January 2012 Capital Investment - National Grid

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Exhibit ___ (EIOP-19)Page 151 of 684situation, for example, is possible should downstate generation sources that currentlyfeed the heavy load center of Metropolitan New York City retire.In addition if state or federal policies are enacted that focus on development and deliveryof upstate renewable resources, then transmission reinforcements could also be neededin the near term.So while, the STARS study outlines a long term view, it is possible that somecomponents or even all of the transmission components identified the Phase II portion ofthe study could be introduced in the near term should external factors change.Commodity Price Increases/InflationAs the Commission required in the September 17, 2007 Order, National Grid hasreviewed the expenditures included in the 2012 Plan in light of continued variation inconstruction and equipment costs. In the event inflation in construction costs exceedsthis estimate, the Company’s budget would be too low and the project schedules wouldrequire re-evaluation.For Distribution, an annual inflation rate of two percent was applied to the fiscal yearperiods FY13 through FY17. Other specific adjustments include an average three-anda-halfpercent inflation increase to blanket program expenditures.For Transmission and Sub-Transmission, an annual inflation rate of two percent wasapplied to the fiscal year periods FY13 through FY17. Inflation is accounted for in thenegative reserve. This amount balances the anticipated increases in material costsexpected for electrical equipment over the period of the Plan with expectations regardinglabor costs going forward.Availability of Construction ResourcesWith respect to the transmission portion of the Company’s investment Plan, theCompany will supplement its internal workforce with competitively procured contractorresources, and is developing a model to pre-qualify vendors in order to facilitate futurecontracting and improve resource certainty. On the distribution side, the Company’sinternal workforce will continue to be supplemented by the Company’s DistributionAlliance contractor (Harlan) and other competitively procured contractors.Increasing Lead TimesWhile equipment lead times have improved, items such as power transformers, CCVTs,breakers, switches and other complex larger equipment, may continue to encounterlonger lead times within the period of the Plan. Longer lead times present increasedchallenges in managing project schedules and budgets. Increased lead times are drivenby many factors, including: (i) rapid growth and increasing demand for equipment indeveloping nations, (ii) cost and availability of raw commodity materials, (iii) increasednational demand from growth and in response to extreme weather conditions andevents, and (iv) increased asset replacement initiatives within the electric utility industry.VI-55152
Exhibit ___ (EIOP-19)Page 152 of 684To attempt to mitigate this risk, National Grid has established commercially negotiatedagreements with preferred vendors based upon their deliverability, cost, and quality.Changes in Customer Load or Generator PatternsDelivery customers and generators may impact the investment Plan in many ways. Forexample, existing customer load growth in specific areas, such as in the Capital Region,leads to the need for greater delivery capacity over time. In addition, residential andcommercial/industrial customers move to new locations from older locations, requiringconstruction of new facilities even absent corresponding overall load growth (loadmigration). End use customers, as well as generators, can also requestinterconnections for new service, which also impacts the Company’s investment plans.Likewise, capital plans can be significantly affected as a result of generator retirements,which may result in needs for reinforcements to the transmission system. Finally,government agencies may require relocation of facilities to enable public projects suchas road widening.In recent history, upstate New York has experienced declining industrial load whileresidential load has been growing. Typically, these patterns have not occurred in thesame area. For example, city centers have been losing businesses and residenceswhile suburban areas have grown with new residences and commercial industries. Inthis situation, the Company may have older equipment in the urban area that is realizingless load, while it is simultaneously required to add new facilities to serve new or greaterloads in the suburban areas. Nevertheless, because the older equipment is still neededto serve existing load, there may be condition issues that require repair or replacementfor safety, environmental or reliability reasons. Thus, National Grid may need to investin both new facilities and existing ones to enable reliable service to customers even incases where overall load may not be growing.Other challenges arise when potential customers representing significant new loadindicate intentions to locate in the Company’s service area. Because of the long leadtimes associated with much of the Company’s infrastructure investments, significantamounts of advanced planning and engineering is needed in such circumstances. Largenew loads may also be expected to bring significant load from ancillary businesses andnew residential development as jobs are created. If the anticipated customer fails tolocate in the area, the Company must adjust its investment plans. Similar infrastructureplanning issues arise in connection with potential development of new generation. Thus,National Grid may have a forecast for new generator or customer interconnections thatmay not materialize.Likewise, the adequacy of existing transmission infrastructure can change dramaticallywhen existing generating facilities are retired. The timeline for generators to formallynotify the state about retirement is short. Even for large units, only 180 days ofnotification is required. The shift in the pattern of system flows and associated stressesthat result from unit retirements requires needed reinforcements to be identified in ashort period of time. Future projects may need to be advanced or new projects mayneed to be created as a result.Finally, National Grid plays an important role in meeting public requirements work for theState and municipalities. Government agencies request that National Grid relocate orVI-66153
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January 2012 Capital Investment - National Grid

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