DR 95-247 Public Service Company of New Hampshire/ Bio-Energy Corporation Consideration of Renegotiated Rate Order Order Denying Motion for Rehearing O R D E R N O. 22,848 February 17, 1998 I. PROCEDURAL HISTORY On September 6, 1995, Public Service Company of New Hampshire (PSNH) filed with the New Hampshire Public Utilities Commission (Commission) term sheets representing the essential financial terms of an agreement reached between PSNH and Bio-Energy Corporation (Bio-Energy). Bio-Energy holds one of six remaining Rate Orders of the original thirteen designated for renegotiation in Section 12 of the Rate Agreement. On November 16, 1995, PSNH filed with the Commission a completed Power Contract and an Agreement (collectively, the Contract) between itself and Bio-Energy that would replace Bio-Energy's existing Rate Order. Bio-Energy's existing Rate Order was issued by the Commission in 1985. Re Bio-Energy Corporation, 70 NH PUC 557 (1985). The Rate Order required PSNH to purchase energy from Bio-Energy's wood-fired qualifying facility (QF) in Hopkinton for 30 years at specified rates which escalate to 29.56 cents/kWh off-peak and 39.55 cents/kWh on-peak by the year 2014. Id. On September 18 and 19, and October 7, 1996, the Commission heard testimony from PSNH, the New Hampshire Timberland Owners Association (NHTOA) and the Commission Staff (Staff) relative to the renegotiated purchase power contracts for all six of the remaining Section 12 Rate Orders. By Order No. 22,479 (January 15, 1997), the Commission approved the Contract between Bio-Energy and PSNH with certain conditions. The Commission ordered that if either PSNH or Bio-Energy chose to withdraw from the Contract because of any of the conditions imposed by the Commission that they must notify the Commission of that fact within 30 days of the date of the Order. II. POSITIONS OF THE PARTIES A. PSNH PSNH did not file a motion for rehearing of Order No. 22,479 pursuant to RSA 365:21 and RSA 541:3, nor did it notify the Commission that it chose to withdraw from the Contract. Rather, on February 14, 1997, PSNH filed a letter with the Commission indicating that it was not prepared to withdraw from the Contract but, based upon information provided by the financial community, PSNH was unable "to proceed with the financial transactions necessary to complete the Contract given the conditions contained in the Order and the uncertainties of cost recovery as the electric industry moves toward competition." The letter further stated that "PSNH must borrow $35,000,000 from the financial community for the lump-sum Payment Amount required by the Contract and obtain a Letter of Credit to secure the Settlement's continuing Annual Payments." PSNH asserted that in order to obtain these financial instruments from the investment community "there must be a reasonable expectation that the funds will be recovered with a return." PSNH went on to assert that because of the "uncertainty of cost recovery as the electric industry moves toward competition" the investment community needed assurances that the monies expended to finance the settlement would be recovered in a restructured industry. PSNH also implied that the method of providing the necessary assurances was State sponsored securitization of the financings and urged the Commission's support of this proposal before the General Court. B. Bio-Energy On February 18, 1997, Bio-Energy filed a Motion for Rehearing and Clarification of Order No. 22,479 pursuant to RSA 541:3. In the motion, Bio-Energy stated that it did not "wish to withdraw from the proposed transaction", but that it could not fully evaluate whether to close on the transaction because Order No. 22,479 did not: 1) approve or discuss the Agreement (as compared to the Power Contract); 2) approve the payments required by the Contract or the promissory notes and letter of credit to be issued under the Contract; 3) address the request for waivers of all claims, past, present and future, from the State of New Hampshire and any of its agents or agencies; and 4) did not release the parties from the obligations or liabilities of the Rate Orders. III. COMMISSION ANALYSIS With regard to PSNH's February 14, 1997 letter relating its inability to finance the Contract because of the "uncertainties of cost recovery", we find the assertion meritless. The Commission learned in DR 97-059, PSNH's base rate proceeding, that PSNH had access to a $125 million short term line of credit on February 14, 1997 that it could have used to finance this Contract, but that it never attempted to access these funds. We also learned in DR 97-059 that PSNH paid dividends in the aggregate amount of $85 million to its parent, Northeast Utilities (NU), in February of 1997. Moreover, in DR 97-014 we learned that PSNH has had access to monies which it has deposited in the NU "money pool" and that as of December 1, 1997, PSNH's balance in the money pool was approximately $100 million. We have previously announced our intentions to take evidence on PSNH's assertions that it could not finance the proposed Contract under these circumstances. A prehearing conference is scheduled for February 24, 1998. This issue, therefore, will not be further addressed in this order. With regard to the assertion by both PSNH and Bio-Energy that Order No. 22,479 did not provide sufficient security that the payments made under the Contract could be recovered from ratepayers, again we find the assertion meritless. RSA 374-F:3,XII(b) provides that a utility may recover "net nonmitigatable stranded costs associated with...power acquisitions mandated by federal standards or RSA 362-A." In Order No. 22,479, the Commission explicitly held that, we cannot provide [a guarantee of cost recovery], given the uncertainty of cost recovery as the electricity industry moves towards competition, as well as our inability to bind future Commissions. See, RSAs 374-F and 365:28. While we cannot "guarantee" that PSNH will recover all of these costs, we do believe PSNH is entitled to the opportunity to seek recovery of these monies. In any case, these costs are subject to recovery in the same manner as other monies expended for or on account of a small power producer obligation assumed pursuant to PURPA or LEEPA in the soon to be restructured electric industry. See, RSA 374-F:3,XII(b). Order No. 22,479, at 6-7. Shortly thereafter, in DR 96-150, the Commission issued Order No. 22,514 (February 28, 1997) adopting a Plan for restructuring the electric industry. The Plan recognized the continuing requirement of distribution utilities in a restructured industry to purchase QF power, stating that, although the payments made to these facilities were based on the miscalculations of future avoided costs, from a legal standpoint, we are required by RSA 374-F to authorize recovery of these costs, and therefore must adjust our implementation of the regional average rate approach to provide for full recovery [of QF costs]. Final Plan, at 64. See also, Final Plan, at 90-91 (inter alia the "obligation for QF power purchases will remain with the distribution company.") Thus, to the extent there was any question concerning appropriate cost recovery of payments made under the Contract on January 15, 1997, any such questions were fully addressed on February 28, 1997 with the issuance of the Final Plan; rehearing requests are now pending. With regard to Bio-Energy's Motion for Rehearing, it is denied for the following reasons. Contrary to Bio-Energy's assertion, Order No. 22,479 addressed the Agreement as well as the Power Contract. Although we discussed both the "Power Contract" and the "Settlement Agreement" in terms of the "Contract" in Order No. 22,479, there is no way the order can be construed to distinguish between the two. Order No. 22,479 explicitly identifies and discusses in detail six separate issues with the "Contract", the majority of which are terms of the "Settlement Agreement". Thus, we find Bio-Energy's assertion that Order No. 22,479 did not "approve or discuss the Agreement", as compared to the Power Contact, is meritless and disingenuous. The next issue raised for reconsideration by Bio-Energy is the failure of Order No. 22,479 to approve the cost recovery of payments to Bio-Energy. This is similar to the issue raised by PSNH in its February 14, 1997 letter regarding an assurance of recovery of payments to Bio-Energy, which we addressed above. With regard to the failure to approve the financings and letter of credit necessary to close on the Contract, Bio-Energy is correct in noting that we did provide PSNH with carte blanche approval to enter into the financial arrangements necessary to close on the Contract. Pursuant to RSA 369, in addition to analyzing the purpose for which the funds will be used, the Commission must determine that the cost and the terms and conditions of the proposed securities are just and reasonable and consistent with the public interest. See e.g., Appeal of Seacoast Anti-Pollution League, 125 N.H. 708 (1984). To approve terms not yet negotiated would be a dereliction of our duties. Also, as is apparent from our discussion supra, the issuance of securities and letters of credit may have been unnecessary under the circumstances. The next issue raised by Bio-Energy is the failure of Order No. 22,479 to address and provide Bio-Energy with the waivers requested in Articles IV.B.6. and IV.C. of the Settlement Agreement. Articles IV.B.6. and IV.C. effectively require the Commission to supply blanket waivers from the State of New Hampshire and all of its agents or agencies of all claims past, present or future that might threaten the stream of payments under the Contract. As we stated in Order No. 22,479, the Commission has no authority to bind the State of New Hampshire, its agents and agencies, or future Commissions from taking any legitimate action that might somehow threaten the stream of payments under the Contract. Order No. 22,479 at 8-9. Neither are we willing to provide such a blanket waiver of claims; to the extent the parties sought specific exemptions they should have been explicitly set forth in the Contract. In this respect we did, however, commit that this Commission will take no action that would directly threaten these monies, and explicitly released Bio-Energy from the application of any "light load curtailments". Id. at 9. Finally, with regard to Bio-Energy's assertion that the Commission did not relieve Bio-Energy of its obligations under the Rate Order, again, we find such an assertion meritless as the entire purpose of this proceeding and all of the proceedings regarding the renegotiations under Section 12 of the Rate Agreement is to replace the existing Rate Orders. To the extent it is not yet clear, Bio-Energy will be relieved of its obligations under the Rate Order once the renegotiated Agreement is in effect. Based upon the foregoing, it is hereby ORDERED, that Bio-Energy Corporation's Motion for rehearing is DENIED; and it is FURTHER ORDERED, that Bio-Energy Corporation's Motion for Clarification is GRANTED to the extent it is consistent with this order. By order of the Public Utilities Commission of New Hampshire this seventeenth day of February, 1998. Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary