6.82 percent to 12.51 percent. The New
England transmission owners criticized trial staff's analysis in responsive testimony filed on February 12, 2013. Complainants' final
testimony is due February 27, 2013. Hearings on this complaint are scheduled for May 2013 and a trial judge’s recommended decision
is due in September 2013. A decision from FERC commissioners is expected in 2014. Refunds to customers, if any, as a result of a
reduction in the NU transmission companies’ base ROE would be retroactive to October 1, 2011.
On December 27, 2012, several additional parties filed a separate complaint concerning the New England transmission owners' ROE
with the FERC. This new complaint seeks to reduce the New England transmission owner’s base transmission ROE effective
January 1, 2013, and to consolidate this new complaint with the joint complaint filed on September 30, 2011. The New England
transmission owners have asked the FERC to reject this new complaint, and the FERC has not yet acted on it.
As of December 31, 2012, CL&P, NSTAR Electric, PSNH, and WMECO had approximately $2.1 billion of aggregate shareholder equity
invested in their transmission facilities. As a result, each 10 basis point change in the authorized base ROE would change annual
consolidated earnings by an approximate $2.1 million. We cannot at this time predict the ultimate outcome of this proceeding or the
estimated impact on CL&P’s, NSTAR Electric’s, PSNH’s, or WMECO’s respective financial position, results of operations or cash flows.
FERC Order No. 1000: On October 25, 2012, ISO-NE and a majority of the New England transmission owners, including CL&P,
NSTAR Electric, PSNH and WMECO, made a comprehensive compliance filing as required by FERC Order No. 1000 and Order No.
1000-A, issued on July 21, 2011 and May 17, 2012, respectively. The compliance filing first seeks to preserve the existing reliability