DR 95-068
Public Service Company of New Hampshire
Fuel and Purchased Power Adjustment Clause/Clean Air
Act Amendments of 1990
Order Denying Motion for Rehearing
O R D E R N O. 22,841
January 27, 1998
I. PROCEDURAL HISTORY
On March 9, 1995, Public Service Company of New
Hampshire (PSNH) filed a request with the New Hampshire Public
Utilities Commission (Commission) to recover the costs associated
with compliance with the Clean Air Act Amendments of 1990 (CAAA)
through the "EA" component of the Fuel and Purchased Power
Adjustment Clause (FPPAC). After numerous orders and a rehearing
proceeding, we issued Order No. 22,674 (July 30, 1997) which
granted PSNH's requested cost recovery for CAAA expenses incurred
at Merrimack Station, Unit II, until such time as the 1999
Nitrogen Oxide (NOx) standards are established, but reiterated
that, to the extent Unit II was unable to meet new State or
federal CAAA requirements, PSNH bore the risk of all expenses
incurred subsequent to 1999. On August 29, 1997, PSNH filed a
Motion for Rehearing of Order No. 22,674 pursuant to RSA 541:3.
II. COMMISSION ANALYSIS
In its Motion for Rehearing, PSNH raises an objection
to that component of Order No. 22,674 that places PSNH at risk
for cost disallowances subsequent to the issuance of new State or
federal NOx requirements in 1999.
Initially, PSNH alleges that Order No. 22,674, without
record support, erroneously determined that the installation of
Selective Catalytic Reduction (SCR) technology at Merrimack
Station, Unit II, might not prove to be the least cost
alternative to meet the 1995 CAAA requirements if 1999 NOx
requirements were set at levels within a predetermined range that
cannot be met with this technology. Next, PSNH alleges that the
Commission "expressly abandoned the long established prudence'
standard . . ." in favor of "risk allocation analysis"; and that
the Commission never provided PSNH with adequate notice that such
a standard would be applied.
With regard to the issue of notice, in DR 94-080,
PSNH's last Least Cost Integrated Resource Plan, the Commission,
inter alia, reviewed PSNH's planning processes that led to the
decision to install SCR technology at Merrimack Station, Unit II.
In addressing the planning that led to this decision, the
Commission stated:
we note for the record that PSNH's decision
[to install SCR at Merrimack II] rests on
certain critical technical and regulatory
assumptions regarding the performance of SCR
technology and the Phase II [1999] emissions
standards.
Re Public Service Company of New Hampshire, 80 NH PUC 160, 169
(1995)
Furthermore, the so-called new regulatory theory of
"risk allocation" PSNH objects to is nothing more than the
application of the "used and useful" standard; a standard that
has been applied to utility investments for the last century.
See e.g., Bluefield Water Works and Improvement Co. v. Public
Service Commission, 262 U.S. 679 (1923). Thus, we believe we can
address all of the issues raised in the Motion, through an
analysis and explanation of the "used and useful" standard.
The seminal decision on the used and useful standard
in New Hampshire is the New Hampshire Supreme Court's decision in
Appeal of Conservation Law Foundation, 127 NH 606 (1986). In
that decision the Court made the following distinction between
prudence and used and useful:
While prudence judges an investment or
expenditure in the light of what due care
required at the time an investment or
expenditure was planned and made, usefulness
judges its value at the time its reflection
in rate base is under consideration.
Id., 638.
The Court further explained that:
[u]nder the used and useful' principle, the
commission is not asked to second guess what
was reasonable at some time in the past, but
rather to determine what can reasonably be
done now with the fruits of that investment.
Id.
Thus, the Commission's decisions relative to risk
allocation were nothing more than explicit recognition that PSNH
had made a choice that it recognized might not meet future
environmental standards. To the extent that choice could not be
fully recovered over the remaining depreciation life of the
plant, PSNH was placed on notice that it bore the risk of
disallowances under the used and useful standard.
In conclusion, we note that this issue may never need
to be addressed if PSNH's assumptions regarding the 1999 CAAA
standards are correct. Furthermore, this analysis only remains
relevant under the current regulatory regime. At that point in
time when generation becomes a competitive aspect of electric
service, all such risks will be borne by the owners of the unit
and not ratepayers.
Based upon the foregoing, it is hereby
ORDERED, that Public Service Company of New Hampshire's
Motion for Rehearing is DENIED.
By order of the Public Utilities Commission of New
Hampshire this twenty-seventh day of January, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary