DE 99-017
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.
               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
               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.
                    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.
               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
               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
               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
               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