IN THE MATTER OF AN AUTOMATIC ADJUSTMENT

MECHANISM TO ADJUST THE RATES OF

NEWFOUNDLAND POWER INC. (“THE COMPANY”)

BASED ON VARIATIONS IN RATE BASE AS

ESTABLISHED BY THE BOARD OF COMMISSIONERS

OF PUBLIC UTILITIES (“THE BOARD”) IN

ORDER NO. P.U. 16 (1998-99) AND ORDER NO. P.U. 36

(1998-99).

WHEREAS in Order No. P.U. 36 (1998-99) the Board approved a formula to be used to adjust, where appropriate, the Company’s return on rate base (the “Automatic Adjustment Formula”); and

WHEREAS Order No. P.U. 36 (1998-99) employed the Automatic Adjustment Formula to establish the Company’s allowable rate of return on rate base for the year 1999 as being within the range of 9.63% to 9.99%; and

WHEREAS the Automatic Adjustment Formula contains three variables used to adjust the rate of return on rate base, namely Rate Base, Invested Capital, and Estimated Cost of Common Equity; and

WHEREAS following a hearing the Board issued Order P.U. 21 (2001-2002), approving the Company’s 2002 capital budget and approving values for Rate Base and Invested Capital to be used to calculate the allowed return on rate base for 2002 using the Automatic Adjustment Formula; and

WHEREAS the value to be used for Estimated Cost of Common Equity is adjusted based on the average daily closing yields of the long term (30 years) Government of Canada bond rate during the last five trading days in October and the first five trading days of November as set out in Orders No. P.U. 16 and 36 (1998-1999); and

WHEREAS due to an alteration in all of these variables in 1999, the allowed range rate of return on rate base for the Company for the year 2000 was changed by Order No. P.U. 20 (1999-2000) to a range of 10.10% to 10.46%; and

WHEREAS the application of the formula in 2000 resulted in a calculated return on rate base for 2001 which fell within the range approved in Order No. P.U. 20 (1999-2000) and, as a result, the Board issued Order P.U. 30 (2000-2001) which ordered that there would be no change in electrical rates for 2001 and that the allowed rate of return on rate base would remain within the range of 10.10% to 10.46%; and

WHEREAS on 8 November 2001 the Company provided to the Board its calculation of rate of return on rate base for the year 2002 as determined by the Automatic Adjustment Formula; and

WHEREAS these calculations have been confirmed by Grant Thornton LLP, the Board’s financial consultants; and

WHEREAS, according to these calculations, the Company’s rate of return on rate base for the year 2002 will be 10.06%, which is lower than the current approved range of 10.10% to 10.46%; and

WHEREAS according to the Automatic Adjustment Formula, the rate of return on rate base for the year 2002 will be 9.88% to 10.24%, with a midpoint of 10.06%; and

WHEREAS the rate of return on rate base has now been set for three consecutive years by application of the Automatic Adjustment Formula and, as set out in Order No. P.U. 36 (1998-1999), a hearing to review the cost of capital for the Company will be convened in 2002.

IT IS THEREFORE ORDERED THAT:

1. The allowed range of rate of return on rate base for the Company for the year 2002 shall be 9.88% to 10.24%.

2. The Company shall file a revised schedule of rates, tolls and charges to be effective January 1, 2002 to reflect the change in the allowed rate of return as a result of the operation of the Automatic Adjustment Formula.

3. The Company shall undertake a review of the performance of the Automatic Adjustment Formula as it has existed since its inception in 1998 which shall be filed with the Board on or before March 31, 2002 and shall include:

i. A comparison of the actual rate of return on equity calculated for regulatory purposes, earned in each year from 1997 to 2001 with the rate of return either ordered or deemed by the Board in each of those years.

ii. A comparison of the actual rate of return on equity earned in each year from 1997 to 2001 with the rate of return earned by other utilities used as the basis for the Company’s evidence presented in the 1998 Cost of Capital Hearing.

iii. A comparison of the rate of return on rate base allowed by the Board with the rate of return actually earned by the Company in each year from 1998 to 2001.

iv. The bond rating of the Company for each year from 1997 to 2001.

DATED at St. John's, Newfoundland, this 28^th day of November 2001.

Darlene Whalen, P.Eng.,

Vice-Chairperson.

Raymond A. Pollett,

Commissioner

_____________________________

John William Finn, Q.C.,

Commissioner

G. Cheryl Blundon,

Board Secretary.