DF 98-016
Public Service Company of New Hampshire
Petition for Approval of Extension, Modification and/or
Amendment of Various Financial Instruments, and for Issuance
of First Mortgage Bonds and for the Granting of Additional
Security
Order Approving Financing
O R D E R N O. 22,876
March 20, 1998
APPEARANCES: Catherine E. Shively, Esq. for Public
Service of New Hampshire; James Monahan for Cabletron Systems,
Inc.; Dean, Rice and Howard by Mark Dean, Esq. for the New
Hampshire Electric Cooperative, Inc.; Michael W. Holmes, Esq. for
the Office of Consumer Advocate; and Eugene F. Sullivan III, Esq.
for the Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On February 20, 1998, Public Service of New Hampshire
("PSNH" or the "Company") filed a Petition with the New Hampshire
Public Utilities Commission ("Commission") for approval under RSA
369, inter alia, (1) to amend the Series D and Series E Letters
of Credit ("LOC"), which currently support the Company's Series D
and Series E Pollution Control Revenue Bonds("PCRBs"), and Series
D and E Reimbursement Agreements to (i) extend the terms of the
Series D and E Letters of Credit for 364 days, (ii) provide for
accounts receivable security, (iii) amend the existing interest
rates, fees and expenses to reflect both current market
conditions and financial community concerns regarding PSNH, and
(iv) amend certain business covenants; (2) to modify (through
amendment or new agreement) the short term $125,000,000 Revolving
Credit Agreement ("RCA") to (i) provide for first mortgage bond
security, and (ii) provide for accounts receivable security; and
(3) to issue up to $125 million of its first mortgage bonds in
one or more series under its First Mortgage Bond Indenture, to
evidence and secure its obligation under the Revolving Credit
Facility. The Company contemporaneously filed a Motion for
Waiver of Notice and the prefiled testimony of David R. McHale,
Assistant Treasurer of Finance for Northeast Utilities.
On February 23, 1998 an Order of Notice was issued
granting expedited treatment to the petition, waiving, in part,
the fourteen-day notification requirement of N.H. Admin. Rules
Puc 203.01, and scheduling a Prehearing Conference for March 5,
1998. On March 2, 1998, Cabletron Systems, Inc. ("Cabletron")
filed a Motion to Intervene. The Office of Consumer Advocate
("OCA") is a statutorily authorized intervenor. On March 4,
1998, the Company filed the supplemental testimony of David R.
McHale and additional exhibits.
At the Prehearing Conference PSNH, the OCA, and the New
Hampshire Public Utilities Commission Staff ("Staff") stated
their preliminary positions and agreed upon a procedural
schedule. The Commission issued Order No. 22,872 on March 16,
1998 approving the procedural schedule and granting Cabletron
intervenor status.
On March 9, 1998, PSNH filed a Motion for Protective
Order with respect to certain confidential financial information
requested by the Staff. PSNH also filed additional attachments
and exhibits to the petition and to the original testimony of
David R. McHale.
On March 13, 1998, testimony was filed by Kenneth E.
Traum, Finance Director, and William Homeyer, Economist, of the
OCA and Mark A. Naylor, Staff's Acting Finance Director.
The Commission held hearings on March 17 and 18, 1998,
to investigate the merits of the Company's proposed financing.
At the March 17, 1998 hearing, the New Hampshire Electric
Cooperative, Inc. ("NHEC") made a verbal motion to intervene
based upon NHEC's contractual relationship with PSNH. The motion
was granted with the condition that the NHEC would waive the
right to appeal issues that could have been raised at the
prehearing conference.
II. POSITIONS OF THE PARTIES AND STAFF
A. PSNH
The Company believes its proposal is in the public
good, and is the best possible solution to its financing needs.
The Company notes that the majority of covenants in the LOC and
RCA agreements are basically the same as those that have been in
place since 1991. The Company asserts that the banks will view
negatively any changes to the terms and conditions of the
negotiated financing and that this will result in failure of the
proposed transaction. Given the short time period in which this
financing must be consummated, PSNH contends that it will not
have the opportunity to pursue any other financing options. It
believes that not having the proposed financing approved as
presented could place the Company in either voluntary or
involuntary bankruptcy. The Company takes the position that
approving the financing in this docket, as presented, will not
impair the Commission's ability to proceed as the Commission
deems necessary in other dockets.
B. Cabletron
Cabletron cross-examined the Company's witness, but did
not offer a position on the financing.
C. OCA
The OCA takes the position that if the Commission
approves the filing, such approval should be conditioned upon the
following: covenants which affect restructuring issues should be
modified; and PSNH should be required to receive Commission
approval prior to paying or committing to pay any common stock
dividends or putting significant dollars into the NU Money Pool
until such time that Millstone III is running at full capacity.
Otherwise, the OCA takes the position that the Commission should
order the Company to obtain bridge financing and convene a
hearing pursuant to the NH Supreme Court decision of Appeal of
Easton, 125 N.H. 205 (1984). The OCA sees the need for an Easton
hearing on the basis that public policy is being weighed against
approval of this financing. The OCA criticizes the Company's
failure to examine other alternatives which would not contain the
covenants which arguably could "hinder restructuring". It is the
OCA's assertion that PSNH failed to weigh the public policy costs
in its financing decision and looked only at the economic costs.
D. Staff
Staff believes the Commission should approve the
Company's financing, but is concerned with the possible
implications of certain covenants of this financing with respect
to the Commission's duty under RSA 374-F. Staff recommends
covenant changes to eliminate any conditions that may restrict
the Commission in the restructuring area. Given the Company's
current credit ratings, Staff views the increased costs of the
new financing as unavoidable.
III. COMMISSION ANALYSIS
Under RSA 369:4, as interpreted by the New Hampshire
Supreme Court in Appeal of Easton, the Commission must "determine
whether, under all the circumstances the financing is in the
public good - a determination which includes considerations
beyond the terms of the proposed borrowing." Appeal of Easton,
125 N.H. at 213. The Commission may also attach reasonable
conditions that are in the public interest. Id. Based on our
review of the record, we find the Company's financing proposal as
described above to be in the public interest. We recognize
PSNH's imminent need to refinance and we will rely upon Mr.
McHale's testimony that this is the best resolution he was able
to negotiate to meet PSNH's financial needs. Arguably some of
the language in certain covenants may appear to in some manner
limit or restrict the Commission's latitude with regard to
restructuring of the electric industry. In approving this
petition, however, we do not in any way concede that this
approval restricts or limits our authority to implement RSA 374-F
or any other statutory responsibility.
In closing arguments, PSNH explicitly stated its
confidence in its ability to obtain waivers needed for any
"reasonable restructuring solution". To the extent that it
becomes necessary to do so, we will hold PSNH to its commitment
to "diligently pursue" such waivers. Notwithstanding the changes
that the entire industry is undergoing, the Company's strong
financial position, as evidenced by its excess interest coverage
ratio and equity to capitalization ratio, as well as its strong
earnings and cash flow, should give banks comfort to consider
such waivers.
Given the Company's need for cash for the non-utility
generator settlements, the current situation at the Millstone
facilities, and the Company's past practices, we remain concerned
about dividend payments to the parent company at this time. We
are reminded that PSNH was well aware of its upcoming financing
needs in February of 1997 when it paid a dividend of $85 million
to its parent company. Here, we recognize that the lender
covenants limit PSNH to $25 million in dividend payments from
cash on hand. To the extent that the Company has the means and
determination to make a dividend payment to its parent, we direct
the Company to first obtain approval from this Commission.
The financial covenants in the LOC and RCA amendment
preclude the Company from investing in the NU Money Pool,
revealing the banks' concern with cash leaving PSNH. We share
these concerns, especially in light of the financial difficulties
at Northeast Utilities, Connecticut Power and Light, and Western
Massachusetts Electric due to the shut-down of the Millstone
facilities. Due to these concerns, we direct the Company to
obtain Commission approval prior to investment in the NU Money
Pool, in the event the banks waive the covenant which restricts
such investments.
We find the uses for the renewal of the Letters of
Credit to support the Company's PCRBs and uses for the renewal of
the Company's short term line of credit to, in part, meet
maturity of the Company's Series B First Mortgage Bonds, to be in
the public good. We also find the fact that the Company is
fixing the rates on its tax-exempt Series D and Series E PCRBs
which will reduce the reliance upon the Letters of Credit by
approximately 50% to be in the public good.
Based upon the foregoing, it is hereby
ORDERED, that the Commission hereby approves and
authorizes, pursuant to RSAs 369:1,2,3 and 4, the extension and
amendment by PSNH of the Series D Letter of Credit and Series D
Reimbursement Agreement to (i) extend the term of the Series D
Letter of Credit; (ii) provide for accounts receivable security;
(iii) amend the existing interest rates, fees and expenses; and
(iv) amend certain business covenants, all as described in the
petition and testimony of PSNH in substantially the same form as
the documentation submitted by PSNH to the Commission; and it is
FURTHER ORDERED, that the Commission hereby approves
and authorizes, pursuant to RSAs 369:1,2,3 and 4, the extension
and amendment by PSNH of the Series E Letter of Credit and Series
E Reimbursement Agreement to (i) extend the term of the Series E
Letter of Credit; (ii) provide for accounts receivable security;
(iii) amend the existing interest rates, fees and expenses; and
(iv) amend certain business covenants, all as described in the
petition and testimony of PSNH in substantially the same form as
the documentation submitted by PSNH to the Commission; and it is
FURTHER ORDERED that the Commission hereby approves and
authorizes, pursuant to RSAs 369:1,2,3, and 4, the modification
by PSNH (through amendment or new agreement) of the Revolving
Credit Facility to (i) provide for first mortgage bond security;
and (ii) provide for accounts receivable security, all as
described in the petition and testimony of PSNH and in
substantially the same form as the documentation submitted by
PSNH to the Commission; and it is
FURTHER ORDERED, that the Commission hereby approves
and authorizes, pursuant to RSAs 369:1,2,3 and 4, the issuance by
PSNH of up to $125,000,000 of its first mortgage bonds in one or
more series under its First Mortgage Bond Indenture, to evidence
and secure its obligations under the Revolving Credit Facility,
with principal, interest, payment and other related terms as
provided in the Revolving Credit Facility (as modified as
described above), all as described in the petition and testimony
of PSNH and in substantially the same form as the documentation
submitted by PSNH to the Commission; and it is
FURTHER ORDERED, that PSNH gain Commission approval for
any dividend payment to its parent company during the 364-day
term of the new financing; and it is
FURTHER ORDERED, that PSNH gain Commission approval for
any investment in the NU Money Pool during the 364-day term of
the new financing.
By order of the Public Utilities Commission of New
Hampshire this twentieth day of March, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary