§ 39-1-27.4. Transition charges authorized.
(a) An electric distribution company that purchases power at wholesale from a wholesale
power supplier under an all-requirements contract shall be authorized to execute an
agreement terminating, in whole or in part, such all-requirements contracts on terms
that require payment of a contract termination fee complying with the requirements
in subsection (b) and notwithstanding any other provisions of this title, shall be
allowed to recover the payment through a nonbypassable transition charge paid by all
customers of the electric distribution company. Any nonregulated power producer may
pay all or a part of its customers' transition charges.
(b) The contract termination fee paid by the electric distribution company to its wholesale
power supplier shall include the electric distribution company's share of its wholesale
supplier's costs associated with the following:
(1) Regulatory assets related to the generation business that include costs for which
recovery has been deferred to the future in accordance with prior rate cases or settlements
approved by regulators, or consistent with regulatory precedent; regulatory assets
of affiliated fuel suppliers; and transition obligations for post-retirement healthcare
costs of the wholesale supplier; and
(2) Nuclear obligations including decommissioning costs and nuclear costs independent
of operation. Transition costs attributable to nuclear decommissioning must be deposited
in unit-specific decommissioning trust funds or returned to customers if not needed.
Nuclear costs independent of operation shall mean estimated nuclear operation and
maintenance expenses that would be incurred assuming the nuclear units were to permanently
cease operating on December 31, 1997; and
(3) Above-market payments to power suppliers for purchased power contracts of the wholesale
power supplier in place as of December 31, 1995, together with reasonable payments
of the wholesale power supplier to buy out of these contracts or to reduce payments
pursuant to them; and
(4) The net unrecovered commitments and capital costs of all generating plants owned directly
or indirectly by the electric distribution company and its wholesale power supplier
as of December 31, 1995, whether or not the generating plants are operating, including
natural gas conversion costs and above-market pipeline demand charges. Except as provided
above, no operation or maintenance expenses associated with existing fossil-fired
or hydroelectric generating facilities may be included in contract termination fees
to be recovered by electric distribution companies from customers through transition
charges.
(c) Because of the uncertainty associated with the timing and amounts to be paid pursuant
to subsections (b)(2) (with the exception of nuclear costs independent of operation)
and (b)(3), the termination fee to the wholesale supplier and the related transition
charge to the electric distribution company's customers shall continue until these
liabilities have been satisfied with an annual reconciliation of estimated to actual
expenses. Because the items specified in subsections (b)(1) and (b)(4) can be determined
with certainty or reasonably estimated and the nuclear costs independent of operation
can be reasonably estimated, no annual reconciliation is necessary for these items.
However, to moderate the rate impact of these items, recovery through the transition
charge will be spread over the period from July 1, 1997, through December 31, 2009,
with a return on the unamortized balance as specified in subsection (d); effective
January 1, 2010, there shall be no allowance for these items in the transition charges
billed by electric distribution companies.
(d) In recognition of the potential for a positive residual value of existing generating
facilities at the conclusion of the amortization period in the year 2010, the return
on equity allowed on the unamortized balance of subsections (b)(1) and (b)(4) paid
to the wholesale supplier and recoverable from customers of the electric distribution
company shall be limited to one percentage point plus the average rate of return on
BBB-rated long-term utility bonds issued during the six-month (6) period July through
December, 1996.
(e) Notwithstanding any other provisions of this section, other than subsection (g), for
the period July 1, 1997, to December 31, 2000, the nonbypassable transition charge
implemented by the electric distribution company shall recover an amount equal to
two and eight-tenths of a cent (2.8¢) per kilowatt-hour transmitted or distributed.
After the year 2000, the transition charge recoverable from customers shall be established
by the commission in an amount sufficient to recover the costs authorized in this
section with an adjustment for any over or under recoveries of the contract termination
fees occurring during the period July 1, 1997, to December 31, 2000. The adjustment
under this subsection shall be made in a manner the commission determines appropriate.
(f) Any wholesale power supplier receiving contract termination fees with respect to power-purchase
contracts pursuant to subsection (b)(3) shall offer to sell, buy down, or assign to
others, through either public bid or private negotiation, at least the portion of
the contracts attributable to its affiliated electric distribution company. To the
extent that bids received or terms negotiated would, on an expected value basis, lower
the transition charges paid by ultimate customers in Rhode Island, the wholesaler
power supplier shall use all reasonable means to consummate the sale, buydown, or
assignment and upon completion shall promptly file appropriate adjustments to the
contract termination fees in place at that time. To provide an incentive for wholesale
power suppliers to obtain the best possible terms for any sale, buydown, or assignment,
they shall be allowed to retain ten percent (10%) of the savings expected to be realized
by customers as a result of the sale, buydown, or assignment. The amount of any incentive
payment shall be fixed at the time of the sale, buydown, or assignment based on estimated
data and recovered in equal payments over the remaining term of the related power-purchase
contract with appropriate adjustments for the time value of money.
(g) Every wholesale power supplier receiving contract termination fees pursuant to this
section shall, subject to receipt of all necessary regulatory approvals, subject its
electric-generating facilities, other than nuclear units or entitlements, as of January
1, 1996, to a form of market valuation through lease, sale, spin-off, or other method.
The wholesale power supplier shall select the valuation methodology utilized which
may be for all the generating facilities as a group, groups of generating facilities,
or individual generating facilities. The wholesale power supplier shall meet its obligations
under this section by leasing, selling, spinning off, or otherwise disposing of at
least a fifteen percent (15%) interest in its electrical-generating facilities, other
than nuclear units or entitlements; provided, however, if, pursuant to a requirement
in connection with electric industry restructuring in another state prior to completion
of the valuation pursuant to this subsection, a wholesale power supplier subject to
this subsection is required to sell, spin-off, or otherwise dispose of more than a
fifteen percent (15%) ownership interest in its electric-generating facilities, other
than nuclear units or entitlements, then the same requirement, including related timing
requirements, shall apply in the state and the market valuation resulting from fulfilling
that requirement shall be used in determining the adjustment to the contract termination
fee required by this subsection. Once the wholesale power supplier determines the
percentage interest in its electrical-generating facilities that it will lease, sell,
spin-off, or otherwise submit to market valuation to meet its obligation under this
subsection, the company shall develop an implementation methodology to accomplish
the lease, sale, spin-off, or other disposition of interest that is reasonably likely
to approximate the market value of the generation assets. The implementation methodology
shall be filed with the commission on or before July 1, 1997, for the commission to
review and approve or reject no later than ninety (90) days after submittal. The commission
shall approve the implementation methodology unless the commission finds, after public
hearing, the methodology is not reasonably likely to approximate the market value
of the company's generating assets, taking into consideration the restrictions included
in mortgage indentures and the need to satisfy the requirements of regulatory authorities
outside the state. Promptly after commission approval of the implementation methodology,
companies subject to this section must submit, for regulatory review, applications
for the approvals necessary to commence such valuation. In addition, companies subject
to this section shall also provide the commission with quarterly status reports on
the progress of proceedings before other regulatory agencies associated with the implementation
of this section. The valuation required by this section shall be completed within
six (6) months after: (1) Retail access is available to forty percent (40%) or more
of the kilowatt-hour sales in New England or (2) The receipt of all necessary regulatory
approval for the valuation, whichever occurs later; provided, however, the commission
may extend the deadline for completing the valuation by no more than six (6) months
if it determines that an extension is in the public interest. Upon completion of the
valuation, the wholesale power supplier, together with its affiliated electric distribution
company shall file to adjust the contract termination fees in place at the time the
valuation is complete as necessary to reflect the electric distribution company's
share of the market valuation in the transition charge paid by ultimate customers
in Rhode Island. Any adjustment shall be net of the estimated revenue lost by the
wholesale power supplier as a result of retail access during the period prior to completion
of such valuation, the electric distribution company's share of prudently incurred
capital investments made after December 31, 1995, which were reasonably necessary
to (i) Enable the electrical-generating facilities to operate safely and in compliance
with applicable laws and regulations, (ii) Improve environmental performance or to
increase fuel diversity or flexibility, with regulatory authorization, reasonable
transaction costs, (including the cost of refinancing), and revenue lost as a result
of the reduced return on equity specified in subsection (d). For purposes of this
section, the unreduced return on equity that will be used prospectively and to value
the revenue lost prior to the adjustment shall be the return on equity allowed to
the wholesale power supplier's affiliated electric distribution company as of December
31, 1995, and shall be included in the wholesale power supplier's overall capital
structure following the valuation. Any adjustment to the contract termination fee
pursuant to this subsection shall be reflected in the termination fee otherwise calculated
in accordance with subsection (b) as a uniform adjustment spread equally over the
period beginning with the date the adjustment is made and ending December 31, 2009.