For Immediate Release - December 01, 2009

DPU Cuts Rate Requests from State's Two Largest Electric Utilities

DPU cuts National Grid's proposed rate hike by 60 percent, keeping Grid's rates lowest in the state

Separate order rejects NSTAR $33 million request, orders utility to refund $20 million collected to date

BOSTON - The Department of Public Utilities (DPU) issued an order late yesterday (11/30) that ensures that National Grid's electricity distribution rates will continue to be the lowest charged by any of the Commonwealth's four investor-owned public utilities. The DPU's National Grid order ( click here pdf format of 113009dpuordng.pdf
file size 2MB) cuts the company's proposed rate increase by $67 million, or 60 percent, while approving a new mechanism that encourages company investment in energy efficiency by "decoupling" electric rates from sales.

In a separate order yesterday affecting NSTAR ( click here pdf format of 113009dpuordnst.pdf
), the DPU disallowed that utility's petition to collect approximately $33 million from electric service customers, which the company claimed was its share of benefits associated with customer savings initiatives. Because NSTAR has already collected a portion of these estimated savings, the department's order means that the company must return approximately $20 million to its customers. The DPU order allows a measure of relief for NSTAR's approximately one million electric customers, whose electric rates are among the highest in the state, second only to Unitil.

National Grid Order

On May 15, Massachusetts Electric Company and Nantucket Electric Company - together doing business as National Grid - petitioned to increase electric rates by approximately $111.3 million. By denying 60 percent of that amount, the DPU order reduces the average impact on a residential customer's bill by $3.80 monthly. While Grid's proposal would have increased the monthly bill for a typical Massachusetts Electric or Nantucket Electric residential customer by $4.25, the department's order sets electric rates that will decrease the typical monthly bill by 36 cents. For low-income Massachusetts Electric customers, the DPU order means a typical monthly increase of 24 cents versus $3.70 under the company's proposal. The typical low-income Nantucket Electric company customer will see monthly bills increase by 89 cents under the DPU order, as opposed to the $1.50 per month increase that the company's rate request would have meant.

Following the DPU's decision, National Grid's distribution rates remain the lowest in the state. The next largest utility in the state, NSTAR, has distribution rates almost 70 percent higher than National Grid's even after the new adjustment.

The DPU order also reduced National Grid's return on equity in recognition that decoupling electric rates from sales lowers company risk, and increased that return on equity to reflect better company management, particularly with respect to restoration efforts after last winter's ice storm when Grid helped restore service to customers of a neighboring utility - Unitil - as well as its own. Overall, the 10.35 percent return on equity allowed in yesterday's order is more than a full percentage point lower than what the company sought in its proposal last May.

"The DPU's actions will result in multiple benefits for National Grid customers - improved reliability, containment of electric costs, and effective expansion of critical energy saving efficiency programs," DPU Chairman Paul Hibbard said.

In approving National Grid's proposed decoupling mechanism, the DPU order will spur the company's efforts to promote large-scale energy efficiency programs. Mandated by the Green Communities Act signed by Governor Patrick in 2008, decoupling eliminates the link between company sales for electric distribution service and company earnings. A July 2008 DPU order required the state's investor-owned distribution utilities to submit decoupled rate structures for department approval and National Grid's is the second decoupling proposal to win DPU approval (Bay State Gas Company's was approved last month).

Also reflecting the Commonwealth's push for greater energy efficiency, the DPU approved National Grid's proposed "inclining block rates," which reward customers who conserve energy. The DPU also approved National Grid's plan for funding infrastructure upgrades, designed to improve reliability in the company's service territory.

The department's order ends a long and intensely debated evidentiary process that involved thousands of documents and other evidence, a month of evidentiary hearings, and five public hearings in National Grid's territory last July. Seven parties intervened in the investigation including Attorney General Martha Coakley, the Massachusetts Department of Energy Resources, the Conservation Law Foundation, Environment Northeast, The Energy Network, the Low Income Weatherization and Fuel Assistance Program Network and Massachusetts Energy Directors Association, and Western Massachusetts Industrial Group. Eight other parties intervened as limited participants.

National Grid serves more than 1.2 million electric customers in Massachusetts, including (as of December 31, 2008) 1,195,767 Massachusetts Electric and 12,419 Nantucket Electric customers.

NSTAR Order

In a separate order yesterday, the DPU denied NSTAR's petition to collect approximately $33 million from electric customers, an amount the company claimed was its share of benefits associated with Customer Savings Initiatives (CSI) under a rate settlement approved by the then-Department of Telecommunications and Energy in 2005. Under yesterday's order, NSTAR must return to its customers the portion of these estimated savings - approximately $20 million - already collected from ratepayers.

CSI were intended to allow NSTAR to collect revenues from customers if the company could demonstrate that it saved ratepayers money by reducing wholesale electric costs. To qualify for these revenues, the company must demonstrate that its initiatives are eligible under the 2005 settlement and that the savings are real. Yesterday's DPU order concluded that NSTAR could demonstrate neither of these criteria, ruling that the savings estimates were not specific and measurable, that they were ineligible because they predated approval of the 2005 rate settlement, and that the savings stemmed from routine company activities rather than special initiatives.

"NSTAR already charges is customers some of the highest electric rates of any distribution utility in the Commonwealth. I am pleased to announce that NSTAR ratepayers will be spared these additional charges, which the DPU has determined are not warranted," DPU Chairman Hibbard said.

In the petition denied yesterday, NSTAR claimed that two Federal Energy Regulatory Commission decisions involving Fore River Development, LLC and Braintree Light Department resulted in customer savings across Massachusetts of over $362 million. Of this total, the company contended that NSTAR's approximately one million customers would save approximately $134 million and that, under terms of the CSI provision of the rate settlement, the company should receive 25 percent of those savings - or $33.5 million - over three years.

Yesterday's department order is consistent with the DPU's previous rejection, in 2007, of a settlement that would have allowed NSTAR to collect $20 million from its customers under the CSI arrangement, rather than $33 million. Submitted while the case was being adjudicated, the settlement was denied by the DPU and the investigation continued, leading to yesterday's action by the DPU.

Four parties intervened in this investigation, including Attorney General Coakley; the International Brotherhood of Electrical Workers, Local 103; ISO New England Inc.; and the Cape Light Company. The Retail Energy Supply Association was a limited participant.

NSTAR serves approximately 1.1 million electric customers in Eastern Massachusetts.