DR 97-241
              Fuel Adjustment Clause and Purchased Power Cost
                   Order Addressing Motion for Rehearing
                          O R D E R  N O. 22,838
                             January 20, 1998
         On December 31, 1997, the New Hampshire Public
     Utilities Commission (Commission) issued Order No. 22,815
     relative to the proposed Fuel Adjustment Clause (FAC), Purchased
     Power Cost Adjustment (PPCA) and Short-Term Energy Purchase Rate
     of Connecticut Valley Electric Company (CVEC).  In Order No.
     22,815, the Commission rejected CVEC's proposed rate on the
     ground that CVEC's management had acted imprudently by failing to
     terminate its wholesale purchase power contract with Central
     Vermont Public Service Company (CVPS).  In the same order, the
     Commission froze CVEC's rates until it completed an evidentiary
     hearing on January 28, 1998 to consider three issues:  1) the
     appropriate proxy for a market price that CVEC could have
     obtained if it had terminated its RS-2 wholesale contract with
     CVPS; 2) the implications of only allowing CVEC to pass on to
     customers that market price; and 3) whether the Commission's
     final determination on the FAC and PPCA rates should be
     reconciled back to January 1, 1998 or some other date.            
         On January 12, 1998, CVEC filed a motion for rehearing
     in which it alleges, inter alia, that the Commission failed to
     adequately notify CVEC of the Commission's intent to consider the
     issues that were addressed during the December 17, 1997 hearing
     and that were ultimately ruled on in Order No. 22,815.  According
     to CVEC, the Commission provided "insufficient notice of an
     evidentiary hearing on prudence."  CVEC's motion also argues that
     (a) the Commission exceeded its jurisdiction by using the
     FAC/PPCA proceeding to advance its restructuring agenda, (b) the
     Commission's prudence determination is preempted by federal law,
     and (c) the Commission made an imprudence finding without basic
     findings of fact or sufficient record evidence.  Finally, CVEC's
     motion advises the Commission that CVEC will seek relief from the
     United States District Court if the Commission is unable or
     unwilling to vacate Order No. 22,815 and replace it with an order
     "establishing cost-based rates."  
         On January 14, 1998, the City of Claremont, a CVEC
     customer, filed an objection to CVEC's rehearing request. 
     Claremont argues that CVEC was afforded sufficient notice and
     that the Commission properly exercised its traditional rate
     making powers in Order No. 22,815.
         We have considered all of the arguments raised by CVEC
     in its motion for rehearing and those asserted in Claremont's
     objection.  We will grant the following relief.   We will afford
     CVEC the opportunity to address the prudence question at the
     hearing which is scheduled for January 28, 1998.  Although we
     believe that CVEC was given sufficient notice prior to the
     December 17, 1997 hearing, we will nonetheless allow it one final
     opportunity to present testimony or other evidence which supports
     its position regarding this issue.  Following the completion of
     the January 28, 1998 hearing, we will issue an order that
     addresses CVEC's request for modification of Order No. 22,815.    
         Accordingly, CVEC is directed to submit pre-filed
     testimony on those matters that it wishes to address at the
     January 28, 1998 hearing, consistent with our delineation of the
     scope of the proceeding outlined in Order No. 22,815, as expanded
     by this order.  This testimony must be filed at the Commission
     and served on all parties by the close of business on January 23,
         All other requests for relief in CVEC's motion for
     rehearing are denied.  With respect to CVEC's request that we
     increase its FAC and PPCA rates retroactively to January 1, 1998,
     we decline to do so at this juncture. 
         Finally, we take this opportunity to clarify the
     Commission's action in Order No. 22,815.  Our action does not
     represent a departure from traditional rate making policies. 
     Rather, we applied traditional prudence analysis to current
     circumstances and found that CVEC management has acted
     imprudently by not seeking to avail itself of opportunities that
     exist in the wholesale market.  Our decisions in this docket were
     intended to advance only one objective: to set just and
     reasonable rates for CVEC based on the evidence and testimony
     presented during the hearing in this matter.  We reject the claim
     that our traditional rate making authority is constrained due to
     the fact that we have suspended, pending rehearing, the final
     orders which we issued in the restructuring docket, DR 96-150. 
     See, Order No. 22,548 (April 7, 1997).  The fact that we have
     suspended our orders in that docket has absolutely no bearing on
     the matters addressed in this case.  In this case, we were called
     upon to make a traditional rate determination based on whether
     CVEC's management acted prudently with respect to its fuel and
     power purchases.  This necessarily requires that we examine
     CVEC's relationship with CVPS. 
              If we were to conclude that the Commission lacks the
     authority to examine the prudence of CVEC's actions, as CVEC's
     motion alleges, then we would be unable to set rates for electric
     utilities at just and reasonable levels and we would be
     abdicating the responsibility of approving only those rates which
     we find to be just and reasonable as our Supreme Court has so
     clearly indicated we must.  Appeal of Sinclair Machine Products,
     Inc., 126 N.H. 822, 835 (1985).  
              While we reject CVEC's argument that we lack authority
     to determine whether CVEC's management acted prudently in not
     canceling the company's wholesale contract with CVPS, we will
     nonetheless grant CVEC's request for rehearing on the issue of
     prudence.  This subject will be addressed at the January 28, 1998
     hearing in addition to the issues previously noticed.  We remind
     CVEC that it bears the burden of proof of convincing the
     Commission that the proposed rates are just and reasonable.  Id.
               Based upon the foregoing, it is hereby
         ORDERED, that CVEC's Motion for Rehearing in this
     matter is GRANTED IN PART and DENIED IN PART.
                   By order of the Public Utilities Commission of New
     Hampshire this twentieth day of January, 1998. 
        Douglas L. Patch    Bruce B. Ellsworth        Susan S. Geiger
            Chairman           Commissioner            Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary