DR 97-241
          Fuel and Purchased Power Adjustment Clauses
 Order Reinstating Rates and Directing Calculation of Refunds 
                    O R D E R   N O.  23,168
                         March 22, 1999
       APPEARANCES: Kenneth Picton, Esq. for Connecticut
     Valley Electric Company; Ransmeier and Spellman by Dom S.
     D'Ambruoso, Esq. and John T. Alexander, Esq. on behalf of
     Connecticut Valley Electric Company; McLane, Graf, Raulerson and
     Middleton by Steven V. Camerino, Esq. on behalf of the City of
     Claremont; Michael Holmes, Esq. and Kenneth Traum for the Office
     of Consumer Advocate for residential ratepayers; and, Robert
     Frank, Esq. for the Staff of the New Hampshire Public Utilities
       This case began with two filings in November 1997:  one
     by the City of Claremont, New Hampshire (Claremont) and the other
     by Connecticut Valley Electric Company (CVEC).  Claremont's
     filing consisted of a petition asking the Commission to find CVEC
     imprudent for failing to terminate its wholesale requirements
     contract with Central Vermont Public Service Corporation (CVPS). 
     CVEC's filing proposed rate increases in its Fuel Adjustment and
     Purchased Power Adjustment Clauses (FAC and PPCA) of 1.3% and
     11.0%, respectively, effective for calendar year 1998.  The
     Commission consolidated Claremont's petition (DC 97-244) with
     CVEC's filing (DR 97-241) and held a consolidated hearing
     addressing both matters in December, 1997.  
       In Order No. 22,815 (December 31, 1997), the Commission
     found CVEC imprudent for remaining in the CVPS contract when
     lower cost supply alternatives existed in the wholesale power
     market.  In particular, the Commission found that CVEC had failed
     to terminate the wholesale power contract between CVEC and CVPS
     solely in order to benefit CVPS's shareholders, and that
     "ratepayers of CVEC received little or no consideration in the
     decision-making process of CVPS."  Order No. 22,815 at 10.  On
     this basis, the Commission rejected the proposed rate increases. 
     The Commission also announced additional hearings to determine
     what CVEC's costs for wholesale power would have been had CVEC
     been prudent and its costs reflected just and reasonable levels. 
     Order No. 22,815 at 10-11.  Pending the outcome of those
     hearings, the Commission directed CVEC to continue billing its
     then-current 1997 rates.  
       In response to Order No. 22,815, on January 12, 1998,
     CVEC filed a timely motion for rehearing raising essentially four
     issues.  First, CVEC alleged the order was an unlawful attempt to
     advance what it characterized as the State's restructuring
     "agenda".  Second, it argued that the Commission was preempted by
     the Federal Power Act from finding CVEC imprudent and disallowing
     any portion of the costs incurred under the CVPS contract. 
     Third, CVEC alleged that the Commission improperly found CVEC
     imprudent without making findings of fact and rulings of law. 
     Finally, CVEC stated that it was provided insufficient notice
     prior to the hearings.
       In Order No. 22,838 (January 20, 1998), the Commission
     partially granted CVEC's motion for rehearing.  The Commission
     stated that it would afford CVEC another opportunity to present
     evidence and testimony on the prudence issue as well as on the
     potential financial consequences of disallowing the recovery of
     RS-2 costs.  Order No. 22,838 at 2-3.  However, the Commission
     specifically rejected CVEC's contention that Order No. 22,815 
     abandoned traditional ratemaking principles by advancing the
     restructuring policies of RSA 374-F.  Id. 2-4.      
       During January and February 1998, the Commission held
     evidentiary hearings to address CVEC's rehearing request and the
     other matters noticed in Order No. 22,815.
       On February 23, 1998, the Commission publicly
     deliberated all outstanding matters relative to CVEC's original
     filing and Claremont's petition.  The Commission affirmed its
     finding that CVEC was imprudent for failing to terminate the CVPS
     contract.  The Commission also decided that $0.04 kWh was a
     "conservative estimate" of the rate at which CVEC could have
     procured its power requirements from other wholesale suppliers
     for 1998.  A final written order was not issued.  Thus, pursuant
     to RSA 363:17-b, a final determination in this case has not been
       On April 9, 1998, at the request of CVEC and CVPS, the
     United States District Court for the District of New Hampshire
     issued a preliminary injunction enjoining the Commission from
     enforcing Order No. 22,815.  The preliminary injunction directed
     the Commission to allow CVEC to recover through its retail rates
     all wholesale power costs associated with the CVEC-CVPS
     requirements contract.  In compliance with the District Court's
     order, the Commission approved revised tariff sheets increasing
     CVEC's rates by $0.0235 per kWh and forcing the average
     residential customer of CVEC to pay 22% higher rates.  Order No.
     22,912 (April 29, 1998).  The Commission directed CVEC to
     maintain records of the difference between the amounts that CVEC
     would have collected under its 1997 rates and any amounts that it
     collects as a result of the District Court's order.  Id. at 2-3. 
     Finally, the Commission placed CVEC on notice that "it will be
     liable for refunds, plus interest, in the event that the District
     Court's Order is overturned."  Id. at 3. 
       On December 3, 1998, the United States Court of Appeals
     for the First Circuit vacated the preliminary injunction.  Public
     Service Company of New Hampshire, et al. v. Patch et al., 1998 WL
     950685 (1st Cir.).  The First Circuit rejected CVEC's preemption
     argument and affirmed the Commission's authority to evaluate the
     prudence of CVEC's decision to purchase power from CVPS rather
     than from alternative sources.  Id. at 6.  After issuing this
     decision, the First Circuit denied CVEC/CVPS's requests for
     rehearing and a stay pending an appeal to the United States
     Supreme Court.  Thereafter, the United States Supreme Court
     denied another request for a stay, and on March 4, 1999, the
     First Circuit issued an informal mandate pursuant to F.R.A.P.
     41(a) relative to its December 1998 decision.  
     II.  DISCUSSION    
       At the outset, we note that CVEC secured the 
     preliminary injunction before the Commission issued a final order
     addressing CVEC's rehearing request.  Although CVEC's primary
     argument on rehearing has been resolved by the First Circuit, we
     intend to address the other matters raised in the Motion for
     Rehearing in a separate order which we expect to issue in the
     near future.  The ensuing discussion is intended to achieve two
     objectives: first, to clarify the status of this proceeding; and
     second, to inform CVEC of its obligations in light of the First
     Circuit's decision vacating the preliminary injunction.    
       On several previous occasions, we have explained that
     our actions in this case are unrelated to the electric
     restructuring docket and the implementation of RSA 374-F.  See
     e.g., Order No. 22,838 at 3.  Notwithstanding the foregoing, CVEC
     has continued to allege that we are somehow using this proceeding
     as a vehicle to implement the State's restructuring policies.  We
     will once again endeavor to be very clear about this matter: The
     objective of this proceeding is not to promote the restructuring
     policies of RSA 374-F or to force CVEC to charge "market-based"
     retail rates.  Rather, our objective was and is to set CVEC's
     rates at just and reasonable levels consistent with our
     long-standing statutory obligation under RSA 378:7.  Thus, as
     long as CVEC retains its obligation to serve, the Company
     continues to bear the obligation to exercise prudence in
     obtaining supply and the Commission must insure that resulting
     rates are just and reasonable.  To do that, we have had to
     determine whether CVEC acted prudently in electing to remain in
     the CVPS contract when other lower cost alternatives existed. 
     See Appeal of Sinclair Machine Products, Inc., 126 N.H. 822, 834
     (1985) ("The wholesale rate must be justified by the utility as
     the product of reasonable efforts to secure the lowest cost in
     light of appropriate alternatives available to the company."). 
     We found that the RS-2 rate did not meet this test, and in fact,
     that CVEC had remained in the contract solely to benefit CVPS's
     shareholders.  This is precisely the concern that CVEC was
     advised of in 1986 after the Court issued the Sinclair decision,
     Order No. 18,148, 71 NHPUC 145 (1986). 
            As a result of the preliminary injunction, CVEC's
     ratepayers have been forced to shoulder the significant financial
     burden of paying imprudently-incurred costs.  When CVEC obtained
     the preliminary injunction, we expressly placed CVEC on notice
     that "it will be liable for refunds, plus interest, in the event
     that the District Court's Order is overturned."   Order 22,912 at
       We note that CVEC and CVPS have jointly filed a
     petition with the United States Supreme Court seeking a writ of
     certiorari; that petition is pending.  The Supreme Court,
     however, has denied their request to stay the mandate of the
     First Circuit. 
       Accordingly, we direct CVEC to file within (5) business
     days its calculation of the difference between the total FAC and
     PPCA revenues collected during 1998 and those FAC and PPCA
     revenues that it would have collected had the 1997 FAC and PPCA
     rate levels been in effect for the entire year.  We direct CVEC
     to calculate a rate rider to be applied to all billings for the
     period April 1, 1999 through December 31, 1999 to refund the
     over-collection in 1998 relative to the 1997 rate level, and to
     file a tariff reflecting the terms of this rate rider.  We will
     address in our decision on CVEC's rehearing requests whether any
     further refunds may result from reconciling the 1998 rates to the
     level obtainable from prudent purchasing practices, consistent
     with the deliberations at the Commission's February 23, 1998
     public meeting.  Workpapers supporting CVEC's calculation of the
     refund should be filed concurrent with the rate rider tariff
       Based upon the foregoing, it is hereby
       ORDERED, that Connecticut Valley Electric Company shall
     comply with the directives set forth herein.   
       By order of the Public Utilities Commission of New
     Hampshire this twenty-second day of March, 1999.
           Douglas L. Patch       Susan S. Geiger     Nancy Brockway
               Chairman           Commissioner          Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary