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
I. PROCEDURAL HISTORY
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.
II. POSITIONS OF THE PARTIES
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.
III. COMMISSION ANALYSIS
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
costs].
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