DR 98-014
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Fuel and Purchased Power Adjustment Clause
Order Approving Settlement of a Fuel and Purchased Power
Adjustment Clause rate and Short-Term Avoided Cost rates for
June 1, 1998 through November 30, 1998
O R D E R N O. 23,023
September 22, 1998
APPEARANCES: Gerald M. Eaton, Esq. for Public Service
Company of New Hampshire; Dean, Rice and Kane, by Mark W. Dean,
Esq. for the New Hampshire Electric Cooperative; Gary R. Gilmore,
for the Campaign for Ratepayers' Rights; Philip L. Munck for
Waste Management of New Hampshire; Kenneth E. Traum, Finance
Director, of the Office of Consumer Advocate for residential
ratepayers; and Eugene F. Sullivan, III, Esq. for the Staff of
the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On February 13, 1998, Public Service Company of New
Hampshire (PSNH or the Company) filed with the New Hampshire
Public Utilities Commission (NHPUC or Commission) a request to
open a proceeding for PSNH's Fuel and Purchased Power Adjustment
Clause (FPPAC) rate for the period June 1, 1998 through November
30, 1998.
On February 19, 1998, the Commission issued an Order of
Notice scheduling a Prehearing Conference for March 6, 1998,
setting deadlines for intervention requests and objections
thereto, outlining a proposed procedural schedule, and requiring
the Parties and Commission Staff (Staff) to summarize their
positions on the filing for the record.
On February 26, 1998, Waste Management of New Hampshire
(WMNH) filed with the Commission a written request for
intervention which was granted. On March 23, 1998 the New
Hampshire Electric Cooperative (NHEC) filed a motion for late
intervention. On March 27, 1998, the Campaign for Ratepayers'
Rights (CRR) also filed for late intervention. The Commission
granted late intervention to both the NHEC and the Campaign for
Ratepayers' Rights. The Office of Consumer Advocate (OCA) is a
statutorily recognized intervenor.
On March 13, 1998, PSNH filed its calculation of and
supporting testimony for an FPPAC rate for effect for the period
June 1, 1998 through November 30, 1998. PSNH proposed an FPPAC
rate of $0.00725 per kilowatt hour (kWh), which represented an
increase of $0.00459 per kWh from the current FPPAC rate of
$0.00266 per kWh, resulting in an overall annual average increase
in rates of 3.7%.
On April 29, 1998, PSNH filed a stipulation and
settlement (Settlement) among PSNH, Staff and the OCA which
resolved all issues in the filing and recommended an FPPAC rate
of $.00383 per kWh. On May 13, 1998, WMNH, which had previously
indicated its objections to the Settlement, concurred with the
balance of the Settlement and did not appear at the subsequent
hearings.
On May 21, 1998, CRR, the OCA, the NHEC and PSNH filed
briefs concerning the appropriate treatment of PSNH's proposed
tariff revisions to address the effect of a proposed change in
the "BA" factor of FPPAC on special contracts.
On May 18, 1998, CRR filed a statement of issues. On
May 26, 1998, CRR filed a letter with the Commission questioning
why the opportunity for briefs had been eliminated. The
Commission notified CRR by letter of May 28, 1998 that it had
duly determined that briefs were not necessary.
At a duly noticed public meeting on May 26, 1998 the
Commission orally deliberated the issues in dispute in this
proceeding and unanimously accepted the Settlement among PSNH,
the OCA and Commission Staff. On May 29, 1998, the Commission
issued Order No. 22,946 implementing an FPPAC rate of $0.00383 as
reflected in the Settlement and indicating that a more
comprehensive order would follow.
On June 29, 1998, CRR filed a motion for rehearing of
Order No. 22,946 pursuant to RSA 541:3.
II. POSITIONS OF THE PARTIES AND STAFF
A. PSNH Initial Proposal
In the calculation of the FPPAC rate initially proposed
on March 13, 1998, PSNH included the first allocable amortization
of the Seabrook Deferred Return. The Seabrook Deferred Return
was established pursuant to the terms of the Seabrook Power
Contract. (Rate Agreement, Attachment A.) Under the Seabrook
Power Contract, North Atlantic Energy Company, Inc. along with
its affiliate North Atlantic Energy Service Company, Inc.
(collectively referred to as North Atlantic) was required to
defer for future recovery a portion of its return on its
investment in the Seabrook Nuclear Power Plant during the seven
year Fixed Rate Period. As of June 1, 1998 the deferral totaled
approximately $300 million.
The Seabrook Power Contract specifies that this
deferral is to be recovered from PSNH over a period of three
years beginning six months after the end of the Fixed Rate
Period. See generally, Rate Agreement, Appendix A, at D-76 -
D-78. In order to comply with Financial Accounting Standards
Board Ruling No. 71 (FASB 71), the period of recovery is limited
to three years under the Seabrook Power Contract. The Seabrook
Deferred Return is a regulatory asset created during the Fixed
Rate Period and regulatory assets must be recovered over a period
not to exceed ten years.
In turn, the FPPAC formula provides for recovery of
these deferred amounts through the FPPAC rate. Rate Agreement,
Attachment C, at D-92 and D-95 - D-99. Applying a three year
amortization schedule to the deferral, North Atlantic billed
PSNH, and PSNH sought recovery of, approximately $50 million of
the Seabrook Deferred Return through the proposed FPPAC rate.
The inclusion of this $50 million in rates without some form of
mitigation would have resulted in a significant rate increase.
Therefore, PSNH proposed to offset this increase through a
modification in rates to reflect the recovery of a portion of the
Acquisition Premium.
Under the Rate Agreement, Northeast Utilities paid an
Acquisition Premium for PSNH's assets. The first $425 million of
this Acquisition Premium was amortized, or recovered from
ratepayers, through base rates over seven years. Rate Agreement,
at D-5, D-6 and D-14. Thus, as of June 1, 1998, $425 million of
the Acquisition Premium was fully recovered from ratepayers
through base rates. In order to partially offset the increase in
the FPPAC rate resulting from the recovery of the Seabrook
Deferral, and to prevent an unintentional over-recovery, PSNH
proposed to simultaneously reduce rates by removing the annual
$95 million amortization of the first $425 million of the
Acquisition Premium from customers' rates. Because the
Acquisition Premium is collected through base rates and not
through FPPAC, PSNH proposed to increase the "BA" factor of FPPAC
by $43 million, which would lower the FPPAC rate by $43 million,
to ensure ratepayers received the benefit of the base rate
reduction coincident with the $50 million increase in FPPAC.
In response to CRR's motion for rehearing of prudence
determinations, PSNH clarified the prudence decisions that had
been included in the Settlement and argued that CRR had
misinterpreted the record. PSNH responded to CRR's procedural
objections with reference to the Commission's procedural rules
and pointed to the Commission procedural rules to support the
Commission's action in this proceeding.
B. Settlement
The Settlement incorporates the methodology used by
PSNH to develop its initial FPPAC rate proposal, i.e., the
Settlement includes the recovery of the Seabrook Deferred Return
and a reduction of the rate to reflect the end of the
amortization of the first $425 million of the Acquisition
Premium, and the deferral of certain current costs that had not
been collected in the previous FPPAC period or were projected to
be incurred in the this FPPAC period for future recovery.
The major provisions of the Settlement, which modify
PSNH's initial proposal, are as follows:
1) PSNH will not seek recovery of a portion of the
replacement power cost associated with various unit outages
and power reductions resulting in a reduction to PSNH's
actual energy cost for the period ending May 31, 1998 of
$4,180,000.
2) PSNH will reduce its actual energy cost for the prior
period by an amount representing the estimated transmission
revenue PSNH would have received from the Initial System
under the capacity transfer during the period November 1,
1997 through May 31, 1998, under a fully rolled-in
transmission rate. That amount is deemed to be $15.00 per
kilowatt-year ($1.25 per kilowatt-month), and will apply to
all units supplying capacity for the transfer.
3) PSNH will reduce its forecasted energy cost by an amount
equal to the estimated transmission revenue PSNH would have
received from the Initial System under the capacity transfer
during June 1, 1998 through November 30, 1998, under the
$15.00 per kilowatt-year transmission rate.
4) PSNH will utilize an assumed in-service date of June 1,
1998 for Millstone III, with the unit reaching 100% power by
July 1, 1998, for the purposes of forecasting energy costs
for the period June 1, 1998 through November 30, 1998, for
the purposes of computing capacity transfer revenues and
Joint Dispatch Savings (JDS).
5) PSNH will assume that Millstone II is not in-service for
the purposes of forecasting energy costs for the period June
1, 1998 through November 30, 1998, for the purposes of
computing capacity transfer revenues and JDS.
6) PSNH will increase its load sales forecast for the
period June 1, 1998 through November 30, 1998 by 3% for the
purposes of forecasting energy costs for that period.
C. Office of Consumer Advocate
Although the OCA did not provide testimony, they were a
signatory and supporter of the Settlement.
D. Commission Staff
Staff supported the Settlement through direct
testimony. Staff testified that it believed the Settlement,
viewed in its totality, achieved a just and reasonable result.
E. The New Hampshire Electric Cooperative
NHEC raised concerns regarding the deferral of
approximately $60 million of current costs which would amount to
a 15% to 16% rate increase if implemented on December 1, 1998.
F. Campaign for Ratepayers Rights
At the hearing on the merits, CRR maintained that the
proposed Settlement would result in a windfall for PSNH and its
shareholder, Northeast Utilities, because North Atlantic is not
entitled to recover any of the replacement power costs or any of
the operation and maintenance expenses related to the Seabrook
outage to repair the control room air conditioning system, and
the Seabrook outage related to the leaking pipe. CRR testified
that these two outages resulted in expenses of approximately $11
million for replacement power and $3 to $5 million in operation
and maintenance expenses that should be disallowed because they
were the result of North Atlantic's imprudent operation of the
plant.
CRR supported its position with the testimony of Robert
R. Cushing who cited Seabrook's internal reports and reports from
the Nuclear Regulatory Commission (NRC). Mr. Cushing testified
that Seabrook had repeated problems with the air conditioning
system and had replaced or repaired the compressor in this system
in 1993, 1994 and 1996. Thus, Mr. Cushing maintained that
Seabrook was aware of the problem with the air conditioning
system and was negligent for failing to adequately address the
problem in its previous attempts.
CRR also objected to the Commission's consideration of
the Settlement to the extent it addressed the prudence of these
outages because PSNH had agreed to defer recovery of these
expenses while it continued its broader negotiations with the
State.
In its motion for rehearing CRR reiterated its
arguments with regard to the Seabrook outages. CRR also raised a
number of new objections.
CRR argued that the Commission violated the procedural
schedule set forth in Order No. 22,871 (March 16, 1998), wherein
post hearing briefs on the issues in contention were scheduled.
CRR objected to the Commission's oral deliberations on the
Settlement on May 26, 1998 which deprived it of the opportunity
to present its objections to the Settlement.
CRR also argued that its analysis of the testimony
revealed that the prudence of "as much as $35 million of prior
period costs" had been determined in the Settlement. They argued
that this contradicted PSNH's testimony at the hearing and that
the prudence of only $12 million in costs were determined under
the Settlement. CRR also alleged that JDS had been understated
in the Settlement.
III. COMMISSION ANALYSIS
The first issue we address is whether the Settlement
should be considered in light of the fact that it defers the
collection of certain current costs found to be reasonable.
Neither CRR nor the NHEC have persuaded us that there is any
substantive or procedural basis for deferring a ruling on these
issues. Additionally, neither party represented or demonstrated
that they would in any way be prejudiced by a ruling on these
issues at this time. Consequently, we believe we can and should
rule on these issues at this time and accept the proposed
deferral.
The next issue for our consideration is the
reasonableness of the Settlement. We will address that issue in
light of the contentions raised by CRR during the hearing and in
its motion for rehearing. Initially, however, we find PSNH's
proposed modification to the "BA" portion of the FPPAC formula is
just and reasonable. It recognizes the completion of the
amortization of the first $425 million of the Acquisition Premium
and thereby creates an offsetting rate reduction which moderates
the rate increase.
CRR objects to the Settlement's $4.18 million dollar
disallowance for replacement power costs as insufficient compared
to the replacement power costs incurred because of the two
Seabrook outages. In its motion for rehearing, CRR also objects
that the $4.18 million resolved all issues related the 10% derate
at Maine Yankee and replacement power costs for the extended
outage at Millstone III.
CRR is incorrect in its claim regarding the replacement
power costs. The replacement power costs forgone by PSNH under
the Settlement are much greater than the $4.18 million
specifically disallowed. As CRR notes, the Settlement resolves
the issue of imprudence at Millstone III, but the Settlement does
not include any costs for replacement power at Millstone III. To
the contrary, under the Settlement PSNH has agreed not to seek
recovery of any of the replacement power costs incurred as a
result of the Millstone III outage.
Moreover, CRR miscomprehends the $35 million of prior
period costs referred to in its motion for rehearing. As PSNH
pointed out in its response to the motion for rehearing, $18
million of this sum are the dollars deferred for light loading,
Order No. 22,847 (February 10, 1998), and $12 million relate to
the Millstone III outage and the costs that PSNH agreed will not
be collected as a result of this Settlement.
Finally, with regard to the alleged error in the
computation of JDS, viewed from the perspective of the FPPAC
process we find this contention meritless. The amount of
expected JDS is based on projected sales of energy between PSNH
and the Initial System during the next six month FPPAC period.
Thus, the projected return to service dates for Millstone III and
Millstone II affect the ultimate amount of JDS projected to be
received by PSNH over the next six months.
Given the nature of the outage, however, there was, and
is, no way to determine with certainty the actual dates for
return to service of these units. Moreover, these estimates will
be reconciled when the actual data is reviewed in the next FPPAC
period. Thus, the fact that the Settlement sets certain dates
for the return to service of these units and roughly calculates
JDS is irrelevant at the level of detail complained of by CRR.
We believe that rate resulting from the Settlement is
just and reasonable and serves the public interest. N.H. Admin.
R., Puc 203.09. Moreover, in reviewing such a settlement we are
mindful of the value of administrative efficiency and the
reduced risk to both ratepayers and the utility reached through
the settlement process. RSA 541-A:31,V. Based on this analysis,
we find the Settlement achieves a reasonable result.
We also find no merit to CRR's objection that the
alleged modification to the procedural schedule which eliminated
post hearing briefs resulted in a denial of procedural due
process. "The fundamental requisite of due process is the right
to be heard at a meaningful time and in a meaningful manner."
See e.g., Bragg v. Director, New Hampshire Division. Of Motor
Vehicles, 141 N.H. 677, 679 (1997), quoting Appeal of Portsmouth
Trust Co., 120 N.H. 753, 756 (1980). CRR was provided with
adequate opportunity to present its arguments and positions
during the hearing. The opportunity for a party to submit briefs
is discretionary on the part of the administrative agency.
The record also reveals that at the conclusion of the
last day of hearings in this matter, in response to a request
from counsel for the NHEC concerning "post hearing procedure",
the Commission requested briefs on limited issues: the special
contracts and PSNH's proposed tariff modifications in light of
the increase in "BA" to effectuate a rate reduction to customers
by May 21, 1998. At no time did CRR request the opportunity to
file a brief on the issues covered by the Settlement or any other
matter while the issue of post hearing briefs was being
discussed.
With regard to the tariff revisions proposed by PSNH to
address special contracts and the increase in "BA", docket
DR 98-139 has been established to investigate the issue.
Based upon the foregoing, it is hereby
ORDERED, that the Settlement is APPROVED as just and
reasonable.
By order of the Public Utilities Commission of New
Hampshire this twenty-second day of September, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary