§ 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 such 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 which 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 health care 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 such 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) above, 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) of this section; 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) of this section 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 (6) month 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 such 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 such 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 such 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 such 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 such 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 such 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 such valuation, whichever occurs later, provided, however, the commission may extend the deadline for completing such valuation by no more than six (6) months if it determines that such an extension is in the public interest. Upon completion of such 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 such valuation is complete as necessary to reflect the electric distribution company's share of such market valuation in the transition charge paid by ultimate customers in Rhode Island. Any such 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) of this section as a uniform adjustment spread equally over the period beginning with the date the adjustment is made and ending December 31, 2009.

History of Section. (P.L. 1996, ch. 316, § 1.)