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Yankee Gas Services Company
P.O. Box 270
Hartford, CT 06141-0270
Yankee Gas Files Rate Request; First Increase Sought Since 1992
Proposal includes system expansion, new LNG facility and pilot Fuel Diversity Fund
Sandy St. Pierre
MERIDEN, Conn., July 24, 2001 (NYSE: NU) –
For the first time since 1992, Yankee Gas Services Company, which is part of the Northeast Utilities (NU) system, today filed a request with the Connecticut Department of Public Utility Control (DPUC) to raise the base rate customers are charged for natural gas service. The proposed 7.64 percent rate increase, or $29.2 million, is being sought to enable the Company to continue to provide safe, dependable and reliable natural gas services, while also expanding the state’s energy options and in-state gas portfolio. If approved by regulators, the new rates would take effect January 1, 2002. The Company’s proposal also requests regulatory approval of a special mechanism to recover future capital costs for an estimated $190 million system expansion effort, which is already under way, and construction of a new liquefied natural gas (LNG) facility.
“The proposal we are submitting is a comprehensive blueprint for the future, designed to give Connecticut consumers more energy choices, increase the state’s gas supply, support economic development initiatives and opportunities across the state and protect the environment through reduced emissions,” said Dennis E. Welch, president and chief operating officer of Yankee Gas. “We’re very excited about our plans to expand our distribution system and the feedback we’ve received locally from homeowners, businesses and elected officials supports those efforts. Our plans also include important initiatives to ensure future gas supply to serve both current and new customers. We are hopeful regulators will endorse these plans.
“While we have benefited greatly from our merger with NU, there have been significant industry changes over the past decade that make it necessary for Yankee to seek this request. Yankee has a solid track record of holding down consumer costs and we believe this request will enable us to continue to be an industry leader while growing our business to meet the demands and needs of Connecticut’s residents and businesses well into the future.”
Expansion, reliability are cornerstone of request
Yankee’s rate application reflects both an aggressive expansion of its natural gas distribution system and increased spending to enhance the safety and reliability of the current system. In May, the Company announced the first phase of an expansion program that has been well-received in local communities throughout Yankee’s service territory. Over the next five years, Yankee expects to spend about $190 million on new gas distribution facilities. This expansion is expected to produce economic benefits for the State by maintaining and growing the State’s job market through retention of and attraction of new business opportunities in Connecticut.
Safety and reliability play a major role in the rate request. Yankee is planning to aggressively update its distribution system by replacing older cast iron and steel mains. Yankee proposes continued increased spending on this effort next year in the amount of $20.5 million. This increased spending is the result of the Company’s goal to improve gas infrastructure, using Yankee’s increased access to capital as a result of its merger with NU. Although these mains don’t pose a safety hazard today, replacement of them is a demonstration of Yankee’s commitment to ensure safety and reliability.
In addition, Yankee proposes to build an LNG facility within its service territory. As more gas-fired generating plants are built, the existing pipeline system faces greater challenges in meeting peak demands. Yankee believes an LNG plant under its control ensures a reliable and dependable supply for the State’s businesses and citizens, now and in the future. Once all necessary approvals are received, construction would begin in 2002 with the plant expected to be in service in 2004.
Funding, sharing mechanisms proposed
Yankee is proposing a limited Infrastructure Expansion Rate Mechanism that would allow the Company to recover the costs associated with projects – such as the LNG plant – that are brought into service between 2003 and 2005. This mechanism would be adjusted annually, avoid the need for a costly and time-consuming rate proceeding during this timeframe and eliminate the need for the Company to carry these costs for an extended period of time.
In addition, the Company proposes that all earnings in excess of 100 basis points above the allowed return on equity be shared 50-50 between customers and shareholders. Regulators have approved similar requests from the State’s two other gas utilities.
This Earnings Sharing Mechanism provides for an equitable sharing of merger synergies, allowing customers and shareholders alike to benefit from the efficiencies the Company achieves both as a result of the merger with NU and independent of it.
To encourage customers to use energy efficient appliances, Yankee is proposing the creation of a Fuel Diversity Fund on a pilot basis. Similar to the conservation charge on electric bills, the proceeds would be used as incentives to help offset capital costs of using natural gas. Yankee estimates collecting approximately $3.2 million annually, which equates to a charge of approximately .0091 cents per Ccf of natural gas. For a typical residential customer using 1,000 Ccf per year, that would equate to an extra $9.10 per year.
Service Quality Plan proposed
Another component of Yankee’s rate application calls for implementation of a Service Quality Plan, similar to plans already in place for the State’s two other gas utilities. This plan would benchmark service quality in five areas – call center performance, gas leak response, service call response, third party damage and estimated billing – and would have a sliding scale reward/penalty mechanism.
A letter of intent of this application was filed on May 25, 2001 with the DPUC.
Yankee Energy System, Inc.,(YES) which is part of the Northeast Utilities system, includes Yankee Gas Services Company, the largest natural gas distribution company in Connecticut serving approximately 187,000 customers in 69 cities and towns throughout the state. Yankee Energy also includes Yankee Energy Financial Services Company, which provides a full range of residential and commercial energy equipment financing options. Further information about YES can be obtained from its web site:
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