Eversource 2015 Annual Report Download - page 18

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The Cape Light Compact, an inter-governmental organization consisting of the 21 towns and two counties on Cape Cod and Martha’s Vineyard,
serves 200,000 customers through the delivery of energy efficiency programs, effective consumer advocacy, competitive electricity supply and green
power options. NSTAR Electric continues to provide electric service to these customers including the delivery of power, maintenance of
infrastructure, capital investment, meter reading, billing, and customer service.
NSTAR Electric continues to supply approximately 39 percent of its customer load at basic service rates while the other 61 percent of its customer
load has migrated to competitive energy suppliers. WMECO continues to supply approximately 41 percent of its customer load at basic service rates
while the other 59 percent of its customer load has migrated to competitive energy suppliers. Because customer migration is limited to energy supply
service, it has no impact on the delivery business or operating income of NSTAR Electric and WMECO.
The rates established by the DPU for NSTAR Electric and WMECO are comprised of the following:
• A basic service charge that represents the collection of energy costs, including costs related to charge-offs of uncollectible energy costs
from customers. Electric distribution companies in Massachusetts are required to obtain and resell power to retail customers through basic
service for those 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). Additionally, the DPU has authorized NSTAR Electric to recover the cost of
its Dynamic Pricing Smart Grid Pilot Program and NSTAR Green wind contracts through the basic service charge. Basic service costs are
reconciled annually, with any differences refunded to, or recovered from, customers.
• A distribution charge, which includes a fixed customer charge and a demand and/or energy charge to collect the costs of building and
expanding the infrastructure to deliver power to its destination, as well as ongoing operating costs.
• For WMECO, a revenue decoupling adjustment that reconciles distribution revenue, on an annual basis, to the amount of distribution
revenue approved by the DPU in its last rate case in 2011. Currently, WMECO is allowed to collect $132.4 million annually.
• A transmission charge that recovers the cost of transporting electricity over high voltage lines from generating plants to substations,
including costs allocated by ISO-NE to maintain the wholesale electric market.
• A transition charge that represents costs to be collected primarily from previously held investments in generating plants, costs related to
existing above-market power contracts, and contract costs related to long-term power contract buy-outs.
• An energy efficiency charge that represents a legislatively-mandated charge to collect costs for energy efficiency programs.
• Reconciling adjustment charges that recover certain DPU-approved costs as follows: pension and PBOP benefits, low income customer
discounts, lost revenue and credits associated with net-metering facilities installed by customers, storms, consultants retained by the
attorney general, long-term renewable contracts and energy efficiency programs and lost base revenue associated with energy efficiency
measures. In addition to these adjustments common to both NSTAR Electric and WMECO, NSTAR Electric has reconciling adjustment
charges that collect costs associated with certain safety and reliability projects and a Smart Grid pilot program. WMECO has a reconciling
adjustment charge that recovers costs associated with certain solar projects owned and operated by WMECO.
As required by regulation, NSTAR Electric and WMECO, along with two other Massachusetts electric utilities, signed long-term commitments to
purchase a combined estimated generating capacity of approximately 334 MW of wind power from two wind farms in Maine over 15 years. The
projects are in various stages of permitting, development, or operation. One unit began operating in late 2015, and the other unit is expected to be in
operation by December 2016. In addition, WMECO previously signed a long-term commitment to purchase an estimated generating capacity of
approximately 37.5 MW of wind power from a wind farm in Maine over 15 years that is expected to be in operation in 2016.
Pursuant to a 2008 DPU order, Massachusetts electric utilities must adopt rate structures that decouple the volume of energy sales from the utility’s
revenues in their next rate case. WMECO is currently decoupled and NSTAR Electric will propose decoupling in its next rate case.
NSTAR Electric and WMECO are each subject to service quality (SQ) metrics that measure safety, reliability and customer service, and could be
required to pay to customers a SQ charge of up to 2.5 percent of annual transmission and distribution revenues for failing to meet such metrics.
Neither NSTAR Electric nor WMECO will be required to pay a SQ charge for its 2015 performance as each company achieved results at or above
target for all of its respective SQ metrics in 2015.
Sources and Availability of Electric Power Supply
As noted above, neither NSTAR Electric nor WMECO owns any generation assets (other than WMECO’s solar generation), and both companies
purchase their respective energy requirements from a variety of competitive sources through requests for proposals issued periodically, consistent
with DPU regulations. NSTAR Electric and WMECO enter into supply contracts for basic service for 50 percent of their respective residential and
small commercial and industrial customers twice per year for twelve month terms. Both NSTAR Electric and WMECO enter into supply contracts
for basic service for 100 percent of large commercial and industrial customers every three months.