Earnings Sharing Calculation. The Company will file the earnings-sharing calculation by September 1 of each year, based on financial results for the 12-month period ending each June 30. For the purpose of such earnings reports, the determination of earnings subject to the ESM will be based on an benchmark return on equity of 11.25 percent, excluding the Company’s portion of non-firm margins addressed in section H, below. Results will be adjusted to reflect established Commission ratemaking principles, including the impact of the Weather Normalization Clause, discussed in section J, below. However, there will be no adjustment to actual results to recognize or annualize known and measurable changes. The return on common equity will be calculated by dividing the net income available for common equity by the common equity applicable to rate base; where the net income available for common equity is equal to operating income adjusted to reflect Commission ratemaking principles less applicable interest and preferred dividends (if any), subject to the limitations in paragraph 2, below. The applicable interest shall be calculated by multiplying average rate base by the percentage debt in the capital structure times the applicable cost rate, and the applicable preferred dividends shall be calculated by multiplying average rate base by the percentage of preferred stock in the capital structure times the applicable cost rate. The common equity applicable to rate base shall be calculated by multiplying the actual common equity ratio, subject to the limitations in paragraph 2 below, by rate base. The rate base used in these calculations will be the average rate base for the relevant period, based on a five-quarter average and established Commission ratemaking principles. The working capital allowance will be calculated pursuant to the method approved by the Commission in Docket No. 2286. Construction work in progress will be included in rate base, and the allowance for funds used during construction will be included in operating income. No prepaid taxes will be included in rate base. The deferred debits in rate base as of July 1, 2002 will be $3,060,000, representing the remaining balance of deferred Year 2000 costs, exclusive of the legacy customer information system costs, as of that date. These deferred Year 2000 costs, exclusive of the legacy customer information system costs, will continue to be amortized at a rate of $240,000 per year.
