DR 95-022
                                 DR 95-246
                                 DR 95-268
                  Public Service Company of New Hampshire
           Renegotiated Purchase Power Agreements with Five Wood
                        Fired Qualifying Facilities
                    Order Rejecting Proposed Agreements
                         O R D E R   N O.  22,920
                               May 11, 1998
         APPEARANCES:  Gerald M. Eaton, Esq. and Rath,
     Young and Pignatelli by M. Curtis Whittaker, Esq. on behalf
     of Public Service Company of New Hampshire; Brown, Olson and
     Wilson by Robert A. Olson, Esq. on behalf of Pinetree Power,
     Inc., Pinetree Power-Tamworth, Inc., Bridgewater Power
     Company, Whitefield Power and Light Company, and Hemphill
     Power and Light Company; and   Eugene F. Sullivan, III, Esq.
     for the Staff of the New Hampshire Public Utilities
               These matters come before the New Hampshire Public
     Utilities Commission (Commission) pursuant to the
     Commission's continuing responsibility under RSA 362-C:3 to
     ensure that the provisions of the Third Amended Disclosure
     Statement of Northeast Utilities Service Company in
     Bankruptcy (Rate Agreement) are implemented.  Section 12 of
     the Rate Agreement requires Northeast Utilities Service
     Company (NU) to use its "best efforts" to renegotiate
     thirteen high-cost rate orders held by Small Power Producers
     (SPPs) or Qualifying Facilities (QFs) implemented prior to
     the PSNH bankruptcy pursuant to the mandates of the federal
     Public Utilities Regulatory Policy Act of 1978 (PURPA) and
     the state Limited Electric Energy Producers Act (LEEPA), RSA
               Seven of the 13 rate orders identified in the Rate
     Agreement were renegotiated by Public Service Company of New
     Hampshire (PSNH) and have been approved by the Commission. 
     By Order No. 21,190 (April 19, 1994) the Commission approved
     five hydropower agreements saving ratepayers $5.2 to $5.6
     million, on a net present value basis.   By Order No. 21,368
     (September 23, 1994) the Commission approved PSNH buy-outs
     of TIMCO, Inc.'s and Bristol Energy Corp.'s rate orders,
     which resulted in savings to ratepayers of $60 million, on a
     net present value basis. 
               On December 16, 1994, the Commission opened docket
     DR 94-300 to "investigate the status of negotiations between
     Public Service Company of New Hampshire and the six
     remaining  non-settling' wood-burning small power producers
     . . . ."  Re Public Service Company of New Hampshire/Small
     Power Producers, 80 NH PUC 19 (1995).  Ultimately, the
     negotiations resulted in the filing of six renegotiated
     purchase power contracts and agreements (hereinafter
     referred to collectively as contracts or agreements) between
     PSNH and all six wood-burning SPPs.  
               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) concerning the renegotiated purchase power
     contracts for all six of the remaining Section 12 rate
               By Order No. 22,479 (January 15, 1997), the
     Commission approved, with certain conditions, the
     renegotiated agreement between Bio-Energy and PSNH finding
     that the savings achieved under the agreement outweighed any
     concessions from ratepayers to Bio-Energy and PSNH and any
     shifting of risk.  Following a Motion for Rehearing and
     Clarification filed by Bio-Energy, the Commission issued
     Order No. 22,848 (February 17, 1998) reaffirming its
     approval of the negotiated agreement with conditions and
     denying the Motion for Rehearing.
               In approving the Bio-Energy agreement the
     Commission stated, however, that it was not prepared 
          to rule on the remaining five contracts because
               the issues raised by those contracts are more
               problematic when balancing the level of savings
               against the risks shifted to ratepayers and the
               potential economic harm to the wood products
     Order No. 22,479 at 3.
     The Bio-Energy agreement results in 44% of the savings in
     nominal dollars achieved from all six of the renegotiated
     agreements, while it comprises only 10% of the total
     megawatts represented by all six projects.   PSNH has not
     consummated and appears unwilling to consummate the
     Bio-Energy Agreement with the limited conditions we placed
     on the Agreement.  The Commission is conducting a separate
     proceeding to investigate PSNH's failure to finance the
     Bio-Energy settlement.  See Order No. 22,904.
               The positions of the parties herein are
     effectively the same as those set forth with regard to the
     Bio-Energy contract in Order No. 22,479.  Staff and the OCA
     did, however, take the position that the savings achieved
     under these agreements were marginal and would only decrease
     as the market price of power increased.  Staff did not
     support a finding that NU/PSNH had used its best efforts to
     renegotiate these five rate orders.  
               The issue for our consideration is whether it is
     in the public interest to replace the existing rate orders
     held by the respective five projects at issue herein with
     the renegotiated  purchase power agreements presented in
     this proceeding.  The resolution of this issue requires the
     Commission to balance the savings achieved for ratepayers
     against the costs and any risk shifted from PSNH and the QFs
     to ratepayers, and consideration of those factors set forth
     in RSA 362-A:8.  In addition, however, we must consider
     these renegotiated agreements in the context of 
     RSA 374-F and the significant changes that will take place
     in our electric industry as a result of state and federal
     initiatives.             Although there is still uncertainty
     as to whether the Commission has the authority to modify the
     existing rate orders absent agreements like those at issue
     here, this uncertainty must be viewed in the context of RSA
     374-F:3, XII(b), where the Legislature has indicated that
     "[u]tilities should be allowed to recover the net
     nonmitigatable stranded costs associated with ....power
     acquisitions mandated by federal statutes or RSA 362-A."  As
     we noted in the Final Plan and the Rehearing Order, Order
     No. 22,875, in DR 96-150, we do not intend to disrupt or
     impair any legal rights or obligations arising under state
     or federal law.  Instead, our focus is on insuring that
     utilities fulfill their statutory, and in PSNH's case, also
     Rate Agreement derived, duty to mitigate generation stranded
     costs, including stranded costs associated with existing QF
     obligations.  We therefore must determine whether these
     renegotiated agreements  are in the public interest,
     recognizing that such a conclusion will in all likelihood
     mean that they will not be further mitigated.  
               The record does not persuade us that the
     renegotiated agreements reflect sufficient efforts to
     mitigate stranded costs to justify a conclusion that will
     ultimately lead to full recovery from ratepayers, perhaps in
     the context of securitization as being contemplated by the
     Legislature.  As much as we would like to put these issues
     behind us, we believe that the stakes are too high and the
     renegotiated deals are not good enough to warrant taking any
     action that would do so.  We still believe that greater
     mitigation can be achieved, especially given the significant
     changes that have taken place in state law and in these
     industries in the last few years.    
               As noted above, by Order No. 22,479 the Commission
     approved the Bio-Energy Agreement with certain conditions
     because the level of savings, and thus the savings to
     ratepayers, outweighed the risks shifted to ratepayers.  For
     a number of reasons, we cannot reach the same conclusion
     with regard to these other five agreements.   
               Had the Bio-Energy Agreement been consummated when
     approved, it would have resulted in savings to ratepayers of
     $48 million on a net present value basis.  This represents
     44% of the nominal savings and 31% of the net present value
     savings achieved from the renegotiation of all six of the
     agreements while Bio-Energy represents only 10% of the total
     megawatts of power production from these facilities.  Thus,
     the projected savings to ratepayers resulting from these
     five agreements are marginal, and we have concluded that
     they do not outweigh the risks shifted to ratepayers. 
               The agreements will in fact produce no savings to
     ratepayers in the short term.  This is true despite the fact
     that the Commission in its order approving the Rate
     Agreement found that "renegotiations of the SPP power
     purchase arrangements can only serve to reduce rates." Order
     No. 19,889, 75 NHPUC 396,408.  See also Id. at 438. In fact,
     PSNH is proposing to accelerate recovery of the proposed
     agreements, thereby shifting risk for non-performance to
     PSNH customers.  In addition, the front loading of the
     renegotiated agreements increases risk to customers because
     substantial payment amounts are being paid by PSNH to the
     SPPs in advance of deliveries.  In fact, there would be
     increased costs to ratepayers as a result of the financings
     of these agreements.  When combined with Rate Agreement
     deferrals that are currently increasing rates significantly
     to ratepayers, we do not believe further increases in rates
     would be in the public interest.  Any increase in rates
     would be contrary to the Legislature's and this Commission's
     goal to lower costs to ratepayers that have increased
     dramatically over the past eight years.  See e.g., RSA
     374-F:3, XI.  
               We also believe agreements which provide
     significant up-front cash payments to certain power
     producers, with the kinds of unreasonable guarantees
     proposed here, would be anomalous in the current environment
     in which the Legislature, this Commission and the Federal
     Energy Regulatory Commission (FERC) are seeking to move the
     electric generation industry toward market based rates,
     shifting the risk of poor decisions and load growth
     projections away from ratepayers back to the
               Another factor that leads us to conclude the
     purchase power contracts are not in the public interest is
     the fact that one of the conditions in the agreements is
     that we relinquish any opportunity to pursue the yet to be
     decided issue of load curtailment during periods of light
     load, also known as "light loading".  We note that PSNH in
     its last least cost integrated resource filing indicated
     that payments from PSNH to QFs during light load periods
     amounted to $20 million on an annual basis.  To approve
     these agreements, given the marginal level of savings
     achieved and the significant shifting of risk that will
     result from their implementation, without a clearer
     understanding of the implications of enforcing the load
     curtailment provisions already contained within the terms of
     these rate orders would be injudicious.
               The purchase power contracts also require the
     Commission to end pending investigations into NU/PSNH's
     obligations under Section 12 of the Rate Agreement to use
     its best efforts to renegotiate these rate orders.  Given
     the lack of savings to ratepayers in the short term and the
     other problems with these agreements noted in this order, we
     find it inappropriate to accept such a condition.
               In our initial order on the Bio-Energy Agreement,
     we found that that Agreement did not adequately address job
     losses and the community impact as required by RSA
     362-A:8,II(b).  We therefore required the establishment of a
     mitigation fund.  Order No. 22,479 at pp. 10-11 (January 15,
     1997).  We find that the renegotiated agreements at issue
     here have the same problem, and were our other concerns to
     be addressed we would require the establishment of a
     mitigation fund in the same manner as addressed in the
     Bio-Energy order.    
               We believe the provisions of RSA 362-A:4-b, which
     prevent the complete buy-out of long term rate orders, may
     limit the ability of PSNH and the owners of the wood burning
     facilities to maximize savings to ratepayers.  We further
     note that the General Court is currently considering
     amendments to this statutory provision that might improve
     the possibility of ratepayer savings by removing the blanket
     prohibition on buy-outs.  We strongly support any such
               We take this position in part because we believe
     circumstances surrounding the ability of these plants to
     continue to operate if PSNH were no longer required to
     purchase their entire power output have changed since the
     negotiation of these agreements and the passage of RSA
     362-A:4-b.  We note that one of the wood burning facilities
     that was shut down as part of a rate order buy-out, Bristol
     Energy Corp.'s facility, has recently been sold and is
     currently seeking the necessary permits to renew operation
     to market its output to consumers willing to pay a premium
     over the market rate for power from "environmentally
     friendly" sources.  We believe the advent of competition in
     the generation market in the Northeast will provide even
     greater opportunities for these facilities to continue to
     operate as providers of renewable sources of energy to
     customers.  Many state laws and many federal proposals,
     including the recent legislative proposal from the Clinton
     Administration, include portfolio requirements and other
     encouragements for renewable sources of power that make
     "green" power much more marketable, attractive and economic. 
     Thus, the circumstances which led to the passage of this
     legislation have changed and if these issues were
     reconsidered today, as the future of deregulation begins to
     emerge, there might be a different result.
               We recognize, nonetheless, that it is unlikely
     that the Legislature would repeal altogether the law which
     prohibits the buyouts.  Legislation that allowed some
     buyouts, even on a  restricted basis, would, in our opinion,
     be a step in the right direction.  
               One other very important reason for not approving
     these renegotiated agreements is the list of guarantees that
     the parties to the agreements included in them.  In addition
     to the guarantees already noted, i.e., that the Commission
     find that PSNH met its obligation under the best efforts
     clause in the Rate Agreement, that the Commission exempt
     PSNH from liability either prospectively or retrospectively
     for light loading, and that the Commission exempt the wood
     burners from prospective dispatch under the light loading
     provisions, the other guarantees include:  a) recovery of
     all sums expended by PSNH to consummate the new contracts,
     including financing costs and the costs of negotiations; b)
     PSNH's requested modification to the Rate Agreement to allow
     PSNH to retain 90% of the savings achieved under the new
     Contract until all sums expended by PSNH to consummate the
     contracts are recovered.  (This is being proposed despite
     the Commission's finding in Order 19,889, 75 NHPUC 396, 437,
     that the "FPPAC formula provides that customers will receive
     90 percent of any reduction in the cost of power from the
     eight designated SPPs..."); c) that neither the Commission
     nor any other state agency or branch of state government
     take any action that in any way limits or threatens PSNH's
     or the wood burners' recovery or receipt of the funds to be
     financed or received pursuant to the contracts; d) that the
     State and the Commission make financial assurances which
     will be binding on future Commissions to ensure the
     continued recovery through rates and charges of all costs;
     e) that the State and the Commission agree to waive all
     claims arising from the SPPs which were made prior to the
     closing date; and, f) that one of the conditions to the
     closing be an order from the Commission "providing a
     non-modifiable, irrevocable right to recover the payment
     amounts paid under the agreements and the purchase power
     costs paid for power supplied under the contract."   We
     think guarantees like these not only raise questions about
     our ability to bind future commissions and the State as a
     whole, but they are onerous,  unreasonable and  work to the
     detriment of ratepayers and are therefore not in the public
     interest.  In addition, we believe that asking the State and
     ultimately ratepayers to make such guarantees and to
     insulate PSNH and the SPPs from financial risk runs contrary
     to the spirit of RSA 374-F and the movement to a competitive
     market which is fundamental to that statute.
               As noted above, we want as much as anyone to put
     these issues behind us and we continue to believe that a
     solution can be found that provides more benefits and fewer
     drawbacks to ratepayers.  We would welcome changes to the
     renegotiated agreements that meet the concerns outlined
     above and remind PSNH of its unsatisfied obligation under
     section 12 of the Rate Agreement.       
               Based upon the foregoing, it is hereby 
               ORDERED, that the five renegotiated purchase power
     contracts and agreements between PSNH and Pinetree Power,
     Inc. and Pinetree Power-Tamworth, Inc.; Whitefield Power and
     Light Company and Hemphill Power and Light; and Bridgewater
     Power Company are rejected because they are inconsistent
     with the public interest.     
               By order of the Public Utilities Commission of New
     Hampshire this eleventh day of May, 1998.
      Douglas L. Patch   Bruce B. Ellsworth     Susan S. Geiger
          Chairman          Commissioner         Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary