DR 95-247
                 Public Service Company of New Hampshire/
                          Bio-Energy Corporation
                 Consideration of Renegotiated Rate Order
                    Order Denying Motion for Rehearing
                         O R D E R   N O.  22,848
                             February 17, 1998
         On September 6, 1995, Public Service Company of New
     Hampshire (PSNH) filed with the New Hampshire Public Utilities
     Commission (Commission) term sheets representing the essential
     financial terms of an agreement reached between PSNH and Bio-Energy Corporation (Bio-Energy).  Bio-Energy holds one of six
     remaining Rate Orders of the original thirteen designated for
     renegotiation in Section 12 of the Rate Agreement.  On November
     16, 1995, PSNH filed with the Commission a completed Power
     Contract and an Agreement (collectively, the Contract) between
     itself and Bio-Energy that would replace Bio-Energy's existing
     Rate Order.
              Bio-Energy's existing Rate Order was issued by the
     Commission in 1985.  Re Bio-Energy Corporation, 70 NH PUC 557
     (1985).  The Rate Order required PSNH to purchase energy from
     Bio-Energy's wood-fired qualifying facility (QF) in Hopkinton for
     30 years at specified rates which escalate to 29.56 cents/kWh
     off-peak and 39.55 cents/kWh on-peak by the year 2014.  Id.   On
     September 18 and 19, and October 7, 1996, the Commission heard
     testimony from PSNH, the New Hampshire Timberland Owners
     Association (NHTOA) and the Commission Staff (Staff) relative to
     the renegotiated purchase power contracts for all six of the
     remaining Section 12 Rate Orders. 
         By Order No. 22,479 (January 15, 1997), the Commission
     approved the Contract between Bio-Energy and PSNH with certain
     conditions.  The Commission ordered that if either PSNH or Bio-Energy chose to withdraw from the Contract because of any of the
     conditions imposed by the Commission that they must notify the
     Commission of that fact within 30 days of the date of the Order.
         A. PSNH
         PSNH did not file a motion for rehearing of Order No.
     22,479 pursuant to RSA 365:21 and RSA 541:3, nor did it notify
     the Commission that it chose to withdraw from the Contract. 
     Rather, on February 14, 1997, PSNH filed a letter with the
     Commission indicating that it was not prepared to withdraw from
     the Contract but, based upon information provided by the
     financial community, PSNH was unable "to proceed with the
     financial transactions necessary to complete the Contract given
     the conditions contained in the Order and the uncertainties of
     cost recovery as the electric industry moves toward competition." 
         The letter further stated that "PSNH must borrow
     $35,000,000 from the financial community for the lump-sum Payment
     Amount required by the Contract and obtain a Letter of Credit to
     secure the Settlement's continuing Annual Payments."   PSNH
     asserted that in order to obtain these financial instruments from
     the investment community "there must be a reasonable expectation
     that the funds will be recovered with a return."  PSNH went on to
     assert that because of the "uncertainty of cost recovery as the
     electric industry moves toward competition" the investment
     community needed assurances that the monies expended to finance
     the settlement would be recovered in a restructured industry. 
     PSNH also implied that the method of providing the necessary
     assurances was State sponsored securitization of the financings
     and urged the Commission's support of this proposal before the
     General Court.
         B.  Bio-Energy
         On February 18, 1997, Bio-Energy filed a Motion for
     Rehearing and Clarification of Order No. 22,479 pursuant to RSA
     541:3.  In the motion, Bio-Energy stated that it did not "wish to
     withdraw from the proposed transaction", but that it could not
     fully evaluate whether to close on the transaction because Order
     No. 22,479 did not: 1) approve or discuss the Agreement (as
     compared to the Power Contract); 2) approve the payments required
     by the Contract or the promissory notes and letter of credit to
     be issued under the Contract; 3) address the request for waivers
     of all claims, past, present and future, from the State of New
     Hampshire and any of its agents or agencies; and 4) did not
     release the parties from the obligations or liabilities of the
     Rate Orders.   
         With regard to PSNH's February 14, 1997 letter relating
     its inability to finance the Contract because of the
     "uncertainties of cost recovery", we find the assertion
     meritless.  The Commission learned in DR 97-059, PSNH's base rate
     proceeding, that PSNH had access to a $125 million short term
     line of credit on February 14, 1997 that it could have used to
     finance this Contract, but that it never attempted to access
     these funds.  We also learned in DR 97-059 that PSNH paid
     dividends in the aggregate amount of $85 million to its parent,
     Northeast Utilities (NU), in February of 1997.  Moreover, in DR
     97-014 we learned that PSNH has had access to monies which it has
     deposited in the NU "money pool" and that as of December 1, 1997,
     PSNH's balance in the money pool was approximately $100 million.
         We have previously announced our intentions to take
     evidence on PSNH's assertions that it could not finance the
     proposed Contract under these circumstances.  A prehearing
     conference is scheduled for February 24, 1998.  This issue,
     therefore, will not be further addressed in this order.
         With regard to the assertion by both PSNH and Bio-Energy that Order No. 22,479 did not provide sufficient security
     that the payments made under the Contract could be recovered from
     ratepayers, again we find the assertion meritless.  RSA       
     374-F:3,XII(b) provides that a utility may recover "net
     nonmitigatable stranded costs associated with...power
     acquisitions mandated by federal standards or RSA 362-A."  In
     Order No. 22,479, the Commission explicitly held that,
         we cannot provide [a guarantee of cost
              recovery], given the uncertainty of cost
              recovery as the electricity industry moves
              towards competition, as well as our inability
              to bind future Commissions.  See, RSAs 374-F
              and 365:28.  While we cannot "guarantee" that
              PSNH will recover all of these costs, we do
              believe PSNH is entitled to the opportunity
              to seek recovery of these monies.  In any
              case, these costs are subject to recovery in
              the same manner as other monies expended for
              or on account of a small power producer
              obligation assumed pursuant to PURPA or LEEPA
              in the soon to be restructured electric
              industry.  See, RSA 374-F:3,XII(b).
     Order No. 22,479, at 6-7.
         Shortly thereafter, in DR 96-150, the Commission issued
     Order No. 22,514 (February 28, 1997) adopting a Plan for
     restructuring the electric industry.  The Plan recognized the
     continuing requirement of distribution utilities in a
     restructured industry to purchase QF power, stating that,
     although the payments made to these facilities were based on the
     miscalculations of future avoided costs,
         from a legal standpoint, we are required by
              RSA 374-F to authorize recovery of these
              costs, and therefore must adjust our
              implementation of the regional average rate
              approach to provide for full recovery [of QF
     Final Plan, at 64.  See also, Final Plan, at 90-91 (inter alia
     the "obligation for QF power purchases will remain with the
     distribution company.")
         Thus, to the extent there was any question concerning
     appropriate cost recovery of payments made under the Contract on
     January 15, 1997, any such questions were fully addressed on
     February 28, 1997 with the issuance of the Final Plan; rehearing
     requests are now pending.
         With regard to Bio-Energy's Motion for Rehearing, it is
     denied for the following reasons.  Contrary to Bio-Energy's
     assertion, Order No. 22,479 addressed the Agreement as well as
     the Power Contract.  Although we discussed both the "Power
     Contract" and the "Settlement Agreement" in terms of the
     "Contract" in Order No. 22,479, there is no way the order can be
     construed to distinguish between the two.  Order No. 22,479
     explicitly identifies and discusses in detail six separate issues
     with the "Contract", the majority of which are terms of the
     "Settlement Agreement".  Thus, we find Bio-Energy's assertion
     that Order No. 22,479 did not "approve or discuss the Agreement",
     as compared to the Power Contact, is meritless and disingenuous.
         The next issue raised for reconsideration by Bio-Energy
     is the failure of Order No. 22,479 to approve the cost recovery
     of payments to Bio-Energy.  This is similar to the issue raised
     by PSNH in its February 14, 1997 letter regarding an assurance of
     recovery of payments to Bio-Energy, which we addressed above.     
         With regard to the failure to approve the financings
     and letter of credit necessary to close on the Contract, Bio-Energy is correct in noting that we did provide PSNH with carte
     blanche approval to enter into the financial arrangements
     necessary to close on the Contract.  Pursuant to RSA 369, in
     addition to analyzing the purpose for which the funds will be
     used, the Commission must determine that the cost and the terms
     and conditions of the proposed securities are just and reasonable
     and consistent with the public interest.  See e.g., Appeal of
     Seacoast Anti-Pollution League, 125 N.H. 708 (1984).  To approve
     terms not yet negotiated would be a dereliction of our duties. 
     Also, as is apparent from our discussion supra, the issuance of
     securities and letters of credit may have been unnecessary under
     the circumstances.
         The next issue raised by Bio-Energy is the failure of 
     Order No. 22,479 to address and provide Bio-Energy with the
     waivers requested in Articles IV.B.6. and IV.C. of the Settlement
     Agreement.  Articles IV.B.6. and IV.C. effectively require the
     Commission to supply blanket waivers from the State of New
     Hampshire and all of its agents or agencies of all claims past,
     present or future that might threaten the stream of payments
     under the Contract.  
         As we stated in Order No. 22,479, the Commission has no
     authority to bind the State of New Hampshire, its agents and
     agencies, or future Commissions from taking any legitimate action
     that might somehow threaten the stream of payments under the
     Contract.  Order No. 22,479 at 8-9.  Neither are we willing to
     provide such a blanket waiver of claims; to the extent the
     parties sought specific exemptions they should have been
     explicitly set forth in the Contract.  In this respect we did,
     however, commit that this Commission will take no action that
     would directly threaten these monies, and explicitly released
     Bio-Energy from the application of any "light load curtailments". 
     Id. at 9.      
         Finally, with regard to Bio-Energy's assertion that the
     Commission did not relieve Bio-Energy of its obligations under
     the Rate Order, again, we find such an assertion meritless as the
     entire purpose of this proceeding and all of the proceedings
     regarding the renegotiations under Section 12 of the Rate
     Agreement is to replace the existing Rate Orders.  To the extent
     it is not yet clear, Bio-Energy will be relieved of its
     obligations under the Rate Order once the renegotiated Agreement
     is in effect.
         Based upon the foregoing, it is hereby
         ORDERED, that Bio-Energy Corporation's Motion for
     rehearing is DENIED; and it is
         FURTHER ORDERED, that Bio-Energy Corporation's Motion
     for Clarification is GRANTED to the extent it is consistent with
     this order. 
         By order of the Public Utilities Commission of New
     Hampshire this seventeenth day of February, 1998.
        Douglas L. Patch    Bruce B. Ellsworth        Susan S. Geiger
            Chairman           Commissioner            Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary