DR 98-014 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE Fuel and Purchased Power Adjustment Clause Order Approving Settlement of a Fuel and Purchased Power Adjustment Clause rate and Short-Term Avoided Cost rates for June 1, 1998 through November 30, 1998 O R D E R N O. 23,023 September 22, 1998
APPEARANCES: Gerald M. Eaton, Esq. for Public Service Company of New Hampshire; Dean, Rice and Kane, by Mark W. Dean, Esq. for the New Hampshire Electric Cooperative; Gary R. Gilmore, for the Campaign for Ratepayers' Rights; Philip L. Munck for Waste Management of New Hampshire; Kenneth E. Traum, Finance Director, of the Office of Consumer Advocate for residential ratepayers; and Eugene F. Sullivan, III, Esq. for the Staff of the New Hampshire Public Utilities Commission. I. PROCEDURAL HISTORY On February 13, 1998, Public Service Company of New Hampshire (PSNH or the Company) filed with the New Hampshire Public Utilities Commission (NHPUC or Commission) a request to open a proceeding for PSNH's Fuel and Purchased Power Adjustment Clause (FPPAC) rate for the period June 1, 1998 through November 30, 1998. On February 19, 1998, the Commission issued an Order of Notice scheduling a Prehearing Conference for March 6, 1998, setting deadlines for intervention requests and objections thereto, outlining a proposed procedural schedule, and requiring the Parties and Commission Staff (Staff) to summarize their positions on the filing for the record. On February 26, 1998, Waste Management of New Hampshire (WMNH) filed with the Commission a written request for intervention which was granted. On March 23, 1998 the New Hampshire Electric Cooperative (NHEC) filed a motion for late intervention. On March 27, 1998, the Campaign for Ratepayers' Rights (CRR) also filed for late intervention. The Commission granted late intervention to both the NHEC and the Campaign for Ratepayers' Rights. The Office of Consumer Advocate (OCA) is a statutorily recognized intervenor. On March 13, 1998, PSNH filed its calculation of and supporting testimony for an FPPAC rate for effect for the period June 1, 1998 through November 30, 1998. PSNH proposed an FPPAC rate of $0.00725 per kilowatt hour (kWh), which represented an increase of $0.00459 per kWh from the current FPPAC rate of $0.00266 per kWh, resulting in an overall annual average increase in rates of 3.7%. On April 29, 1998, PSNH filed a stipulation and settlement (Settlement) among PSNH, Staff and the OCA which resolved all issues in the filing and recommended an FPPAC rate of $.00383 per kWh. On May 13, 1998, WMNH, which had previously indicated its objections to the Settlement, concurred with the balance of the Settlement and did not appear at the subsequent hearings. On May 21, 1998, CRR, the OCA, the NHEC and PSNH filed briefs concerning the appropriate treatment of PSNH's proposed tariff revisions to address the effect of a proposed change in the "BA" factor of FPPAC on special contracts. On May 18, 1998, CRR filed a statement of issues. On May 26, 1998, CRR filed a letter with the Commission questioning why the opportunity for briefs had been eliminated. The Commission notified CRR by letter of May 28, 1998 that it had duly determined that briefs were not necessary. At a duly noticed public meeting on May 26, 1998 the Commission orally deliberated the issues in dispute in this proceeding and unanimously accepted the Settlement among PSNH, the OCA and Commission Staff. On May 29, 1998, the Commission issued Order No. 22,946 implementing an FPPAC rate of $0.00383 as reflected in the Settlement and indicating that a more comprehensive order would follow. On June 29, 1998, CRR filed a motion for rehearing of Order No. 22,946 pursuant to RSA 541:3. II. POSITIONS OF THE PARTIES AND STAFF A. PSNH Initial Proposal In the calculation of the FPPAC rate initially proposed on March 13, 1998, PSNH included the first allocable amortization of the Seabrook Deferred Return. The Seabrook Deferred Return was established pursuant to the terms of the Seabrook Power Contract. (Rate Agreement, Attachment A.) Under the Seabrook Power Contract, North Atlantic Energy Company, Inc. along with its affiliate North Atlantic Energy Service Company, Inc. (collectively referred to as North Atlantic) was required to defer for future recovery a portion of its return on its investment in the Seabrook Nuclear Power Plant during the seven year Fixed Rate Period. As of June 1, 1998 the deferral totaled approximately $300 million. The Seabrook Power Contract specifies that this deferral is to be recovered from PSNH over a period of three years beginning six months after the end of the Fixed Rate Period. See generally, Rate Agreement, Appendix A, at D-76 - D-78. In order to comply with Financial Accounting Standards Board Ruling No. 71 (FASB 71), the period of recovery is limited to three years under the Seabrook Power Contract. The Seabrook Deferred Return is a regulatory asset created during the Fixed Rate Period and regulatory assets must be recovered over a period not to exceed ten years. In turn, the FPPAC formula provides for recovery of these deferred amounts through the FPPAC rate. Rate Agreement, Attachment C, at D-92 and D-95 - D-99. Applying a three year amortization schedule to the deferral, North Atlantic billed PSNH, and PSNH sought recovery of, approximately $50 million of the Seabrook Deferred Return through the proposed FPPAC rate. The inclusion of this $50 million in rates without some form of mitigation would have resulted in a significant rate increase. Therefore, PSNH proposed to offset this increase through a modification in rates to reflect the recovery of a portion of the Acquisition Premium. Under the Rate Agreement, Northeast Utilities paid an Acquisition Premium for PSNH's assets. The first $425 million of this Acquisition Premium was amortized, or recovered from ratepayers, through base rates over seven years. Rate Agreement, at D-5, D-6 and D-14. Thus, as of June 1, 1998, $425 million of the Acquisition Premium was fully recovered from ratepayers through base rates. In order to partially offset the increase in the FPPAC rate resulting from the recovery of the Seabrook Deferral, and to prevent an unintentional over-recovery, PSNH proposed to simultaneously reduce rates by removing the annual $95 million amortization of the first $425 million of the Acquisition Premium from customers' rates. Because the Acquisition Premium is collected through base rates and not through FPPAC, PSNH proposed to increase the "BA" factor of FPPAC by $43 million, which would lower the FPPAC rate by $43 million, to ensure ratepayers received the benefit of the base rate reduction coincident with the $50 million increase in FPPAC. In response to CRR's motion for rehearing of prudence determinations, PSNH clarified the prudence decisions that had been included in the Settlement and argued that CRR had misinterpreted the record. PSNH responded to CRR's procedural objections with reference to the Commission's procedural rules and pointed to the Commission procedural rules to support the Commission's action in this proceeding. B. Settlement The Settlement incorporates the methodology used by PSNH to develop its initial FPPAC rate proposal, i.e., the Settlement includes the recovery of the Seabrook Deferred Return and a reduction of the rate to reflect the end of the amortization of the first $425 million of the Acquisition Premium, and the deferral of certain current costs that had not been collected in the previous FPPAC period or were projected to be incurred in the this FPPAC period for future recovery. The major provisions of the Settlement, which modify PSNH's initial proposal, are as follows: 1) PSNH will not seek recovery of a portion of the replacement power cost associated with various unit outages and power reductions resulting in a reduction to PSNH's actual energy cost for the period ending May 31, 1998 of $4,180,000. 2) PSNH will reduce its actual energy cost for the prior period by an amount representing the estimated transmission revenue PSNH would have received from the Initial System under the capacity transfer during the period November 1, 1997 through May 31, 1998, under a fully rolled-in transmission rate. That amount is deemed to be $15.00 per kilowatt-year ($1.25 per kilowatt-month), and will apply to all units supplying capacity for the transfer. 3) PSNH will reduce its forecasted energy cost by an amount equal to the estimated transmission revenue PSNH would have received from the Initial System under the capacity transfer during June 1, 1998 through November 30, 1998, under the $15.00 per kilowatt-year transmission rate. 4) PSNH will utilize an assumed in-service date of June 1, 1998 for Millstone III, with the unit reaching 100% power by July 1, 1998, for the purposes of forecasting energy costs for the period June 1, 1998 through November 30, 1998, for the purposes of computing capacity transfer revenues and Joint Dispatch Savings (JDS). 5) PSNH will assume that Millstone II is not in-service for the purposes of forecasting energy costs for the period June 1, 1998 through November 30, 1998, for the purposes of computing capacity transfer revenues and JDS. 6) PSNH will increase its load sales forecast for the period June 1, 1998 through November 30, 1998 by 3% for the purposes of forecasting energy costs for that period. C. Office of Consumer Advocate Although the OCA did not provide testimony, they were a signatory and supporter of the Settlement. D. Commission Staff Staff supported the Settlement through direct testimony. Staff testified that it believed the Settlement, viewed in its totality, achieved a just and reasonable result. E. The New Hampshire Electric Cooperative NHEC raised concerns regarding the deferral of approximately $60 million of current costs which would amount to a 15% to 16% rate increase if implemented on December 1, 1998. F. Campaign for Ratepayers Rights At the hearing on the merits, CRR maintained that the proposed Settlement would result in a windfall for PSNH and its shareholder, Northeast Utilities, because North Atlantic is not entitled to recover any of the replacement power costs or any of the operation and maintenance expenses related to the Seabrook outage to repair the control room air conditioning system, and the Seabrook outage related to the leaking pipe. CRR testified that these two outages resulted in expenses of approximately $11 million for replacement power and $3 to $5 million in operation and maintenance expenses that should be disallowed because they were the result of North Atlantic's imprudent operation of the plant. CRR supported its position with the testimony of Robert R. Cushing who cited Seabrook's internal reports and reports from the Nuclear Regulatory Commission (NRC). Mr. Cushing testified that Seabrook had repeated problems with the air conditioning system and had replaced or repaired the compressor in this system in 1993, 1994 and 1996. Thus, Mr. Cushing maintained that Seabrook was aware of the problem with the air conditioning system and was negligent for failing to adequately address the problem in its previous attempts. CRR also objected to the Commission's consideration of the Settlement to the extent it addressed the prudence of these outages because PSNH had agreed to defer recovery of these expenses while it continued its broader negotiations with the State. In its motion for rehearing CRR reiterated its arguments with regard to the Seabrook outages. CRR also raised a number of new objections. CRR argued that the Commission violated the procedural schedule set forth in Order No. 22,871 (March 16, 1998), wherein post hearing briefs on the issues in contention were scheduled. CRR objected to the Commission's oral deliberations on the Settlement on May 26, 1998 which deprived it of the opportunity to present its objections to the Settlement. CRR also argued that its analysis of the testimony revealed that the prudence of "as much as $35 million of prior period costs" had been determined in the Settlement. They argued that this contradicted PSNH's testimony at the hearing and that the prudence of only $12 million in costs were determined under the Settlement. CRR also alleged that JDS had been understated in the Settlement. III. COMMISSION ANALYSIS The first issue we address is whether the Settlement should be considered in light of the fact that it defers the collection of certain current costs found to be reasonable. Neither CRR nor the NHEC have persuaded us that there is any substantive or procedural basis for deferring a ruling on these issues. Additionally, neither party represented or demonstrated that they would in any way be prejudiced by a ruling on these issues at this time. Consequently, we believe we can and should rule on these issues at this time and accept the proposed deferral. The next issue for our consideration is the reasonableness of the Settlement. We will address that issue in light of the contentions raised by CRR during the hearing and in its motion for rehearing. Initially, however, we find PSNH's proposed modification to the "BA" portion of the FPPAC formula is just and reasonable. It recognizes the completion of the amortization of the first $425 million of the Acquisition Premium and thereby creates an offsetting rate reduction which moderates the rate increase. CRR objects to the Settlement's $4.18 million dollar disallowance for replacement power costs as insufficient compared to the replacement power costs incurred because of the two Seabrook outages. In its motion for rehearing, CRR also objects that the $4.18 million resolved all issues related the 10% derate at Maine Yankee and replacement power costs for the extended outage at Millstone III. CRR is incorrect in its claim regarding the replacement power costs. The replacement power costs forgone by PSNH under the Settlement are much greater than the $4.18 million specifically disallowed. As CRR notes, the Settlement resolves the issue of imprudence at Millstone III, but the Settlement does not include any costs for replacement power at Millstone III. To the contrary, under the Settlement PSNH has agreed not to seek recovery of any of the replacement power costs incurred as a result of the Millstone III outage. Moreover, CRR miscomprehends the $35 million of prior period costs referred to in its motion for rehearing. As PSNH pointed out in its response to the motion for rehearing, $18 million of this sum are the dollars deferred for light loading, Order No. 22,847 (February 10, 1998), and $12 million relate to the Millstone III outage and the costs that PSNH agreed will not be collected as a result of this Settlement. Finally, with regard to the alleged error in the computation of JDS, viewed from the perspective of the FPPAC process we find this contention meritless. The amount of expected JDS is based on projected sales of energy between PSNH and the Initial System during the next six month FPPAC period. Thus, the projected return to service dates for Millstone III and Millstone II affect the ultimate amount of JDS projected to be received by PSNH over the next six months. Given the nature of the outage, however, there was, and is, no way to determine with certainty the actual dates for return to service of these units. Moreover, these estimates will be reconciled when the actual data is reviewed in the next FPPAC period. Thus, the fact that the Settlement sets certain dates for the return to service of these units and roughly calculates JDS is irrelevant at the level of detail complained of by CRR. We believe that rate resulting from the Settlement is just and reasonable and serves the public interest. N.H. Admin. R., Puc 203.09. Moreover, in reviewing such a settlement we are mindful of the value of administrative efficiency and the reduced risk to both ratepayers and the utility reached through the settlement process. RSA 541-A:31,V. Based on this analysis, we find the Settlement achieves a reasonable result. We also find no merit to CRR's objection that the alleged modification to the procedural schedule which eliminated post hearing briefs resulted in a denial of procedural due process. "The fundamental requisite of due process is the right to be heard at a meaningful time and in a meaningful manner." See e.g., Bragg v. Director, New Hampshire Division. Of Motor Vehicles, 141 N.H. 677, 679 (1997), quoting Appeal of Portsmouth Trust Co., 120 N.H. 753, 756 (1980). CRR was provided with adequate opportunity to present its arguments and positions during the hearing. The opportunity for a party to submit briefs is discretionary on the part of the administrative agency. The record also reveals that at the conclusion of the last day of hearings in this matter, in response to a request from counsel for the NHEC concerning "post hearing procedure", the Commission requested briefs on limited issues: the special contracts and PSNH's proposed tariff modifications in light of the increase in "BA" to effectuate a rate reduction to customers by May 21, 1998. At no time did CRR request the opportunity to file a brief on the issues covered by the Settlement or any other matter while the issue of post hearing briefs was being discussed. With regard to the tariff revisions proposed by PSNH to address special contracts and the increase in "BA", docket DR 98-139 has been established to investigate the issue. Based upon the foregoing, it is hereby ORDERED, that the Settlement is APPROVED as just and reasonable. By order of the Public Utilities Commission of New Hampshire this twenty-second day of September, 1998. Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary