March 19, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Attention: Filing Desk
Stop 1-4
Washington, DC 20549-1004
RE: The Connecticut Light and Power Company
Western Massachusetts Electric Company
Northeast Nuclear Energy Company
File No. 70-6907
Gentlemen:
Enclosed for filing on behalf of The Connecticut Light and Power
Company (CL&P), Western Massachusetts Electric Company (WMECO),
and Northeast Nuclear Energy Company (NNECO) is a Certificate As
To Partial Consummation Of Transaction under Rule 24 of the
Public Utility Holding Company Act of 1935 with respect to the
calculation of the composite return on equity NNECO will use in
1996 for purposes of billing CL&P and WMECO under the Amended and
Restated Millstone Plant Agreement.
Very truly yours,
/s/ John J. Roman
John J. Roman
Vice President and Controller
Enclosures
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
- ----------------------------------------------
)
In the Matter of )
)
THE CONNECTICUT LIGHT AND POWER COMPANY )
NORTHEAST NUCLEAR ENERGY COMPANY )
Berlin, Connecticut )
) CERTIFICATE AS TO
WESTERN MASSACHUSETTS ELECTRIC COMPANY ) PARTIAL CONSUMMATION
West Springfield, Massachusetts ) OF TRANSACTION
)
)
File No. 70-6907 )
)
(Public Utility Holding Company Act )
of 1935) )
)
- ----------------------------------------------
Pursuant to the Public Utility Holding Company Act of 1935 and
Rule 24(a) thereunder, The Connecticut Light and Power Company (CL&P),
Western Massachusetts Electric Company (WMECO) and Northeast Nuclear
Energy Company (NNECO), referred to collectively herein as the
Companies, hereby submit this certification in accordance with the
terms and conditions of and for the purposes represented by the
Application-Declaration (the Application) filed by the Companies in this
proceeding, and of the order dated December 6, 1983 of the Commission
with respect thereto (the Order).
In accordance with the terms of the Application and Order, the
Companies hereby submit Exhibit 1, Computation of NNECO's 1996 Equity
Return.
Dated: March 19, 1996
THE CONNECTICUT LIGHT AND POWER COMPANY
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTHEAST NUCLEAR ENERGY COMPANY
By /s/ John J. Roman
---------------------------------
John J. Roman
Their Vice President and Controller
Exhibit 1
COMPUTATION OF NNECO'S 1996 EQUITY RETURN
Effective January 1, 1996 the composite return on equity (ROE) that NNECO
will use in its billing to CL&P and WMECO for the calendar year 1996
is as follows:
Composite
ROE* Ownership ROE
CL&P 11.7% x 81% = 9.48%
WMECO 12.0% x 19% = 2.28%
-----
TOTAL 11.76%
======
*These ROE rates are the ROEs authorized by the respective retail
rate regulators in the rate decisions most recently decided before
December 31, 1995. Abstracts from those decisions are attached
hereto as Exhibit 1-a (CL&P) and Exhibit 1-b (WMECO).
Exhibit 1-a
Docket No. 92-11-11 Pages 67 and 68
bulletins report that the California response was reflected in Pacific
Gas & Electric's initial ROE proposal of 11.5% for FY 1994 and an
announcement by San Diego Gas and Electric of a two-year rate
moratorium.
In this docket, all parties were acutely aware of the state's
economic milieu. Decisions must rely on "what is" in Connecticut, as
well as assessing national trends and averages. The Authority
believes that, based on the evidentiary record, an 11.5% ROE is
appropriate for this Company at this time in Connecticut.
5. ROE COLLAR
The Company has proposed an ROE collar to protect it against
"windfalls or catastrophes that could drive earnings significantly
higher or lower during the three year time period." Roman, Prefiled
Testimony, p. 16. The proposed ROE collar contains the following
features: (1) a ceiling of 100 basis points above the allowed ROE
above which 100% of the excess would be allotted to a ratepayer fund
to be distributed after the three-year period, (2) a floor of 200
basis points below the allowed ROE below which the Company shall defer
the shortfall with carrying costs to be collected by CL&P in rates
after the three year period, and (3) in the event that certain
accounting, legislative or regulatory changes occur, an allowance for
CL&P to change rates on a concurrent basis with the event's impact on
earned ROE.
The Authority rejects the proposed ROE collar as unnecessary. If
the Company over earns, Conn. Gen. Stat. 16-19(g) provides that "the
department shall hold a special public hearing on the need for an
interim rate decrease (1) when a public service company has, for six
consecutive months, earn a return on equity which exceeds the return
authorized by the department by at least one percentage point." As
for the Company's assertion that it incurs additional risks because
the allowed ROE is set over a three year period, Conn. Gen. Stat. 16-
19(d) allows the Department to approve an interim rate increase to
prevent substantial deterioration in the financial condition of a
public service company. Tr. 2/19/93, pp. 148-49.
6. CONCLUSION
The Authority concludes that the returns authorized in this
Decision will allow in the Company to maintain reasonable debt
coverage and equity ratios, to be able to attract capital at a
reasonable cost, and to allow a gradual financial recovery toward an
A-rated utility. The Authority approved capitalization, below, is
based on Late Filed Exhibit No. 20, modified for the level of net
income allowed in this Decision and its impact on earnings related as
common equity, and enables the Company to earn an overall return on rate base of
8.84%, 8.97%, and 9.19% for Fys 1993, 1994, and 1995, respectively. For
purposees of {16-19(g) of the Conn. Gen. Stat. the Company will be monitored
based on actual average equity (cost of capital).
ALLOWED CAPITAL STRUCTURES
--------------------------
1993
----
CLASS OF WEIGHTED
CAPITAL $(000) %TOTAL COST COST
- -------- ------ ------ ---- -----
Long-term debt 1,782,896 48.68 7.27% 3.54%
Preferred Stock 411,168 11.23 6.15% 0.69%
Common Equity 1,468,755 40.10 11.50% 4.61%
-----
8.84%
ALLOWED CAPITAL STRUCTURES
--------------------------
1994
----
CLASS OF WEIGHTED
CAPITAL $(000) %TOTAL COST COST
- -------- ------ ------ ---- -----
Long-term debt 1,667,552 46.20 7.29% 3.37%
Preferred Stock 408,133 11.31 5.96% 0.67%
Common Equity 1,533,698 42.49 11.60% 4.93%
-----
8.97%
ALLOWED CAPITAL STRUCTURES
--------------------------
1995
----
CLASS OF WEIGHTED
CAPITAL $(000) %TOTAL COST COST
- -------- ------ ------ ---- -----
Long-term debt 1,571,933 43.56 7.50% 3.27%
Preferred Stock 407,168 11.28 5.66% 0.64%
Common Equity 1,629,948 45.16 11.70% 5.28%
-----
9.19%
Exhibit 1-b
D.P.U. 91-290 Page 3
or rate design (id., p. 1).
The Company and the Attorney General agree that for purposes of
calculating the Allowance for Funds Used During Construction and
inter- and intra-class cost allocations in this case, a rate of return
on common equity of 12.00 percent shall be used (id., para. 2.3).
The Attorney General and WMECO stipulate that if the merger with
Public Service of New Hampshire is completed, the Company will serve
on the Department and the Attorney General all reports of direct and
allocated administrative and general, operations and maintenance, and
Northeast Utility Service Company charges billed to each of the
Northeast Utility subsidiaries, when those reports are filed with the
Connecticut Department of Public Utility Control. Pursuant to the
stipulation, the Company will also serve on the Attorney General and
the Department all orders by the Connecticut Department of Public
Utility Control regarding the ratemaking adjustments to reflect the
system-wide apportionment of off-system capacity sales. In addition,
the Attorney General and WMECO agree to notify the Department and
Attorney General in advance of any proposed changes to the sharing
agreement or the capacity transfer agreements that govern certain
power transactions among the Northeast Utility system companies (i.d.,
para. 2.6).
