Eversource 2015 Annual Report Download - page 23

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compared to 2014. The 2015 firm natural gas sales volumes were negatively impacted by record warm weather in the fourth quarter of 2015, when
compared to 2014, partially offset by colder winter weather in the first quarter of 2015, as compared to 2014, throughout our natural gas service
territories. Weather-normalized Eversource consolidated firm natural gas sales volumes increased 2.5 percent in 2015, as compared to 2014, due
primarily to improved economic conditions as well as residential and commercial customer growth, through conversions to natural gas service.
Rates
NSTAR Gas and Yankee Gas are subject to regulation by the DPU and the PURA, respectively, which, among other things, have jurisdiction over
rates, certain dispositions of property and plant, mergers and consolidations, issuances of long-term securities, standards of service and construction
and operation of facilities. Both of Eversource Energy’s natural gas companies are entitled under their respective state law to charge rates that are
sufficient to allow them an opportunity to recover their reasonable operating and capital costs, in order to attract needed capital and maintain their
financial integrity, while also protecting relevant public interests.
Retail natural gas delivery and supply rates are established by the DPU and the PURA and are comprised of:
• A distribution charge consisting of a fixed customer charge and a demand and/or energy charge that collects the costs of building and
expanding the natural gas infrastructure to deliver natural gas supply to its customers. This also includes collection of ongoing operating
costs;
• A seasonal cost of gas adjustment clause (CGAC) at NSTAR Gas that collects natural gas supply costs, pipeline and storage capacity costs,
costs related to charge-offs of uncollected energy costs and working capital related costs. The CGAC is reset semi-annually. In addition,
NSTAR Gas files interim changes to its CGAC factor when the actual costs of natural gas supply vary from projections by more than five
percent; and
• A local distribution adjustment clause (LDAC) at NSTAR Gas that collects all energy efficiency and related program costs, environmental
costs, pension and PBOP related costs, attorney general consultant costs, and costs associated with low income customers. The LDAC is
reset annually and provides for the recovery of certain costs applicable to both sales and transportation customers.
• Purchased Gas Adjustment (PGA) clause, which allows Yankee Gas to recover the costs of the procurement of natural gas for its firm and
seasonal customers. Differences between actual natural gas costs and collection amounts on August 31st of each year are deferred and then
recovered from or refunded to customers during the following year. Carrying charges on outstanding balances are calculated using Yankee
Gas’ weighted average cost of capital in accordance with the directives of the PURA; and
• Conservation Adjustment Mechanism (CAM) at Yankee Gas, which allows 100 percent recovery of conservation costs through this
mechanism including program incentives to promote energy efficiency, as well as recovery of any lost revenues associated with
implementation of energy conservation measures. A reconciliation of CAM revenues to expenses is performed annually with any
difference being recovered from or refunded to customers, with carrying charges, during the following year.
NSTAR Gas purchases financial contracts based on NYMEX natural gas futures in order to reduce cash flow variability associated with the purchase
price for approximately one-third of its natural gas purchases. These purchases are made under a program approved by the DPU in 2006. This
practice attempts to minimize the impact of fluctuations in natural gas prices to NSTAR Gas’ firm natural gas customers. These financial contracts
do not procure natural gas supply. All costs incurred or benefits realized when these contracts are settled are included in the CGAC.
NSTAR Gas is 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 distribution revenues for failing to meet such metrics. NSTAR Gas will not be required to pay a SQ
charge for its 2015 performance as it achieved results at or above target for all of its SQ metrics in 2015.
On October 30, 2015, the DPU issued its order in the NSTAR Gas distribution rate case, which approved an annualized base rate increase of $15.8
million, plus other increases of approximately $11.5 million, mostly relating to recovery of pension and PBOP expenses and the Hopkinton Gas
Service Agreement, effective January 1, 2016. In the order, the DPU also approved an authorized regulatory ROE of 9.8 percent, the establishment
of a revenue decoupling mechanism, the recovery of certain bad debt expenses, and a 52.1 percent equity component of its capital structure. On
November 19, 2015, NSTAR Gas filed a motion for reconsideration of the order with the DPU seeking the correction of mathematical errors and
other plant and cost of service items.
Yankee Gas’ last rate proceeding was in 2011, which approved an allowed ROE of 8.83 percent and allowed for a substantial increase in annual
spending for bare steel and cast iron pipeline replacement. In 2015, Yankee Gas entered into a settlement agreement with the PURA staff pursuant to
which Yankee Gas provided a $1.5 million rate credit to firm customers beginning in December 2015, and established an earnings sharing
mechanism whereby Yankee Gas and its customers will share equally in any earnings exceeding a 9.5 percent ROE in a twelve month period
commencing with the period from April 1, 2015 through March 31, 2016.