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Yankee Gas Services Company
P.O. Box 270
Hartford, CT 06141-0270
(800) 989-0900

News Release
Rate Case Decision Supports Growth, Enhances Customer Service
Yankee Gas customers receive modest rate cut, benefits of expansion & reliability efforts
MEDIA CONTACT:Sandy St. Pierre
Office:(203) 639-4423
After Hours:(860) 279-1173
MERIDEN, Conn., January 30, 2002 (NYSE: NU) – Customers of Yankee Gas Services Company, part of the Northeast Utilities system, will receive a 1.25 percent rate decrease, while benefiting from the Company’s proposed system expansion and system reliability efforts. The Connecticut Department of Public Utility Control today approved the rate decrease, along with several key initiatives that will enhance customer service, allow continued growth to deliver more energy options to more communities across the State and allow customers and shareholders alike to share in Company earnings.
“While we are disappointed in the rate reduction, we are pleased with the Commission’s decision and its foresight to support Yankee’s expansion efforts, giving many more Connecticut communities the choice of clean, efficient natural gas. We realize this was a difficult decision in a very complicated rate proceeding. However, the outcome is fair and provides for an innovative, new approach to balancing the need to recover costs while growing our distribution system with the need to remain competitive,” said Dennis E. Welch, president and chief operating officer of Yankee Gas.

Funding, sharing mechanisms approved
Yankee’s rate application proposed an aggressive $190 million expansion of its natural gas distribution system and increased spending to enhance the safety and reliability of the current system. In its decision, the Commission approved an Infrastructure Expansion Rate Mechanism (IERM) to allow Yankee to recover the costs associated with system expansion on projects that are brought into service between 2003 and 2005. Each year, the Commission will hold proceedings to review the performance of projects constructed in prior years and review projects for the succeeding year. The costs of projects currently under way have been reflected in this rate proceeding decision. Therefore, the first IERM adjustment would take effect in January 2003.
This funding mechanism is important because it eliminates the need for the Company to carry these costs for an extended period of time. In 2001, Yankee installed nearly 34 miles of new natural gas mains in ten communities across the state during the first phase of system expansion. One of those communities – Prospect – had never before been served by natural gas.
The Commission also approved a modified version of Yankee’s proposed Earnings Sharing Mechanism (ESM), which provides for an equitable sharing of merger synergies, allowing customers and shareholders alike to benefit from the efficiencies the Company achieves on its owns and as a result of its merger with NU. This approved ESM allows for a 75 percent/25 percent sharing between shareholders and customers, respectively, for the first 100 basis points above the allowed return in equity (ROE) in 2002 with a 50-50 sharing of any earnings over 100 basis points. In 2003 and 2004, the split would be 75/25 to shareholders and customers up to the first 50 basis points above the allowed ROE, then a 50-50 split. And in 2005, shareholders and customers would split the ESM 50-50 once the allowed ROE is exceeded. Regulators approved similar earnings sharing requests for the State’s two other gas utilities.
In addition, the Commission ruled that the ratepayers’ portion of the ESM would first be applied to the IERM, to reduce the impact of any rate increases that might occur due to system expansion efforts.

LNG project to move forward
The Commission deferred any final judgments on Yankee’s proposed liquefied natural gas (LNG) project, including adding it to the IERM. Prior to the final vote in the case, the Commission indicated this project is important because it will fulfill “a need the state has” and urged the Company to move the project forward. A technical session will be scheduled to further discuss the design and other requirements for construction of the estimated $60 million plant. Meanwhile, Yankee will move forward with the engineering and design phase with the expectation of scheduling the technical session for the spring. Yankee has proposed building the facility at its Waterbury work center. The Company believes an LNG plant under its control ensures a reliable and dependable gas supply for the State’s businesses and citizens, now and in the future.

Service Quality Plan good for customers
Regulators approved Yankee’s proposed Service Quality Plan, adding a sixth metric to the five proposed by the Company. The new Plan will benchmark quality of service in six areas – call center performance, customer satisfaction, gas leak response, service call response, third party damage and estimated billing. If the Company fails to achieve the established benchmarks in any one metric (except for third party damage or gas leak response, which are subject to individual penalty provisions) during five out of 12 months, it will be subject to a $100,000 penalty. This Plan is consistent with similar plans already in place for the State’s two other gas utilities.

Rates to decrease for customers
As a result of the Commission’s decision, customers will receive a 1.25 percent rate decrease, effective March 1, 2002. The average residential heating customer using 150 Ccf per month will see a $1.81 per month, or $0.012 per Ccf, decrease in their natural gas bill, subject to change upon completion of Phase II of Yankee’s rate proceeding.
The review of Phase II of Yankee’s rate proceeding which will determine final rate design is expected to be completed later this year.

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 sites: www.yankeeenergy.com, www.yankeegas.com and www.yankeefinancialservices.com


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