Proposed RNS Rate Changes

1. Proposed RNS Rate Changes TO Response to CT DPUC Complaint

2. Section 206 Complaint • Filed by CT DPUC on January 14, 2005 • amended on February 2, 2005 • Asserts that the RNS Rate is unjust & unreasonable (due to the lag in the RNS Rate) • Relief sought proposes changes to the RNS Rate which include: • Forecasted costs for the current calendar year • True-up to total actual costs with retroactive refunds/billings to customers

3. Proposed RNS Rate Changes • Agreement in principle between CT DPUC and TOs to resolve complaint • Maintain existing rate design, NEPOOL Settlement transition, and rate year • Revise the RNS formula to include: • Revenue requirements associated with forecasted new PTF additions in-service during the calendar year • True-up of total actual to estimated (prior year actual plus forecasted) revenue requirements including an interest calculation for any over or under collection

4. RNS Rate - TODAY • Total Annual Transmission Revenue Requirements (ATRR)* • Updated annually pursuant to Attachment F of the Tariff • Reflects prior year-end actual data as reported in FERC Form 1 • Used to develop the RNS Rate in effect from June 1 – May 31 *Per NEPOOL Settlement, Total ATRR determined by separate calculations associated with Pre-97 and Post-96 PTF assets until transition ends in 2008

5. RNS Rate – Proposal Overview • Calculate the revenue requirements associated with estimated PTF additions expected to be in-service that year • Add the forecasted transmission revenue requirements to the prior year actual ATRR to determine the total current year estimated transmission revenue requirements to be included in the RNS Rate • During the next regular rate update, calculate a true-up of actual to estimated transmission revenue requirements • include any over or under collection (with interest) in the RNS Rate

6. Forecast Details • Forecasted Transmission Revenue Requirements (FTRR) are determined by applying a carrying charge factor (CCF) to projected PTF transmission plant additions estimated to be in-service for current calendar year • Estimated Post-96 PTF transmission plant additions determined by each TO based on YTD actuals, internal budgets, Schedule 12C, etc. • CCF calculated from prior year-end actual Post-96 cost data and equals ATRR divided by Gross Transmission Plant

7. True-up Details • Provides full reconciliation of Total ATRR included in RNS Rate for the prior rate year • Actual ATRR for the prior calendar year determined • Comparison with Estimated ATRR • Difference between Actual and Estimated ATRR (plus interest) included as a true-up adjustment (ATU) in current ATRR

8. RNS Rate effective 6/1/06 Forecast Development Step 1: Calculate ATRR based on year-end 2005 actuals. Results show: • Pre-97 ATRR = $68.1m • Post-96 ATRR = $29.0m • Post-96 Tx Plant = $166m Step 2: Calculate the CCF. • CCF = ATRR / Tx Plant = $29m / $166m = 17.4% Step 3: Estimate 2006 PTF additions. • Estimate = $20m Step 4: Determine FTRR by applying CCF to estimated PTF additions. • PTF additions * CCF = $20m * 17.4% = $3.5m • FTRR = $3.5m

9. RNS Rate effective 6/1/06 (cont’d) Total Transmission Revenue Requirements • Y/E 2005 Pre-97 ATRR = $ 68.1m • Y/E 2005 Post-96 ATRR = $29.0m • Est. FTRR (2006 additions) = $03.5m • Total Est. 2006 Post-96 ATRR = $ 32.5m • Total Estimated 2006 ATRR = $100.6m

10. RNS Rate effective 6/1/07 Forecast Development Step 1: Calculate ATRR based on year-end 2006 actuals. Results show: • Pre-97 ATRR = $68.7m • Post-96 ATRR = $33.0m • Post-96 Tx Plant = $197m Step 2: Calculate the CCF. • CCF = ATRR / Tx Plant = $33m / $197m = 16.8% Step 3: Estimate 2007 PTF additions. • Estimate = $30m Step 4: Determine FTRR by applying CCF to estimated PTF additions. • PTF Additions * CCF = $30m * 16.8% = $5m • FTRR = $5m

11. RNS Rate effective 6/1/07 (cont’d) Total Transmission Revenue Requirements • Y/E 2006 Pre-97 ATRR = $68.7m • ATU = (Y/E 2006 ATRR) - (Y/E 2005 ATRR) = $68.7m - $68.1m= $00.6m* • Total Y/E 2006 Pre-97 ATRR = $ 69.3m • Y/E 2006 Post-96 ATRR = $33.0m • ATU’= (Y/E 2006 ATRR) - (Y/E 2005 ATRR) = $33.0m - $32.5m= $00.5m* • Total Y/E 2006 Post-96 ATRR = $33.5m • Est. FTRR (2007 additions) = $05.0m • Total Est. 2007 Post-96 ATRR = $ 38.5m • Total Estimated 2007 ATRR = $107.8m *example does not reflect interest

12. TODAY Prior year-end actuals used to calculate total ATRR & RNS Rate in coming rate year Use of historic data creates recovery lag Supporting ATRR data included in annual Informational Filing TOMORROW ATRR plus FTRR provides Estimated Total ATRR for current year & RNS Rate in coming rate year Inclusion of forecast eliminates recovery lag True-up of actual current year Total ATRR to Estimated Total ATTR Reconciles total costs for prior year Supporting ATRR, FTRR & ATU data included in annual Informational Filing RNS Rate Proposal Summary

13. Settlement Proposal is Consistent with FERC Precedent • FERC has approved numerous formula transmission rates that are based on projected costs, which are trued up to actual FERC Form 1 costs when actual costs are known. • Northeast Utilities and NSTAR currently have such formula rates in place. • Consistent with many other formula rates approved by FERC, true-ups include interest using the interest rate calculated pursuant to 18 CFR 35.19a (based on the prime rate).