You asked for a discussion of Yankee Gas Service's rationale for recently seeking a rate increase. You specifically wanted to know whether it based this request on the impact of its customers' energy conservation efforts on the company.

YANKEE'S RATIONALE FOR ITS PROPOSED RATE INCREASE

On December 9, 2005 the company applied to the Department of Public Utility Control (DPUC) to reopen its last (2004) rate case in order to increase its delivery service rates by 2. 3%, starting in January 2006. The company also requested that the department implement a mechanism that would adjust rates for actual gas used by customers.

In its application, the company stated that its fuel inventory and uncollectible debt expenses had increased unexpectedly since it entered into a settlement agreement that was adopted in the prior rate case. The company also claimed that the margin the company earns on its non-fuel expenses had decreased unexpectedly since the 2004 rate case.

The company stated that the three factors behind its request to reopen the rate case “were caused by substantially higher wholesale natural gas prices that have promoted conservation by the Company's customers in response to higher bills, increased the Company's inventory

cost, and increased uncollectible expense (also as a result of higher bills). ” The company asserted that without the rate increase, its return on equity (ROE) would fall to 4. 83% in 2006, while the 2004 rate case allowed the company to earn an ROE of 9. 9%.

OPPOSITION TO RATE INCREASE AND DPUC's RESPONSE

The Office of Consumer Counsel, which represents ratepayers in DPUC proceedings and was a party to the 2004 settlement agreement, opposed the company's motion to reopen the rate case, as did the attorney general. They noted that, under the agreement, the company agreed not to seek a rate increase before July 1, 2007, except under limited circumstances. They argued that the company had failed to demonstrate that these circumstances had occurred. They also made several other arguments, including that the reduction in the company's earnings did not pose an imminent threat to its ability to provide adequate service to its customers.

On December 23, 2005, the department denied the company's motion to reopen the 2004 rate case. It found that the circumstances cited in the application do not rise to the level that would retrigger the reopener provision of the settlement agreement.

KM: ts