DF 98-016
                                     
                  Public Service Company of New Hampshire
                                     
          Petition for Approval of Extension, Modification and/or
       Amendment of Various Financial Instruments, and for Issuance
        of First Mortgage Bonds and for the Granting of Additional
                                 Security
                                     
                         Order Approving Financing
                                     
                          O R D E R  N O.  22,876
                                     
                              March 20, 1998
     
         APPEARANCES: Catherine E. Shively, Esq. for Public
     Service of New Hampshire; James Monahan for Cabletron Systems,
     Inc.; Dean, Rice and Howard by Mark Dean, Esq. for the New
     Hampshire Electric Cooperative, Inc.; Michael W. Holmes, Esq. for
     the Office of Consumer Advocate; and Eugene F. Sullivan III, Esq.
     for the Staff of the New Hampshire Public Utilities Commission.
     
     I.   PROCEDURAL HISTORY
               On February 20, 1998, Public Service of New Hampshire
     ("PSNH" or the "Company") filed a Petition with the New Hampshire
     Public Utilities Commission ("Commission") for approval under RSA
     369, inter alia, (1) to amend the Series D and Series E Letters
     of Credit ("LOC"), which currently support the Company's Series D
     and Series E Pollution Control Revenue Bonds("PCRBs"), and Series
     D and E Reimbursement Agreements to (i) extend the terms of the
     Series D and E Letters of Credit for 364 days, (ii) provide for
     accounts receivable security, (iii) amend the existing interest
     rates, fees and expenses to reflect both current market
     conditions and financial community concerns regarding PSNH, and
     (iv) amend certain business covenants; (2) to modify (through
     amendment or new agreement) the short term $125,000,000 Revolving
     Credit Agreement ("RCA") to (i) provide for first mortgage bond
     security, and (ii) provide for accounts receivable security; and
     (3) to issue up to $125 million of its first mortgage bonds in
     one or more series under its First Mortgage Bond Indenture, to
     evidence and secure its obligation under the Revolving Credit
     Facility.  The Company contemporaneously filed a Motion for
     Waiver of Notice and the prefiled testimony of David R. McHale,
     Assistant Treasurer of Finance for Northeast Utilities.  
               On February 23, 1998 an Order of Notice was issued
     granting expedited treatment to the petition, waiving, in part,
     the fourteen-day notification requirement of N.H. Admin. Rules
     Puc 203.01, and scheduling a Prehearing Conference for March 5,
     1998.  On March 2, 1998, Cabletron Systems, Inc. ("Cabletron")
     filed a Motion to Intervene.  The Office of Consumer Advocate
     ("OCA") is a statutorily authorized intervenor.  On March 4,
     1998, the Company filed the supplemental testimony of David R.
     McHale and additional exhibits. 
               At the Prehearing Conference PSNH, the OCA, and the New
     Hampshire Public Utilities Commission Staff ("Staff") stated
     their preliminary positions and agreed upon a procedural
     schedule.  The Commission issued Order No. 22,872 on March 16,
     1998 approving the procedural schedule and granting Cabletron
     intervenor status.
               On March 9, 1998, PSNH filed a Motion for Protective
     Order with respect to certain confidential financial information
     requested by the Staff.  PSNH also filed additional attachments
     and exhibits to the petition and to the original testimony of
     David R. McHale.
               On March 13, 1998, testimony was filed by Kenneth E.
     Traum, Finance Director, and William Homeyer, Economist, of the
     OCA and Mark A. Naylor, Staff's Acting Finance Director. 
               The Commission held hearings on March 17 and 18, 1998,
     to investigate the merits of the Company's proposed financing. 
     At the March 17, 1998 hearing, the New Hampshire Electric
     Cooperative, Inc. ("NHEC") made a verbal motion to intervene
     based upon NHEC's contractual relationship with PSNH.  The motion
     was granted with the condition that the NHEC would waive the
     right to appeal issues that could have been raised at the
     prehearing conference.
     II.  POSITIONS OF THE PARTIES AND STAFF
          A.   PSNH   
               The Company believes its proposal is in the public
     good, and is the best possible solution to its financing needs. 
     The Company notes that the majority of covenants in the LOC and
     RCA agreements are basically the same as those that have been in
     place since 1991.  The Company asserts that the banks will view
     negatively any changes to the terms and conditions of the
     negotiated financing and that this will result in failure of the
     proposed transaction.  Given the short time period in which this
     financing must be consummated, PSNH contends that it will not
     have the opportunity to pursue any other financing options.  It
     believes that not having the proposed financing approved as
     presented could place the Company in either voluntary or
     involuntary bankruptcy.  The Company takes the position that
     approving the financing in this docket, as presented, will not
     impair the Commission's ability to proceed as the Commission
     deems necessary in other dockets.
          B.   Cabletron
               Cabletron cross-examined the Company's witness, but did
     not offer a position on the financing.
          C.   OCA
               The OCA takes the position that if the Commission
     approves the filing, such approval should be conditioned upon the
     following: covenants which affect restructuring issues should be
     modified; and PSNH should be required to receive Commission
     approval prior to paying or committing to pay any common stock
     dividends or putting significant dollars into the NU Money Pool
     until such time that Millstone III is running at full capacity. 
     Otherwise, the OCA takes the position that the Commission should
     order the Company to obtain bridge financing and convene a
     hearing pursuant to the NH Supreme Court decision of Appeal of
     Easton, 125 N.H. 205 (1984).  The OCA sees the need for an Easton
     hearing on the basis that public policy is being weighed against
     approval of this financing.  The OCA criticizes the Company's
     failure to examine other alternatives which would not contain the
     covenants which arguably could "hinder restructuring".  It is the
     OCA's assertion that PSNH failed to weigh the public policy costs
     in its financing decision and looked only at the economic costs. 
          D.   Staff
               Staff believes the Commission should approve the
     Company's financing, but is concerned with the possible
     implications of certain covenants of this financing with respect
     to the Commission's duty under RSA 374-F.  Staff recommends
     covenant changes to eliminate any conditions that may restrict
     the Commission in the restructuring area.  Given the Company's
     current credit ratings, Staff views the increased costs of the
     new financing as unavoidable.
     
     III. COMMISSION ANALYSIS
               Under RSA 369:4, as interpreted by the New Hampshire
     Supreme Court in Appeal of Easton, 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.  The Commission may also attach reasonable
     conditions that are in the public interest. Id.  Based on our
     review of the record, we find the Company's financing proposal as
     described above to be in the public interest.  We recognize
     PSNH's imminent need to refinance and we will rely upon Mr.
     McHale's testimony that this is the best resolution he was able
     to negotiate to meet PSNH's financial needs.  Arguably some of
     the language in certain covenants may appear to in some manner
     limit or restrict the Commission's latitude with regard to
     restructuring of the electric industry.  In approving this
     petition, however, we do not in any way concede that this
     approval restricts or limits our authority to implement RSA 374-F
     or any other statutory responsibility.  
               In closing arguments, PSNH explicitly stated its
     confidence in its ability to obtain waivers needed for any
     "reasonable restructuring solution".  To the extent that it
     becomes necessary to do so, we will hold PSNH to its commitment
     to "diligently pursue" such waivers.  Notwithstanding the changes
     that the entire industry is undergoing, the Company's strong
     financial position, as evidenced by its excess interest coverage
     ratio and equity to capitalization ratio, as well as its strong
     earnings and cash flow, should give banks comfort to consider
     such waivers.
               Given the Company's need for cash for the non-utility
     generator settlements, the current situation at the Millstone
     facilities, and the Company's past practices, we remain concerned
     about dividend payments to the parent company at this time.  We
     are reminded that PSNH was well aware of its upcoming financing
     needs in February of 1997 when it paid a dividend of $85 million
     to its parent company.  Here, we recognize that the lender
     covenants limit PSNH to $25 million in dividend payments from
     cash on hand.  To the extent that the Company has the means and
     determination to make a dividend payment to its parent, we direct
     the Company to first obtain approval from this Commission.    
               The financial covenants in the LOC and RCA amendment
     preclude the Company from investing in the NU Money Pool,
     revealing the banks' concern with cash leaving PSNH.  We share
     these concerns, especially in light of the financial difficulties
     at Northeast Utilities, Connecticut Power and Light, and Western
     Massachusetts Electric due to the shut-down of the Millstone
     facilities.  Due to these concerns, we direct the Company to
     obtain Commission approval prior to investment in the NU Money
     Pool, in the event the banks waive the covenant which restricts
     such investments.   
               We find the uses for the renewal of the Letters of
     Credit to support the Company's PCRBs and uses for the renewal of
     the Company's short term line of credit to, in part, meet
     maturity of the Company's Series B First Mortgage Bonds, to be in
     the public good.  We also find the fact that the Company is
     fixing the rates on its tax-exempt Series D and Series E PCRBs
     which will reduce the reliance upon the Letters of Credit by
     approximately 50% to be in the public good. 
               Based upon the foregoing, it is hereby 
               ORDERED, that the Commission hereby approves and
     authorizes, pursuant to RSAs 369:1,2,3 and 4, the extension and
     amendment by PSNH of the Series D Letter of Credit and Series D
     Reimbursement Agreement to (i) extend the term of the Series D
     Letter of Credit; (ii) provide for accounts receivable security;
     (iii) amend the existing interest rates, fees and expenses; and
     (iv) amend certain business covenants, all as described in the
     petition and testimony of PSNH in substantially the same form as
     the documentation submitted by PSNH to the Commission; and it is
               FURTHER ORDERED, that the Commission hereby approves
     and authorizes, pursuant to RSAs 369:1,2,3 and 4, the extension
     and amendment by PSNH of the Series E Letter of Credit and Series
     E Reimbursement Agreement to (i) extend the term of the Series E
     Letter of Credit; (ii) provide for accounts receivable security;
     (iii) amend the existing interest rates, fees and expenses; and
     (iv) amend certain business covenants, all as described in the
     petition and testimony of PSNH in substantially the same form as
     the documentation submitted by PSNH to the Commission; and it is
               FURTHER ORDERED that the Commission hereby approves and
     authorizes, pursuant to RSAs 369:1,2,3, and 4, the modification
     by PSNH (through amendment or new agreement) of the Revolving
     Credit Facility to (i) provide for first mortgage bond security;
     and (ii) provide for accounts receivable security, all as
     described in the petition and testimony of PSNH and in
     substantially the same form as the documentation submitted by
     PSNH to the Commission; and it is
               FURTHER ORDERED, that the Commission hereby approves
     and authorizes, pursuant to RSAs 369:1,2,3 and 4, the issuance by
     PSNH of up to $125,000,000 of its first mortgage bonds in one or
     more series under its First Mortgage Bond Indenture, to evidence
     and secure its obligations under the Revolving Credit Facility,
     with principal, interest, payment and other related terms as
     provided in the Revolving Credit Facility (as modified as
     described above), all as described in the petition and testimony
     of PSNH and in substantially the same form as the documentation
     submitted by PSNH to the Commission; and it is
               FURTHER ORDERED, that PSNH gain Commission approval for
     any dividend payment to its parent company during the 364-day
     term of the new financing; and it is
               FURTHER ORDERED, that PSNH gain Commission approval for
     any investment in the NU Money Pool during the 364-day term of
     the new financing. 
               By order of the Public Utilities Commission of New
     Hampshire this twentieth day of March, 1998. 
     
                                                                     
        Douglas L. Patch    Bruce B. Ellsworth        Susan S. Geiger
            Chairman           Commissioner            Commissioner
     
     
     Attested by:
     
     
     
                                      
     Thomas B. Getz
     Executive Director and Secretary