You asked which agency will determine who will pay for the costs of the Phase 1 (Bethel-Norwalk) and Phase 2 (Norwalk-Middletown) transmission lines. You were specifically interested in learning whether the Federal Energy Regulatory Commission (FERC) can require Connecticut consumers to pay the additional costs of placing segments of the lines underground.

Much of the following information is taken from a September 29, 2004 Connecticut Siting Council memo, which is available on the council’s webpage, http: //www. ct. gov/csc/lib/csc/docket_272/costalloc. pdf.

SUMMARY

The Independent System Operator (ISO)-New England, in consultation with a NEPOOL committee, will determine the allocation of the lines’ costs among the New England states. (ISO-New England operates the regional transmission system and administers the regional wholesale market; NEPOOL consists of electric utilities and other participants in this market. ) The decision must comply with relevant FERC orders and can be appealed to FERC, which has exclusive jurisdiction over the wholesale market. Under the FERC orders, ISO-New England and ultimately FERC could allocate the additional costs of placing segments of the line underground to Connecticut consumers. The Connecticut Department of Public Utility Control (DPUC) will determine how the costs allocated to Connecticut will be spread among consumers in the state.

ALLOCATING THE COSTS OF TRANSMISSION LINES

New England has had an integrated regional transmission system since the 1970s. Any proposal to expand or improve the system must be submitted in an application to ISO-New England for its approval. While FERC does not require that the project received siting approval before the application is made, it does require that there be a specific and detailed project configuration, which would normally be developed in the siting process. The application must identify any additional costs imposed by local or state regulatory or legislative requirements.

Historically, the costs of system expansions and improvements in any New England state were borne by consumers across New England, with each state’s share of the costs reflecting its share of the region’s electricity consumption. This practice is known as socialization.

In December 2003, FERC issued a new policy on cost allocations in New England in docket no. ER 03-1141. Under this order, the costs of certain projects that were planned as of 2002 (including Phase 1 and 2) would continue to be eligible for socialization, if they go into service by December 2007. More generally, the costs of any project that provides regional reliability or economic benefits would be eligible for socialization regardless of when it went into service. Connecticut’s share of project costs that are determined to be eligible for socialization would be approximately 27% (its share of electricity consumption in the region). But any project costs that ISO-New England determines are excessive would not be socialized.

ISO-New England is responsible for determining whether (1) the project is needed, (2) it harms the reliability and operability of the transmission system, and (3) there are any costs related to the project that are excessive and should be ineligible for socialization. If ISO-New England determines that the project would significantly harm reliability or operability, the applicant must modify the proposal for it to go forward.

In determining whether any costs are excessive, ISO-New England must consider:

ISO-New England must consult with NEPOOL’s Reliability Committee in making its determination.

The costs of placing a line underground would not necessarily be considered excessive. But the ISO-New England guidance document on the subject indicates that these costs would be considered excessive if building an overhead line would be cheaper and if a line was placed underground (1) at the direction of a local or state siting board or (2) to address local concerns. Any costs that ISO-New England determines to be excessive would be considered localized costs.

It is DPUC’s understanding that the localized costs incurred by Northeast Utilities (NU) would be borne proportionately by its operating companies, with about 65% borne by Connecticut Light and Power and 35% by NU’s Massachusetts and New Hampshire subsidiaries. However, ratepayers and regulatory agencies in these states might challenge this allocation, either at ISO-New England or FERC. United Illuminating, which will own approximately 20% of the Norwalk to Middletown project, would recover its share of any localized costs from its ratepayers.

While FERC is ultimately responsible for approving wholesale rates, DPUC will be responsible how these rates will be reflected in the retail rates paid by individual consumers. DPUC could spread Connecticut’s share of the project’s cost (the localized costs plus Connecticut’s share of the socialized costs) among all Connecticut consumers or among those who gain the greatest benefit from the project.

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