Newfoundland Power Inc. 55 Kenmount Road PO Box 8910 A FORTIS COMmNY St. John's. Newfoundland A1 B 3P6 Business: (709) 737-5600 Facsimile: (709) 737-2974 www.newfwnd!ar!dpower.mm DELIVERED BY HAND May 10,2007 Board of Commissioners of Public Utilities P.O. Box 21040 120 Torbay Road St. John's, NL AIA 5B2 Attention: G. Cheryl Blundon Director of Corporate Services and Board Secretary Ladies and Gentlemen: Re: 2007 General Rate Application Forwarded with this letter are 10 copies of a general rate application for a full review of Newfoundland Power's 2008 costs (the "2008 General Rate Application"). The 2008 General Rate Application and prefiled supporting materials have been provided in tluee volumes set out as follows: Vol~nne1: Application, Conttpanty Evidence artd Exltibits Vol~in~re3: Expert Evidctrce It is the Company's intention to file an Adobe portable document format (pdf) copy of this filing within the next few days. Additional copies of the filing will be made available as required and, to that end, we would be pleased if the Board could indicate its requirements, if any, at its convenience. The Company will post a copy of tl~e2008 General Rate Application on its website at www.newfoundlandpower.com. In addition copies will be available at the Company's offices in Stephenville, Comer Brook, Grand Falls-Winsor, Gander, Clarenville, Burin, Carbonear, and St. John's. - Board of Commissioners of Public Utilities May 10,2007 Page 2 of 2 Attached to the formal Application as Schedule A are proposed rates. These rates are based upon the rate stabilization and municipal tax adjustments ("RSAMTA adjustments") crrwcrrtly in effect. The Company is filing an application regarding RSAIMTA adjustments for July 1,2007 contemporaneously with the filing of the 2008 General Rate Application. We would expect to update the 2008 General Rate Application to reflect the Board's order regarding the RSAIMTA adjustments in due course, and in any event prior to the Board's consideration of the 2008 General Rate Application. We trust the foregoing and enclosed are found to be in order, however, please feel free to contact the undersigned if you have any questions. Yours very truly, Peter Alteen Vice President, Regulatory Affairs & General Counsel Enclosures c. Geoffrey Young (4 copies) Newfoundland and Labrador Hydro Thomas Jolmson (6 copies) Consumer Advocate Tcleplrune: 709-737-5859 Websire: ht~p://~~~~~~v.ne~vfo~~ndlnndpo~ver,cun~ Far: 709-737-5300 paltcenQne~v/orcndlandpo~ver.com Company Evidence Outline May 10, 2007 VOLUME 1: APPLICATION AND COMPANY EVIDENCE A. APPLICATION B. COMPANY EVIDENCE SECTION 1 INTRODUCTION Page 1.1 Overview..................................................................................................................1 1.2 Performance .............................................................................................................2 1.2.1 Customer Operations Performance...........................................................2 1.2.2 Financial Performance ..............................................................................3 1.3 Electricity Price........................................................................................................4 1.4 Regulation................................................................................................................5 1.5 Application Overview..............................................................................................7 1.5.1 2008 Revenue Requirements ....................................................................7 1.5.2 Other Proposals.........................................................................................8 SECTION 2 CUSTOMER OPERATIONS 2.1 Overview................................................................................................................10 2.2 Cost Efficiency.......................................................................................................11 2.2.1 Introduction................................................................................................11 2.2.2 Operating Costs..........................................................................................13 2.2.3 Capital Forecast.........................................................................................20 2.3 Serving Customers.................................................................................................21 2.3.1 Customer Satisfaction................................................................................22 2.3.2 Reliability...................................................................................................22 2.3.3 Customer Relations....................................................................................30 SECTION 3 FINANCE 3.1 Overview................................................................................................................43 3.2 Financial Performance: 2002 to 2008...................................................................44 3.2.1 Revenue .....................................................................................................44 3.2.2 Power Supply Cost.....................................................................................46 3.2.3 Pension Costs.............................................................................................47 3.2.4 Depreciation...............................................................................................48 3.2.5 Finance Charges.........................................................................................49 3.2.6 Income Taxes.............................................................................................51 3.2.7 Returns on Rate Base and Equity...............................................................51 Newfoundland Power – 2008 General Rate Application Page 1 of 4 Company Evidence Outline May 10, 2007 SECTION 3 FINANCE (Cont’d) Page 3.3 Creditworthiness....................................................................................................52 3.3.1 Credit Ratings............................................................................................53 3.3.2 Financial Targets........................................................................................56 3.3.3 The Automatic Adjustment Formula .........................................................59 3.4 Rate Base...............................................................................................................61 3.4.1 Asset Rate Base Method............................................................................62 3.4.2 Forecast 2008 Rate Base............................................................................67 3.5 Depreciation...........................................................................................................68 3.5.1 2006 Depreciation Study............................................................................69 3.5.2 2008 Depreciation Expense.......................................................................71 3.6 Employee Future Benefits......................................................................................73 3.6.1 Newfoundland Power Employee Future Benefits......................................74 3.6.2 Pension Plans.............................................................................................74 3.6.3 OPEBs Accounting Proposal.....................................................................76 3.6.4 Tax Treatment of Employee Future Benefits.............................................79 3.7 Regulatory Deferrals and Reserves........................................................................81 3.7.1 Regulatory Deferrals..................................................................................82 3.7.2 Regulatory Reserves..................................................................................86 3.7.3 Application Costs.......................................................................................90 3.8 Regulatory Policy...................................................................................................90 3.8.1 Supply Cost Dynamics...............................................................................91 3.8.2 Inter-Corporate Relationships....................................................................93 3.9 2008 Revenue Requirements .................................................................................98 3.9.1 Summary of Revenue Requirements .........................................................99 3.9.2 Costs and Depreciation ............................................................................100 3.9.3 Return on Rate Base.................................................................................102 3.9.4 Deductions and Revenue Amortizations..................................................102 3.9.5 Required Revenue Increase......................................................................104 Newfoundland Power – 2008 General Rate Application Page 2 of 4 Company Evidence Outline May 10, 2007 SECTION 4 CUSTOMER RATES & REGULATIONS Page 4.1 Overview..............................................................................................................105 4.2 Retail Electricity Rates ........................................................................................106 4.2.1 Customer, Energy and Demand Forecast.................................................106 4.2.2 The Customers Served .............................................................................108