UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly.

Yankee Atomic Electric Company Docket No. ER06-249-000

ORDER ACCEPTING FOR FILING AND SUSPENDING PROPOSED

REVISIONS TO WHOLESALE POWER CONTRACT AND

ESTABLISHING HEARING AND SETTLEMENT JUDGE PROCEDURES

(Issued January 31, 2006)

1.  This order accepts for filing and suspends Yankee Atomic Electric
    Company\'s (Yankee) proposed revisions to Rate Schedule No. 3 (Power
    Contract), subject to refund, hearing and settlement judge
    procedures. The proposed revisions would increase decommissioning
    related collections by approximately \$85 million for the years 2006
    through 2010 for decommissioning of Yankee\'s retired nuclear
    generating plant (the Plant).

**[Background]{.underline}**

2.  For over 30 years, ten New England utilities (Purchasers) jointly
    owned and operated the Plant, located in Rowe, Massachusetts. On
    February 26, 1992, Yankee\'s Board of Directors decided to cease
    power production and to commence the process of decommissioning the
    Plant. The most recent decommissioning cost estimate was prepared in
    2003 and resulted in a settlement that was approved by the
    Commission in Docket No. ER03-704-000, *Yankee Atomic Electric
    Company,* 105 FERC ¶ 61,007 (2003). Collections from Purchasers
    under the Power Contract, as amended by the 2003 settlement, were
    based on a total decommissioning cost estimate of \$325.4 million
    for the years 2003 forward. As pertinent here, the cost estimate in
    the 2003 settlement would result in collections from Purchasers of
    \$12.8 million for the years 2006 through 2010 (5 years at \$12.8
    million per year, or \$64 million). Among other things, the 2003
    settlement requires Yankee to file an updated schedule of
    decommissioning charges no later than July 1, 2006.

**[Filing]{.underline}**

3.  On November 23, 2005, Yankee filed an updated schedule of
    decommissioning charges, including proposed revisions to its Power
    Contract. Based on a 2005 estimate, Yankee advises that the existing
    decommissioning funding levels are insufficient to complete
    decommissioning the Plant, in particular, and pay the costs of
    storing nuclear fuel in an on-site, independent spent fuel storage
    installation (ISFSI) until assumed removal of the fuel by 2022.
    Yankee advises that its 2005 estimate shows a total remaining cost
    of \$192.1 million is necessary to complete decommissioning (from
    October 2005 -- December 2010) and store the spent fuel and nuclear
    wastes through the year 2022.[^1] Yankee explains that its current
    estimate projects an increase for decommissioning expenditures of
    \$62.6 million more than was projected in 2003 and \$16.8 million
    more than was projected for long-term fuel storage. Thus, Yankee
    proposes to increase the level of charges to Purchasers to \$54.94
    million for 2006 and to \$23.5 million per year for 2007 through
    2010, for total collections of approximately \$149 million, or an
    increase of \$85 million (\$149 million - \$64 million).

4.  Yankee explains that the most significant event that has affected
    the cost of decommissioning the Plant is that, after all major
    structures were decommissioned, demolished and removed from the
    site, Yankee encountered certain conditions that were not
    anticipated in the 2003 estimate. Specifically, Yankee discovered
    that the estimate of 100 million pounds of contaminated soils must
    be more than doubled. This increased quantity of contaminated soils
    needs to be treated as radiological or non-radiological
    contamination and either disposed of as nuclear waste or given
    additional handling and remediation so that it can be reused as
    clean fill. Further, Yankee explains that the 2003 estimate assumed
    the completion of decommissioning work and termination of the
    Nuclear Regulatory Commission's (NRC) license by the end of 2005.
    Yankee now advises that it expects to complete the work by
    August 2006. Yankee expects that it will take an additional seven
    months to obtain the NRC's approval of Yankee's application to
    terminate its operating license.[^2]

5.  In addition, Yankee proposes to remove the provision in the Power
    Contract that tracks differences between the assumed returns and
    actual market returns of the investments in the decommissioning
    trust fund. Yankee contends that this tracking provision is not
    necessary in light of the limited period remaining for the
    completion of decommissioning. According to Yankee, after
    decommissioning activities are complete in 2006, decommissioning
    trust fund balances available for investment will be relatively low,
    and any fluctuations in actual versus assumed earnings can be
    addressed in the periodic filings Yankee will make with the
    Commission.[^3]

6.  Yankee proposes an effective date of February 1, 2006 for its
    proposed revisions. Yankee requests that the Commission permit the
    proposed schedule of revised decommissioning charges to go into
    effect with no more than a nominal suspension. Yankee explains that
    its requested funding level should ensure that sufficient funds will
    be available to support the scheduled decommissioning work and that
    any more than a nominal suspension will delay decommissioning
    activities at the Plant and will lead to an increase in total
    decommissioning costs.

**[Notice of Filing, Interventions and Comments]{.underline}**

7.  Notice of Yankee\'s filing was published in the *Federal Register*,
    70 Fed. Reg. 73,225 (2005), with comments, protests, and motions to
    intervene due on or before December 14, 2005.

8.  Motions to intervene were filed by the Vermont Department of Public
    Service (VDPS) and NSTAR Electric & Gas Company (NSTAR). On December
    16, 2005, Northeast Utilities Service Company (NUSCO) filed a motion
    to intervene out of time. These intervenors raised no substantive
    issues. On December 19, 2005, Central Maine Power Company Central
    Maine) filed a motion to intervene out of time.

9.  On December 14, 2005, the Connecticut Department of Public Utility
    Control (CT DPUC) and the Massachusetts Attorney General (MassAG)
    filed notices of intervention and protests. On December 28, 2005,
    Yankee filed an answer to the protests.

    **[Protests]{.underline}**

10. Protestors contend that some of the assumptions in the cost estimate
    have not been shown to be just and reasonable because the testimony
    and supporting exhibits are insufficient to determine Yankee's
    actual decommissioning expenditures or its estimated increases in
    future expenditures. For example, CT DPUC complains that Yankee has
    claimed cost increases of \$79.4 million but its proposed new
    collection schedule seeks collections of about \$85 million more
    than before. MassAG complains that there is a lack of workpapers and
    supporting engineering and/or environmental reports to substantiate
    the incremental volumes of claimed types of contaminated soil.
    MassAG requests that the Commission initiate a hearing, with
    discovery rights, to ensure that the rates ultimately approved by
    the Commission are just and reasonable.

11. Protestors also contend that the proposed tariff revision improperly
    removes the annual adjustments for variances in earned return on the
    decommissioning trust fund, and that Yankee is using improper
    earnings and escalation factors. Specifically, CT DPUC complains
    that the 2003 settlement used a 2.2 percent escalation factor, but
    Yankee now proposes to use a 3.76 percent escalation factor. MassAG
    contends that the assumed return on trust funds is understated by 20
    to 30 percent and is not supported by the Yankee witness' testimony
    or evidence that she provides.[^4] CT DPUC argues that the
    circumstances have not significantly changed to justify these
    unilateral and unreasonable changes proposed by Yankee from the 2003
    settlement.

12. CT DPUC contends that Commission policy seeks to minimize
    misallocation of decommissioning expense responsibility among
    generations of ratepayers.[^5] According to CT DPUC, when Yankee
    credited the 2003 cost estimate for the Department of Energy's
    reimbursement for fuel canisters and when contingency and escalation
    were factored in, the 2003 estimate was reduced by \$13 million. CT
    DPUC argues that it is unreasonable to require ratepayers to bear
    the uncertainty of these speculative costs that Yankee previously
    assumed it would not incur for these fuel canisters.

13. CT DPUC also contends that in addition to the need to ensure that
    the going forward cost estimate is reasonable, the Commission must
    also ensure that Yankee's prior expenditures were just and
    reasonable. However, CT DPUC claims that Yankee's testimony and
    exhibits do not provide sufficient information to make this
    determination. Nevertheless, the CT DPUC believes that settlement
    proceedings may be productive in resolving the outstanding issues.

    **[Answer]{.underline}**

14. On December 28, 2005, Yankee filed an answer to the motions to
    intervene, and protests. In the answer, Yankee basically reiterates
    its position that the proposed changes are just and reasonable under
    the circumstances. Thus, Yankee asserts, there is no need for the
    Commission to set the filing for hearing. Nevertheless, if the
    Commission decides to set the matter for hearing, Yankee suggests
    that the matter initially be referred to a settlement judge.

**[Discussion]{.underline}**

> **[Procedural Matters]{.underline}**

15. Pursuant to Rule 214 of the Commission\'s Rules of Practice and
    Procedure, 18 C.F.R.  385.214 (2002), the notice of intervention and
    timely, unopposed motions to intervene of the CT DPUC, MassAG, VDPS,
    and NSTAR serve to make them parties to this proceeding. Due to the
    early stage of this proceeding, their interests, and the absence of
    undue prejudice or delay, we will grant the motions of NUSCO and
    Central Maine for late intervention.

16. Rule 213(a)(2) of the Commission's Rules of Practice and Procedure,
    [^6] prohibits an answer to a protest unless otherwise ordered by
    the decisional authority. We will accept Yankee's answer as it
    provides information that assisted us in our decision-making
    process.

**[Analysis]{.underline}**

17. Our preliminary analysis of the proposed revised Power Contract
    indicates that it has not been shown to be just and reasonable and
    may be unjust, unreasonable, unduly discriminatory or preferential,
    or otherwise unlawful. Accordingly, we will accept the proposed
    revised Power Contract for filing, suspend it and make it effective
    subject to refund, and set it for hearing. In *West Texas Utilities
    Company*, 18 FERC  61,189 (1982), we explained that where our
    preliminary examination indicates that proposed rates may be unjust
    and unreasonable, but may not be substantially excessive, as defined
    in *West Texas*, we would generally impose a one-day suspension.
    Here, our examination suggests that the rates may not yield
    substantially excessive revenues. Therefore, we will suspend the
    proposed Power Contract revisions for a nominal period, to be
    effective February 1, 2006, subject to refund and to the procedures
    discussed below.

18. In addition, we agree with Yankee and the CT DPUC that settlement
    discussions may be productive in this case because they have
    previously been successful in relation to these decommissioning
    costs. Accordingly, in order to allow the parties an opportunity to
    resolve this matter amicably without an evidentiary hearing, we will
    hold the hearing in abeyance and direct settlement judge procedures,
    pursuant to Rule 603 of the Commission\'s Rules of Practice and
    Procedure.[^7] If the parties desire, they may, by mutual agreement,
    request a specific judge as a settlement judge in this proceeding;
    otherwise, the Chief Administrative Law Judge will select a judge
    for this purpose.[^8] The settlement judge shall report to the Chief
    Judge and the Commission within 60 days of the date of this order
    concerning the status of settlement discussions. Based on this
    report, the Chief Judge shall provide the parties with additional
    time to continue their settlement discussions or provide for
    commencement of a trial type evidentiary hearing by assigning the
    case to a presiding judge.

[The Commission orders]{.underline}:

\(A\) The proposed revised Power Contract is hereby accepted for filing
and suspended, to become effective February 1, 2006, subject to refund
and to the requirements in the body of this order and in the ordering
paragraphs below.

\(B\) Pursuant to the authority contained in and subject to the
jurisdiction conferred upon the Federal Energy Regulatory Commission by
section 402(a) of the Department of Energy Reorganization Act and the
Federal Power Act, particularly sections 205 and 206 thereof, and
pursuant to the Commission\'s Rules of Practice and Procedure and the
regulations under the Federal Power Act (18 C.F.R. Chapter I), a public
hearing shall be held concerning the justness and reasonableness of the
proposed revised Power Contract, as discussed in the body of this order.
However, the hearing will be held in abeyance while the parties attempt
to settle, as provided in paragraphs (C)-(D) below.

\(C\) Pursuant to Rule 603 of the Commission\'s Rules of Practice and
Procedure, 18 C.F.R.  385.603 (2002), the Chief Administrative Law Judge
is hereby directed to appoint a settlement judge within 15 days of the
date of this order. Such settlement judge shall have all powers and
duties enumerated in Rule 603 and shall convene a settlement conference
as soon as practicable after the Chief Judge designates the settlement
judge.

\(D\) Within 60 days of the date of this order, the settlement judge
shall file a report with the Chief Judge and the Commission on the
status of the settlement discussions. Based on this report, the Chief
Judge shall provide the parties with additional time to continue their
settlement discussions, if appropriate, or assign this case to a
presiding judge for a trial-type evidentiary hearing, if appropriate. If
settlement discussions continue, the settlement judge shall file a
report at least every 30 days thereafter, informing the Chief Judge and
the Commission of the parties\' progress toward settlement.

\(E\) If the settlement judge procedures fail, and a trial-type
evidentiary hearing is to be held, a presiding judge to be designated by
the Chief Judge shall convene a pre-hearing conference in this
proceeding to be held within approximately 15 days of the date the Chief
Judge designates the presiding judge, in a hearing room of the Federal
Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C.
20426. Such conference shall be held for the purpose of establishing a
procedural schedule. The presiding judge is authorized to establish
procedural dates and to rule on all motions (except motions to dismiss),
as provided in the Commission\'s Rules of Practice and Procedure.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: This \$192.1 million total comprises two principal parts: \$61.9
    million to complete the physical decommissioning of the Plant and
    \$130.2 million for long-term fuel storage and nuclear waste removal
    . *See*, Exhibit YA-4, Page 5 of 19.

[^2]: *See,* Exhibit YA-4, Page 6 of 19.

[^3]: *See* Exhibit YA-1, Pages 6 and 7 of 19. For example, pursuant to
    section 35.33(d) of the Commission's regulations, 18 C.F.R. § 35.33
    (d) (2004), Yankee must submit to the Commission by March 31 of each
    year, the financial report of the Fund's Trustee for the previous
    calendar year.

[^4]: Citing Settlement Agreement, Testimony of Kathleen C. Taylor, Exh.
    YA-5.

[^5]: *Citing, Mobil Exploration and Production North America,* 43 FERC
    ¶ 61,113 at 61,362 (1988).

[^6]: 18 C.F.R. § 385.213 (a)(2) (2005).

[^7]: 18 C.F.R  385.603 (2002).

[^8]: If the parties decide to request a specific judge, they must make
    their joint request to the Chief Judge by telephone at 202-502-8500
    within five days of the date of this order. The Commission\'s
    website contains a listing of the Commission\'s judges and a summary
    of their background and experience ([www.ferc.gov]{.underline} -
    click on Office of Administrative Law Judges).