DR 95-068
                  Public Service Company of New Hampshire
           Fuel and Purchased Power Adjustment Clause/Clean Air
                          Act Amendments of 1990
                    Order Denying Motion for Rehearing
                         O R D E R   N O.  22,841
                             January 27, 1998
         On March 9, 1995, Public Service Company of New
     Hampshire (PSNH) filed a request with the New Hampshire Public
     Utilities Commission (Commission) to recover the costs associated
     with compliance with the Clean Air Act Amendments of 1990 (CAAA)
     through the "EA" component of the Fuel and Purchased Power
     Adjustment Clause (FPPAC).  After numerous orders and a rehearing
     proceeding, we issued Order No. 22,674 (July 30, 1997) which
     granted PSNH's requested cost recovery for CAAA expenses incurred
     at Merrimack Station, Unit II, until such time as the 1999
     Nitrogen Oxide (NOx) standards are established, but reiterated
     that, to the extent Unit II was unable to meet new State or
     federal CAAA requirements, PSNH bore the risk of all expenses
     incurred subsequent to 1999.  On August 29, 1997, PSNH filed a
     Motion for Rehearing of Order No. 22,674 pursuant to RSA 541:3. 
          In its Motion for Rehearing, PSNH raises an objection
     to that component of Order No. 22,674 that places PSNH at risk
     for cost disallowances subsequent to the issuance of new State or
     federal NOx requirements in 1999.  
          Initially, PSNH alleges that Order No. 22,674, without
     record support, erroneously determined that the installation of
     Selective Catalytic Reduction (SCR) technology at Merrimack
     Station, Unit II, might not prove to be the least cost
     alternative to meet the 1995 CAAA requirements if 1999 NOx
     requirements were set at levels within a predetermined range that
     cannot be met with this technology.  Next, PSNH alleges that the
     Commission "expressly abandoned the long established  prudence'
     standard . . ." in favor of "risk allocation analysis"; and that
     the Commission never provided PSNH with adequate notice that such
     a standard would be applied.
          With regard to the issue of notice, in DR 94-080,
     PSNH's last Least Cost Integrated Resource Plan, the Commission,
     inter alia, reviewed PSNH's planning processes that led to the
     decision to install SCR technology at Merrimack Station, Unit II. 
     In addressing the planning that led to this decision, the
     Commission stated:
          we note for the record that PSNH's decision
               [to install SCR at Merrimack II] rests on
               certain critical technical and regulatory
               assumptions regarding the performance of SCR
               technology and the Phase II [1999] emissions
     Re Public Service Company of New Hampshire, 80 NH PUC 160, 169  
          Furthermore, the so-called new regulatory theory of
     "risk allocation" PSNH objects to is nothing more than the
     application of the "used and useful" standard; a standard that
     has been applied to utility investments for the last century. 
     See e.g., Bluefield Water Works and Improvement Co. v. Public
     Service Commission, 262 U.S. 679 (1923).  Thus, we believe we can
     address all of the issues raised in the Motion, through an
     analysis and explanation of the "used and useful" standard.
          The seminal decision on the used and useful standard 
     in New Hampshire is the New Hampshire Supreme Court's decision in
     Appeal of Conservation Law Foundation, 127 NH 606 (1986).  In
     that decision the Court made the following distinction between
     prudence and used and useful:
          While prudence judges an investment or
               expenditure in the light of what due care
               required at the time an investment or
               expenditure was planned and made, usefulness
               judges its value at the time its reflection
               in rate base is under consideration.
     Id., 638.
     The Court further explained that:
          [u]nder the  used and useful' principle, the
               commission is not asked to second guess what
               was reasonable at some time in the past, but
               rather to determine what can reasonably be
               done now with the fruits of that investment. 
          Thus, the Commission's decisions relative to risk
     allocation were nothing more than explicit recognition that PSNH
     had made a choice that it recognized might not meet future
     environmental standards.  To the extent that choice could not be
     fully recovered over the remaining depreciation life of the
     plant, PSNH was placed on notice that it bore the risk of
     disallowances under the used and useful standard.
           In conclusion, we note that this issue may never need
     to be addressed if PSNH's assumptions regarding the 1999 CAAA
     standards are correct.  Furthermore, this analysis only remains
     relevant under the current regulatory regime.  At that point in
     time when generation becomes a competitive aspect of electric
     service, all such risks will be borne by the owners of the unit
     and not ratepayers. 
          Based upon the foregoing, it is hereby
          ORDERED, that Public Service Company of New Hampshire's
     Motion for Rehearing is DENIED. 
          By order of the Public Utilities Commission of New
     Hampshire this twenty-seventh 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