Eversource 2012 Annual Report Download - page 59

46
of time, (7) written communication protocols for timely and accurate information exchange between the EDC and a pre-determined list
of state and local agencies and other utilities during emergency events, (8) training and drills/exercises to be conducted annually on a
local level and every 3 years on a state-wide level, and (9) a written report to be filed with PURA within 60 days after the end of an
event in order to assist in lessons learned and continual improvement. Electric and gas companies, including CL&P and Yankee Gas,
will be subject to penalties levied by PURA for failure to meet these performance standards.
Massachusetts:
Basic Service Rates: Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers
through Basic Service for those customers who choose not to buy energy from a competitive energy supplier. Basic Service rates are
reset every six months (every three months for large commercial and industrial customers). The price of Basic Service is intended to
reflect the average competitive market price for electric power. NSTAR Electric and WMECO fully recover their energy costs through
DPU-approved regulatory rate mechanisms.
DPU Storm Penalties: On December 11, 2012, in separate orders issued by the DPU, NSTAR Electric and WMECO received penalties
related to the investigation into the electric utilities’ responses to Tropical Storm Irene and the October 2011 snowstorm. The DPU
ordered penalties of $4.1 million and $2 million for NSTAR Electric and WMECO, respectively, stating that NSTAR Electric failed to
communicate and prioritize restoration efforts in both storms and WMECO failed to prioritize restoration efforts in the October
snowstorm. These penalties were ordered to be assessed in the form of customer credits in 2013. On December 28, 2012, NSTAR
Electric and WMECO each filed appeals with the SJC arguing the DPU penalties should be vacated. In their filings, NSTAR Electric
and WMECO stated that the DPU’s decision to assess the penalties was in error as the assessments were arbitrary and not supported
by substantial evidence. While we believe that NSTAR Electric and WMECO should ultimately prevail upon appeal, we are unable to
conclusively state that a favorable outcome is probable. Therefore, NSTAR Electric and WMECO recorded $4.1 million and $2 million,
respectively, in pre-tax penalty charges as of December 31, 2012.
DPU Safety and Reliability Programs (CPSL): 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 merger 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.
Basic Service Bad Debt Adder: 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.