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
Commission.
I. PROCEDURAL HISTORY
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
362-A.
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
orders.
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
industry.
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.
II. POSITIONS OF THE PARTIES AND STAFF
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.
III. COMMISSION ANALYSIS
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
decision-makers.
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
efforts.
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