DR 97-249
                      Granite State Electric Company
           First Half 1998 Fuel Adjustment Clause and Qualifying
                       Facility Power Purchase Rate
                Order Approving Changes to FAC and QF Rates
                         O R D E R   N O.  22,817
                             December 31, 1997
         APPEARANCES: Carlos A. Gavilondo, Esquire on behalf of
     Granite State Electric Company; and, James J. Cunningham, Jr. and
     Todd M. Bohan for the Staff of the New Hampshire Public Utilities
               On November 26, 1997, Granite State Electric Company
     (GSEC or Company) filed with the Commission its Testimony and
     Schedules in support of its First Half 1998 Fuel Adjustment
     Clause (FAC) and Qualifying Facility (QF) Power Purchase Rate. 
     GSEC is proposing an FAC factor of $0.01193 per kWh for the
     period January 1, 1998 through June 30, 1998.  The FAC factor
     represents an increase of $0.00138 per kWh over the currently
     effective FAC factor of $0.01055 per kWh.  The FAC proposed by
     the Company would increase the typical monthly bill of a
     residential customer using 500 kWhs per month by $0.69.
               Regarding its QF energy rates, GSEC is proposing rates
     at the sub-transmission level of $0.03697 per kWh on-peak,
     $0.02965 per kWh off-peak and $0.03303 per kWh on average for the
     first half of 1998.  At the primary distribution level, the
     proposed rates are $0.03971 per kWh on-peak, $0.03111 per kWh
     off-peak and $0.03508 per kWh on average.  The proposed QF rates
     for the secondary distribution level are $0.04111 per kWh on-peak, $0.03184 per kWh off-peak and $0.03612 per kWh on average. 
     GSEC is proposing a capacity rate of $2.32 per kW-mo at the sub-transmission level, $2.54 per kW-mo at the primary distribution
     level and $2.65 per kW-mo for secondary distribution for the
     first half of 1998.  The value of capacity used to determine the
     Company's QF capacity rate is $26.94 per kW-yr. 
               A. GSEC
               At the hearing, the Company presented witnesses in
     support of its proposals.  Jose A. Rotger, Senior Rate Analyst
     for New England Power Service Company, supported GSEC's proposed
     FAC factor and QF rates.  Jeffrey Van Sant, Vice President and
     Director of Fuel Supply and Risk Management for New England Power
     Company (NEP), supported GSEC's fuel price projections for the
     first half of 1998.  Mr. Rotger summarized the Company's proposed
     FAC factor and QF rates.  The proposed FAC factor is $0.01193 per
     kWh, an increase of $0.00138 per kWh.  The proposed QF rates for
     the first half of 1998 at sub-transmission voltage are 3.697
     cents per kWh on-peak, 2.965 cents per kWh off-peak and 3.303
     cents per kWh on average.
               The increase in the factor is primarily attributable to
     increased forecast fuel costs for the first half of 1998.  There
     are two principal reasons for this increase.  First, forecast
     prices for both oil and gas are higher for the first half of 1998
     than the estimates in the last filing.  Second, the forecast
     period contains scheduled maintenance outages for several NEP
     base load and intermediate generating units.  The increase in
     fuel costs is partially offset by forecast coal prices which are
     lower than the estimates reflected in the present factor.
               Regarding QF rates, the Company indicated that the
     value of capacity used to determine GSEC's capacity rate is
     $26.94 per kW-year.  This rate is the estimated market value of
     short term capacity sales and purchases recently consummated by
               B. Staff
               At the hearing, Staff questioned the Company about a
     number of issues pertaining to the potential July 1, 1998 over or
     under collection of the FAC resulting from the impact of certain
     restructuring matters including the following:  the treatment of
     changes in the assessment mechanism used to calculate funding of
     the Independent System Operator (ISO); and, refunds and spent
     nuclear fuel cost adjustments with the Department of Energy for
     the period ending June 30, 1998.  Staff is concerned that any
     credits due GSEC ratepayers should be passed back in a
     reconciliation adjustment which will true-up any amounts owed to
     GSEC ratepayers at the end of the first half of 1998.  
               Also, Staff is concerned about the Hydro-Quebec Energy
     Savings Credit (i.e., the New Hampshire Host State Bonus Share
     mechanism).  Specifically, Staff is concerned that, subsequent to
     divestiture, New Hampshire ratepayers may lose the Savings
     Credit.  In its response to Staff data request DR-STAFF-11,
     Exhibit No. 3 as marked at the hearing, the Company stated that
     NEP customers "will receive no savings credit".  Staff is
     concerned that this savings credit belongs to the ratepayers of
     the state of New Hampshire and it may be at risk in the
     divestiture of NEP's assets.
               The Commission shares Staff concerns about reconciling
     adjustments.  However, the Commission notes the Company response
     to Staff data request DR-STAFF-14, one of the data responses
     contained in Exhibit No. 2 as marked at the hearing, wherein it
     states that, "upon the commencement of retail access for GSEC
     customers, any over-collection of the fuel clause balance will be
     refunded to customers and any under-collection will be recovered
     through a fuel reconciliation factor.  GSEC will make a filing
     with the Commission prior to the retail access date in which the
     Company will make a specific proposal for refunding any over-collection or recovering any under-collection".  
               Regarding Staff's concern about the potential loss of
     the New Hampshire Bonus Share, the Commission notes that it will
     have to review and approve the NEP divestiture and as part of
     this process it will examine the New Hampshire Bonus Share. 
               Based on the above, and based on the careful review of
     the record in this case, we believe that the Company's proposed
     FAC and QF are fair and reasonable and we will approve the rates
     as proposed.
               Based upon the foregoing, it is hereby 
               ORDERED, that the FAC for bills rendered on or after
     January 1, 1998 of $0.01193 per kWh is approved; and it is
               FURTHER ORDERED, that GSEC pay the QF rates as
     proposed; and it is
               FURTHER ORDERED, that GSEC file tariff pages in
     compliance with this order no later than 15 days from the
     issuance of this order.
                    By order of the Public Utilities Commission of New
     Hampshire this thirty-first day of December, 1997.
        Douglas L. Patch    Bruce B. Ellsworth        Susan S. Geiger
            Chairman           Commissioner            Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary