DR 98-206
                           DC 98-198
                                
              Connecticut Valley Electric Company
                                
   Fuel Adjustment Charge and Purchased Power Cost Adjustment
                                
   Order Approving Temporary Rates and Continuing Proceeding
                                
                    O R D E R   N O.  23,098
                                
                        January 4, 1999
     
       APPEARANCES: Kenneth C. Picton, Esq. and Ransmeier &
     Spellman by Dom S. D'Ambruoso and John T. Alexander,
Esquires for
     Connecticut Valley Electric Company; McLane, Graf, Raulerson
&
     Middleton by Steven V. Camerino, Esq. for the City of
Claremont;
     Michael E. Holmes, Esq. Of the Office of Consumer Advocate
on
     behalf of residential ratepayers; and Robert J. Frank, Esq.
for
     the Staff of the New Hampshire Public Utilities Commission.
     
          I.   PROCEDURAL HISTORY
               On November 10, 1998, the City of Claremont,
pursuant
     to RSA 378:7, filed a Complaint and Petition against
Connecticut
     Valley Electric Company (CVEC or Company) in which it
requested
     that the Commission find the continued purchases of power
from
     CVEC's parent company, Central Vermont Public Service
Company,
     (CVPS), imprudent and therefore that the rates of CVEC are
unjust
     and unreasonable and should be reduced.  CVEC responded to
the
     City of Claremont's complaint on November 20, 1998.  CVEC
argued
     in its Motion to Dismiss that the City of Claremont was
making
     the same pleading that was contested in DR 97-241, CVEC's
1997
     Fuel Adjustment Clause/Purchase Power Cost Adjustment
(FAC/PPCA)
     filing, which resulted in an injunction by the Federal
District
     Court.  Based on the injunction, CVEC argued the Commission
is
     barred from taking any action which interferes with CVEC's
     ability to recover through retail rates the RS-2 costs
charged to
     it by CVPS.  The City of Claremont responded to CVEC on
November
     30, 1998.  
               On November 24, 1998, CVEC filed its annual
FAC/PPCA
     rates effective January 1, 1999.  On December 3, 1998, the
     Commission issued an Order of Notice setting a hearing in DR
98-
     206 for December 17, 1998.  On December 9, 1998, the
Commission
     through a letter from the Executive Director and Secretary
     consolidated the two dockets and made the City of Claremont
a
     party to docket DR 98-208.  
               On December 14, 1998, the City of Claremont filed
a
     letter proposing to limit the scope of the proceeding to the
     mathematical calculation of CVEC's FAC/PPCA filing and to
defer
     consideration of other matters, such as prudence, pending
the
     final outcome of any requests for reconsideration from the
     December 3, 1998 decision from the First Circuit Court of
     Appeals, which vacated a preliminary injunction of the
Federal
     District Court.  On December 15, 1998, the Commission
notified
     the parties that the scope of the proceeding would be
limited in
     accordance with the City of Claremont's December 14, 1998
     proposal to limit scope.  The Secretarial Letter of December
15,
     1998 superseded the December 9, 1998 Secretarial Letter.
               At the hearing, testimony was presented by Robert
J.
     Amelang, Consultant in the Power Engineering Group for CVPS;
     James C. Cater, Senior Consultant for Strategic and Economic
     Analysis at CVPS; and C.J. Frankiewicz, Financial Analysis
Team
     Leader for CVPS.
               Briefs were filed by CVEC, the City of Claremont
and
     the Office of Consumer Advocate (OCA) on December 18, 1998.  
          II.  POSITIONS OF THE PARTIES AND STAFF
                    A.   Connecticut Valley Electric Company
               Effective on all bills rendered on or after
January 1,
     1999, CVEC proposes to increase the Fuel Adjustment Clause
rate
     from $0.0078 per kWh to $0.0082 per kWh and to decrease the
     Purchased Power Adjustment Clause rate from $0.0239 per kWh
to
     $0.0100 per kWh.  The change in the FAC would increase
revenues
     on an annual basis by $68,013 or 0.3 percent.  The PPCA
change
     would decrease revenues by $2,363,445 or 10.1 percent on an
     annual basis.  The projected net revenue effect of both on
an
     annual basis results in a decrease of $2,295,432 or 9.8
percent.
     Depending on usage, customers could realize a greater or
lesser
     percentage decrease than the average 9.8 percent projected
on
     overall revenues by the Company.  CVEC estimates that a
     residential customer using 500 kWh per month would receive a
     decrease of $6.76 per month or 8.5 percent.  All estimates
are
     neutral of any Pilot-related revenues and costs. 
Pilot-related
     costs and revenues are excluded in the calculation of the
Pilot
     Stranded Cost Charge in the Pilot tariff to prevent a
subsidy
     between CVEC's Pilot participants and CVEC's
non-participating
     customers. 
          Fuel Adjustment Clause
                CVEC expects to under collect its fuel costs for
1998
     by $61,272 based on actual data for January through October
1998
     and estimates of November and December 1998. The
under-collection
     is due primarily to higher than forecasted purchases from
Small
     Power Providers (SPP) which replace and are significantly
more
     expensive than purchases made under the RS-2 rate from CVPS. 
For
     1997, CVEC projected an over-collection of fuel and related
costs
     of $154,372 or 2.3 percent from the 1996 FAC. Actual data
for
     1997 indicated that the over-collection estimate which
formed the
     beginning balance for the 1998 FAC was sightly lower by
$2,581.   
               The proposed 1999 FAC rate is higher than the
Interim
     1998 FAC rate due to the beginning of year under-collection
for
     1999 of $61,272.  The Interim FAC was designed to refund
$152,372
     over the 1999 FAC period.  The result is that the 1999 FAC
is
     designed to collect an additional $213,644.  CVEC also
forecasts
     increased costs from SPPs in 1999. 
          Purchased Power Adjustment Clause
               The proposed PPCA is based on the reserve system
     capacity purchases made by CVEC from CVPS under the RS-2
rate
     included in CVPS' Rate Schedule FERC No. 135.  The capacity
costs
     are estimated annually by CVPS and are allocated to CVEC
based on
     the ratio of monthly CVEC coincident peak loads to the
monthly
     reserve-required loads of CVPS.  The estimates are
reconciled to
     actual data afterward and any over-recoveries or
under-recoveries
     are refunded or collected from CVEC with interest.  
               In DR 97-241, CVEC projected an ending
under-collected
     balance for 1997 of $275,285.  The Interim 1998 PPCA revised
that
     estimate to an under-collection of $773,386 which was
reflected
     in the Interim PPCA rates.  The actual 1997 ending balance
was an
     under-collection of $933,035.  Based on actual data through
     October 1998 and forecasted data for November and December
1998,
     the ending 1998 balance for its purchased capacity and
related
     costs is expected to be an under-collection of $52,999. 
Most of
     the expected under-collection is due to increased purchased
     capacity costs from CVPS due to cost increases related to
CVPS'
     ownership interest in Vermont Yankee.  The actual ending
balance
     could vary significantly if the 1998 CVEC annual peak occurs
in
     December 1998 rather than in January 1998 as is included in
the
     forecasted data.  
               CVPS had forecasted net total purchased capacity
costs
     of $78.5 million for 1998, but the actual costs are expected
to
     be $83.4 million.  For 1999, CVPS forecasts net purchased
     capacity costs of $82.1 million.  The increase in purchased
     capacity costs over the 1998 forecasted costs is due to a
$3.1
     million increase for Vermont Yankee, a $3.0 million increase
in
     the Hydro Quebec Schedule B contract, a $1.2 million
increase in
     replacement capacity costs as CVPS expects to be capacity
     deficient during certain months of 1999 and a $301,000
increase
     in regulatory expenses associated with the CVPS "exit fee"
     proceeding at the FERC.  The increase is partially offset by
     expected reductions in Maine Yankee and Connecticut Yankee
costs,
     the termination of the Merrimack Unit 2 contract and
forecasted
     increases in wholesale revenue.
               The overall decrease in RS-2 capacity costs for
CVEC is
     $226,216 for 1999 based on 1999 sales.  The primary reasons
for
     the lower 1999 PPCA rate are the termination of the Interim
PPCA,
     which was designed to collect approximately $1.2 million
more
     than the 1997 PPCA rate and the 1999 PPCA rate includes
     approximately $720,000 less under-collection as a beginning
     balance.  Lower forecasted RS-2 costs also contribute, but
are
     due mainly to the allocation factor used to distribute
production
     capacity and transmission costs between CVEC and CVPS. 
                    B.   City of Claremont
               The City of Claremont requests that the Commission
     suspend CVEC's filing and approve the FAC and PPCA rates
filed by
     CVEC on a temporary basis subject to reconciliation.  The
City of
     Claremont is concerned that if the Federal District Court
     injunction remains in place after April 24, 1999, the 3 to 5
     month timeframe for review set forth in RSA 378:6,I(b) could
be
     used later by CVEC after the pending proceedings before the
     Federal Court are resolved to argue that the Commission has
no
     authority to allow any changes in rates.  
               The City of Claremont states that CVEC should be
     required to post a bond or some other type of financial
assurance
     during the period temporary rates are effective.  The City
of
     Claremont refers to warnings by CVEC officials of CVEC's
dire
     financial situation as the basis for its request pursuant to
RSA
     378:30.  
               The City of Claremont also questioned CVEC about
the
     additional $301,000 of regulatory costs for 1999 included in
the
     RS-2 costs charged by CVPS to CVEC.
                    C.   Office of Consumer Advocate
               The OCA did not oppose the calculation of the FAC
and
     PPCA rate.  In its brief, the OCA urges the Commission to
protect
     the interests of ratepayers by instituting the proposed FAC
and
     PPCA rates on a temporary basis.  The OCA believes temporary
     rates will not violate the injunction of the United States
     District Court as CVEC collects costs the OCA states are
     imprudent and constitutionally exorbitant.
                    D.   Staff
               Staff agreed with CVEC that the filing
calculations
     support the changes to the FAC and PPCA rates proposed by
the
     Company.  Staff expressed concern about whether CVEC would
try to
     preclude the Commission from reconciling rates back to
January 1,
     1999, if warranted, upon conclusion of the District Court
case.
               Staff questioned numerous aspects of CVEC's filing
     including the increased capacity costs related to CVPS's
loss of
     capability responsibility for its entitlement in Millstone 3
when
     the unit was out of service, the increased costs associated
with
     Schedule B power from Hydro Quebec, and the calculation of
the
     capacity allocation factor between CVPS and CVEC.  
          III. COMMISSION ANALYSIS
               The Company has filed for a slight increase,
$68,013 or
     0.3 percent, in its annual FAC and a decrease of $2,363,445
or
     10.1 percent, in the annual PPCA.  The PPCA rate decrease
     proposed is not due to reductions in costs in the RS-2 rate;
     rather, it is due to the lower beginning under-recovered
balance
     in the PPCA and the lower overall dollar amount needed to be
     collected compared to the level included in the interim
PPCA.  In
     fact, under the proposed rate the underlying RS-2 costs from
CVPS
     continue to be fully recovered by CVEC so long as the
Federal
     District Court injunction remains in effect, and are
expected to
     increase in 1999. Nonetheless, in order to enable customers
to
     benefit from the lower proposed PPCA rate and limit CVEC's
     recovery to the amount required for the present by the
District
     Court's Order, the Commission will authorize CVEC to
implement
     the requested rates. 
          The Commission makes no finding at this time as to the
     justness and reasonableness of the new rates.  These rates
are
     expressly subject to such future proceedings as may be
necessary
     to address the deferred matters referenced in the December
14,
     1998 letter of the City of Claremont and the Commission's
     December 15, 1998 Secretarial Letter.  The Commission notes
that,
     in its December 15, 1998 letter response to the City of
     Claremont's December 14 letter, CVEC agreed that "a prudence
     determination need not be made at this time."   
          The Commission reiterates its determination in Order
No.
     22,912 (Docket No. DR 97-241, issued April 29, 1998) and
will
     require CVEC to keep records of the difference between the
     amounts that it would have collected under its 1997 RS-2
rates
     and any amounts that it collects as a result of the District
     Court's Order.  Further, the Commission places CVEC on
notice
     that it will be liable for refunds, plus interest, in the
event
     that the District Court's Order is overturned.  Accordingly,
     since we have deferred consideration of these underlying
issues,
     the new rates are fixed as temporary pursuant to RSA 378:27. 
     This docket is hereby continued until such time as the
Federal
     District Court proceedings are resolved or the Commission's
     ability to proceed is clarified.
               We acknowledge the comments of the OCA and the
City of
     Claremont concerning the balancing of interests as it
regards the
     issuance of posting a bond by CVEC, but we do not believe it
is
     warranted at this time.  
               Finally, we waive the application of N.H. Admin.
Rules,
     Puc 1203.05(a), which requires generally that the rate
changes be
     implemented on a service-rendered basis.  We will allow CVEC
to
     implement its FAC/PPCA factors on a bills-rendered basis.
This
     waiver, pursuant to Puc 201.05, produces a result in this
     circumstance consistent with the principles embodied in Puc
     1203.05(b), which sets forth exceptions for allowing rate
changes
     on a bills-rendered basis, and is in the public interest
because
     it eliminates consumer confusion and reduces administrative
     costs.  
               Based upon the foregoing, it is hereby 
               ORDERED; that proposed FAC rate of $0.0082 per kWh
and
     the proposed PPCA rate of $0.0100 per kWh are APPROVED on a
     temporary basis effective on all bills rendered on and after
     January 1, 1999; and it is
               FURTHER ORDERED, that the rates paid to Qualifying
     Facilities under Rate E are APPROVED as filed; and it is
               FURTHER ORDERED, that CVEC file a compliance
filing in
     conformance with this order no later than January 15, 1999;
and
     it is 
               FURTHER ORDERED, that CVEC continue to keep
accurate
     and complete records of the revenues that it collects as a
result
     of the District Court's April 9, 1998 Order; and it is 
               FURTHER ORDERED, that CVEC shall pay refunds, plus
     interest, to its customers for any overcharges collected as
a
     result of the April 9, 1998 District Court Order, should it
be
     overturned or modified; and it is 
               FURTHER ORDERED, that these proceedings are
continued
     until further notice.
     
               By order of the Public Utilities Commission of New
     Hampshire this fourth day of January, 1999.
     
     
     
     
                                                                  
   
           Douglas L. Patch       Susan S. Geiger     Nancy
Brockway
               Chairman           Commissioner         
Commissioner
     
     Attested by:
     
     
     
                                      
     Thomas B. Getz
     Executive Director and Secretary