DE 99-017
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, INC.
Petition for Approval of Extension, Modification and/or Amendment
and Substitution of Series D and E Pollution Control Revenue Bond
Letters of Credit and Reimbursement Agreements and Related
Security Arrangements
Order Approving Financing Arrangements
O R D E R N O. 23,162
March 9, 1999
APPEARANCES: Catherine E. Shively, Esq. for Public
Service Company of New Hampshire; Ann Ross, Esq. for Retail
Merchants Association; Michael W. Holmes, Esq. for the Office of
the Consumer Advocate; and Eugene F. Sullivan, III, Esq. for the
Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On January 29, 1999, Public Service Company of New
Hampshire (PSNH) filed a Petition with the New Hampshire Public
Utilities Commission (Commission) requesting approval under RSA
369 to extend and amend or replace $39,500,000 Series D and
$69,700,000 Series E Letters of Credit, and Series D and E
Reimbursement Agreements to (i) extend the maturity date of the
Series D and E Letters of Credit, (ii) extend existing accounts
receivable security, if necessary, (iii) amend the existing
interest rates, fees, and expenses to reflect current market
conditions, (iv) amend certain business covenants, and (v)
substitute agent and participating banks as necessary. In
addition, PSNH requested, pursuant to N.H. Admin. Rule PART Puc
201.05, that the Commission waive the 14 day notice provision of
N.H. Admin. Rule Puc 203.01(a) and (b), and also requested that
the Commission partially waive the requirement of 308.11(b)(6)
which requires three years of forecast data in the Company's
filed statement of source and application of funds and
capitalization after giving effect to the proposed financing.
On February 2, 1999, the Commission issued an Order of
Notice scheduling a prehearing conference to entertain petitions
to intervene, to set a procedural schedule and to hear the
initial positions of the parties. The duly noticed prehearing
conference was held on February 10, 1999, at which PSNH, the
Office of the Consumer Advocate and Commission Staff appeared,
presented their initial positions and agreed upon a procedural
schedule.
On February 19, 1999 the Commission issued Order No.
23,149 providing its approval for the procedural schedule agreed
to by the Staff and parties. That procedural schedule provided
for a hearing on the merits on March 4, 1999. At the hearing,
the late intervention request of Retail Merchants Association
(RMA) was taken up. Over the objection of PSNH, the Commission
ruled from the bench that RMA's limited intervenor status request
was approved since RMA merely wished to make a closing statement
and would not cross-examine witnesses.
II. POSITIONS OF THE PARTIES AND STAFF
A. PSNH
PSNH, through its witness Randy A. Shoop, Assistant
Treasurer-Finance, asked the Commission to approve its requests
as being in the public interest and the best solution that could
be negotiated. Mr. Shoop indicated that the lending community
continued to have concerns with respect to the uncertainties of
the regulatory environment, particularly relating to industry
restructuring. He stated that except for a modification to the
covenant dealing with restricted payments (dividends and
non-utility generator payments), and the higher fees from the
existing facility as indicated on Exhibit 4, the terms and
conditions of the instant financing are virtually the same as the
Letters of Credit (LOCs) authorized by the Commission last year
in docket DF 98-016, Order No. 22,876. The change in restricted
payments would allow PSNH to pay out up to $40 million in either
NUG payments or dividends to its parent Northeast Utilities (NU),
with no sub-limit on dividends as in last year's financing. PSNH
requested as well that the Commission provide its approval for
extension of this financing for an additional 364 day period, so
as to obviate the need for petitioning the Commission again one
year from now. The Company asked that the Commission not
restrict it from paying any dividends to NU, as it had in
approving the extension of the LOCs in DF 98-016. Mr. Shoop
pointed out that, under the terms of this financing, PSNH was
restricted by the banks from investing in the NU Money Pool for
the 364 day term of this financing.
B. Office of the Consumer Advocate
The OCA did not present direct testimony in this
proceeding, but cross-examined Company and Staff witnesses. In a
closing statement Mr. Holmes asserted that PSNH should continue
to be restricted from paying dividends at least until the rate
proceeding in DR 97-059 is resolved and the amount of a potential
overrecovery is known.
C. Retail Merchants Association
Ms. Ross, in a closing statement, also urged the
Commission to restrict the Company from paying dividends.
D. Staff
Staff, through its witness Mark A. Naylor, Finance
Director, supported the Company's petition for extension of the
LOCs generally and the terms and conditions therein. Staff also
took the position that PSNH should not be further restricted from
paying a dividend to NU, up to the $40 million as allowed by the
lenders, and pointed to the increasing proportion of more-costly
equity capital in the Company's capital structure. Mr. Naylor
also provided a review of the Company's financial status and cash
flow situation, and averred that PSNH would have adequate cash on
hand in the coming year to meet any contingencies. He further
pointed out that the Company, though continuing to be restricted
by its lenders from investing in the NU Money Pool, was not
restricted from borrowing from the Pool should any cash
shortfalls arise. The Staff expressed no concerns about the
Company's decision not to extend its Revolving Credit Agreement,
and indicated its agreement with PSNH's expressed intention to
apply with its sister companies later this year to lenders for an
NU system Revolving Credit Agreement in which PSNH would have its
own sub-limit of borrowing capacity. Mr. Naylor pointed out that
the covenants contained in the LOC agreements contained the same
language with respect to industry restructuring that concerned
him in last year's proceeding. Finally, Staff did not support
the Company's request for an automatic extension of this
financing approval for an additional 364 days out into 2001,
preferring instead that the Company file a petition again next
year so that any changes in the LOC agreements or in
circumstances with respect to PSNH itself can be evaluated at
that time.
III. COMMISSION ANALYSIS
PSNH has requested permission to enter into agreements
for the issuance of LOCs of 364 days in duration to secure
payments on its long term, variable rate Series D and E PCRBs.
The LOCs are, therefore, an integral component of the long term
notes and we will review the request pursuant to the provisions
of RSA 369:1. Cf., RSA 369:7.
Under the provisions of RSA 369:1, no utility engaged
in business in this State may enter into any agreement evidencing
indebtedness unless the Commission finds the terms and conditions
of the indebtedness "consistent with the public good." The
provisions of RSA 369:1 further specify that the Commission may
attach "such reasonable terms and conditions [to its approval] as
the commission may find to be necessary in the public interest."
RSA 369:1.
Moreover, in Appeal of Easton, 125 N.H. 205 (1984) the
New Hampshire Supreme Court held that 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.
Based on our review of the record, we find the
Company's proposal regarding the extension and/or replacement of
its current LOCs as described above to be in the public interest.
We recognize PSNH's imminent need to renegotiate the LOCs as they
will expire on April 22, 1999. We will rely upon Mr. Shoop's
testimony that the terms of the LOCs are the best resolution the
Company was able to negotiate to meet PSNH's immediate financial
needs.
As noted by Mr. Naylor, the LOCs under review herein
contain the same covenant language that the Commission found
troublesome last year. More specifically, certain covenants
purport to limit or restrict the Commission's latitude and
discretion with regard to restructuring of the electric industry.
Thus, as recommended by Mr. Naylor, we will qualify our approval
of the LOCs by noting that such approval should not be construed
"in any way [to] concede that this approval restricts or limits
our authority to implement RSA 374-F or any other statutory
responsibility." Re Public Service Company of New Hampshire,
Inc., Order No. 22,876 (March 20, 1998). We note that Mr. Shoop
testified that lenders do waive restrictions in the ordinary
course of dealings.
With regard to the Company's request that we eliminate
the dividend prohibition ordered in DF 98-016, we do not believe
it is in the public interest for the Company to make a payment of
dividends at this time. Mr. Shoop's oral and prefiled testimony
(Exhibit 2, page 5) make clear that the banks are "concerned
about the significant uncertainty involving New Hampshire
restructuring, Fuel and Purchased Power Adjustment Clause
("FPPAC"), and rate case proceedings". We share those concerns.
PSNH has been estimating an underrecovery in FPPAC which
approximates $80 million. Moreover, PSNH has been operating
under the temporary rate provisions of RSA 378:27 since July 1,
1997. Because temporary rates must be reconciled upon the
establishment of permanent rates, the Company is exposed to the
potential of a substantial liability to ratepayers should the
Commission ultimately set just and reasonable permanent rates at
or below the current temporary levels. We believe ratepayers
should have the security that PSNH has the means and ability to
effectuate such a refund should it be necessary.
The Company did not renew its short term Revolving
Credit Agreement, relying instead on cash on hand and access to
the so-called NU Money Pool to meet any short term capital
requirements. While we concur with both of those decisions, we
do not believe contributions to the NU Money Pool are appropriate
at this time. We believe PSNH should retain its current
liquidity to meet its operating needs and any potential capital
projects that might arise, both on a short term and long term
basis.
We also note that the financial constraints placed on
PSNH's parent and affiliates because of the Millstone outages
have not yet fully abated. While the financial drain has abated
to some degree with the return to service of Millstone III, that
outage has resulted in significant disallowances for PSNH's
affiliates. Furthermore, Millstone II has not returned to service
and Millstone I has been retired from service prior to the end of
its operating license and expected life. Given the poor
financial health of PSNH affiliates as a result of these outages,
we do not believe it would be prudent for PSNH to declare
dividends or to make any contributions or investments in the NU
Money Pool, at least at this time.
PSNH has also requested that we allow it to renew the
LOCs in 364 days without the need for further approval from the
Commission. We will not grant this request. Given the pendency
of the permanent rate proceeding, the continuing financial
challenges occasioned by the Millstone outages and other aspects
of the Company's situation that are in flux, circumstances are
likely to change requiring our analysis of the terms and
conditions of the LOCs in that environment. To the extent that
the Company has the means and determination to make a dividend
payment to its parent or an investment in the NU Money Pool, we
direct the Company to first obtain approval from this Commission.
We would be willing to consider such requests either in the rate
case proceeding, docket DR 97-059, or another appropriate
proceeding.
Based upon the foregoing, it is hereby
ORDERED, that PSNH's petition for approval for
Extension, Modification and/or Amendment and Substitution of
Series D and E Pollution Control Revenue Bond Letters of Credit
and Reimbursement Agreements and Related Security Arrangements is
hereby APPROVED, subject to the modifications as discussed
herein; and it is
FURTHER ORDERED, that PSNH gain Commission approval
prior to making any dividend payments or any investment in the NU
Money Pool; and it is
FURTHER ORDERED, that the Company's requests for waiver
of NH Admin. Rule PART Puc 203.01(a) and (b) and partial waiver
of Puc 308.11(b)(6) are hereby GRANTED; and it is
By order of the Public Utilities Commission of New
Hampshire this ninth day of March, 1999.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary