DR 97-241
CONNECTICUT VALLEY ELECTRIC COMPANY
Fuel and Purchased Power Adjustment Clauses
Order Reinstating Rates and Directing Calculation of Refunds
O R D E R N O. 23,168
March 22, 1999
APPEARANCES: Kenneth Picton, Esq. for Connecticut
Valley Electric Company; Ransmeier and Spellman by Dom S.
D'Ambruoso, Esq. and John T. Alexander, Esq. on behalf of
Connecticut Valley Electric Company; McLane, Graf, Raulerson and
Middleton by Steven V. Camerino, Esq. on behalf of the City of
Claremont; Michael Holmes, Esq. and Kenneth Traum for the Office
of Consumer Advocate for residential ratepayers; and, Robert
Frank, Esq. for the Staff of the New Hampshire Public Utilities
Commission.
I. BACKGROUND AND PROCEDURAL HISTORY
This case began with two filings in November 1997: one
by the City of Claremont, New Hampshire (Claremont) and the other
by Connecticut Valley Electric Company (CVEC). Claremont's
filing consisted of a petition asking the Commission to find CVEC
imprudent for failing to terminate its wholesale requirements
contract with Central Vermont Public Service Corporation (CVPS).
CVEC's filing proposed rate increases in its Fuel Adjustment and
Purchased Power Adjustment Clauses (FAC and PPCA) of 1.3% and
11.0%, respectively, effective for calendar year 1998. The
Commission consolidated Claremont's petition (DC 97-244) with
CVEC's filing (DR 97-241) and held a consolidated hearing
addressing both matters in December, 1997.
In Order No. 22,815 (December 31, 1997), the Commission
found CVEC imprudent for remaining in the CVPS contract when
lower cost supply alternatives existed in the wholesale power
market. In particular, the Commission found that CVEC had failed
to terminate the wholesale power contract between CVEC and CVPS
solely in order to benefit CVPS's shareholders, and that
"ratepayers of CVEC received little or no consideration in the
decision-making process of CVPS." Order No. 22,815 at 10. On
this basis, the Commission rejected the proposed rate increases.
The Commission also announced additional hearings to determine
what CVEC's costs for wholesale power would have been had CVEC
been prudent and its costs reflected just and reasonable levels.
Order No. 22,815 at 10-11. Pending the outcome of those
hearings, the Commission directed CVEC to continue billing its
then-current 1997 rates.
In response to Order No. 22,815, on January 12, 1998,
CVEC filed a timely motion for rehearing raising essentially four
issues. First, CVEC alleged the order was an unlawful attempt to
advance what it characterized as the State's restructuring
"agenda". Second, it argued that the Commission was preempted by
the Federal Power Act from finding CVEC imprudent and disallowing
any portion of the costs incurred under the CVPS contract.
Third, CVEC alleged that the Commission improperly found CVEC
imprudent without making findings of fact and rulings of law.
Finally, CVEC stated that it was provided insufficient notice
prior to the hearings.
In Order No. 22,838 (January 20, 1998), the Commission
partially granted CVEC's motion for rehearing. The Commission
stated that it would afford CVEC another opportunity to present
evidence and testimony on the prudence issue as well as on the
potential financial consequences of disallowing the recovery of
RS-2 costs. Order No. 22,838 at 2-3. However, the Commission
specifically rejected CVEC's contention that Order No. 22,815
abandoned traditional ratemaking principles by advancing the
restructuring policies of RSA 374-F. Id. 2-4.
During January and February 1998, the Commission held
evidentiary hearings to address CVEC's rehearing request and the
other matters noticed in Order No. 22,815.
On February 23, 1998, the Commission publicly
deliberated all outstanding matters relative to CVEC's original
filing and Claremont's petition. The Commission affirmed its
finding that CVEC was imprudent for failing to terminate the CVPS
contract. The Commission also decided that $0.04 kWh was a
"conservative estimate" of the rate at which CVEC could have
procured its power requirements from other wholesale suppliers
for 1998. A final written order was not issued. Thus, pursuant
to RSA 363:17-b, a final determination in this case has not been
made.
On April 9, 1998, at the request of CVEC and CVPS, the
United States District Court for the District of New Hampshire
issued a preliminary injunction enjoining the Commission from
enforcing Order No. 22,815. The preliminary injunction directed
the Commission to allow CVEC to recover through its retail rates
all wholesale power costs associated with the CVEC-CVPS
requirements contract. In compliance with the District Court's
order, the Commission approved revised tariff sheets increasing
CVEC's rates by $0.0235 per kWh and forcing the average
residential customer of CVEC to pay 22% higher rates. Order No.
22,912 (April 29, 1998). The Commission directed CVEC to
maintain records of the difference between the amounts that CVEC
would have collected under its 1997 rates and any amounts that it
collects as a result of the District Court's order. Id. at 2-3.
Finally, the Commission placed CVEC on notice that "it will be
liable for refunds, plus interest, in the event that the District
Court's Order is overturned." Id. at 3.
On December 3, 1998, the United States Court of Appeals
for the First Circuit vacated the preliminary injunction. Public
Service Company of New Hampshire, et al. v. Patch et al., 1998 WL
950685 (1st Cir.). The First Circuit rejected CVEC's preemption
argument and affirmed the Commission's authority to evaluate the
prudence of CVEC's decision to purchase power from CVPS rather
than from alternative sources. Id. at 6. After issuing this
decision, the First Circuit denied CVEC/CVPS's requests for
rehearing and a stay pending an appeal to the United States
Supreme Court. Thereafter, the United States Supreme Court
denied another request for a stay, and on March 4, 1999, the
First Circuit issued an informal mandate pursuant to F.R.A.P.
41(a) relative to its December 1998 decision.
II. DISCUSSION
At the outset, we note that CVEC secured the
preliminary injunction before the Commission issued a final order
addressing CVEC's rehearing request. Although CVEC's primary
argument on rehearing has been resolved by the First Circuit, we
intend to address the other matters raised in the Motion for
Rehearing in a separate order which we expect to issue in the
near future. The ensuing discussion is intended to achieve two
objectives: first, to clarify the status of this proceeding; and
second, to inform CVEC of its obligations in light of the First
Circuit's decision vacating the preliminary injunction.
On several previous occasions, we have explained that
our actions in this case are unrelated to the electric
restructuring docket and the implementation of RSA 374-F. See
e.g., Order No. 22,838 at 3. Notwithstanding the foregoing, CVEC
has continued to allege that we are somehow using this proceeding
as a vehicle to implement the State's restructuring policies. We
will once again endeavor to be very clear about this matter: The
objective of this proceeding is not to promote the restructuring
policies of RSA 374-F or to force CVEC to charge "market-based"
retail rates. Rather, our objective was and is to set CVEC's
rates at just and reasonable levels consistent with our
long-standing statutory obligation under RSA 378:7. Thus, as
long as CVEC retains its obligation to serve, the Company
continues to bear the obligation to exercise prudence in
obtaining supply and the Commission must insure that resulting
rates are just and reasonable. To do that, we have had to
determine whether CVEC acted prudently in electing to remain in
the CVPS contract when other lower cost alternatives existed.
See Appeal of Sinclair Machine Products, Inc., 126 N.H. 822, 834
(1985) ("The wholesale rate must be justified by the utility as
the product of reasonable efforts to secure the lowest cost in
light of appropriate alternatives available to the company.").
We found that the RS-2 rate did not meet this test, and in fact,
that CVEC had remained in the contract solely to benefit CVPS's
shareholders. This is precisely the concern that CVEC was
advised of in 1986 after the Court issued the Sinclair decision,
Order No. 18,148, 71 NHPUC 145 (1986).
As a result of the preliminary injunction, CVEC's
ratepayers have been forced to shoulder the significant financial
burden of paying imprudently-incurred costs. When CVEC obtained
the preliminary injunction, we expressly placed CVEC on notice
that "it will be liable for refunds, plus interest, in the event
that the District Court's Order is overturned." Order 22,912 at
3.
We note that CVEC and CVPS have jointly filed a
petition with the United States Supreme Court seeking a writ of
certiorari; that petition is pending. The Supreme Court,
however, has denied their request to stay the mandate of the
First Circuit.
Accordingly, we direct CVEC to file within (5) business
days its calculation of the difference between the total FAC and
PPCA revenues collected during 1998 and those FAC and PPCA
revenues that it would have collected had the 1997 FAC and PPCA
rate levels been in effect for the entire year. We direct CVEC
to calculate a rate rider to be applied to all billings for the
period April 1, 1999 through December 31, 1999 to refund the
over-collection in 1998 relative to the 1997 rate level, and to
file a tariff reflecting the terms of this rate rider. We will
address in our decision on CVEC's rehearing requests whether any
further refunds may result from reconciling the 1998 rates to the
level obtainable from prudent purchasing practices, consistent
with the deliberations at the Commission's February 23, 1998
public meeting. Workpapers supporting CVEC's calculation of the
refund should be filed concurrent with the rate rider tariff
pages.
Based upon the foregoing, it is hereby
ORDERED, that Connecticut Valley Electric Company shall
comply with the directives set forth herein.
By order of the Public Utilities Commission of New
Hampshire this twenty-second day of March, 1999.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary