ML20066E248
| ML20066E248 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 01/14/1991 |
| From: | Feigenbaum T PUBLIC SERVICE CO. OF NEW HAMPSHIRE |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NYN-91004, NUDOCS 9101180181 | |
| Download: ML20066E248 (136) | |
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New Hampshire led C. Feigenbaum Yanl(ee =rc cz,t,_
NYN 91004 January 14, 1991 United States Nuclear Regulatory Comrnission Washington, D.C. 20$$$
Attention: Document Control Desk
References:
(a) Facility Operating License No. NPF 86, Docket No. 50 443 (b) Application to Amend Facility Operating License No. NPF 86 to Authorire North Atlantic Energy Corporation ('NAEC*), as a Licensee, to Acquire and Possess the PSNil Ownership Interest in Seabrook
(" Application")
Subject:
FERC Initial Decision and SEC Memorandum Opinion and Order Related to Joint Plan and Operating License Amendment Application Gentlemen:
New Hampshire Yankee (NIIY) hereby supplements the Application filed on November 13, 1990 in the above Docket [ Reference (u)).
In the Application, under the heading ' Antitrust Considerations' [ Reference (b), at pages 810), the llocusees/ applicants referred to the pending proceedings with respect to aspectr, of the Joint Plan which were being conducted before the Federal Energy Regulatory Commission (FERC) and the Securities and Exchange Commission (SEC). The purpose of this Supplement is to update that information.
The PERC proceeding was initiated on behalf of Northeast Utilities (NU) on January 6,1990, r.ceking approval under the Federal Power Act of NU's acquisition from PSNil of juri.*dictional assets as part of the Joint Plan and of NAEC's sale of Seabrook power and other rate matters. Over 60 parties intervened in that proceeding, raising nurnerous contentions including antitrust issues. After extensive heariags before an Administrative Law Judge, an Initial Decision was issued on December 20, 1990, a copy of which is filed herewith as Exhibit A. That decision deals extensively with the antitrust contentions raised.
I t concludes that the Joint Plan, as proposed, with some additional conditions, should be approved as in the public interest (see Exhibit A, pages 25 50 and 59) and it approves the sale of power by NAEC to the successor to PSNil (see Exhibit A, page 54 et seq.). Thus, i
the Administrative Law Judge's action validates the proposed action by NAEC, a prospective licensee of the NRC, and constrains the real parties in interest to the Joint Plan, namely NU and the successor to PSNil. Neither of those latter entities will be a licensee subject to the jurisdiction of the NRC in this docket after the Joint Plan has been implemented.
9101100181 910)14 DR ADOCK0500g3
'1 O WM New Hampshire Yankee Division of Public Service Company of New Hampshire P.0, Box 300
- Seabrook, NH 03874
- Telephone (603) 474 9521 p)
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1 United States Nuclear Pegulatory Commission January 14, 1991 Attention: Document Control Desk Page two The Initial Decision is subject to final review by the FERC Commissioners, in addition, on October 5,1989 an Application was filed with the Securities and Exchange Commission (SEC) for approval of those aspects of the Joint Plan which are subject to its jurisdiction under the Public Utility Holdlug Company Act of 1935. Again voluminous pleadings were filed by third parties, including many of the intervenors before PERC, raising contentions on competitive issues similar to those pursued b, ore PERC. On December 21, 1990, the SEC issued its Memorandum Opinion and Order, approving the aspects of the Joint PLn subject to its jurisdiction and specifically finding the merger would not tend toward the concentration of control of public utility companies of a kind, or to the extent, detrimental to the public interest or the interests of investors or consumers. A copy of the SEC Order is filed herewith as Exhibit B. A petition for rehearing has been filed with the SEC.
The undersigned submits that the foregoing actions by FERC and the SEC support the proposition that no independnt antitrust review by the Commission is required or appropriate.
Very truly yours, gf6h &<b-Ted C. Feigenbaum TCP:JBil/act cc: Mr. Thomas T. Martin Regional Administrator United Statts Nuclear Regulatory Commission Region I 475 niiendale Road King of Prussia, PA 19406 Mr. George L. Iverson, Director Office of Emergency Management State Office Park South 107 Pleasant Street Concord, nil 03301 l
Mr. Gordon Edison, Project Manager Project Directorate 13 Division. of Reactor Projects U. S. Nuclear Regulatory Commission Washington, DC 20555 Mr. Noel Dudley l NRC Senior Resident inspector P. O. Box 1149 l Seabrook, Nil 03874 I i
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New Hampshire Yankee l January 14, 1991 ;
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53rdCfQogn UNITED STATES D* AKERIC.A - '
TEDERAL ENERGY REGUIATORY COMMW%CN Northeast Utilities Service ) Docket Nes. IC90-10-000, Ceepany
) ER90-143-000, 1R90-144-000, (Re Public Service Company of ) ER90-145-000, and EL90-9-000 Hev Hacpthire) )
INITIAL DECISICH (Issued Decedur 20, 1990 1 0.F li,qH,Lt ANDLNFORn' y a ummer.
Pg)trP P. Wax, L2polas G. Green, David __B. Raskin,-garv A.
DO NOT REMCE Mercens, C. Dua ne BLinn, Egbe rt P.
David T. Boet Kniekerbocker. Jr. and for Northeast-UtMities Service Company Alan M.
Richardson for American Public Power Association, and-National Rural Electric Cooperative Association .
LudLL._.}Le rci s , Eobe rt
- r. Shaeiro and hay S. Yoch for Applied Energy Services, Inc. and the American Paper :nstitute, Inc.
In es T. McManun, Eishael E, Sea 11, Mecan A. Seerling, Frederick S. Sato and Stechen A.
i and Maine Public Service ConpanyJohnson for Banger Hydro-Electric, Wayne P. Tricard, John M. Clearv, Richard D.
Fortin, John J.
Destond III and Susan G. White for Boston Edison Cocpany -
Donald R. Allen, Etapeth E. Natal _e, John P._Cov1_e and I Janes _ McTarnachan for Boylston Municipal Light Department, Braintree Light Electric Light Department, Georgetovn Municipal Department, Holyoke cas and Electric HoldenDepartaent, Municipal Light Department, City of Ipswich Municipal Light Depa rtment, Littleton Electric Light and Water Departments, Paxton Municipal Light Department, Department, Reading Municipal Light Department, Town ofPrinceton M Rowley Municipal Lighting plant, Shrewsbury Electric Light Plant, Sterling Municipal Light- Department, Taunton Municipal Lighting Plant Lighting Plant, and West Boylston Municipal PAD i e L. Chabet, Jri fer Boylston,-Braintree, Holden, Ipsvich, Littleton, Paxton, Princeton, Reading, Shrewsbury, Sterling, .
Taunton, Massachusetts WestSystems)
Boylston, and Georgetown, Massachusetts (13 I
. . _ __ -_ - _. . . _ - _ .. _ _ m.__ _ - . . . _ -
2 Georce H. Williars, Jr., Joel F. Ziop, Alan P. Loeb, Franklin M.
Hurdlev and Paul W. Diehl for Canal Electric Company, Cotsonwealth Electric Company, and Cambridge Electric Light Company (jointly "Com/ Electric")
Gerald M. Amero and Arthur W. Adelbero for Central Maine Power Conpany Donald L. Rushford for Central Vermont Public Service Corporation Robert ___A. O'Neil and John Michael Adraena for Chicopee,. South Hadley and Westfield, Massachusetts and Wallingford,
- Connecticut (the "MACT Towns")
Walter R. Hall.11 for Citizens Utilities Company David J. Bardin, L42 fat.1 Meicher, Michael J. Kurman, Elfven R. Miles, Marilyn D. Sonn, Noreen M. Lavan and Georce E. Learv for City of Holyoke Gas and Electric Department Edwar# G. Bohlen, Nanev Brockway and James W. Stetson for Commonvoalth of Massachusetts, and Massachusetts Department of Public Utilities Robert S. Golden. Jr., Phyllis E. Lere11, Robert R. Nordhaus, Howard E. Shapiro, Charles B. Curtis and Michael A. Swicer for Connecticut Department of Public Utilities Control W11114t \. Chesnutt for Connecticut Industrial Energy Consumers Scott "#folina, Philio L. Sussler and Robert M. Sussler for i Connecticut Municipal Electric Energy Companies l
Hill..Fevalski and Scott Memolina for The Connecticut'of fice of l Consumer Counsel
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Eichard M. Merriman and James x. Mitchell for Eighteen Vermont -
Utilities Susan K. Bender, Sara D. Schotland and Michael J. Byrnes for The Electricity consumers Resource Council Sam Behrends, Harry A. Voict for Fitchburg Gas and Electric Company, UNITIL Power Corporation Christooher L. Dutton for Green Mountain' Power Corporation MaryiAnne sullivan, Mitchell M. Tannenbaum, Jares A, Bucklev and Joseeh C. Bell for Maine Public Utilities commission
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3 Wallace L. Duncan, Alan J. Roth, Nicholas J. Scobbo, Frederick L. l Miller, Robert Weinbara,;Themas L. Rudebusch, Scott H. t Strauss, William s. Muana and David E. Poneer for Massachusetts Municipal Wholesale Electric Company
. Curtis C. Pfunder,fDavid A'. Farrene and Donald J. Williamson'for- !
Montaup Electric Company gharles F. Wheatiev. Jr. ahd Peter A. Goldsmith for the Municipal:
Electric Systems of Concord,: Norwood and Wellesley, Massachusetts Michael-014A3 for: National' Rural Electric Cooperative . .
Association and the- American Public Power Association Robsrt i. h t.98.D, ,it.f. phen H.
e Auaust,.and Donna C. Sharkov for New" Brunswick Power r
Kenneth M. Simon =and-Larry-F- Eisenstat for.New England Cogeneration. Association; O' Brian Energy Systems, Inc.; '
Masspowert PG&E-Bechtel Generating Company and: Independent Energy Corporation Edward Be'rlin, Andrew D. Weisman, Thomas-A. Bellasj Frederic'E.
Greenman and Cynthia Arcateff4r New England Power Company EA)ert C. McDiarnid,. Barbara S. Esbin and Stechen R. Murrill for New Hampshire Electric Cooperative ,
Geof f rey M. -Kalmus and Howard J. Berman forithe Of ficial Committee- of Unsecured Creditors of ' Public Service Company '
of New1 Hampshire e l Rocer B. Coven for the Official Committee of Equity-Security.
I Holders of Public Service company of New Hampshire Thenas B. Getz and Georan Bruder for- Public Service Company of-New Hampshire.
' James.R. Lacey, ~ William R. Heatson, . Shawn Leyden, Kenneth Brown,.
- Richard- Frvlina. Jr. .and Frederick W.- Peters for Public Service Electric and Gas Company-- -
Sheldon Whitehouse for Rhode Island: Public . Utility Commission:
Harold T. Judd,l Glen L. Ortman, John S. MQ21 and Clinten A. Vince-for the State of:New Hampshire j
Thomas N. McMuch. Jr. for the~ Towns of Merrimac'and Groveland,r Arnold'H. ouint, Laura M. ~ Wilson, William F. Youna,fNoel E. Hauf and Linda L. - Randell' f or the United . Illuminating Company y
_. - _ _ . . . _ . . . ~ _ ._ __; _ ._ , _ _ _ _ . _ _ . . , _ . . - . , _ . _ ,_ ._ , _ , . . - , .
- _ . _ _ _ _ _ _ _ . . . . _ . _ _ _ _ _ _ _ _ _ _ ~ . . _ _ . _ . _ _ _ _ _ _ _ _ _ _ . . _ _ _
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I Jares A. cresser for the U.S. Department of Justice and the Rural Electrification Administration Theras H. Wies fCr Vermont Electric Power Company, Inc. (Velco)
Allen Martin for Velco and 18 Vermont Utilitie3 William T. Harkaway, Harvev L. Reiter, Fathleen L. Mature, Catl, M. rink, James Voir and Michael H. Dvorkin for Vermont Department of Public Service and Vermont Public Service Board h'j sha f l __R . Post.gg, pawn K. Martin, Beckv Brungr, Thomas J, stDLel, Sitphan.AD.911 and B.1ShtE#_1,E t1. f or the Staf f of the Tederal Enargy Regulatory Comr.ission Jerome Nelson, Presiding Administrative Law Judges -
TABLE OF CONTENTS-
, PROCEDURAL HISTORY 6 .
I. "EYNERGIES" OR BENEFITS ,
6' A. ' Resolution of PSNH's Bankruptcy 7 B. - NU's operation of Seabrook 9 C. Tossil Unitst' Administrative and General Expensel Coal Purchasing 11 D. NEPOOL Synergies .
12 II. MITI-COMPETITIVI ASPECTS OP UNCONDITIONED MERGER 15 A. The Merged Company's Power over Transmission and Surplus 15 B. Asserted Alternatives to FU-PSNH 17 (1) Non-Utility Generation 17 (2) Demand Side Management 19 Self-owned Generation
- (3) ., 20 (4) Other "Alternativesk 21 '
C. Long-term /Short-term Impacts - 22 D. Disputes About Numerical Measures 23 -
III. CONDITIONS . 24 l A. Wheeling (General-Transmission Commitments) -25 (1) Time Dimensions 1 25 (2) Various other Matters 27 (3) Constraints; Priorities, Removal Costs, Etc. 2B (a) Priorities when Constraints cannot ~
Be Removed 26 (b) Cost Allocation when NU can Make j Necessary Upgrades - -30 (c) Ten-Year Priority for NU Excess 35 B. The New Hampshire corridor Proposal 36 (1) Introduction .3C j (2) Size of the Corridor 3B i (3) Access for. Northern-Utilities and NUGs 40 j (4) Alleged " Market Allocation" 40
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! 5 (5) The Ten-Year Increments 41
! (6) Energency Allocation and Native Load f Priority 42 (7) Extension of Time to Elect subscription 43 (4) Charges for New Facilities 43 (9) Conflict override 43 (10) Miscellaneous 44
- c. Other conditions 44 (1) Regional Transmission Arrangment- 44 (2) NEPOOL Voting 45 -
(3) New Hampshire Electric Cooperative 47 t (4) Holyoke 48 (5) CMEEC . 50 .
(6) TDUs 50 IV. RATE ISSUES 51 A. Transm3ssion Rates of the Merged Company 51 B. Whether NU's Rate-Schedule Tilings Are Just .
and Reasonable .
53 (1) The Untouhable " Package" Theory 53-(2) The Seabrook Power Contract 54 (a) Rate of Return 54 :
(b) Section 12 55-
~s_, (c) Cash Working Capital Allowance 56 (d) Decommission Expense 57
,(3) Capacity Interchange Agreements 57 C. Miscellaneous Rate Issues 58 CONCLUSION 59 ,
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PROCEDURAL E!870RY Northeast Utilities (NU), acting through a service conpany called NUSCO, seeks approval under Section 203 of the Tederal power Act to acquire the jurisdictional assets of Public Service Company of New Hampshire (pSNH). The applicant will be referred
, to as NU in this decision. NU is a holding company which controls connecticut Light and power Company, Western Massachusetts Electric company, and Holyoke Water power Company.
The proposed acquisition is part of a plan for the reorganization of PSUH, which is in bankruptcy. In connection with the application,_NU also flied four rate schedules pursuant to-Section 205 of the Tederal power Act (the seabrook power <
contract, the Sharing Agreement and two Capacity Interchange Agreenents).
On March 2, 1990, the commission issued an order granting interventions by all requesting parties, -consolidating the sections 203 and 205 dockets, accepting and suspending the rate schedules r and granting in part UU's motion to expedite the hearing. schedule by requiring that an initial decision be issued no later than December 31, 1990. Northeast Utilities Service coneanv, 50 TERC 1 61,266 (1990). That order required a hearing on the Section 203 acquisition application, and on the question of whether the rate schedules submitted as part of the plan of reorganization are just and reasonable, on March 7, 1990, NU submitted its direct case, which consisted of the prepared testimony and exhibits.of six witnesses. After extensive discovery, including numerous depositions of NU, Staf f, intervenor and third party witnesses, the Staf f and intervenors filed their respective direct cases on May 25,_1990. The direct cases of Staf f and intervenors included the prepa, red testimony and exhibits of 49 witnesses.i On June 25, 1990, Staf f and intervenors filed cross-rebuttal cases through the prepared testimony and exhibits of-19 witnesses., on July 20, 1990, NU filed its rebuttal case through the prepared testimony and exhibits of 12 witnesses. Twenty-five days of hearings were held during August and September of 1990.- Thirty-five_ witnesses were cross-examined, and 809 exhibits were admitted into evidence.
Briefs and reply briefs were filed in October of 1990. Tour days of oral argument ended on November 13, 1990.
I. H8YNERGIE8" OR SENEFIT8 Under Section 203 of the Tederal power Act, the commission "shall approve" a merger if it is " consistent with the public interest." NU must "show affirmatively that the disposition is consistent with the public interest" (50 TERC 1 61,266 at_61,833,
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61,834, in 43 (1990)). It is sufficient if the "probablo merger benefits . .
. add up to substantially more than the costs of the merger." Utah Power & Licht Co., 47 FERC 1 61,209 at 61,750=
(1989); Utah Power & Liaht Co., 45 FERC 1 61,095 at 61,299 (1988). As the Commission stated (47 FERC at 61,750): j That is all that is required of the II Applicants since they need not show a positive benefit of the merger. Rather, they-need only show that the merger is compatible with the public-interest.
j The applicant's showing in the present case amply satisfies i j
the test. The principal benefit is tha. resolution of PSHH's bankruptcy. The monetary benefits relied on are: $800 million resulting from NU's operation of Seabrook; improved availability of fossil units with savings appro>.imating $100 million; administrative and general expense savings reductions of more than $124 million; coal purchase savings of about $39 million:
and capacity and energy savings for NU and PSNH of $364 million .
l as a result of single-system status in the New England Power Pool i (NEP00L1 In addition, the applicant emphasized enhancements sto '
transmis'sion service resulting from its General Transmission Commitments and New Hampshire corridor-Proposal, discussed i separately infra. 1/ !
A. Resolution of PSNH's Bankruotev The merger is part of a plan which-enables a reorganized PSNH to emerge from bankruptcy. The bankrupt company-is the largest utility in New Hampshire, providing electrictservice to approximately 375,000 customers, with 1,800 miles of transmission lines in the State. Its successful reorganization is unquestion&bly in the public interest. As the Commission said in the hearing order, "(v)e.cannot ignore the fact that PSNH is.the largest utility in the- State of New Hampshire- and that it serves every county in the State. We view the final conclusion of its emergence from bankruptcy as a matter of significant importance" (50 TERC at 61,840). The rehearing order again recognized.this consideration, acknowledging "the unique f actual circumstances presented by PSNH's bankruptcy and the public interest in resolving PSNH's reorganization" and "the public interest in PSNH's emergence from bankruptcy as a viable utility" (51'FERC at 1/ Egg, Initial Brief of Northeast Utilities Service coreanv, 3 pp. 2-10; Busch. Direct, Ex. 1, pp. 17-19; Sawhill Rebuttal, Ex.
225, p. 30 oceka Direct, Ex.-40, pp. 5-12,29-361 114 at pp. 41-53; Oceka Rebuttal, Ex. 52, pp. 14-17' , 27; Ex. 52, pp. 38-40; Schultheis Rebuttal, Ex. 157, pp. 176-179; Neves Direct, Ex. 9, pp. 7-15; Noves Rebuttal, Ex.14, pp. 5, 7-12 ; sabat ino Direct,- -j Ex. 18, pp. 10-12; Sabatino Rebuttal, Ex. 33, p. 4-13.
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8 61,484, 61,485). Ist glan, In Re Evans, 1 TPC 511 (1937)
(approving an acquisition involving the reorganization of a .
bankrupt utility) .
Nor can the interests of creditors and stockholders be ignored. The Official Committees of PSNH's Unsecured Creditors and Equity Security Holders correctly urge that the merger's impact on investors must be taken into-consideration. The value .
of their recovery hinges on the merger. They will receive. ;
contingent notes, approximately one-third of exchangeable _
reorganized PSNH common stock, and contingent warrant certificates. The exchangeable stock has_ full value only if the merger occurst the certificates will have no value if there is no rerger (Ex. 267, pp. 4-5). Almost half of the stockholders' recovery under the reorganization plan is affected by-the merger 1 (ld, at 11). These investers -- who have received no dividends for six years and have seen " enormous losses" and " dramatically _
deteriorated" book equity (ld. ) -- will be seriously injured without the merger. ' But , in re Ev.Ana at 517 ("the Commission is inclined to regard the right of these public bondholders as of primary importance af ter .the consumers have been protected") .
N Some intervenors say that resolving PSNH's bankruptcy should not count as a merger benefit because'the reorganization plan already envisions that company's emergence from bankruptcy as a
" stand-alone" entity. This circumstance does not mean that the merger somehow has no remedial impact on the bankruptcy. Indeed, the situation is just the other way around.
First, PSNH becomes a " stand alone" entity only as part of a two-step NU merger plan. All parties to the reorganization .
contemplated that status as an interim step en route to the merger. The plan accepted by the Bankruptcy Court, PSNH's unsecured creditors and equity. security holders, Connecticut's Department of Public Utility Control, and' New Hampshire's Governor, Attorney General, Public Utilities Commission and legislature envisioned the merger -- not " stand alone" PSNH -- as the ultimate destiny for the reorganized company.-
Horeover, PSNH's ability to survive alone is doubtful. The New Hampshire commission's approval of the reorganization, while not conditioned on the merger rested on the assumption that it would occur. Indeed that commission expressed." substantial concern" about.the validity of-the plan without a-merger, and said that a " stand alone" PSNH would leave-ratepayers "at risk" (Ex. 239A, pp. 126, 127, 17 6 ) ~. New-Hampshire's highly experienced and well qualified financial adviser testified that if the merger were denied, he would have " serious concern" that PSNH vould be so weak as to be unable to avoid another l
bankruptcy, and would thus recommend that the State withdraw its 1 i support =(Tr. 2834-2835). Continuing to maintain a weakened PSNH '
L as a company which would be marginal at best, and indeed could
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i well end up in bankruptcy again, is not " consistent with the public interest."
In any event, Section 203 requires a determination as to whether "the ereretad . . . acquisition . . . Will be consistent (emphasis added).
with the public interest . . . " The
" proposed" transaction here is a merger,.not a " stand alone" pSUH.
4 There is no requirement that the commission examine some -
non-merger scenario in conparison with the proposal before it.
The statute is not " hostile" to mergersi nor does-it treat them as " presumptively harmful" (133, Pacific Power &* Light co. v.
J EC, 211 T. 2d 103 4, 1017 (9th Cir.-1940). Whether certain benefits could or could not be achieved without a merger-is
' sirply not the istue. Era, 21Ah Pever & Licht Co., 45 TERC 4
1 61,095 at 61,298, 61,299 (1988) (rejecting merger benefits because they were " attainable absent the merger" was improper,
'i and " overly rigid"). Just as the " possibility of achieving a particular benefit through a contractual arrangement'(as opposed does not diminish the cost savings associated with te thatmerger)it" benef (ld.), so the possibility of rescuing pSNH in some other way does not diminish the merger benefit.
The proposni here under review involves pSNH's emergence j f rom bankruptcy under the approved merger plan. _ Emergence f rom bankruptcy is a distant benefit which unquestionably flows from this proposal. Whether such a result could somehow have been produced in some other way is not the -question here, pSNH's recovery is entitled to substantial weight in the consideration .
of the acquisition's consistency with the public interest.
B. NU's Operation of Seabrook NU claims that a reduction of $527 million in operating costs vill be attributable to its operation of the Seabrook
, plant. These savings are based on economies of scale, management techniques, and NU's proven record of excellence in managing and operating four nuclear generating f acilities . (NU Br. - pp. 5-6) .
The New Hampshire Public Utilities Commission found NV's l operation of Seabrook to be a substantial inducement to agreement with the merger proposal (Ex. 239-A, p. 174). - NU's.vitness, Mr.
Opeka, testified that RU has received high ratings from the Nuclear Regulatory Commission, recently ranking among the top three nationally in safety and operational perfornance. Mr.
Opeka also testified to a detailed three-month analysis. starting with the bottom employees and working up (Tr. 2048) (corroborated 4
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by corparing Seabrook to NU's own Millstone 3 plant. 1/
The New England Intervanors attack the study because it was nace "without the benefit of one-on-one discussion with Seabrook's current operator, NHY [New Hampshire Yankee)" (Br.
- p. 6). There was a reason for this. As Mr. opeka explained (Ex, 52, p. 12):
Although we had originally hoped that our analysis would include the input of NHY, we were asked by the Seabrook Joint owners to carry on such discussions with NHY personnel during the critical period when they would be attempting to accomplish the startup, full power ascension testing and commercial '
function of the unit. For that reason, we did not try to obtain NHY input during the conduct of our analysis.
Moreover, as NU argues, "(v)hile NHY's budget figures may be accurate _for its own operation of Seabrook, it is NU's operation of Seabrook, not NHY's, which is- reflected in the bottoms-up study and'is relevant here" (NU Reply Br. p. 3).- Intervenors did not offer any contrary evidence, and the argument that there should have been more communication with NHY is not a reason for discarding NU's study.
The New England intervenors argue that the projected $527 million should not be counted because the same savings could be achieved without merger, through a management contract. But HU will operate Seabrook under the merger plan, and the substantial savings which can be realized under the merger plan are benefits, whether or not they could be achieved through a managerial service contract. Here, as in E.tah, sup.ra, "the possibility of achieving a particular benefit through a contractual' arrangement does not diminish the cost savings associated with that benefit." 2/
Next, the New England Intervenors argue that~the.$527 million figure should be reduced by-$196 million.because NU is already under a five-year obligation to manage Seabrook -- even if there is no merger. The proposed redaction assumes a five-l l
1/ Ett, Oceka Direct, Ex. 40, pp. 6-7; Coeka Rebuttal, Ex. 52, pp. 11-29; rakonas Rebutta_1,.Ex. 53, pp.11-141 14. at pp. 17-19, 21-23.
2/ Rtah Power & Licht Co. at 61,299; 133 glms, S_outhern California Edison Co., 47 TERC 1 61,196 at 61,671-72 (1989).
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year contract, but th6 record shows that the five-year obligatien has been reduced to two years (Tr. 1882-1883). Moreover, the argument ignores the fact that after the contract runs out,
" stand alone" pSNH would be left to operate Seabrook without the many benefits which flow from NU's status as a multi-unit nuclear
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organization (Ex. 40, pp. 17-19). But even a deduction to reflect the existing contract nonetheless leaves over $330 tillion in total Seabrook savings, which would be directly attributable to the merger.
None of the challenges is sufficient to alter the conclusion that an NU-operated Seabrook vill produce substantial savings.
No opposing witness had the credentials of NU's Mr. opeka -- a nucicar engineer with well over twenty years' experience in operating and managing nuclear power plants. NU's high ratings and extensive nuclear experience can only provide a valuabic benefit to the Seabrook planti the economies of scale-are virtually certain to bring some positive (even if not precisely quantifiable) benefits to the merger. NU's control and ranagemeng of Seabrook is an important benefit properly attributable to the merger.
CI' Epssil Unitst Administrativo and General Excenser Coal
- Purchasina (1) RU projects savings of about $100 million from improved availability of PSNH's fossil units. NU's own fossil steam plants exceeded NEPooL's target unit availabilities for the four years between 1985 and 1988. In addition, NU's Vitness testified that NU could improve PSNH's plants by applying NU operating procedures such as the Production Maintenance Management System! Inter-plant Maintenance Forcel a database-designed to automatically compute performance parameterst and training and performance improvement programs (Ex. 40. pp. 40, 41-52). Mr. Opeka attributed much of NU's own success to its-development of such programs. MMWEC's Mr. Russell, though challenging the total, implicitly agreed that some such benefits would, indeed, occur -- arguing that they were overstated, and, in any event, achievable without merger. Mathematical precision is not required here. It is enough that NU's operation of the PSHH fossil steam plants will produce savings.' Such benefit, whether or not achievable elsewhere, counts as a plus in the proposed merger context. Ega, EXAh, supra.
(2) NU's claim to $124 million in benefits resulting from a reduction in administrative and general (A&G) expenses produced no serious challenge. Mr. Reynolds, an economist who testified for several intervenors, pressed for more studies of such savings, and particularly "a cross-section comparison of different sized utilities, showing that A&G expense as a percentage of total revenue fell as firm size increased" (Ex.
520, p. 35). While more studies might always be useful, the
12 record is sufficient on the issue. NU's Vice President for Regulatory Relations -- an accountant with years of experience with the company -- testified that the savings were based upon NU's and pSNH's analyses of their systems and their focus on identical tasks perforned by both companies. The New Hampshire Commission's own analysis corroborated this factor, and found that NU had actually underestimated A&G savings (Ex. 14, pp. 7-8; Ex. 16). No one presented a contrary analysis. Common sense dictates that certbining personnel and removing duplicative functions vill produce benefits to the merged company. Such benefits can accrue to ratepayers and investors and must be considered as positive factors in determining whether this merger is consistent with the public interest.
(3) NU, relying on its history for purchasing lower-priced coal on the spot merket, urges savings of some $39 million (or about two dollars per ton). The New England Intervenors --
while net disputing that NU has achieved economy purchases in the pas * - . .' to the increased risk of larger spot market pub' 3. c < t. a.. opposed to long-term contracts, of course, long-term cont 5 acts are more certain than spot market purchases, but that does not mean that the latter must be disregarded. This is especia11'y so here, where NU's track record shows its successful experience in that market. The New Hampshire Commission accepted these savings (Ex. 239A, p. 121). Even considering that there are no absolute guarantees in the spot market, there is no reason to assume that RU's past record and expertise would be worth nothing. Intervenors' second attempt -- that the coal savings could be achieved without merger "through contracting" (Ex. 520
- p. 36) -- has no merit under M1Ah, ERRIA.
D. EEPOOL Svnereies NU and PSNH are members of the New England pool ,(NEPooL), "a I
comprehensive interconnection and coordination arrangement among numerous New England utilities" (Muniefeelities of Creten v.
EIEG, 587 F.2d 1296, 129B (D.C. Cir. 1978)). NEPooL operates under an agreement drawn by its members and approved by the TERC's predecessor. This NEPOOL agreement (Ex. 603, p. 10) allows conpanies to elect " single participant" status in certain circumstances. It is undisputed that NU and PSNH qualify for such status under the Agreement, and that electing it will save them some $360 million because the two companies' combined obligations to the poo) are significantly less than their obligations as separate companies.
l The New England Intervenors, together with Boston Edison, resist this outcome, arguing that these savings for the nerged company vill effectively cone from the pockets of all other HEPOOL members. NU, backed by New Hampshire and Connecticut, l
presses vigorously for recognition of these merger savings, i
I 13 ;
As shovn by New Hampshire and Connecticut (Br.-p. 61 and items-there cited), these savings were a vital part of the long and strenuous negotiations which culminated in the resulting psNH reorganization plan. The concept of combined system status under NEPOOL and the resulting savings for New Hampshire-(some $146 !
willion) were specifically relied upon by the state in appreving the Rate Agreement as consistent with the public good-(Ex. 239A, -
pp. 118-121, 122). Denying these legitimate benefits to PSNH in order to help other companies would prejudice the New Hampshire rate payers, who would have to absorb $246 million in additional costs (Ex. 242, p. 3). These same considerations apply to .
Connecticut and its ratepayers, who would lose the benefit of the savings otherwise derivative from RU.
That a merger could create these NEP00L benefits under the Agreement was envisioned by NEP00L membern from the outset. then asked why the Commission should-approve aLeerger which allows NU and PSNH to achieve NEPOOL savings at others'- expense, Mr.
Bigelev (a NEPOOL founder) explained (Tr.14619-4620):
The best way I can answer that is that >
N m when we put NEPOOL together 20 years ago, we recognized that these things might happen.
This is not something that unuck up on people. It was there and the NEPOOL-agreement was put together after, I've got to tell you, five years of-long, painful negotiations in which every party had te give something to get something.
Mr. Schultheis and I participated in that and it was the longest negotiation I was Sver in in my life. All the parties were
, there from big utilities to the small' '
utilities. There were a lot of trade-offs made in which some utilities gained here=and lost there. ,
And we did discuss at length what would happen because we recognited, in fact, we were then coming up to a potential merger of Boston-Edison, Eastern. Utilities, New England Power. It was recognized that these kinds of things could happen in the future and we spelled out the ground rules and recognized that.that would happen when it happened. And the people who didn't'like it got something else for it.
.- ,. - y ,- ~
, , , . . , , . ,-- -, ,,E
l 14 It was a negotiated arrangement that we all signed to a degree 20 years ago. And it represented, like everything else, an agreement in which everybody came out a little bit unhappy. But I think the pool has been the most successful pool in this country and has worked very well, because we all made concessions here and there to make it work.
The New England Intervenors cite language in the TPC's approval of HEPOOL as supporting their arguments against single participant status (Br. p. 63, citing New Encland Power Pool agttttrat, 56 TPC 1562, 1580 (1976)). Nothing in that decision precludes single system status for NU-PSNH. Judge Wagner's initial decirion in that case made clear that "the only question" about single participant status involved "the desire of the Municipal Intervenors to extend the single participant rule to include groupings of other 'small systems'" (1d. at 1596). The Commission's reference to the " detrimental" effect of conferring single sys' tem status on "any group of systems" (1d. at 1580) was modified by the phrase "such as MMWEC," and was directed to that e n t i t y .-
The TPC's remarks about certain Vermont utilities with similar load patterns qualifying for single participant status do not disqualify NU-PSNF.. Allowing parties to obtain a status for which they might not nave qualified does not justify denying such status to those wl.o do qualify.
The Commission recently approved the merger of Newport Electric Corporation into Eastern Utility Associates, expressly noting among the identifiable advantages to the merged entity:
" reduced capacity requirements and lower energy production costs
, resulting from composite load treatment under NEPOOL.'" Newport l Electric Corp., 50 TERC 1 61,362 at 62,171 (1990). This is the very thing NU contends hers. The New England Intervenors distinguish the case on the ground that it involves " smaller" utilities with savings of a "few million dollars, not hundreds of l millions" (Br. ps 62). But the NEPOOL agreement makes no size l distinction. It provides that "(a)11 entities which are controlled by a single person . . . which owns at least seventy-l five percent of the voting shares of each of them shall be collectively treated as a single participant for purposes of this Agreement, if they each elect such treatment" (Ex. 603, Sec.
3.1). Single participant status is, by the express terms of the l
NEP00L agreement, available to All entities, regardless of size.
Finally, the language of the Agreement itself favors such status. The sentence conferring single participant status uses the word "shall," and the sentence following recognition of companies' rights to elect such treatment reads: "They are encouraced to do so" (emphasis added). That is the agreement
s
- 15 l made by the members and approved by the FpC. It has fostered 2
reliable and efficient centralized bulk power operations over a i nulti-company six-state area for. years. It encourages precisely what NU intends to do here.
II. ANTI-COMPETITIVE- A8PECTE OF UNCONDIT!oHED MERGER A. Ih3__Merced Coreanv's Power over Transmitsien and Surrius An array of experienced utility executives.and well- i qualiflod ecencmists testified that the merger would have anti-competitive impacts by giving the merged company vast corpetitive strength in selling and transmitting Palk power in New England, ,
and in a regional submarket called " Eastern REMVECH (Rhode Island
, and Eastern Massachusetts). .
These concerns were especially well-focused and arlaculated-by one of RU's supporting witnesses, Mr.-Bigelow, Vice President of the New England. Power Company, who corroborated the opponents' e
conclusions about the need for protective conditions. Mr.
Bigalow's conclusions about the merger's anti-competitive impacts, in an industry and region where he has forty years of experience, were bolstered by his comparative neutrality 1/ and openness. As the Principal New England Intervenors said: "[ijt was not a high-priced consultant, rather the plain-speaking Mr.
, Bigelow, who capsulized the fundamental change that will-result from the proposed mergart '. . . combining into one entity l control over the single largest source of surplus capacity-in New England with control over key transmission facilities necessary I. to provide, access to alternative sourceslof bulk power inlthe region'"-(Br. p. 10, quoting Ex. 261, p. 21).
, Utilities in Eastern REMVEC will be surrounded by territory of the merged company, and completely dependent 1upon:it to get electricity in from other places. NEP correctly argues that an unconditioned merger would create a " virtual wall around
! electrical systems in southeastern New England and the three million customers they serve" (Br. pp. 5-6) . . As Montaup Electric Company's witness, Mr. Taglianetti, put itt "(i)n essence NU i
would have a ' transmission curtain' around Montaup and other Eastern REMVEC utilities" (Ex. 537, p. 6). Even NU's own 1/ Mr. Bigelow's company was certainly "not opposing" the merger (Tr. 4751). But if it were turned down, "(sjo be it,
. - . ..the impacts that it has on us are not such that we should take a-strong position. -They're certainly not doing this merger as'a favor to us . . .-(blut they have-addressed the' concerns that.we had . . . and we have no reason to oppose it" (Tr. 4750-4751).
, - ~ _ . . . - - , _ -- -
! 16 l -
witness, the Executive Director of Harvard University 3s Energy and Environmental Center (Mr. Lee) candidly acknowledged that
"[w) hen I first heard of this merger (before any wheeling connitments) I was very concerned about the ability of a utility to control the flow of power from northern New England to southern New England" (Tr. 5934).
The merger would leave 45 Eastern REMVEC utilities
" isolated" inside the curtain (Ex. 416, p. 17). This situation is apparent from the maps (113, Exs. 4, 57, 240). 5/ These companies, confronting increasing opposition to the siting of new power plants within their region, will need to rely on ot.her 1 outside sources for supplies of bulk r.ower, and on other utilities to get that power into Eastern REMVEC. To get that needed power -- whether from non-utility generators (NUcs), frem other New England utilities, or from Canada -- the Eastern REMVEC buyer needs transmission. Absent conditions, the merged company would, as Mr. Bigelow said, " create a near monopoly "
over key transmission facilities and corridors . .. (Ex. 261, p. 23).
Because pSNH " controls the only transmission lines linking Maine and New Brunswick to the rest of New England" (14.),
Eastern REMVEC utilities will necessarily have to deal with the merged coepany in order to get pow 3r from those areas. The merged company's control would also extend te access from New York (Tr. 4505). NU controls.72% of the New York-New Engicnd
" interface" (Ex. 261, p. 23) -- facilities which transfer power between the two regions -- and needs only a smal1 portion of that share for its own use. NEP.and another company own and use the remaining 26% for their own needs (ld.) Thuo n'large portion of-NU's 724 is the only New York-New Enginnd capacity available for use by others. When this capacity is taken togather with the New Hacpshire Jines, the merged company will control some 92% of the capacity available for transmission to New England (Ex. 261,
- p. 23 Ex. 262). As Hr. Bigelow said: "the NV-PENH merged company would essentially control access from the southeastern portion of New England in all directions outside, both the north and the east into Maine, Anto New Hampshire, and west to New York" (Tr. 4505).
This control would give the merged company the power to demand excessive charges for transmission, or to deny it altogether, while favoring its evn excess generation.at high prices (ld, at 24). That the merged company could use its pcwer to force its ovn extra goods on buyers elsewhere is an especially significant concern because NU-pSNH will have the largest block of surplus capacity in New England (1d. at 22) .
f/ The .ompany's own map (Ex. 4) is reproduced as an attachment 4
to this initial decision.
- i i
17 i i
NU, while acknowledging that the merger will produce
- cocbined surpluses, argues thht the merged company's surplus
, capacity should not be treated as a " product market" for purposes of analyzing competitive impact (Br. pp. 27, 38, 39-40); it ;
stresses Dr. Hay's statement that focusing on surplus would be like measuring the baseball concessionaire's power "one hour after the ball game is over," when "the guy says 'I've got all
- the unsold peanuts. Goodness Gracious, do I have a monopoly?'"
(Tr. 5747).
But the Commission has squarely recognit9d such excesu as. a l market. Public Service Co. of Indiana, 53 FERC 1 61,376 at s
! 62,205 (1990). Market power over today's unsold peanuts can'be critical at tomorrow's gane, and if that narket power extended to arenas and stadiums all over New England, the Concessionaire's contro: 3eecmes all the more significant. Moreover, as Mr.
, Bigelow said, the excess capacity creates a motivation for the merged conpany to favor its own " unsold peanuts" over someone
- _ else's -- even if the other suppliers' goods are cheaper.
The merger's impacts are no less anti-competitive when-viewed'from an all New England perspective. Eastern RIMVEC utilities will be the buyers from northern sellers who may be in Cinada or Maine (Ex.'261,'pp. 7, 26). Many of the small power 1 projects, upon which the southern New England utilities will rely, will be locLted elsewhere in New England (Id..at 8), and transmission will be necessary to get the product moving south.
Those northern sellers will need to break through the NU-PSNH .
stronghold in order to get their power to southern New England '
buyers. The merger, with its resulting. transmission " curtain,"
l cuts the regions off from each other.
B. Assert ed Alternatives - to- RU-PSNH ,
(1) Non-Utility Generation The most significant-alternative is non-utility generation L (NUGs) -- electricity produced by various persons (e.91, owners ,
of cogeneration facilities-and small power producers) who sell ;
} power to utilities. The applicant (through Dr. Kalt's testimony) .
takes the view that NUGs are "a' viable resource alternative" for utilities in Eastern REKVEC and all of New England (Br. p. 44).
Opposing intervanors and Staff challenge this reliance. ,
Applicant's case for NUCs rested on'the proposition that i they were important alternatives because the Eastern REMVEC utilities had said so in various documents (Br. pp. 44-45 and exhibits there cited). The question is not what intervenors- have said, but whether the NUGs' future.i.s sufficiently assured as to 1
-varrant the conclusion that they could neutralize the merged company's strength.
j i
l I
su _
~
18 subjectTheto" many uncommitted" NUGo, which applicant counted on, are uncertainties, such units while planned, have not yet received conntruction or environmen,tal licenses (Tr.
4724-4725). The likelihood of a NUG receiving all necessary permits varies from license to license and state to state (Tr.
4726). But in urging tnese NUGs as realistic alternatives, RU treated them all alike, making no individual analysis as to ,
whether 4727, 4750).
any particular plant would ever actually operate-(Tr.
Indeed, the documents upon which applicant relied contained many NUG plants which turned out to have been substantially delayed or cancelled altogether (Staff Br. pp. 30 '31 and exhibits there citedt4746).
4739-4740, 1g1 also, Tr. 4729-4730, 4732-4733, 4734-4735, 4737, For example, UU counted on a project which had "run on away intothis a lot of local cpposition" so that "everybody's backing one" (Tr. 4738).
i Hr. Bigelow (whose company plans some reliance on NUGs) agreed th>t "there's a fair degree of uncertainty" in the estimates relied upon by NU as to when siting and environmental licenseo vill be granted (Tr. 4736). The shortest possible i elapsed t.ime between FUG application and actual operation could not be "less than three years" (Tr. 4749) . NEPOOL itself '
recognizes a "high uncertainty" in comparing those NUGs which are planned and those which vill actually operate five to seven years later (Ex. 55B, p. 32).
When asked whether one should not look at NUG projects individually to make judgements "about the extent to which they are there Bigelow or are coming there or are not going to be there," Mr.
answered: "(albsolutely. There are a very wide variety of conditions" which could affect the outnerne of each such ;
proposal (Tr. 4750). Yet documents upon which NU built its case i for NUGs as a competition-disciplining device made no such project-by project study. They simply compiled whetever various utilities said about NUGs and did not go beyond that (Tr. 4750).
" Contingency" NUGs, also relied upon by NU, are even less reliable. In 1989 NEp00L explained that "(t)he economics" of resources "have not been evaluated . . . "'
1990, even after redefining " contingency" r(Ex. 55B, p. 13). In esources to include only long-term " identifiable" projects, NEF00L still said that it "has not conducted detailed reliability or economic evaluations of those resources," and that there was only a 304 probability of such contingencies being available as projected (Ex. SSE, pp. 19, 21).
There are other difficulties inherent in relying on HUGS as alternatives to the merged company's strength. NUG developers have lost time and opportunities because they'needed to achieve nufficient economics of scale (Eastkrn REMVEC Intervenors Br.
1 l
l 1
i
, 1
N l
19 pp. 26-27 and record references there cited). Siting coal-fired FUGS in Eastern REMVEC faces major environmental opposition, risks, and uncertainties (14. at 27-28). Gas-fired WUGs in that region are no more certain, considering limits on firm gas transportation and on availability from local (4stribution cocpanies (14. at 30-31). .
Taken as a whole, these considerations sh6w that although Nucs will certainly optrate, the magnitude and likelihood of their full projected availability is not such to support them as remedies for the merger's anti-competitive potential.
(2) Demand Side Management
" Demand side management" (DSM) refers to programs and devices ained at causing consumers to use less electricity or less costly electricity -- i.e., to reduce the demand for electricity from the utility's system (Ega, Ex. 55, p. 106:
" Glossary,of Terms," pp. 19-20). There is no question that Eastern REMVEC utilities invest seriously in -- and plan for.--
these programs and their results. The issue is whether these efforts to reduce demand constitute meaningful alternatives to the merged company's competitive strength.
The Staff's Dr. Baughcum explained that DSM techniques are not alternatives to FU's enrket power because they "are not orecuSt aubstitutes but p;sigy measures" (Ex. 549, p. 42, emphasis in original). The consultant for the Mass. Systems (Mr.
Win: 2rfeld) also took the view that DSM was not-a substitute for bulk power, explaining that automobiles with fuel-efficient engines were not substioute products to gasoline- (Ex. 416,
- p. 24). Conservation approaches are not the same thing as alternative sources of power or of transmission; not, buying the product is conceptually different from buying an alternative i product. A monopolist's power could always be rationalized on-the theory that people could choose to buy less of -the product.
Dr. Baughcum properly reasoned that market power should not be tested by a customer's ability to cut down on purchases.
But wholly apart from conceptual difficulties, there are other reasons why DEM is not an effective device;to police the merged company's power. First, DSM programs take time. Dr.
Baughcum explained that techniques require approval of state commissicas, and necessarily involve administrative proceedings; several years are then required for effective implementation (Ex.
549, p. 60). As expressed by Mr. Kahal and Dr. Swan, witnesses for the Maine and Vermont regulatory authorities, two Maine utilities, and the American Paper Institute (Ex. 449, p. 37):
I a a
-- - =. .. . . - - . - .
1 l
J" 20 DSM load savings do not spring into existence overnight. In addition to research,-testing.
and the regulatory appeal process, DSM programs are normally phased in over time. j It takes several years to ' ramp up' a program and achieve the targeted savings, i They show that NU's projected DSM_ savings will take ten years to get from 215 MW to 2213 MW (Ex. 453). Some projects a involve a gradual customer sign-up over many years; others become; i effective only when customers' old-appliances wear out, or'when new homes are built (Ex. 449, p. 38). The Executive Director--of 1 the Massachusetts-Energy racilities Siting Council explained that it took two years for certain programs to get from beginning to initial implementation, and another five years for full public :
introduction, installation and performance (Ex. 444, pp. 22-23) .' .
As he- said, DSM savings "can take many. years . to appear" (ld.)
DSM programs are marked by uncertainties. political-considerations are relevant. NU's Mr. Lee warned about "just-in- i time plcnning," where, because of surpluses, "the pressure of i governstnt to move anead different-programs, (DSM, inter alia)-
begins to. wane" (Tr. 5914-5915). _ Boston Edison's witness testified to " ansiderable uncertainty" as to whether DSM-sources "will be there as planned" (Ex. 524, p. 19). Moreover, the l amount saved may not be significant. COM/ Electric's Mr. Sayer, with nearly twenty-five years of experience in New England utility planning, said that "DsM would not significantly.-impact" his company's foreseeable supply needs-"[e)ven11f the maximum foreseeable potential of the next 30. years were achieved ... .
(Ex._534, p. 14). Mr. Levitan, a consultant for_ the New England Cogeneration Association warned-that: "DSM.often requires long lead times e is difficult to measure, and savings can be hard to sustain" (Ex. 500, p. 11). He concluded: "there is' reason to.
believe -- as NEPOOL has stated - that.DSM will continue to be i the largest uncertainty among alternative ' supply' sources" . (Id .
L at 15). NU's Dr.'cagnetta acknowledged Hynggggg{pgyu {p ggg. ggd agreed with the applicant's statement that "(dlisagreement.is
, fairly common among-industry professionals concerning how much t i
l savings are available from conservation activities and what-those-
[ savings could be, and how best to acquire them"'(Tr. 5623).
l (3) -Felf-Owned Generation l
l NU also .r!!9d on self-owned utility generation (UG) as an alternative to any potentia 1' exercise of market power-by the merged company (Ex. 55, pp. 88, 110-114). The record is'not sufficient to support such reliance.. That a utility can !
sometimes build a-new power' plant does not dispose of the matter.
The road to'such an alternative can be longLand tortuous.
l
21 Siting, licensing and environmental opposition are strong.
RU's Mr. Schultheis acknowledged that " construction of utility generation projects faces even greater opposition than non-utility generation projects" (Tr. 3573). Even when successful, such lead times.construction in the region necessarily involves substantial Applicant's own documents show lead times of seven and 134, nine
- p. 3 years for certain projected self-owned generation (Ex. j Tr. 3577-3578). Staff showed-substantial-lead times for other How England power plant construction:: "Bangor Hydro listed four hydro projects that, in turn, took'9, 14, 14 and 15 years to bring on line .
Central-Maine Power (CMP) listed several power projects requiring 4-12 years to bring on-line
,and) estimated-that licensing might now take 5-7 years-. . . -
MMWEC indicated that-it required more than'seven years to bring-on line the first unit of a 511 Mk' power project"- (Ex. 549, p.
7B). Those hurdles make new utility generation too doubtful to warrant reliance as a competition-disciplinary-device.
(4) other " Alternatives" ' ' '
Nor are there other real alternativcs. The proposed MMWEC line to'New York is speculative; such a facility could'not be built without the cooperation and agreement of those utilities whose
- p. 23).
servich areas would be crossed (Ex. 261L, p. 81; Ex. 444, (Ex. 55, p. The possibility of increased-Canadian access " post-2000" 116) is, by its terms, of no significance for at least ten years -- during which time the merged company has vast-power promote.over north-south transmission and its own-surplus to-to NEPooL's Theown option of " leaning" on NEPOOL resources is contrary principles, and has no meritJ(Eng, Principal New England Intervenors Brief, pp. 39-40). Brief, p. 30 and Eastern REKVEC Intervenors 5 5F,, p. 2) t, As NU's Mr. Schultheis himself once said (Ex.
The NEPOOL Agreement has always been, understood to provide that the Participants have the obligation to install or contract for capacity adequate to meet-their respective capability Responsibility.and thus provide for their share of pool reliability.
The C6pability Responsibility Adjustment and Deficiency charge mechanisms were created to deal with situations where Participants inadvertently misjudged their Capability Responsibility or resources and ended lup
-short. This mechanism was not intended to be considered as an alternative choice-to meeting basic obligations.
d 22 C. 19.Ilp-term /Short-term Taracts The evidence shows that anti-competitive consequences are not limited to the short term. NU's own studies of the New England market show that "(1)ong term competition appears to be-greatest from potential cogeneration projects and corridor.
purchases" (Ex. 123B, p. 638). This is the very along-term" competition which could' be most easily frustrated by the merged company's power _over transmission. Power from New Brunswick or-Quebec, which can go south only if, as, and when NU so allows-is '!
only as " competitive" as NU wants it-to be.
It is true that until NUG facilities become commercial, Eastern REMvIC utilities will rely "for a significant portion of
, their pcwcr needs" on short-term purchases cf balk power from other utilities in and out of New England (Ex. 261',-p. 6). But the Eastern REMVEC need for-transmission.ic no less critical over the long run. The arrival of the NUGs does not somehow destroy NU-PSNH's. power; indeed such operations heighten 1the importance-of NU's control (Ex. 261, p.7).-
commercial NUGs are of no avail _unless their product can get south. Limiting Eastern REMVEC buyers to independent generating sources inside their own region would not-be "in anybody's best interests" (Tr. 4506). As Mr. Bigelow explained, the region's increasingly competitive wholesale power. market demands _a wider range of alternatives, which, in turn creates a marketplace where potential resources compete with each'other -- all to_the customers' ultimate benefit (Tr. 4506-4507).
NU's own witness, Mr. Lee, acknowledged that it is "better for the region (Eastern REMVEC) to have access to as many' sources as possible coming in from the north" because of " price and economics!' considerations (Tr. 6035-6036). Mr. Digelow said that the best "long-term power supply opportunities would-be located in Maine and New Brunswick" (Ex. 261, l p. 2 6) , and there must be a way to get those goods to the southern market. ~That way--- the only way -- is via the merged company.
Of course NU's strength may be most acute when its surplus creates a motivation to chill' competitive goods'while favoring o its own merchandise. But NU's control over transmission does not i vanish when the surplus ends; it, like the merger, remains forever. Surplus or not, "short" term or."long" term, the only way to get northern power to southern buyers would be over the merged company's lines._ As expressed by professor Kamerschen, NEP 's e xpe rt , (Ex. 265, p. 9):
l J
23- ~
. . ._The' merger wouldigive NU,.both now and' .;.
in the-future, controlsover'both-ofLthe major:
transmission corridors necessary to: import 1 bulk power;into; southeastern New England.: j This includes the-east-west corridor to New; q York and the: north-south corridor through:New . -
.Hampshira,_which is vitaleto= importing. bulk '
power,from:New Hampshire,cMaine,LNew- .. ,
Brunesicknand Nova Scotia.1 (Emphasisiadded).: '
Nor is the "short-term /3ong-term" dichotomy / especially 4
moaningful(for thisiindustry in this:partLof the. country.: As; expressed by Mr.1Legrow,1 Boston' Edison's1NEPo0LlandLpower: supply; ,q Adr.inistrator-(with soventeeniyears!ofiexperienceLinithe New- '
England utility business)'~, "We are always in:relatively short--
-tern capacity planningjproblems!"(Tr.15283). - The company is alwayscin the=need'to either sell excess J capacity or to buy. additional' capacity toL cocpensate for plants that?we've1 planned ~on l
that don't:come:inionttime,nor;for' plants
% _that do come in;on-timesbut theJ1oad hasn't developed such:that weinead'to sell-or:we.
~need to purchase _(Tr.: 5283-5384)'.- -
This "short-term" problem'" recurs? continually" on BostonLEdison's ;
system and on every system (Tr:..5284) : Dr.cReynolds;said thati l for this reason, utilities are "always; operating in the'short- '
run" (Ex._520~,_p. 7). Lsee alsoctheitestimonytof NU:-witness,-Mr.
Lee. . concerning utilities ' "just-in-time planning" L(Tr. 5914 -
5915).
l The anti-competitive:effectsJofathis merger ~, if uncondition'ed,-will,-_therefore, exist over theiyears .immediately-following the transaction,'andswillicontinue"forethe: foreseeable {
future--- over the-"short term" Land:the "long; term,"~however -1 those-wordsLaay:be defined.
For theseireasonsp.an; unconditioned ,
merger would. have: serious anti-competitive consequencesD forf New-England generally _and for Eastern REMVEC1 utilities in"particular.
D. ~ Discutes About Numerical Measures. I Given the above findingsias to the' anti-competitive consequences ,of the merger, - there 'is .no:need in this case to resolve; disputes;about the relative significance of various Herfindahl-Hirschman Index--(HHI)inumbers;:offthe Department of .{
' Justice's Guidelines reference to a=354 market share; .or of1the -
]
Guidelines themselves in the context of_an electric-utility i
[ merger.
'Moreover, these tools are designed in significant part to .
measure the# potential for post-merger collusive behavior-(Ex..
a I
24 549, pp. 11, 23; Ex. 551, pp. 20, 22, 24, 29, 13-34). But the likelihood of such an event -- UU/PSNH colluding with other firms
-- was virtually non-existent. IN 's Brief (at pp. 21-22) accurately portrays the uncontradicted testimony:
The only factaal evidence on the issue _was provided by the panel for-the Eastern REMVEC utilities whi tettified in unison that the (collusion) conception.was inconsistent with any behavior they had even heard'of and inherently. unthinkable-(citing Tr._5275- ;
5282).
On this record, therefore, the Guidelines and "HHI" numbers may have loss meaning -- a circumstance which also militates against attempting to adjudicate a' controversy about them.
Finally, as the Commission said in Public service co. of Indiana, 5,1 FERC 1 61,367 at 62,205 (1990):
There are various methods of analyzing market
\ power such as HHI determinations, market shares, concentration ratios . .. However we do not believe that any one type-of evidence is sufficient for this analysis, and we will not rely on any mechanical market share analysis to determine whether a firm has market power.
Here there is abundant evidence that the merged company will' hat " market-power" by controlling the New England transmission-
" curtain" and the excess capacity. An examination of the-disputed numerical devices would serve no useful purp,ose in the circumstances of this case.
III. CONDITIONS An unconditioned NU-PSNH merger would have anti-competitive consequences. For that reason, the parties focused extensively on the question of appropriate conditions. Section=203(b) allows the Commission'to approve an acquisition of control "upon such terms and conditions as it -finds necessary or appropriate to secure the maintenance of adequate _ service and :the: coordination in the public interest of facilities subject to the jurisdiction i of the Commission." The parties urge a variety of generic
! canditions involving NU's General Transmission Commitments; t ransmission over the New Hampshire Corridor, a Regional i Transmission Arrangement, and HEPOOL voting. In addition, various-intervenors press for particular individual conditions.
25.
A. Ehjalina (General Transmission commitments)
Section 203 (b)s conditioning power. allows .the commission to order. wheeling when necessary to ameliorate the merger's likely anti-competitive effects (21Ah, aucra at 61,282). In-the instant case, virtually everyone agrees that transmission access is-
- i essential in order to render the transaction consistent with the public interest. EJ implicitly admits as much by volunteering '
its own post-merger General Transmission Commitments (Ex. 178).
These reflect significant advances over the pre-merger world of ,
ad hoc negotiations -- a regime which posed serious difficulties t for transmission customers.- Egg, summary.at pp. 43-45 of the s Eastern REHVEC Brief.
Many .intervenors, together with -the Staf f, propose their own
" Merger Tariff"; others offer additional suggestions, with .
varying degrees of detail as to what the company's post-merger transmission ought to.be. But the company's own Commitments are l an integral part of its proposal, and as one of the intervenor's witnesses'said, are "a. starting place" (Ex. 439, p. 4). Section l 203 requires a determination as to whether "the proposed . . -.
acquisit-lon" will be consistent with the public interest. Here the " proposed" transaction includta the NU commitments, and they '1 must be the focal point of the transmission condition inquiry.
Certainly they can be modified as necessary. If the finished product -- the NU-pSNH merger,.with the " proposed" Commitments as modified -- is consistent with the public interest, that is the end of the matter. .Whether-some other' plan might be "better" from a custocer's vievpoint is of no significance.
(1)- Time Dimensions (a) The company proposes to offer transmission !
service in increments ranging from 30 days to five years. The 30-day period for firm service reflects NU's compromise from an earlier position, is duplicated. in the intervenors proposed Merger Tariff (at p. 7), has wide' support (Tr. 7075-7078, 7090-7091), and raises no question worth discussing.
As to non-firm service, -the intervenors' proposed tarif f (at
- p. 7) offers a one day minimum, instead of the company's seven--
day minimum (Tr. 7079). Intervenor evidence . showed the f requency of short-term transactions involving a few days .or hours and -
requests for short-term service for periods of less than seven days. KKWEC's consultant explained that NU, by demanding minimum tcrns of seven days for transmission service as short as one day was able to " lock () up~this short-term business for itself by refusing to allow others to procure the wheeling service -
necessary to compete for it" -(Ex. 313, p. 19). .The company argued that a minimum charge of seven days for one day's worth:of service was a reasonable balance between the needs of the one-day customer and NU's need to maintain the transmission system all l
26 year (T?. 7101). The applicant's point was not supported by any particularized evidentiary study. The record supports the intervenors, particularly in the context of the merged company's increased power. The requisite transmission tariff must offer firm service for a one-day minimum term.
(b) The company's proposed five-year limit on l firm service was strongly attacked as inadequate. The i intervenor-Staf f " Merger Tarif f" instead envisior.s of ferings of l " twenty years or longer by agreement of the parties," with a customer option to extend the term for the contractual life of the facility generating the power to be transmitted (at p. 7).
l These inten 'nors correctly avsert a need for more than five
! years' worth of service. Mr. Taglianetti, an executive with l responsibility for transmission contracts, stated: "[m)ost power contracts cover significantly longer periods of time" (Ex. 537,
- p. 8). Mr. Bigelow said that QF and similar projects (11g2, NUG's) "need assured service . . . for the long term, coincident with their power contracts" (Ex. 261, p. 18). The Staff's transmission witness, Mr. Krezanoski, testified that twenty years would be,the appropriate maximum for transmission service requests .(Ex. 601, p. 37) . The RUG developers, Mr. Kearney and Mr. Riva referred to twenty-year supplies and twenty- year contracts as underlying certain projects (Tr. 4912-4913, 5016).
Ett a112, Ocean State Power, 44 FERC 1 61,261 at 61,984 (1988) (a
, twenty-year contract between a developer and certain Eastern l REMVEC utilities).
l The applicant does not want.to commit itself to transmission for longer than five years, because it cannot predict what the situation will be then. But some reasonable guarantee of firm transmission will be essential to discipline the merged company's competitive power. Mr. Lee of Harvard's Energy and Environmental Policy Center (applicant's witness) testified that developers need the assurance of "some certitude" (Tr. 5944), and NEP's Mr.
Bigelow referred to " assured" service coincident with contract length. Five years of " certitude," to be followed by all the difficulties inherent in ad hoc negotiations, is not enough for developers and financiers, who may well be looking at a $450 million investment in a facility with a twenty-year obligation (Tr. 4912-4913, 5016).
The intervenor-Staff proposal envisions a tarif f which would offer firm transmission service for the life of the commitment underlying the facility in question. But such an open-ended obligation demands too much. During oral argument several counsel spoke of a maximum finance commitment of 35 years, advising that they knew of nothing which went past that period (Tr. 7072, 7113). But it does not follow that bankers should necessarily dictate transmission terms, rather than follow them.
Moreover, counsel's statements had some uncertainty. Considering
27 the transmission customers' need for "some certitude," the record ,
more clearly justifies a twenty-year maximum, as opposed to- I thirty-five years. The merged. company's transmission tariff must of fer service for up to twenty years, unless, of course, the parties agree on something different.
(c)- The-company proposes-to file its transmission tariff within'60 days following. consummation of the' merger (Tr.
7134). The intervenor-Staf f proposal _ includes an interim transmitsion rate, which, assuming Commission approval of the _i merger, would govern-the merged company until such time as it.
flied whatever tariff the Commission had required.- This interim 4 step, apparently designed to obviate certain transitional' problen.s which arose in the Utah proceedings,-1/_is; 3 unneces sa ry . I see no- need for requiring ~ one tarif f (with ;
potential for controversy, charges, collections and refunds).to-be fo11v.*ed- by yet another tarif f, with its own potential- for still other disputes. i Avoidrng a transitional period will make it unnecessary.to- i require a transitional tarif f. To achieve this-result, consur.mst-lon of the- merger must be conditioned on the concurrent filing of a compliance tariff which; fully reflects all of the terms and conditions set out in this initial decision. - Such a condition should encourage a prompt and; fair compliance fi' ling because NU could not begin to reap the merger-benefits-without it.
(2) Various other Matt'ers (a) The company's proposal contains a reciprocity clause (Ex. 178, p. 7) which requires NU-PSNH's wheeling customers to of fer equivalent transmission service to the merged - .
company. The Staf f and some intervenors rightly challenge .this. "
I. provision. There is no warrant in this merger case for imposing-
! such a requirement on all utilities who use the company's 1 transmission facilities. Conditioning the merger upon NU's agreeing to wheel is a necessary step to' ameliorate the potential anti-cccpetitive consequences, and thus render the transaction
, consistent with the public interest. These considerations do not justify forcing the transmission customers into action.- They are not seeking to merge; they seek only to get power through-the HU-PSNH " curtain." Notions of reciprocity,.perhaps relevant in _
l later deliberations about a Regional Transmission Arrangement (gag,Section III, C(1) , infra), have no-place here.
(b) Many of the; opposing'intervenors argue against the merged company's refusal to exclude " tie,line" and s/ Tr. 7134-7140, 7187-7188; gge glas, Utah Power & Licht Co., ,
45 FERC 1 61,095 (1988), 51 FERC 1 61,295 (1990).
d
28
" lost opportunity charges" in its transmission commitments (New England Intervenor's Brief, p. 35 t Eastern REMVEC Intervenors' Brief, p. 44). The merits of these disputed charges are at issue in other NU proceedings pending before the commission which, indeed, involve some of the'same opponents and lawyers (NU Reply Br. p. 50; Tr. 7131, 8172-8165, 8178-8181). In these.
circumstances, there is no need for still more litigation about them here. Consummation of the merger is conditioned on the merged company's agreeing to accept the TERC's decision as to the i validity of those challenged charges in the dockets cited in the ,
above transcript pages.
(3) Constraints; priorities; Removal Costs; etc.
" Native load" customers are located in the service areas which the utility is licensed to serve. The merged company's native load customers will be primarily the retail customers of Connecticut, Western Massachusetts and New Hampshire.
Transmission customers outside the NU-pSNH service area want to use the mdrged company's facilities to transmit or " wheel" power to their areas. Sometimes physical constraints will preclude the merged' company from carrying all the electricity that.is demanded by both groups (native load and wheeling customers). Much of the controversy about wheeling conditions involves the choices to be made when the merged company confronts such constraints. What happens when the constraints cannot be removed? . Alternatively, when the merged company is able to make-necessary upgrades, who pays them?
(a) Priorities when Constraints cannot Bo-Removed Although the merged company is willing to build such upgrades or additions as necessary to remove constraints, siting, l environmental, or other regulatory concerns may-sometimes l preclude the work. In that event, priorities of access must be established among those demanding the merged company's facilities. In the context of this case, the " priorities" dispute involves dellars, not failures of. electricity. The priority " winner" gets cheaper power; no one loses electricity.
The merged company would favor its native load-customers . ,
when an irremediable constraint produces a conflict between their needs and those of transmission customers. Some interveners l argue against such a priority, reasoning that concepts of
" parity" or " nondiscrimination" require. that transmission customers be allowed to sign on with the merged company,.and be treated the same as the rest.of the company's customers. Under this approach, every customer, native load .or wheeling, would get equivalent treatment, presumably sharing in all available power.
l
H -*
-s e ,
i 29 These intervenors believe that such. egalitariani service .
would create more reliable wheelingc and1thus:furnishTa stronger?
~
competitive alternativa to NU-PSNHis-strength. :But an approach = '
which equates wheeling with a utility's obligation, to: serve its :
own: retail customers is fraught with- difficulties.
L The merging companiest very-existencesiare-linked to-their obligation: to serve native load customers. "That=1s why they-hold lawful monopolies.= - The native load customers haveLregularly-borne the costs of the FU-PSNH- f acilities. : ' The : future:
transmission customer, who.wants toluse those1tacilities, has- :
not. ~The ratepayers of-NU and.PSNH,-who1have. paid;for-the facilities through the-years' have used them, have"plannedLon a7 them and' have relied: cn themt ' NU ' and PSNH : have l correspondingly-- ;
planned forithose ratepayers~ years into the~-future. This! -
situation is not tunique to NU .and,PSNH., EveryTNew; England: .
utility favors its-own. native: load. LNothingiincthe:NEP00L agreement -requires its members to surrender:theirinativeLload -
. preference, and none do.- Even"the proposed < intervenor-Staf f 4 merger tariff recognizes that native load should: prevail inLeases? y where constraints cannot'be removed (Tr. 8143-8147). f
's _ . > l r There ' is no legal ~ requirement that,a utility equalize cits native load customers with-al1~others. cThe antitrust? laws' .
" essential-facilities" doctrine recognizes thellegitimate rprimacy- ,
i of the company's own customers. Even if NUls? faci ~11 ties were? ,
" essential," that status ~wouldunot warrantidestroyingsnative load 3, preferenceL(133, Utah-Power &-Licht Co.,?45 FERC: 1 61'095-at , >
( 61,287 (1988)).1 iltab expressly: recognized thati the merged '
L company.could reserve from its wheelingLobligations soumuch-of- -
its capacity as; would. be necessary to' serve: nativa load (45: TERC at 61,291). E33.also, City of Vernon vi Southern Cal'ifornia ;
p Edison Co.,,No.,CV._ 83-6127,- C.D.iCalif, Aug.130,;1990,1pp.: 25 28 :
.("[r]easonable access does.not1 include:thatLwhichJwould harbor
. Edison's otherLeustomers . . . Edison is;notlobligatedfby the-antitrust laws to confer a benefit :n Vernon at rthe expense?of!
its own customers-.-, .LEdison's:da.lal offaccessLto11ts
-transmission system was. motivated by a desire to' benefit its'own -
customers'. - . . ")- .
'The-reasonableness of a-nativenloadl-preference is-also reflected in the: Federal. Power Act. Section;217(a)sprovides:that' no wheeling'orderLmay be entered under-Sections 210 or 2111 unless the Commission: determines-that=such order "will.not impair the - .
ability of any7 electric; utility affected:bylthe, order to= render- .
adequate service to its . customers."~ This' provision, whilennott binding in a section 203 case, nevertheless-reflects significant l
legislative approval ofLpriority for native load.
a 1
l 1
7 4 * " t
+f g *g j p y g fJi7r-v g - er 9- y h g gy94d-e 4i
, o a .* a 4
s 30- N
'NU's: choice,-to prefer nativelload when: constraints are
. immutable, is f air, and . it strikes a : reasonable balance between t conflicting _ interests.
(b) Cost, Allocation When NO Can Make;Necessaryf ;
Upgrades-When the merged company _is ablesto build _the_ upgrade,~who pays for it? All? parties agree that the coststof building a:
" generator lead, a feed;from the generating plant hooking upite the network . transmission system" -can properly; be- borne 'by -the ,
transmission customer-(Tr. 8062-8063).~ Beyond-this,-there ars= "
differing views.
Those intervenors whs urge th'at;nativeUload.and transm'ission
~
customers.are-all:the same would " roll-in" futureLupgrade costs '
< with all other company costs _andicharge.them toteveryoneia: part-of NU's general: rate structure.t - The . applicant and. a : number of-opposing intervenors disagree. .TheyTwould' allocate the costs'of-future needed upgrades.according.to: concepts ofirasponsibilityr but thay_ differ widely over=theLappropriate standard of :
measurement and other details.
~
" Rolling in" of1 upgrades, while administratively: simple, . a blends everything and everyone together,1 and thusLignores any ~
concept of responsibility. There,is-nothing: inherently 11mproper !
in attempting to allocate: costs to those . responsible- for. them.
-The Commission,ewhile' generally 1 adhering to rolled-in; pricing,.
does-not preclude'particularizedicost---allocations ~toispecific.
customers.where appropriate. LUtah Power O' Licht Co.,'45'FERC'1- 1 61,095 at 61,291, fn.1163~ (1988) ;'Public Service - Co. of Indiana, 51 FERC 1 61,367-at 62,203 (1990), opinion =on. Rehearing, 52'FERC 1 61,260 at 61,966 .(1990) ; Northern states Power Co;,J52:TERCi1 -
l 61,12 3 at 61,54 3 - (1990) .;
Even the Staff's transmission witness =--cwho,would abolish native l load ~ priority and " roll in"! upgrades to.sverybody - ,could
- not oppose ' incremental- pricings in - principle;-(Tr.-- 6539) .u When asked'whether it would be' appropriate,-"if : procedures are available . . . to efficiently 11dentify which> customers 1cause:
whichicosts to-beEincurred,;.D. .:to assigntthoseLeosts=to those:
customers,"ihe stated: '"I<believe.that a fully. developed and
-supported: form of incremental 1 cost-pricing is a potential neans of pricing 'the transmission? service" (Tr.:6540). q t
If an upgrade-is caused _by transmission 1 customers,:why.
-should they not pay for it? Conversely, why should.anLNU retail ratepayer in Hartford, Connecticut have_to pay-anythine_for a facility.used;by a Boston utility to wheel-power over:NU's. lines to Eastern Massachusetts?- Why:should:the-Hartford homeowner-subsidize.the Bostonian'byEso.much as even one mil?i Why!should the New-Hampshire: Commission,.forsaxample, authorize an-upgrade a
, 4 , ,si - , + . . . . - + r --.~--..*+4 --..eer .=-< a ~+h- -
31 to benefit Massachusetts wheeling customers, if its costs are to ,
be partly borne by New Hampshire ratepayers?. Allocating.
particular costs to those responsible for them -- where-that can be done feasibly -- is fair, and altogether consistent with the public interest. As the Commission said in System Enerav Res'ources, Inc., 41 FERC 1 61,238 at 61,616 (1987),;"(p)rinciples of fairness in ratemaking~ support the concept that those who are' '
responsible for the incurrence of costs be the~ones who bear-those cost burdens."
For these purposes, NU would' use the test articulated-by Mr.
Schultheis (Ex. 157, p. 40). !
1 The standard that NU uses is that the c
wheeling customers must make a RIs reta contribution whenever the facilities would not have been needed but for the wheeling transfers across a constrained interface..
This means that NU's native load customers-Say for the new facilities they create the need for and wheeling customers pay for the-N sfacilities they create the need for.
The Staf f and many intervenors believe that- thin test improperly loads the scales by creating a-presumption in favor of native load customers and against transmission customers (Tr.'
8118-8119, 8121). They propose a merger tariff ~which leans the other way, giving primacy to any transmission agreement which precedes any " subsequent, incremental . firm service ,to- retail-customers of the Company" (Merger Tariff, p. 11). They would thus create a kind of " seniority system" in which-any signed-cn transmission customer takes priority over whatever comes later --
including NU's own native load. growth.
l l This proposed dichotomy between "old" and "new"-native load has its own difficulties.2/ The distinction did not receive close scrutiny during the hearing, and its details.were not fully l
2/ So far as appears, there is no Commission. precedent for such an approach. When pressed for authority, counsel relied on order No. 436 "on the gas side, not the electric side" (Tr. 8127). The two fields are different and, absent Commission guidance, I cannot conclude that the machinery for open access on-pipeline-l systems necessarily warrants importing a similar-regime into the i electric utility business.
1
.. .- - .- -= . - - . .- - _ . . _ - - - - . ~ .-. . . - . . . - . .
i 1
1 32 j 1
worked out. A/ NU's Reply Brief - (at _ pp.'= 35-36) fairly 1 describes sooe of the questions raised.by:the'proposalt-1 Consider an' NU customer :who has lived in !
Hartford-for 20 years.. If he decides he 1 needs a new larger refrigerator.for his- 1 family,.is that-incrementalinative load? If.
yes, how and why is-this leadLdistinguishable ;
for purposes of-establishing transmission i access priorities?- The samsils true for a long-time customer who. buys aJnew,_ bigger- ,
~
home orz for the children of a-long-time-customer.who move (s) across the street to a .
new house. When: businesses grow and change locations,'their electricity demands grow.
In other.caces,fa.growingcbusiness may build a new more efficient plant that consumes less electricity.. The fact is, no: electric system- .
is designed to calculate'and account-for all-
'of these permutations.
's_
But whatever their merits, these efforts to construct cost- y allocation approaches which tilt.one way or another,should.all.
fail. There is no basis.for " presumptions" or other devices -
designed to influence the inquirysinto how.the _ costs of: a' .
particular facility should be assigned.- The analysis should.Se. O even-handed and neutral. Mr. Schultheis' test, construed and "
applied that way,-is acceptable.
Particular-disputes,about responsibility (for particular facilities are for later-proceedings. :Though~this record contains-testimony about " incremental"'and-" rolled in" and -
" embedded" ratemaking, Land talks about economic "effic'iency",and-
" price signals," these considerations cannot be meaningfully _
.I addressed in the abstract.- -We"are dealing with unknown costs of 1
unknown facilities to be built'atLunknown times-in unknown places !
for unknown reasons. There is no reasonLnow to_ attempt to-answer remote-and hypothetical-questions about such future-disputes.
}
Future attempts to-coIIectocostsifor. upgrades will, as NU-agrees, involve rate filings under-Section'205 _(32Si Tr. 8079). J As in any rate case, the merged company would have the burden of :
proof. . opponents of a< proposal- would'be: free to :show ,that ' cost responsibility should be= distributed.in:Lsome different way, u L There could be a dispute as to the size of the= transmission.
1/ It was part of a commendable effort to reduce and simplify the. array of requested conditions.: 'This particular aspect-unfortunately did not draw serious attention during the' evidentiary hearing.= ,
s t
^
, e . . . . - -+vQi , , . -
. - . - . . . . . . - . .- . . + + + e--
33 customer's are rata share; there could be a dispute over causation and responsibility, with wheeling customers claiming that particular upgrade costs were attributable to many factors and should be spread to all,'or apportioned to some. These and other questions would be litigated in future proceedings, involving particularized proposals filed under Section 205.
But leaving these individualized questions for future proceedings does not mean that the merged company's transmission custooers must face unlimited financial exposure. The record supports two significant protective limitations.
First, the General Transmission commitments require that the merged company, prior to contracting,-identify those constraints which it " anticipates reasonably could require the conciruction of additional facilities during the term of the wheeling contract" and " provide its best estimate of the maximum cost to that wheeling customer . . . to-remove each identified potential constraint . . . " (Ex. 178, pp.-5-6).
The company agrees that the facilities identified in the estimatssy will constitute the customer's " maximum exposure" (Tr. 8188).. As explained by FU counsel, We would think that what our commitment is, at the time transmission is requested, we-will identify any upgrades that we think may be necessary to provide that service and that (we) were limited in the future to those ,
upgrades . 1 (W)e might identify _two problems up front, but that's it. You pay for what's identified up front. (Tr. 7264)
When asked < "(a) third problem comes along several years later, you can't bill them for it?," UU counsel agreed, stating:
"(t) hat's our tough luck" (ld.)~
Second,-in addition to a facility restriction, the merged company should also generally be limited to the dollars set out in the estimate. The company expressed its willingness to be so bound, if it could be protected against unforeseen future restraints -- 1222, an environmental requirement that all lines be put under ground.(Tr. 7306-7307). That qualification is reasonable; NU-PSKH shou 3d not be' unduly penalized for later-events wnich could not reasonably have been foreseen.
In situations involving nuclear plant decommissioning estimates, the_FERC-has accepted a 25% contingency to reflect unknowns and unplanned occurrences. Egg, 32g2, System Enerav ,
Resources. Inc., 49 FERC 1 61,318 at 62,189, fn. 8 (1989), where the contingency covers " unplanned-for occurrences (including) I adverse weather impacts, equipment breakdown delays and labor !
l 1
~_ _....-_._._ _ .,._ _ _..__ _ -_- _ . _ _ _ . _ _ . . _ _ _ _ _ .
" i
~
. .. i 34i strikes,.. .
. -(and)- unknown--escalation! rates ~ for labor: costs' and' -
l radioactive vaste disposal costs." That 25F figure is_ reasonable- "
here for_ analogous' unknown and unplanned-for occurrences.related to future upgrades. .
f An estimate process so1 constructed;-- with limits on the specific = facilities and.dollarsJneededc-- gives:the transmission i]
customers substantial protection. :several; witnesses emphasized: j the need for-. assured servicei and certainty,c and: these conditions
- a -respond to that neea., Final exposure will be.1imited andiknown, a f actor which helps to make .NU-PSNH) wheeling -servica t a more r available and meaningful competitive alternative. ,
.a . a Next,-there are. arguments?about alleged:Ldouble<or triple; billing. . Tor' example, suppose lNUaspends;$30 million:to: remove:a '
constraint, enabling it to carry the combined 11oads1of'ai d transmission customer and native load' customers; IfLthe transmission customer's needs."cause" a.RIS IatA sharetof,'say,
$10 million,'then'thatiamount_canmbeLproperly billed incrementa*11y to'the particular=t'ransmission-customer. ..The .
remaining $20 million_would,,under NU's-approach, be rolled-in:to
, al1~NU costomerstincluding the?transmissionicustomer.- That a customer would'thus and up_ paying-twices; onceSfor itsJlegitimate-RI2 reta< incremental responsibil-ity feritheffacility:(the $101 ,
million)_, and again as part of .the universe: of those?payingithei i rest of thectacility's costs,(the remaining!.$20?million) on'a:
rolled-in basis - (Tr. 7266) . . That is unfair. .The= transmission .
customer should not be chargedifor theLotherg$204million,fand thel '
merged company's tariffs cannot authorize 4 such collections.-
The otherfdouble-billing claimLhas no merit.. It involves.
l NU's collection-of whatLare_ variously? referred?to-asy" base rate"=
or " base system" or " system charges,".reflectingJthelcosts of, transmitting-electricity over-the company's existing; system. -
o.
Some wheeling customers say;that:they.shouldunotLhave to" pay (a1.
RI2 rata:incrementalishare of an upgrade-(the35101 mill-ioniin-the i above example):, and also pay the " base" charge.- :But these
- charges _ do not-= duplicate each'. other.- - The
- customer.'s; incremental .
share of the upgrade'reflectsoits are:Iata responsibility for-the 1
L facility. The-" base rate"~is'anfongoing charge?foritheLuseEof' a the existing system itself.. The wheeling;eustomerounquestionably j uses that system and:ought to pay.for_it.. spaying *directlyJfor:
part of a particular: upgrade:does not excuse the transmission;
. customer-from< paying coruse'the rest 1of.the system. 7 Finally, interve,nors and Staf f are concerned- about1the a possibility >that-noni-firm service could " bump". firm transmission-se rvice . During oral argument, the companyJexplained thatuit would not bump: firm for non-firm:? "(w) hat Mr. Schultheis-has J said is L that,: once you get' finn = service L f rom- NU . . :. .. 'later economy, non-firm purchases ~ for sales do not' take priority over that. You've got'e. firm service _and you've gotithe priority"'
n
- ,- . , - - , . .- - - l -. - -. u a ~a
i 35 (Tr. 8181). This would be so even if the economy purchase was for NU native load customers (Id.) To this extent, therefore, ,
concerns about priorities for off-system sales disappear.
But rather than " bumping," NU proposes t'o allocate capacity for firm service in relationship to "its historical use of its-New YorX tie-lines" (Tr. 8182). =There would be no " bumping," but space would_be allocated according to this " historical use" ;
consideration. On its face, this effort weakens the merged a company's wheeling commitment. Whatever adjustments are made for historical use of New York ties can only result in less, not more transmission capacity. Perhaps this-is a reasonable balance between native load and transmission customers. But-the ' '
i company's briefs do not spell out this " historical, ..ew York" position with any precision. It certainly is not in the ccenitments themselves (Ex. 178); nor is it developed in the cited portion of Mr. Schultheis'= testimony (Ex. 123, p. 176.- '
cited by NU at Tr. 8181). The applicant has not satisfactorily explained what this limitation means and what it would produce, and has fgiled to carry-the burden of proving its reasonableness.
'] (c) Ten-Year priority for NU Excess NU's proposed commitments give the merged company a ten-year preference for off-system transmission of_its own excess production. The company explains that because its surplus capacity is being paid for by native' load ratepayers, fairness demands that it get priority in using.its lines to sell off its own excess production.
Staf f and most opposing intervenors - emphasize the potential anti-competitive overtones of this ten-year priority, surplus is a subject ever which the marged company will have great control; and the fi'rst ten years happen to cover the period when that control is most-acute. It is-undisputed-that the merger will, as its NEPCO supporter recognized, combine "into one entity' control over the single largest source of surplus capacity-in New England with control over key transmission-facilities necessary to provide access to alternative sources . . . "
(Ex. 261, p. 21).
The Staff's analysis of NU data shows that the extent of such control will exceed 65% in every year from 1993 through'2000 (Ex. 503, Table 3). During the years 1992 through 1996, when the total New England surplus capacity is biggest, the merged company's share will be 51%, 66%, 83%, 914, and 91% respectively (1d.)
To give the merged company exclusive rights over these goods over these years aggravates the merger's potential anti -
competitive impact. The company's desire-to move its own excess could easily operate to displace others. The wheeling necessary to alleviate the merger's anti-competitive effects would be 1
I
~c
__._____y _ _..~ _ . _ . _ _ _ _ _ _ _ _ _
1 36' I
I seriously weakened intervenorc ' concerns if NU had nIt en-year right to subordinate the-to its own. !
l reasoned, Nor is the priority necessary.. As several' witnesses .
if NU's surplus was priced competitively, fit would:
sell 1 if it was not so priced,1then the goods?should not be _,
l promoted Dr. - Swan' _testified: artificially by-giving:them;a priority.- Mr..Kahal and. -
be deprived-of using.the transmission systemLto sell its own"There 1 existing surplus-gapacity at'comestitive generation rates-capacity: an -lone as -it crices that ,
original).
. .E.* (Ex. 449, p.n79,uemphasis.in ;
Removal of this ten-year. priority-isLnacessary'in
_interest.
order to render.the transaction consistent-with'the publicc !
t Becadse this priority falls,zthere isKno~ occasion-to' address- 1 the - subsidiary challenge to NU's. apparent attempt L to = preserveJfor I itself the right<to charge transmission.customersi--Twhen it--has-used the ten-year priority to pre-empt them. -It.theLCommission restores the ten-year priorityi.it may vishntofconsider this.
apparently<
modify (agg,~Tr. harsh aspect, which:the company.may now be willing to 7565-7566). '
N B. ,
The New Hameshire Corridor Pf_ocosal (1) Introduction The New England Power:Co.
- transmission facilities and-serv (NEP)
- andiPSNH ice areas),PSNHhave?end-to-end-controls access-l to northern = sources, while NU controls 1accessito western' sources.
' The. merger would give NU control of both; corridors. ..NEP1and all- -
other southeastern New England utilitiesLeould reach northern and.
western sources only:byLdealing1vith the merged-company.- 1 3
In thms'e. circumstances NEPcinitiallyDopposed the-merger,_ _ l while at the with negotiation same time seeking to-improve"its1 situation 3through' NU.
Each siderhad muchtto fear'fromnthecother.
NEP might,have ended'up at the: mercy;ofLthe merged company ~ -NU, .
eager to opponent.
powerful go forward with--the merger, was'now" facing?atmost
.Hard bargaining between top _ executives:(Mr.
Schultheis for NU and Mr.- Bigelow for NEP)-ultimataly produced' . ,
the New Hampshire Corridor -Proposal (sometimes referred toz as ,
Corridor or Corridor Proposal),1 and NEPf became a," supporting inte rvenor. "
Under this ProposalE(Ex. 154), the two companies effectively L
agreed to lease specified portions ~of-their end-to-and'
- transmission to other New. England utillties. _Using this Corridor, a util-ity otherwise isolated'by.the. merged company's:
transmission curtain could:obtain=1ong-term firm access-to
-northern New England or1 Canadian sources.
i
. . . . - _ . ~ , . _ . - _ - . ., , . - , . . _ ,.u ,,,.~ ....a.. .,,. - , , , , - - . , _,,
37 The proposed service has many attractive features. It will operate under cost-based rates, subject to FERC review. UU's disputed " lost opportunity" or " tie line" charges will not apply.
Service is available in ten-year increments for up to 30 years. --
a limit which easily meets the twenty-year need shown on the; i record. Ten-year customers are guaranteed against sustaining any i upgrade costs. The companies agree to.zake such improvements as ,
may be necessary, in response to NEPOOL membersEvotes (excluding their own). A utility is free to " broker" the-service.-- 143. .
sublease part of its share to anyone else.
l That the Corridor Proposal creates benefits and improvements-cannot be seriously questioned. The Eastern REKVEC:intervenors, .
though seeking to modify'the Proposal,Jacknowledge'that if takenL at face value and fully utilized, "it ameliorates-anti '
co petitive effects . ., " (Br.-p.-52). Even the New' England Intervenors and New Brunswick Power -- who argue that,the '
Corridor fails unless strengthened -- nonetheless see!it as.
making " favorable, necessary changes-. .. " (Br. p. 45) and "some favorabla, changes to the status quo . . . " (Br. p.'2). 'The Staff's transmission witness, Mr. Krezanoski, while_also seeking to improve the Corridor Proposal, testified that-itland.the General Transmission Commitments provide some measure of relief to the1 anti .
competitive effects of this merger . . .-
without these measures, I believe that.
transmission-access may have been somewhat more restricted and supplies of delivered bulk pow-er in the relevant markets may.have been somewhat more limited (Ex. 601, p. '18).-
He went on to recognize that "(t)o-the extent that it guarantees people certain levels of transmission service, well, 'then, that is some itprovement" (Tr. 6233). Mr. Lee, Executive Director of Harvard University's Energy -and Environmental Policy. Center, acknowledged that "[w) hen I first heard of this merger, I vas very concerned about the ability of a utility to control the flow of power from northern New England to southern New. England" (Tr.
5934-5935). But he changed his mind after reviewing'NU's corridor Proposa1' and other' commitments because they will result.
in "mov(ing) power more expeditiously from northern-New England to southern New England after this merger than you were able to under the old policies of Public Service-of New Hampshire" (Id.) '
The Eastern REMVEC intervenors say that the Proposal ameliorates anti-competitive effects only if fully utilized -- an allegedly unclear outcome because of supposed uncertainty about Central Maine Power's participation (Br. p. 52). There is no evidence that Central Maine will refuse to participate in Corridor service. Mr. Bigelow had conversations with1 an employee of that company, and came away with the feeling" that it was
c ..
a 38 y worth putting the Corridor Proposal together (Tr. 4558, 4561).
There is evidence that Central Maine had previously been '
responsive to specific requests for transmission from Canada (Tr.
4712). Moreover, that company-participated-actively throughout these proceedings and made no statement disavowing the corridor Proposal. In these circumstances, any-alleged uncertainty does not warrant scuttling'aither the Corridor _ Proposal or the merger.
_ Challenges to particular details of the Corridor Proposal l are examined next.
t
' ' ' ~
(2) Size of the Corridor The Corridor Proposal makes available-as much as 400 MW of transmission capacity for wheeling across New Hampshire to- '
southern New England. 1/ That-is not an insignificant .
allocation. It -is enough power to serve the. peak demands of about 400,000 people (Tr. 7624), a number which exceeds the total of PSNH's ratepayers, and-is about eight times the population of Holyoke. NEP agreed to participate in its part of the end-to-end corridorse thus receiving the option to subscribe for half of_the 400 MW. The-remaining Corridor capacity (at-least 200 MW) is available to southern New England utilities.
Bangor Hydro, the Maine Commission,; and the Vermont agencies, say that the Corridor Proposal.should'be expanded to "the-amount available which was uncommitted prior to the merger,"
a capacity of 740 MW over PSNH's lines. But requiring the merged company to lease out all of PSNH's pre-merger availability would leave no room for expanded transmission over NU/PSNH's own lines.
There is no legitimate reason tas force NEP to . turnover twice what l it wanted to -- merely because-PSNH had a!certain pre-merger y '
l capacity., The Corridor size reflects NU's view as to,the most l that it could dedicate without penalizing PSNH's future native l load.
l
.COM/ Electric complains that its Corridor share is already subsumed by,an existing contract involving Canadian power _from Pt. LePreau. Mr. Sayer said: "the Corridor-Plan'gives
, COM/ Electric the option to. purchase . . . 26 MW which is one (1) l MW in excess of its current Pt.<LePreau purchase . . . " (Ex. 534, l p. 18). But, the Pt. LePreau-contract expires in October of 1991 (14.) Moreover, as set out in the Corridor Proposal itself, all=
existing transmission obligations from Pt. LePreau.to COM/ Electric and others do notl extend beyond October 31, 1995 2/ A total of 40 PN were made available as a separate matter to l
Vermont utilities, and 12 MW were allocated to UNITIL and the New-l Hampshire Cooperative.
39 (Ex. 154, p. 2). That there are existing contracts is certainly not the fault of UU or HEP, and those companies have structured-the Proposal to preserve such contractual rights. Under.any view, the situation is temporary. Ultimately the Corridor Proposal gives COM/ Electric and the other intervenors the opportunity to lock in increments of long-term north-south transmission capacity -- an option they never had before.
Other attacks-on Corridor size -- that UU'delAberately understated its own native load share in order to reduce the
! universe to be divided with HEP, and that NEP took more of_that-l universe than it should have -- are really challenges.to_the. --
bargaining process itself, on this record,-there is no reason to plunge into the negotiations and takelthem apart.
Each company was-adverse to-the other. NU wanted eagerly to go forward with a merger which will bring substantial benefits to its ratepayers and stockholders. NEP, a powerful New England.
utility (the only company big enough to have veto. power in i NEP00L) , whs out to defeat the acquisition because of its anti--
competitive overtones. Each was represented by senior officers-who wefb-knowledgeable, experienced, articulate, and deeply loyal '
to their companies. There is every reason' to believe that the i UU-NEP negotiations were arm's length bargaining _ sessions between ,
two adversaries, t
l KU's motivation to shrink the universe was balanced by-NEP's L desire to expand-it -- as.a safeguard against'the anti-competitive effects which brought NEP'to the bargaining table.
The result was the product of these two conflicting _ aims. The
" size" outcome of these talks is consistent with some other evidence.12/; fairly reflects a process in which-both sides were giving up something and getting something; and l unquestionably produces greater potential for wheeling power. from Canada and Maine to southern New England than ever existed-i before. If Corridor expansion is needed,1then NU has agreed to conduct necessary studies, and to undertako feasible _ construction.
where appropriate financial commitments are made_(Ex. 154,o pp. 7-10;.Ex. 123, p. 162). Meanwhile the General Transmission Commitments, as modified in this decision, will also be-in effect. Considering all of the circumstances, the Corridor's size -- enough for the peak demands of 400,000 people -- is reasonable.
l l
l l
12/ Egg citations in New Hampshire Initial Brief, p. 56 and NEP's Initial Brief, p. 11.
40 (3) Access for Northern Utilities and NUGs Many intervenors (New Brunswick power, Bangor Hydro, Four States, and Principal New England Intervenors) urge that the Corridor proposal, now oper only to utilities in Massachusetts, Rhode Island and Connecticut, be modified so that vermont and Maine utilities could be eligible to subscribe (condition "Bangor 1"). The record supportu such.a condition. Northern New England is the most likely. location for future NUG developers.
Failure to include northern util'ities could leave them without assurance of ways to bring locally-produced power to southern New '
England markets (Egg, Exs. 479, p. 167.449, pp. 71-76).
Moreover, Southern utilities (for whose benefit tha proposal was designed) may also be sellers,.as Mr. Bigelow recognized (Tr.
5610-4611). In that event, the northern buyer has legitimate interests in corridor transmission. More competition for the movement of goods can only benefit the public. A northern. -
utility who wants to price goods-more attractively by seeking to use the corridor -- whether.as a buyer or. seller -- should have that opportunity. Northern utilities are just as threatened by the merger's transmission curtain as southern ones. -The merger cuts each off from the other. . Finally, NU -itself acknowledged that opbning the Corridor to northerners "doesn't cost us any more money or make any difference to us" (Tr. 7610); there -isHno persuasive reason not to do so.
The intervenor-Staf f proposal would require NU to provide corridor service -- indeed all wheeling -- to " qualifying facilities and independent power producers," as well as utilities
-(Merger Tariff,.p. 1). This requested expansion fails under the Commission's decision in Utah Power &~ Licht Co. , 47 FERC $ 61,209 at 61,739-61,742 (1989), holding that qualifying facilities were ,
properly excluded, while only those independent power producers fitting with the definition of " utility" were properly included.
Following Utah, therefore, the Corridor service will be open to all utilities, including those independent power producers who so qualify 11/
(4) Alleged " Market Allocation" Eastern REMVEC Intervenors portray the Corridor Proposal' as a "rarket allocation" agreement (Br. p. 51).- This claim is without merit. The settlement between these end-to-end-adversaries has no comparison with horizontal market allocation 11/ The Commission's comments in Utah (at-61,742) about not prescribing "a generic approach to future merger proceedings" apparently applied to the independent power producers' exclusion from a transitional tariff -- a problem not present--in the instant case. For this reason, I'must follow-Utah, notwithstanding the NUGs argument for inclusion.
I l ~
, . j 41 agreements between competitors. Eig, 2 Malinowski, Antitrust i Laws and Trade Reculation (1990), Chapter 6F, " Horizontal Market i Division." PSNH and NEP do not compete with each other to '
deliver power from Maine-to southern New England. They could not i divide up common territory or cstomers even if they wanted to, Nor does the Corridor preposal reflect an effort of NU or NEP to ,I keep someone else out of the market. If anything, it opens to k competitors an area which otherwise could have been closed. 1 Finally there is no basis for imputing any collusive conduct here; as stated, the facts are entirely consistent with hard-fought arm's length bargaining.
(5) The Ten-Year Increments -
As noted, corridor service will be available- in ten-year increments, with a maximum of thirty years. That "(b)ulk power contracts in New England can~be for as short as-one dayL(Ex. 123,
- p. 60) does not mean that the Corridor must necessarily be.
offered in one-day periods. To require NU and NEP to of fer one day's worth of service would inject day-to-day uncertainty and unpredictability for both companies. There is particularly no basis for requiring NEP' to subject itself to such= instability.
That company is not here seeking merger approval, but-is indeed trying to protect itself against the merger's anti-competitive consequences. To require NEp, in such a context, to keep open a portion of its lines to all takers on a day-to-day basis is too great a price to pay for having chosen to participate in the Proposal.
These who want to use the Corridor on a short-term basis can, of course, do so under the brokering provisions. There is nothing to prevent buyers or sellers from entering into a ten-year lease on the Corridor, and then effectively "sub-lease" rights for arty shorter time period. Finally, the General Transmission Commitments, which offer potential wheeling for short-term periods, are fully-available over the non-corridor portion of PSUH's facilities.
As to long-term use, the Corridor Proposal allows twenty-year subscribers to extend another ten years -- for thirty years total. That is more than enough. As explained ruern in the -
context of the general wheeling commitments, the record shows a twenty-year need.
The Corridor Proposal's provisions for firm service,- like the ' ten-year increments, reflect NU's and NEP's reasonable need for certainty. They have agreed to hand over to others 452 MW of their own capacity for between ten and thirty years, and have a right to rely on firm reservations of Corridor capacity. Parties needing non-firm service can broker or purchase capacity on short-term or non-firm bases-from subscribers. They can use the i General Transmission Commitments as modified }ere. A reasonably 3
, _' or w
42 long period brokering, unrestricted for subscription of firm service, tied to uncertainties involved. strikes a fair balance of the with risk. the hope of brokering part of it presents a substantialS unused portion,If state such arecompany cannot obtain "sub-lessees" for the costs which thw " lessee"gulators might disallow recovery of the has to pay to RU and NEP.
could vitiate the Corridor Proposal and thus, the argument Such a result runs-leave the merged company's competitive power unchecked, ,
undercubscribed.of course it is possible that the corridor could be No one can guarantee the future. But hypothetical state commission hostility to assumed br the state commissions in this case. -
Mandating short-term Corridor speculation service and for is these not reasons warranted by would this give too much weight record. o t (6)
Emergency Allocation and Native Load Priority New' England Intervenors and Staff take issue with the provision at I.6 of the Corridor Proposal, which states,
"(rjeliability of service (under emergency conditions) to'NU/NH and HEP native loads shall continue to have first priority in the use of the transmission facilities involved hereunder." In the will be determined according to NEPEX operating
- p. 4). . 154, rules (E condition designed to put "everybody's native load in the boat for purposes of reliability" (Tr. 7655) . That,.among other things, is done in Core Condition 6, para. 1, supported b Principal Intervenors, opposed by NEP, states: Staff and others. That condition,yDal 1.
NU Companies and NEP further agree that such service shall'not be subject to limitation or interruption except fer-emergency conditions or as otherwise agroed to pursuant to NEPEX operating rules.
Reliability of service to native loads of all entities provided service under the provisions of this proposal shall be equal, except to the extent that contracts in existence on or before January 8, 1990 of NU Companies and NEP require.
This provision is fair and equitable. HEP, as noted, does not object to it (Tr. 7658). NU was concerned about possible w ~ - - _ - - - - -
P 43-future problems if NEPEX were not allocating capacity (Tr._7654).
As intervenors- pointed out, the parties can always come back and ask the commission,to modify the condition if NEPEX dissolves, or other particular problems arise (Tr. 7659-60). Core condition 6, q para.lr ;is adopted, without prejudice to the right of any subscriber, NU/HH, or HEP to seek specific relief-from.the conmission for any problem arising from.these emergency- -
~
procedcres.-
I (7) Extension of Time to Elect Subscription-The subscription period in.the Proposal requires " binding responses shall be due three (3) months after the date of the-Initial offering," and "NEP and NU/NH's obligations to continue S
to of fer the -service as provided aforesaid shall terminate as of November 1, 1993"-(Ex. 154, pp. 2,-5). -It is'NU's_ position that-this is enough time for utilities to decide.
I Intervenors and Staff propose an extension of this. option date to May 1, 1995 (Core Condition.6, para. 2). This--is-the a same date NU itself agreed to in its Settlement with Vermont Utilities _ (Ex. 123-T, p. 4 i Tr.=2541).' NEP-does not oppose-this extension. NEP I.B. at 25. Core Condition 6, para. 2, is ,
accepted as a cor.dition.
(B) Charges.for New Fac'ilities New England Intervenors, Eastern'REMVEC and others assert that the procedural machinery concerning new facilities is too j vague.Section II of the Corridor. Proposal sets out the parties' commitments regarding new facilities, including feasibility studies and an appeals procedure.' Expansion of interfaces is subject to request by NEPOOL members (with NU and NEP not ,
voting), a,n'd a refusal to build is, upon a similar vote,1 subject to arbitration. This language, which places checks and balances in the hands of other NEPOOL members, is sufficient for these l pu rpose s . Alleged abuses of the Corridor Proposal procedures, l like violations of any conditions required here, would be subject i
to TERC complaint procedures. ,
l (9). Conflict override l
Intervenors propose an " override" condition, _ whereby all differences between the corridor Proposal and other merger conditions would be resolved in favor of the latter (condition i 6). HEP resists this condition-which.would effectively substitute NU's General Commitments, as modified, for.the Corridor Proposal. Such an outcome' destroys what had been bargained for. NEP is certainly not here seeking merger approval, and, indeed, would not'be unhappy if the whole transaction fell through (Tr. 4751). Nor in NEP rigidly opposing any change; it has acceded to intervenor-sought modifications. ,
44 NEP carefully negotiated a Proposal which satisfies its concerns i
and which dedicates a portion of'its own lines to open access by others. This non-merging company should not-be forced to adopt conditions formulated to ameliorate the anti-competitive impacts of someone else's acquisition.
The Corridor Proposal's terms can, of course, be examined by all concerned as part of a NEPOOL-sponsored Regional Transmission' Arrangement. If changes are necessary, they can.be addrested in that overall context.
(10) Hiscellaneous ,.
Other challenges to the Propocal have1been:consideredLand rejected. As explained, supra, the Proposal is the product of arm'c length-bargaining, and significantly improves north-south transmission access in New EnglLnd. For these reasons, it is-largely adopted here, subject only to those changes with which NU or HEP agreed, or are otherwise1e ssential to' alleviate the carger's anti-competitive aspects <
C'.N other Conditirng (1) Regional Transmission Arrangement The concept of a Regional Transmission l Arrangement (sometimes referred-to as "RTA") envisions a NEPOOL-sponsored and administered all-Hew England solutic,n to the region's transmission problems. 'This regional approach was supported by a wide array of interests, and was opposed by no-one in the cace..
Among those endorsing the concept of-a HEPooL-sponsored regional approach are: the applicant; New England Power company; State of New Hampshire and New Hampshire PUC, the. Principal Eastern REMVEC Intervenors ; the Principal New Engla nd LIntervenors; , the Four States (governmental entities from Paine, Massachusetts, Rhode Island, and Vermont) ; and the Commis sion Staf f.
As explained by Dr. Voll, Chief Economist for the New Harpshire Commission, the regional approach hat been discussed'
, and examined over a period'of several years by many state
! of ficials, by the Power committee of the New England Governors' l- Conference, by a Task Force formed under that committee, and by l
HEPOOL itself (Ex. 237, pp. 16-20). Most<recently the Task Force .
' and NEPOOL were reviewing a draft proposal circulated-by Comr.issioner Tierney of Massachusetts, only to have that analysis sut7 +-ded because of the pendency of the instant' merger proceedings.
An idea that has that much appeal to such a diverse group obviously warrants the most serious consideration. This merger proceeding is not (and cannot be) the vehicle for actually >
adopting a regional transmission arrangement. But that does not
l 45 l
mean that it disappears from this case. Such an arrangement is the focus of a condition sought by-most intervenors and the Staffs a HEPOOL-sponsored RTA, which, when approved by- the Commission, would replace the "merg r tari M" they now urge. The subject of a regional. arrangement was-addrab Md by several=
witnesses. Mr. Schultheis himself-said: " 1]t is imperative that transmission access issues in New Englf nd be addressed and-resolved on a regional basis" (Ex. 123, p. 483), and pledged NV "to help develop a regional transmission access plan, such'as tha: -
Tierney proposal . . ." in order to promote competition (Ex._123, L p. 195)._ The company also agreed, 3W part of.its General-Transmission Commitments, to ' support all responsible efforts-to.
develop and implement a New England regional program concerning. .
access to and payment for wheeling services.on existing and new transmission facilities" (Ex. 17 8 ;-.
Review of this merger proposal for its consistency with the public interest cannot ignore that which the company itself has addressed as " imperative." Section 203(b) refers explicitly to Jequiring ? coordination in the public -interest." The need-for, _
and merit in, the regional approach is undisputedt it has widespread support and no opposition.- In these circumstances, the cerged company _can hardly complain about a condition which requires it to do what it said it would1do- to facilitate what it regerds as imperative.
Within six months following consumnation of the merger,: NU shall submit to NEPOOL for its consideration, _a draf t proposed Regional Transmission Arrangement, prepared after_ consultation with NEPOOL members, state regulatory: bodies, and'other potential transmission customers.
(E) NEPOOL Voting Actic'n of the NEPOOL Hanagement Committee can,' under the NEPOOL agreement, be defeated in two ways: (a) by any two members with 15% of the voting power, or (b) by any one member with 25% of the voting power. The present controversy _is about the one member 25% rule. As matters stand today (pre-merger),
RU, while close to veto power, does not have it. .A_ merged NU-PSNH,' on the other hand; will have 29% voting power and an effective veto within the Management Committee.
The FPC's original approval of NEpOOL expressly envisioned a veto, which NU then had, but later lost. Such veto was nevor' used by KU; NEPCO, which now holds such power, has also never used it (Tr. 4755-4758). But that was before the merger. Now the smaller companies are confronting NU-PSNH,'with a l
" transmission curtain" effectively isolating them, while also controlling surplus capacity. Pointing to prior difficulties in l negotiations for transmission access (agg, summary of evidence at l pp. 43-44 of the Eastern REMVEC Intervenors' Brief), they argue l
l l
46 that the totality of the merger picture, coupled with potential.
veto of their proposals in NEPOOL, gives the merged-company too :r much-power. _
Intervenors-and Staff suggest
- Condition 7," which would restrict the merged company from using its veto power -- but only in the situation where the-issue:before the-Management Committee is a proposed amendment concerning'the company's voting strength.
The subject of NU's NEPOOL voting power _is_certainly reachable l here. Indeed, the company itself has l NEPOOL voting restrictions in the disp. ute agreed to at least resolution two such provisions l_ of the Corridor Proposal (Ex.-154, p. 6). The intervenors' relatively narrow suggestion, as refined below r will provide'some va]uable assurance to all NEPOOL members, and will help make the t transaction consistent with:the~public interest.
The condition would restric't the merged company's veto only in the situation whera all other NEPOOL; members-themselves voted to restrict the merged company's voting strength on the Ma na g erez.t , Commit te e . During oral' argument, the company -- while objecting to any restriction -- made severalnvell-focused criticisps of the proposed voting restriction. Many ef-those points hive merit, and are addressed next, T1rst, the proposal has no floor, and could: allow other menbers-to reduce WU-PSNH's Management Committee vote to, say,
- one perc ent. NU now has-23.5%_ voting strength (Tr._ 7293-7294).
The condition should not th refore be utilizedito reduce NU-PSNH's Management committee vrrcidy strength'below 23.5%.
Second,_the condition shall not be construed to prevent the merged company from engaging in any form 1of-. advocacy intended to cause other NEPOOL members to vote'any.WayEon.any matter.
Third', the condition applies solely torthe merged company's
~
voting power on the Manag1 ment committee, and not its vote-or its powers elsewhere in NEPOOL.
l Tourth, the condition oces.not in any way alter the existing L
two ccmpany 15% rule. The morged.comphny, plus one other, can veto anything in- the Manegement committee. -
l h Fifth, the condition'does not alter whatever Management I
committee voting strength NU;would otherwise have in voting on L any proposal concerning a Regional Transmission Arrangement. .If l it otherwise would be entitled to 29%-of the Management Conmittee !
l vote, it could obviously veto such an Arrangement.'
Sixth, any alteration of: the merged company's Management committee voting strength must be filed with the TERC, where it will be fully reviewable under section 205, 1
l e
^
I 47 propesal has no time dicencion. Finally, as the company the and How Hampsh j
unwise for all concerned. operate forever under a threat creates uncertai agreement itself suggests a frameworktSome limit is necessary.To Ntp00!.
a maximum ninety-day period for the Management committee tosection 10 4sti) pro complete its consideration of "any new or catorially changed plan significant effect .for any other action to be taken by it which may have a
. . ." A ninety-day considering significant operating changes, period, sufficient for for considering whether to propose the relevant voting change.should also suff The condition's restriction on the merged company's veto to the Hanagement censuraation Conmittee within ninety days following of the merger.
would, in turn, within ninety complete days its consideration of any such proposalpresunab of its subnission.
"on natters (condition 9). substantially affecting the competitive market,"Sec This propesal cuts too broadly, would inv!te endless di,sputes about whether a particular matter does or does not "subgtantially affect the conpetitive market" and is denied.
] -(3) Hev Hanpshire Electric Cooperative' i concerning an on(a) This company seeks particular relief s*abrock-related agreements (condition 1).-going dispute with pSNH about ,
New Hampshire parties is local in nature, involves essentiallyThis' dispute betw intra-state matters, and is being pressed before the New HaLpshire Commission and the New Hampshire state courts.
now controls pSRH's litigation positions in the controvers That UU not somehow convert the dispute into a merger-related one.y does The
, controversy'is it belongs.' before New Hampshire tribunals, and that is where related agreements is denied.The Coop's requested conditic., as to the Seabrook-(b) Reduced to essentials Condition 2 addresses the (Transmission Dependentthe relationship between merged compan,y and the Coop as L 700 Utility). .
are discussed below at section III(C)(6)) . Effects Iof.the merger on see nothing inTDUs the Coop's situation that so distinguishes it from the other TDUs to warrant different treatment.
the protecti:r.s generally accorded to the TDUs, inf ra.The Coop will, of course, sha Condition 2 is denied.
(c) the Lerger, but apparently invokes old difficulties as a basisThe Coop's
/' for now company. strengthening its ability'to compete with the merged Such conditions have no place here. Eig, Southern w
a l
i- t i
48' l
Pacific Tranneertation ce. v. Icc, 736 T.2d 108, 722 (D.C. Cir.
l 1984), SAI12 denied, 469 U.S. 1208 (1985), upholding the ICC's *
.i view that " conditions on a merger are not to be used to ameliorate long-standing problems which were not created by the zerger," and rejecting proposed conditions which were concededly ;
unrelated. The Coop's condition 3 is denied.
, o 3
(4) Holyoke 1
I The City of Holyoke Gas & Electric Department- requested four i conditions: the appointment of an ombudsmant a--requirement that t i NU " spin-off" its transmission _ facilities to a separate companyl-a divestiture by=NU of its subsidiary, the Holyoke Water Power -
t Co. and a prohibition on NU's' conditioning._any Holyoke real' t estate sales or leases on. electricity. purchasing 5 requirements.
i (a) The ombudsman proposal has much to commend -
j it. As eW)lained by- the_ Administrative conference of- the' United -
i States, (in the governmental context).an ombudsman ist- "a means- !
- of inqu1 Ting into certain grievances about administrative acts or l failures to act and, in suitable cases, to criticize or'to make recommendations concerning future official conduct.".
Recomnendation 504 1, June 7,-1990 (1-C.T.R. I 305.90-2).- Such- '
persons have opareced successfully atilocal, state, and federal governmental levelst-have succeeded in colleges and universitiest have been recommended.for general use in the corporate world; and i have be.a favorably used by at least one natural gas comtluy.11/ >
An ombudsman appointed by the merged company would-be a' f valuable asset. As Holyoke-points out,ENU's past.-transmission' L policies did produce criticisms;from those who were (or' wanted to ,
be) customers. In the post-merger world,-the companyJwill, for !
the first time,_ provide transmission service by tarif f, nott by-1 individual negotiation.- But the new service- may well generate its own complaints. The merged company -- with vastcpower ever
- transmission and control of. surplus, power - 'must offer-viable wheeling service in order to alleviate potential anti-competitive l conse quences. - The presence of an-ombudsman can' help *to-secure-p that goal. .
i The company' sees'the. appointment of such a-person 1as'an -
implicit criticism of-its own management. This-reaction,1while J 11/ Verkull, "The ombudsman and the Limits of the Adversary . ;
System," 75 Col. L. Rev.: 845 (1975)?. "The-Case for the Corporate :i ombudsman," Legal Times, August-7,-1989 "Cas Executives' Forum ,
Captive Customers," Public Utilities Fortnightly, _ oct. 13, 1988, L p. 79. ,
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h 49 understandable, is not a valid basis for rejecting the propesal.
The appointment of an ombudsman is not intended as a " slap in the face." There is no doubt that NU's managers, some of whom 1 have
' seen and heard at length, have effectively and honestly run the company in the best interest of its ratepayers and stockholders.
3 But every business, no matter how well run, can trigger some .
dissatisfied customers. The ombudsman can help the company, while posing minimal difficulty for it. The person (as proposed)
- would be chosen solely by the conpany, not by customers'or-the i
! government. The on)y requirement is that he or she be a non-emp;m ee with experience in bulk power matters. Compensation l would be set by the company.
The arrangement could be full-time or part-time, as circumstances warrant. The requirement would be in effect only-for the first five years after the merger. -As rodified 11/, I adopt Holyoke's " ombudsman" condition as t "apprcpriate to secure maintenance of adequate service"-(Sec. 203(b)).
The qmbudsman is not the only avenue for dissatisfied
. customers. The Commission's Enforcement Task Torce_ maintains a-
" hotline" (telephone 202-208-1390) through which complaints can be recei9ed. The agency's Enforcement lawyers share the phone duty, and' assist complainants by attempting to resolve .
controversies. 11/ S.R.1 1112, Aperada Hess Pieeline core., $3 TERC 1 61,266 (1990), approving the use of alternative forms of dispute resolution. Formal complaint proceedings and -
adjudication also play a key role, particularly where the dispute is significant or complex and involves the need to sort out conflicting factual versions. 21., Section-582 of the
" Administrative Dispute-Resolution Act" (P.L. 101-552),
recognizing that inforr.a1 dispute' resolution may well be inappropriate in some cases.
(b) Spinning _off transportation assets to a new corporation seems a serious and difficult step, which produces relatively little in return. Holyoke says that a separate 4 transmission corporation will enhance the Commission's ability to find out what will be going on -- to give the TERC a " handle to enforce" conditions (Tr. 8022).- The Commission's Enforcement-Staf f did not intervene to scpport snrch relief, and the trial Staff takes no position on it. There is no; evidence of any prior TERC dif ficulty with allegedly " shielded". dealings which need to be more " visible" (Holyoke Br. p. 6: Tr. 8025)._ Moreover, NU 12/ The requested. requirement for annual reports to the commission is unnecessary. A decision about publishing a report or reports should rest within the discretion of the ombudsman.
11/ E11, " Informal Dispute Resolution Working Quickly, Effectively," The fFERC1 Chronicle, Nov . / De c . 19 9 0, lpp . 1. 11.
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50 counsel represents that this spin-off poses lega3, financial and practical problems involving various state agencies e the FERC, the Bankruptcy Reorganization Plan, the NU bond inde7ture agreement, and financing arrangements -- all of which.could burden the company with substantial costs (Tr. 8025-8026). - Tor
- all these reasone, the " spin-off" condition is rejected.
(c) Divestiture of Holyoke Water Power company's retail business is a drastic remedy, wholly uncalled-for by anything in this record. Insofar as the City of Holyoke seeks to bolster its own competitive posture, the effort does not belong in someone else's merger case.- 21., Southern Pacific ,
InnspQI1p_ tion Co.,_,v. ICC, 736 F.2d 700, 722 (D.C. Cir. 1984),
2311A Lenied, 469 U.S. 1208 (1985). The City is covered by the-protection gjven the TDUs, and is entitled to no more in this regard. This condition is rejected.
(d) During the hearings, NU made-a commitment that it "will not ccndition the sale or lease of real property in the city of Holyoke, Massachusetts on the ' requirement that. the buyer or lessee also purchase electricity from an NU company" (Tr. 3794-3795). This continuing commitment will apply to any existing-leaselof Holyoke Water Power Co. (14.) NU does not-oppose a merger condition embodying this commitment (Tr. 8045),
and it is hereby adopted. The City's request for even broader- ,
relief, requiring notification concerning alleged past agreenents, is unnecessary. Save for one lease, there is no evidence of any other on-going land electricity-arrangement. '
Within thirty days after consummation of the merger, NU will notify that lessee that the relationship (if any) between the '
lease and electricity purchases no longer exists.
(5) CKEEC i
By its filing of November 30, 1990, Connecticut' Municipal
, Electric Energy Cooperative (CMEEC). withdrew its Statement of l Conditions, earlier filed in this proceeding. CMEEC represents ,
- that it has now " executed an amended and restated Transmission Service Agreement ("TSA") that settles CMEEC's concerns relating
! to NU's proposed acquisition of PSNH" (Notice of Withdrawal, pp.
1-2). A copy of that Agreement' var attached to the withdrawal.
There is no need for further review of CMEEC's position in this case. Post-merger relationships between NU and CMEEC shall be governed by the above Agreement.
(6) TDUs i The Transmission Dependent Utilities (TDUs) are " entirely l
dependent on NU or PSNH for their bulk power transmission needs" (TDU Br. p. 3). These companies (most of which involve municipal -
ownership) are not big enough to own or construct suf ficient generation to meet their loads. As their brief states, they "are I
y . . .
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51 physically unable to engage in any bulk power transaction without using the RU or PSNH transmission systems. Absent economic access to NU's or PSRH's transmission facilities, the TDU cannot survive as an independent entity" (Br. p. 4) . The TDUs compete with NU and PSNH in the wholesa3 e bulk power markett each TDU, like NU/PSNN, seeks out attractive sources of supply. TDUs thus "are in the uneasy position of having their only source of essential transmission service in the hands of their principal competitor" (Br. p. 10). These small companies, uniquely vulnerable to possible anti-competitive conduct, are entitled to some measure of protective assurance regarding UU-PSNH's post merger conduct.
They seek a tariff "which provides each such TDU access to the NU transmission system with rights to the use of that system equivalent to those exercised by NU itself at a cost equivalent to that incurred by NU itself for comparable service and usage" (Condition 10). This condition would give the TDU's a higher status than they had before the merger. The TDUs stood in NU/PSNH 's phoes , as alter egos of those companies, and there is no reason why the merger should be the occasion for such a transferrption. Condition 10 is denied.
TDUs can obtain protection with something less drastic.
They have longstanding relationships with UU and PSHH which allow them to meet their obligations. The Commission, responding to concerns about NU/PSNH's post-merger treatment of pre-existing contracts, has already stated: "[t]he acquisition vill have no effect on existing contracts . . . (t)he commission will review any contract modification when filed. We need not address the matter in this hearing" (50 FERC 1 61,266 at 61,836 (1990)).
Considering that statement, and the existence of ongoing negotiation's between NU and the TOUs,11/ it would be, prudent for presen't purposes simply to maintain the status E22, -- the situation which the Commission's order envisions. All rates, I
terms and conditions of NU-PSNH transmission service to the TDUs in ef fect on this date shall, therefore, be maintained af ter the merger, unless and until changes are either agreed upon by the merged company and the TDUs, or authorized by the Commission.
IV. RATE ISSUES A. Transmission Rates of the Merced Coreanv Certain intervenors and the Staff see this proceeding as an appropriate vehicle for litigating the actual transmission rates 11/ See letter of December 5, 1990 from Mr. Adragna to me (copy to all counsel).
I l
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1 52 i
to be charged by the merged company (Egg, Briefs of Listed Tourteen Intervenors and of the Staf f) . NU resists these efforts, arguing that this merger case need not and should not be ,
expanded to embrace a transmission rate proceeding.
j It is settled that the " scope of the inquiry" is among the
! " housekeeping details addressed to the discretion of-the agency
. . . * (City of San Antonio v. Ch), 374 F.2d 326, 329 (D.C. Cir.
1967)). E33, Richmond Power & Licht v. FERC, 574 F.2d 610, 624
- (D.C. Cir.1978)(TERC's " wide leeway" in controlling its calendar can sustain deferral of issues for a separate proceeding).
- The '
l question, therefore, is whether the commission intended to add a transmission rate case to the instant proceedings. ;
Those who say yes point to a sentence in the hearing order which directed the parties to address whether the " price and non-price terms" of the company's transmission commitments would be
- sufficient to mitigate its post-merger market-power (50 FERC 1 61,266 at 61,835). This mention of " price terms" does not i mandate a transmission rate case. The Commission's comment-l ap? cared In a lengthy discussion which described the commitments as a " point of departure" for examining market power problems, (Id.) The agency's focus was en the merged company's power, not pricing details.
By contrast, the same order shows that when the Commission vants to institute a rate case, it says so in plain English.
~
. . . a public hearing shall be hefd for the purpose of determining whether the proposed merger of PSNH and Northeast is consistent, with the public interest; and whether the rates, terms and conditions of the Seabrook Power contract, the Sharing Agreement and the
- Capacity Interchange Agreements are iust l
reasenable and in the public interest-(50 FERC at 61,840-61,8411- emphasis added). ;
j The orders on rehearing and granting clarification also included explicit language confirming the requirement- for rate proceedings involving the Seabrook Power' contract (51 FERc*at 61,485t 52 FERC t at 61,210). The absence of any such direction-concerning i transmission rates -- anywhere in the three orders governing this case -- further demonstrates that the sentence relied upon by intervenors was not intended to create a second rate case.
This reading is consistent with prior Commission' practice.
Egg, Utah Power & Licht Co., 45 FERC-1 61,095-at 61,298 (1988)
(rates should not be developed in context of a Section 203 merger proceeding); Southern California-Edison Co., 47 FERC 1 61,196 at' 61,673 (1989) (fo11owing 21Ah, and rejecting . request that the I~
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53 hearing embrace "the rates for transmission services following the merger").
Finally, the Commission's hearing and rehearing orders spoke repeatedly and emphatically about the need to expedite this proceeding (50 TERC 1 61,266 at 61,834, 61,839-61,840) 51 TERC 1 61,177 at 61,485-61,487). These orders require an initial 1 decision by December 31, 1990, if not sooner. These comments requiring expedition confirm the view that the agency did not intend silently to create still another rate case in the context I of this merger proceeding, ,
B. Whither NU's._Egir schedule Filinas Are Just'and reasonable (1) The Untouchable " Package" Theory NU made certain rate filingo connected with the merger.
These include the Seabrook Power contract (concerning purchase of r output fron.the Seabrook nuclear plant), and the capacity Interchange Agreements (dealing with NU's and PSNH's rights to get power from each other). Aspects of these contracts are challenged by the Staff. NU and its supporters resist the Staff's attacks. They argue as a threshold natter that because .
the agreements are part of an integrated Reorganization Plan, negotiated and approved by all concerned, the Staff may not take that " package" apart and alter any of its details.
This " package" ds~ense ignores the_ Commission's orders. The Commission directed a ,4blic hearing "for the purpose of determining . . . whether the rates, terms, and conditions of the Seabrook Power contract . . . and the capacity Interchange Agreements,are just, reasonable and in the public interest . . .
(50 TERC at 61,841). Nothing in that order (or in the later s l orders) suggests a limitation to the " package." The hearing
! order spoke broadly about the Seabrook contract: "[f)urther our review indicates that the Seabrook Power contract may be unjust t and unreasonable. Accordingly, we will set the-Seabrook Power
-Contract for hearing" (Id.) Because that contract was not the i product of arm's length bargaining, "[w)e therefore will carefully scrutinize (its] rates, terms and conditions . . .
(50 FERC at 61,839).
On rehearing, the Commission rejected a request that it find the Seabrook contract rates just ind reasonable without a hearing because they were part of the approved plan (51 FERC at 61,481-61,482, 61,484-61,485). In a July order granting clarification, the Commission again rejected the " package" defense, and made
- clear that a particular aspect of the Seabrook contract was l _indeed being set for hearing (52- FERC 1 61,046) . Of course, rates must be examined as-a whole -- for their "end result" -- in determining whether they are just and reasonable (Jersey central l
= l 8 ,
) i i i j $4 l
! pever & Light Co. v. TERc, $10 F.2d 1168, 1177-78 (D.C. Cir.
! 1987)). But that does not render their individual parts immune i from the careful scrutiny which the Commission' orders explicitly
! required. The staff's challenges must be examined.- >
j (2) The seabrook Power Contract (a) Rate of Return
) (i) The return on equity in_the Seabrook '
Power contract is 13.754. The Seabrook agreement is a life-of-
! the-unit power contract under which North Atlantic-Energy corp. 1 i (NAEC), a new NU subsidiary, Will take over PSNH's interest'in 1
, Seabrook. NAEC will then sell its share of.Seabrook's capacity . 1
- and energy to PSNH. The contract allows for rate base treatment of only $700 zillion of PSNH's $2.9 billion original investment ,
in Seabrook. Tor the first ten years the return on equity for
- NAEC is fixed-at 13.75%, regardless of any change in capital !
l markets. Af ter the tenth year, NAEC's return will equal- the -
average of the returns approved by-the Commission for certain lj cther single-unit, nuclear generating companies in New England.
l (Ex. 9,'pp. 28-29 Ex. 14, pp. 15,17: Ex. 239, p. 14). ,
l The staff recommends a return of 13.1%. Its witness, Ms.
Watson, presented an independent- analysis for determining a . rate of return under the Seabrook' Power Contract,.using the Discounted
- Cash T1ov (DCT) methodology and testing that result by a j comparable risk analysis. She calculated a proposed;seabrook !
return by first using NU as a " proxy" for NAEC and calculating what NU's return ought to be. She determined that a reasonable i_
range for NU would be 11.61% to 13.55%,'and recommended a return near the top of that range (13.5%). She then.made-a-downward adjustment pf 0.4% because she believed that the Seabrook Contract protections (the cost of service formula tarif f and a guaranteed purchaser) made NAEC less~ risky than NU.-
staff has attempted to comply with the Commission's general approach to rate of returnt a DCT study assuming-NU's validity as a proxy for NAEC and a comparison with returns of analogous
, coepanies. But the-attempt to show that NAEC is'less risky than
! NU is not convincingr NAEC's single < asset, Seebrook,.is a-
- controversial.andLtroubled nuclear plant which was a major factor in causing the bankruptcy. NAEC's bond ratings, projected into the future, reflect a greater risk than NU's present ratings. In addition, although electric. utilities generally-need pre-tax earnings equal to twice their-total debt interest 1for purposes of issuing new debt (Tr. 6699), NAEC, under staff's 13.1% return (Ex. 623, p. 460), would fall
- below that level'. 11/ These=
l' 11/ _NAEC's pre-tax coverage-under her return, would range from 1.41 in 1990 to 1.85 in 1998. ,
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55-4 considerations show that NAEC has risks which outweigh those of
- NU.
Wholly apart from these dif ficulties, an overall view of the contract provision shows that its end result is just and reasonable. PSRH's share of Seabrook is $2.9 billion; but the 1 anount used in rate base by NAEC for that share is $700 million. -
1 A return on equity cannot be examined in isolation, without considering the effects of rate base treatment -- where, as here, rate base is reduced below what commission standards would otherwise allow. 52 TERC
! 113. Northeast 1 61,097, rehe a denied, 52 TERC 1 Utilities Service 61,336 (1990) Co.kng
-(allow one of NU's subsidiaries a 14.5% return on equity where 'the operating - !
company did not include the full cost of all of the facilities for which recovery was justified). EAR 1112e florida Pover &
Licht Co., 32 TERC 1 61,059, at 61,295 (1989); Jersey Central
- j Power & Licht Co., 810 T.2d at 1177-78. ;
RU could well have paid-the full $2.9 billion, properly.
included it in rate base, and earned a commonsurate return from .
1 its ratepayers for years to come. Testing the overall fairness of the Mond result" by focusing only on what was paid, instead of ,
what was saved, ignores the fact that NU. negotiated a favorable deal by pa'ying less than $2.9 billion for PSNH's Seabrook share. 4 To reduce the return on equity because NU was able to. pay substantially less would penalize the company for having obtained a good deal for its ratepayers. The contract's return allowance is less than it might have been. The end result, a return of-13.75% on a rate base of $700 million (instead of $2.9 billion), ,
is just and reasonable.
(ii) The automatic formula adjustment'that becomes ope,rative after the tenth year of the contract is unjust and unreasonable. The formula determines the return for HAEC -
based on the returns allowed to four Yankee companies. Such an approach leads to a return that-is not designed to recover the utility's cost of equity. The Commission has previously rejected formula rates that automatically adjust the return on common equity (New Encland Power Comeanv, 31 TERC 1 61,378, at 61,841 (1985)). Egg, Green Mountain Power Cornoration, 46 TERC 1 61,164, at 61',F70-71 (1989). 'the rehearing order in this case makes clear that "we will not grant an exception to our policy prohibiting automatically adjusting. return'on equity provisions" (51 TERC at 61,485). RU has not shovn why, despite this ,
language, there should be some different result.- The automatic formula adjustment included in-the Seabrook Power Contract for determining the ROE af ter-the tenth year is rejected.
(b) Section 12 Under Section 12 of the Seabrook Contract,- PSNH, NAEC and the State of New Hampshire agree that "in any proceeding by FERC s
1
l : .
. 1 i
l 56 1
I
} under Section 206 the TERC shall not change the rate charged I i under this Agreement unless such rate is .found to be contrary to 1 the public interest." The Commission's-hearing order
! questioned that limitation, explaining 'that although parties can' 1 waive their own rights, it knew of no court decision authorizing 1- them to waive non-parties' rights (including the commission's) i 4
under section:206. The Commission explained that such a waiver, !
if.otherwise-legitimate to preserve contracted-for_ rates under-s the Mobile-sittga-cases 12/, would be improper here. This~is 1 '
because NU was "on both sides lof the bargaining table" in the NU- -
PSHH-NAEC arrangement (50 FERC at 61,839). For this reason,-the. .
Commission concluded, "we believe we have the authority under the
'public interest' standard to modify a contract where 'it Day be' -
unjust, unreasonable, unduly discriminatory or preferential" ,
4 (Id.) ,
The Staf f seeks to strike the quoted language from_ section
- 12. Such a step is not necessary.. The Commission made clear that in the particular circumstances' surrounding the seabrook '
contract, It retains power - through the "public interest" l language -- to make modifications under'the traditional-just and reasonable and non-discrimination. standards. Any~renaining -
controversy over such power can best be resolved later -- it, as, and when the TERC chooses to exercise it in-the context of-some
- particular modification.
i (c) Cash Working Capital Allowance As a general matter, a utility _first pays its bills, and later recovers the underlying. costs from'ratepayers. Time may ,
intervene between the utility's . payment and its reimbursement,-
, during which period, the company has effectively advanced funds without a!.y_ return. The concept of a " cash working capital '
allowance" conpensates the company for this lag.
There is no dispute about NAEC's and PSNH's-general entitlement to such; allowances in the Seabrook PowerLContract and the capacity Interchange Agreements.: Rather,'the. controversy (between the Staff and NU)_ involves the question whether there-is any lag -- and thus the basis-for_any allowance -- regarding )
those companies' fuel expenses.
a '
The Staf f, resting on . Carolina -Power O Licht Co. , 6 TERC. 7 1 61,154 (1979), argues that NU;has not provided. sufficient '
evidentiary support for the existence of- the' lag vis t a vis fuel.
But NU's witness Noyes did: testify as to the existance and dinension of such a lag-(Ex.114, p. 32).: _8taff's briefLdoes not 12/ United Gas Ploe Line Co.-V. Mobile'Can' Service Core., 350 U.S. 322_(1956); FPC v. Sierra Pacific-Power Co., 350 U.S.'348 e
(1956).
. .. i l !
l i
57 connent on this testimony, and it is essentially uncontradicted.
4 1
i Carolina envisions use of the " actual lag" and that is what Mr. '
Noyes attempted to do here. In the absence of any contrary evidence, his testimony is sufficient. *'
(d) Decommissioning Expense
]
The decommissioning expense allevance " represents what can '
be viewed for simplicity as a negative salvage value for the 1 plant after its service life has ended" (Ex. r s, p. 18). This-e ,
large expense is collected from ratepayr -
the service life '
of the nuclear plant, though NAEC does if spend the money until the plant's life has ends , ,noer the contract,'
these expenses would be calculated urder New Hampshire law and i the Joint ownership Agreement. Staff correctly argues that the f level of decommissioning expense requires TERC approval under-Section 205 of the rederal Power Act.
NU has not even attempted to quantify these costs,-let alone supplied any detailed information about what is likely-to be a ~
substantial bu: den on ratepayers. Egg, 3232, Besten Edison co.,
52 TERCs3 61,010 (1990) (decommissioning costs of $122 million measured by 1985 dollars). NAEC should file with TERC the initial decommissioning expense estimate to be recovered under the contract prior to its collection in rates. If NAEC desires to begin to ec11ect-rates related to a change-in:the decommissioning estimate, a filing with the TERC is. required. Of course it will be important for .!U to have adequate -funds to decommission Seabrook. But providing a FERC review mechanism for this great an item is necessary to assure the proper-charge to ratepayers in present and future rates. ,
(3) Capacity Interchange Agreements
. i These Agreements (the " power up" and the " power down" commitments) include a return on equity of.14.5%. Staff's DCT and risk analysis provided a return of 13.5% -- the return which NU itself will need. As noted supra, Staff's methodology for determining the return for NU accords with TERC's general approach. NU is an appropriate proxy to use for PSNH since the latter will be a subsidiary < of NU- upon approval.of the, reorganization plan and PSNH's emergence from bankruptcy. The Commission has repeatedly used the parent as a proxy.for a subsidiary where the subsidiary's stock is not~ traded. Egg, ,
Connecticut Licht & Power coreanv Western Masr.mehusetts Electric comeanv. Holyoke Water Power comoanv. & Holyoke Power & Electric Coneanv, 43 FERC 1 61,508 (1988). ,
NU introduced no study, and virtually no. evidence, to support its 14.54. Its consultant, Dr. Olson, testified that the 14.5% return for the power-up and.the power-down contracts, while in the " ball park," is a " number that is common in many Northeast l
o 58 Utilities transmission and power sales agreements." He continues, " don't think there is any good economic reason for that in today's environment. I think that is a number that has resulted from a combination of negotiations in the past, plus some Commission decisions that have set that number at 14.5" (Tr. 6142). He had the opinion that the ranges for the power-u p contract would probably be from 13% to 15%, and for the power down contract from 14.5% to 174.
The ranges were not derived from empirical studies, and NU's own figure (14.5%) apparently was used solely because it had been employed in other cases. There is no reason why these intra- '
company transactions are entitled to a higher rate of return than UU itself ja allowed to earn. In these circumstanens, the Staf f's .13.5% return, determined af ter DCT analysis, is appropriate for these agreements.
C. Miscellaneous _ Rate Issues a
(1) NU will pay an acquisition premium of some $800 million. The KACT Towns fear that NU might someday seek to recover the acquisition premium from its wholesale ratepayers.
They also worry about possible significant increases in NU wholesale power costs, and the assignment of certain costs to the transmission function under the relevant agreements. NU has not proposed to recover these moneys from its customers, and agrees that Commission approval would be required before it could do so.
If UU later makes such requests, KACT Towns will have ample opportunity to assert their concerns. For these reasons theru is no need now to address the merits of the KACT Towns' concerns.
- 42) The Connecticut Office of Consumer Counsel, 11 al , state that NU's acquisition financing proposal is highly 1cveraged and that the debt to equity ratio will be too high.
They say there will-be additional risk that-NU's profitable subsidiaries may and up paying those debts if the merger fails to fulfill expectations. For these reasons, these intervenors recommend two conditions: that " customers of NU's existing subsidiaries should not be required to financially subsidize NU or its stockholders if the acquisition results in adverse financial impacts such as a higher cost of capital" and in all future rate proceedings, " cost of equity capital for NU's existing subsidiaries shall be calculated without regard to NU's l consolidated cost of capital, as the acquisition will likely increase tnat cost" (Ex. 488, pp. 4-5).
NU structured the merger to insulate its operating-subsidiaries and ratepayers from risk, while giving them the merger's benefits (Ex. 6, pp. 52-56). 'That such risk has been sharply reduced was also shown by Dr. olson -(Ex. 207, pp. 36-38).
This conclusion was corroborated by Standard and Poor's, and by
l .
59 Boot, Allen & Hamilton, Inc. who so reported to the Connecticut Cor. mission (Ex. 6, pp. 54-55).
For these reasons, there is no present need to speculate about some impact which may never occur. If there are later attempts to pass on theca debts, they can be reviewed in the context of individual rate filings.
1 CONCLUS20W Subject to the terms and conditions set out in~this initial i
decision, the proposed merger is consistent with the-public interest and is approved. Subject to the modifications set ^out here, the rates, thras and conditions of the Seabrook Power contract, the Sharing Agreement, and the capacity Interchange Agre+monts are just, reasonable and-in the public interest.
~., j _
J --
Jerome Nelson Ad nistrative Law Judge l
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l (Release No. 35462218 70*T698)
Northeast Nosers.ndua Utilities opinion and order Authorising Aspisition of Publie servirse Company of New Naapshire and Relates Finamoingst
- 3xception from Cospatitive siddists Reserving Jurististient ponyl.ng Roguests for Nearing 1
tesesber ti, 1996 Northeast Utilities (" Northeast"). West springfield, 1 Massachusetts, a registered public-utility holding eenpeny (aApplicant"), has filed an application-declaration
(" Application") under sections 6(a), 7, 9(a),10,12 (b) ,12 (c)
I and 12(d) of the public Utility Holding Company Act of 1935 43, 45, 50 and 50(a)(5) thereunder.
Thirteen
("Act") and rules
' amendments to the Application have been filed, the last en November 19, 1990.
The Commission issued a notice of the filing of the Application on February 2, 1990 (Holding Co. Act Release No. 2$032).
Fourteen hearing requests from forty-one pour of these requests, separate entities were received, 1/
representing twenty-one entities, were subsequently withdrawn 1/ Requests for American hearing filed by the following entities are now Public power Association ("AppA"): (3) pending (1 (2) Connecti)
Environmental Action cutFoundation Of fice of Consumer Counsel
("EAp"); ' (5 C (5)
Department of public Utilities (" Mass DPU")!
Massachusetts Municipal Wholesale Electric Company
("MMWEC"); (6) National Rural Electric Cooperative (7) New Association ("FRECA");(8) Vermont Department of Public Advocate ("NH-0CA") #
Service (" Vermont-DP8"); (9) Vermont Public Service Board
- and Cic) 11 Massachusetts utilities.
(" Vermont-pst")ipal (Boylston Munic Lhght Department, Braintree- Electric Light Department Department, City of Holyoke cas and Electr
, - . - - . . . - - - - _ - - - . . - - _ ....- - - _.~ _ .- ________ _ _
1 P. W bU $ CLT, Mc[h] ' H IM6 l ,
In addition, eight entities filed connents or notices of appearance. U i
V(...Department, continued)Littleton Electric Light and Water Department, Princeton Municipal Light Department, Shrewsbury Electric Light plant sterlins Munielpal Light Department, Taunton
- MunicipalLightingPlant,TownofRevisyMunicipalLighting Plant and west Boylston Municipal Lightlng" Plant (collectively, "11 Massachusetts Utilities )). '
Requests for hearing filed by Paxton Municipal Light Department, Molden Municipal Light Department and Connecticut Municipal Electric inorgy Cooperative were withdrawn. After entering into a settlement agreement, is, 1990 (" settlement Agreement ), 18 Vernent dated utilities July (Allied Power and Light Company," City of Burlington Electric Department, Central-Vermont Public service Corporation, citisens Utilities Cospany, Franklin creen Mountain Power Corporation, ,
Elsetric Town of Light Hardwick company,ic Electr Department, Vermont Electric cooperative, Inc., Vermont Electric Generation.and Transa.ission cooperative, Inc. , Vermont Electric Power Inc., Vermont Marble company, Washington Electric Company,ive, Cooperat the Villages of Jacksonville Electric company, Ludlow Electric Light bepartment, Morrisville Water and Light Department, Northfield Electric Department, Stowe Water and Light Department, and ,the Svanton Electric Power company (collectively, "it Vermont Utilities")), withdrew their joint request for a hearing, and now support the Application.
y Notices of appearance were filed by that (1) connecticut (3)
Departnant of Public Utility control (" Conn-DPUC")t(3) Maine Public l Massachusetts Attorney General (" Mass-A0");
l Utilities commission (" Maine-PUC"); (4) Rhode Island Attorney General ("Rhode Island-AS"); and (5) Rhode Island Division of Public Utilities and Carriers-("Rhode 1 eland-DPUC").
Comments were filed by: (1) the Attorney General of New Manpshire, in support of the Management Servic Northeast's i
Northeast Utilities Service Company (eNUSC0")
owned service company subsidiary (3) Eastern whollyies Associates ( EUA"), " a registered holding company Utilit which, through its subsidiaries, has a 15% joint ownership),
interest in the Seabrook Nuclear Power Project ("Seabrook' located in Seabrook, New Manpshire, AAA ih1XA note 7, and (continued...)
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!. !WineDUCT!0W Publie Service cespany et New Hampshire (*P8HHH), a New Manpshire publicly evned electric utility, is the largest electrie utility in New Manpshire, supplying electrietty'to F8NH spproxin.ately 18% of New Har.pshire's population.
l
' distributes and sells ettetricity at retail in approximately 300 cities and tevns in New Ntepshira and sells at wholesale- to five other utilities and zunicipalities. 78HN has e 38 4% $sint evnership interest in the lettrook Nucient PeWor Project l l
1/ ( . . .sentinued)(3) New Inviand Elastric systen ('NES8"), t registerl h:4 ding senpany which, through its subsidiary electrie ,
New kngland Power company (DNtreo"), has a utility Both 104 joint evners interest-in the Seabreak pre $est.
senpany, hip
' IVA and Ntt8 !!1ed eersents regarding the M8A. 1g3 W note 6 (discussion of M8A).
___ . __ __ _. -. _ . J
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, 4 On January 28, 1988, psNH filed a voluntary
("seabrook"), y petition for protection from its creditors under c:hapter 11 the United States pankruptcy Code, as amended (" Bankruptcy Code"), p5NH is a dabtor-in-possession in bankruptcy reorganisation proceedings pending in the United states tankruptcy court, District of New Hampshire (" Bankruptcy court"). y Northeast has been an integrated electric public-utility Northeast, through its three wholly-owned systen since 1966. U operating subsidiarios, Connecticut Light and Power company d
("cL&P"), Western Massachusetts Electric conpany ("WMtco" Holyoke Water power ccmpany ("XWP"), provides retail el j Northeast also service in connecticut and western Massachusetta.
provides wholesale electric service to seven municipal and Additionally, Northeast investor-owned electric systems.
Utilities service Conp& y ("NUsCo"), Northeast's service con.pa 5eabrook is a two unit nuclear fueled power plant (" Unit U 1" and " Unit No. 2") that is $0intly cVned in New England. by twelveUnit electric utilities (" Joint Owners")ived its full power a 1,150-megawatt plant, rece No.1,ing operat license from the Nuclear Regulatory commission and has completed all testing 17,and 1990. been in fullUnit No. 2 ha
("NRc")
commercial operation since August been cancelled.
y puMie serv. ee. er W.M. , No, 38-0043 (Bankr. D. N.H. Jan.
29, 1988).
Nertheast t)tiin. , 42 5 3.C. 963 (1966) .
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- 5 subsidiary, provides various centralised services to Northeast system companies. &/
!!. PROPOSAL Northeast proposes to acquire PSNH ("Aegoisition") pursuant to a Joint Plan of Reorganisation (" plan") proposed by KUsco, P8NH, the official Committee of Unsecured Creditors of P8NH and the official Committee of Equity security Holders of 78NH appointed in the bankruptcy proceeding, and the holders of a majority of P8HH's third mortgage bonds. 2/
1/ Under the MSA, NU$co is fully responsible for the management of P8HH, at cost, during the interin transition period between the Sankruptcy Court's confirmation of the plan filed by Northeast proposing its acquisition of PSNH, and consummation of the acquisition, subject to certain requirements. In the event that the acquisition is not consummated, the MSA will terminate, except that NU800 will be obligated to continue to provide management services for specified periods until alternate arrangements can be put in place.
86, 1990, I
By letters dated January 5,1990 and FebruaryNVSCO notifie in accordance with the 60-certain services under the MSA,in the Commission's order day letter procedure specified dated June 30, 1966, Northeast Utiis_. serv. cot, Holding Co.
Act Rolesse No. 15519. By letter dated March 16, 1990, the I Con, mission advised NUSCO that it does not object to NUSCO rendering interin management and administrative services to l
P8NH prior to its proposed acquisition by Northeast.
2/ Each of the class of PSNH's creditors and equity security holders -- except for the holders of 78NH warrants, the most The junior of the classes -- voted to approve the Plan.80, 1990 (" April Bankruptcy Court entered its order on April 1990 Order") confirming the Plan, committing PSNH to the merger with Northeast and " cramming down" the Plan on theOn warrant-holders class that did not vote to approve it.
l June 18, 1990, three 78NH shareholders filed an appeal from the Bankruptcy Court's April 1990 order. The appeal is (continued...)
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i I. The plan values PsNH assets at apcroximately $2.317 billion, i with P8RH's interest in Seabrook valued at $700 million 1/ and its non seabrook assets valued at $1.617 billion.1/ PSNH's ,
i i
creditors and equity security holders will receive cash payments
)
of approximately $2 105 billion (" cash Distribution Requirementa), PSNN's equity security holders will receive $205 million in notes (" Notes"), and approximately $7 million in cash J
2/ ( . . . continued) pending.
1/ As of December 31, 1989, psNH valued Seabrook at approximately $1.790 billion.
1/ The effect of this valuation vill be to. write down the value of the Seabrook assets and assign a apremium" of approximately $787 million to p$NH's non-Seabrook assets, which are expected to have a not book value as of consummation of the acquisition of approximately $430 million. Northeast expects to recover the premium from psNH's ratepayers pursuant to a rate agreement, dated as of November 22, 1989, (" Rate Agreement"), as amended, entered' into between NUSCO and the Governor and Attorney General of t
l New Hampshire. The Rate Agreement has been appealed to the -
New Hampshire supreme court by-three 78NH shareholders l
claiming that the rates are insufficient, and by a group i representing New Hampshire retail electric consumers claiming the rates are too high. The New Hampshire Supreme court heard oral arguments in this matter on December 6, 1990.
Pursuant to the Rate Agreement, a temporary 5.8% rate increase in base retail rates was placed in effect on Januan 1,1990 for P8NH. The Rate Agreement commits New Nanpshlre to, among other things, an additional six annual rate increases of 5.5% for P8NH and allows for the recovery of fuel and purchase power costs and expenses. The rate increases were made persanent by order of the New Hampshire public Utilities Commission ("HHPUC"), dated July 30, 1990.
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The plan provides for will be used to pay transfer taxes.12/ '
Northeast to seguire pSKH in either a one step transaction (aone- i i
Step transaction") or a two step transaction ("two-8tep ;
Transaction"). 11/ )
- n. The ena stan trannastian Northeast will acquire pSNH in the one-Step Transaction if all conditions to the Acquisition are set, including receipt 31, 1890 of all neces6ary requistory approvals, 12/ by December (or a later date, if extended) ("Reorganisation Effective 12/ The Cash Distribution Requirement will require the billion because of approximately $7 million of transfer taxes.
11/ Because regulatory obstacles could delay reorg The Two-8tep
, either a one- or two-step transaction.
l Transaction will be used if the necessary regulatory
. approvals are not timely octained.
12/ The principal conditions that must be satisfied before PSNH can be-acquired in the one 8tep Transaction aret (1) the entry of the Bankruptcy court order confirming the Plan, which occurred on April to,1990, and is now on appealt (2) receipt of all-necessary regulatory approvals, including, the approval of-the Commission, the Federal Energy, Regulktory Commission ("FEAC") and all relevant state commissions; (3) completion of sttisfactory financing arrangements: -(4) . receipt of a favorable ruling on federal a determination that the ,
income tax consequencess (5) ion clains by unsecured j aggregate amount of propetitcreditors does not exceed $90l ,
provisional ratings for the notes to be issued by North Atlantic Energy corporation (" North Atlantio"),-a to-be-formed wholly-owned public-utility subsidiary of Northeast that.will own all of pSNH's interest in' 8eabrook, of 55 or better-(or equivalent rating) on a when issued basis by at least two specified rating agencies.
P, H!
i g 99 p;p & S E.
f .,
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! Date"). 11/ Tha Acpititish will be completed under the j 3ankruptcy code with Northeast's purchase of a new issue of up to 100 million authorised shares of p5NH common stock, $1.00 par value, and the cancellation under the plan of all currently 4
issued and outstanding p5NH securities, with the possible exceptions of two series of psNH pollution control revenue bonds. 11/
As discussed above, ptNH creditors and pSNH epity security holders will receive the Cash Distribution Requirement of W Dce to delays in receiving the necessary regulatory approvals, the original Reorganisation Effective Date of August 1, 1990 has been extended to December 31, 1990, which may be further extended.
W The two series of pollution control bonds that may remain outstanding ares (1) 8100 million aggregate princlpal amount of The Industrial Development Authority of the state of Nov
- Hampshire ("NHIDA") pollution control Revenue Bonds,1986 l Series At and (2) 5112.5 million aggregate principal amount .
of NMIDA Adjustable Rate solid Waste Disposal and pollution control Revenue tends, 1989 Series (collectively, "PCRBs").
Northeast currently contemplates that p5NH would, upon reorganisation, refund the pcRBs and approximately $10 million of the $20 million aggregate principal amount of another series of NHIDA pollution Control Revenue Sonds, 1983 Series A (" series A-Bonds"), with the proceeds derived from the issuance of up to $232.5 million in aggregate principal amount of NHIDA tax
- exempt pollution control refunding revenue bonds. As noted above, the remaining $10 million aggregate principal atount of NHIDA Series A Sonds will be cancelled under the plan. Northeast also anticipates that the NHIDA will issue approximately $60 million aggregate principal amount of tax-exempt pollution control revenue bonds and approximately $200 million I
aggregate principal amount of taxable pollution control revenue bonds (all or a portion of which may be converted to tax exempt status in the future), to allow the actruired psNH to reimburse itself for its portion-of the-cost of pollution control, sewage, and/or solid waste disposal facilities at seabrook.
- r. w n l m a ;; M; & & EU.
- 9 l, approximately $2.105 billion. PsHH opity security holders will also receive up to $205 million of Notes issued by North Atlantic and approximately 8,431,000 warrants (' Northeast Warrants") to buy Northeast someon stock. - Northeast will issue one Northeast Warrant for every five shares of P8NH common stock that are outstanding immediately before the Reorganisation Effective Date Lif Upon Northeast's acquisition of 78NH's how issue of common stock and the cancellation of 78NM's outstanding common and preferred stock, PSNH will become a wholly-owned subsidiary company of Northeast ("New P8NH") and will have no further obligation to P8NH's debt or equity security holders, except to holders of the PCR5s, if outstanding. New PsNH will transfer its interest in set. brook to North Atlantic 11/ for approximately $700 million, consisting of approximately $495 million in cash and
$205 million of Notes, issued by North Atlantic for distribution to PSNH's equity security holders. Northeast would also form a .
11/ As of June 30, 1990, there are 42,154,548 shares of P8NH con.non stock outstanding.
A Northeast Warrant will entitle the holder during t,he exercise period, beginning on the date the Northeast Warrants are issued, which will be the date Northeast acquires PsNH, and terminating five years later, to purchase, for cash, one share of Northeast common stock, to be issued and sold by Northeast for $24.00 per share, ,
subject to certain-adjustments. The Northeast Warrants will be freely transferable. .
11/ North Atlantic will' enter into a power contract to sell its share of the power generated by Unit No. 1 to New P8NH after it is acquired by Northeast on terms that vill allow North Atlantic to recover its investment in seabrook.
, _ . _ . . _ _ . . _ _ . _ . - _ . _ . . - . . _ . _ . . , _ . _ . . - . ~ . ~ . _ ,
P.11/H l i 17:10
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10 l new wholly-owned special purpose subsidiary, North Atlantic l Energy services Corporation ("NAESC"), which will assume l
responsibility for the operation of Seabrook Unit No.1, & and, j
as discussed below, Northeast, New psNH and North Atlantic would a
issue and soll certain securities and engage in related l transactions.
New p5NH will raise up to $1 610 billion front (a) $20 !
! Eillion in estinated cash on hand and (b) through the issuance l
and sale of: (1) all of its nov issue of commen stock W to '
i Northeast for a cash purchase price of approximately $318 i nillions (3) approximately 8.1 million shares of a class of 25 .
nillion shares of $25.00 Cumulative preferred Stock. Garies A, l
$25.00 par value per share, to the public or in a privately negotiated transaction to not approximately $125 million in cashi (3) first nortgage bonds, issued under the General and Refunding Mortgage Indenture, dated as of August-il,1978 ("G&R ~
Indenture"), betW9en psNH and New England Marchants National Bank, Trustes ("New England Merchants"), as amended and restated, W NAts'C will assume operating responsibility for Unit No. 1 under an agreement to be reached with the other Joint Owners after Unit No. 1 receives-its full power operating license 15, 1990, and from the NRC, which became effective on Narch pSNH's New Northeast's acquisition of p5NH is completed.
i j
Hanpahire Yankee division is currently respons NAtsC's organisation will be similar to other 4
to NAISC. NAESC's special purpose companies regulated under the Ac l
further coraission autherisation.
j W New psNH will initially have 100 million authorised shares of coraon stock, $1.00 par value per share. '!
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or under a new first acrtgage-indenture, e9eured by a first lien on its evnership interest in non-Seabrook assets, in the approximate amount of $343.8 million; 11/ (4) apprcrimately $200 ;
i million et NH DJ taxable pollution control revenue bonds; and (5) 1 approxinately $282.5 R1111on of NHIDA taxaerempt pollution control refunding revenue bonds. New PsNH will borrov its rentining cash requirenents, estinated at $322 million, through a '
torn loan facility with a esturity of less than five years,12/
and vill retain one or more banks te organtes a banking group to arrange for placenant of the tera loan facility.
In addition to the $205 tillion in Notes issued by North Atlantic for distribution in accordance with the plan, it vill raise up to $495 million in cash through the issuance and sale oft (1) up te 1,000 shares of common stock, 51.00 par value pur share, to Northeast for $140 million in cashi and (2) first nortgage bonds or other long term debt,11/ unsecured or secured by a first lien on its interest in $sabrook, through privata 8
11/ Northeast forecasts an interest rate of 10.75% per annum and a term of ten years for the New pKNH first nortgage bonds.
12/ Northeast forecasts an interest rate of D.754 per annum, and that the loans would be repaid in three years.
11/ The first mortgago bonds vill have a medium tera maturity, in-the range of ten years or less, depending on market conditions. Northeast projects an interest rate of 11 5%
per annum and a term of ten years for thesa bonds.
1 i p, j pg 17:11 M W 8 M ,i, R 2! ' 90 ,
1 12 i I
l placanent or a negotiated underwriting, to realise met proceeds
+
up to $355 million in cash. 22/
In addition, New PERM and North Atlantic esch'propese to put in place a revolving credit agreement with syndicates of~
l commercial banks under which 4100 to $150 million and $1 million of short-term borrowings can be_made availabio to New PSNH and North Atlantic, respectively, on a revolvirg basis to meet their respective working capital obligations. LL/
l l
11/ The fo11oving table summarises the various pro '
North Atlantic to raise the Cash Distribution Requirement sceners or CASH to NEW PsNM (Millions)
(
$318.0 Northeast Purchase of Common Stock 125.0 Preferred Stoch 342.5 First Mortgage Bonds 482.5 NHIDA Sonds 322 0 Term Loan
.1242 PSNM Cash at Time of Reorganisation (est.)
l 81,610.0 sooners er cAsM TO NeRTM ATf1MTfe (Millions)
~
$140.0 Northeast Purchase of Common Stock 21L,2 Long-Ters Debt
$495.0 42,105.0 Cash Distribution Requirement 12/ The credit agreements will provide for competitive. bids under a
- Dutch Auction" basis or at a specified interest rate, which can be the prise rate or a rate tie or any other acceptable method.
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- 13 '
- 3. Tha_fwaantam framamation Under the Tworstep Transaction, PsNM will be reorganises as l
an independent estpany in the first stop (astep A"), and in the second step (" Step 5") reorganised P8KH will be merged under New Manpshire law with a newly-created, wholly-owned subsidiary of Northeast, to be named Northeast Vtilities Acquisition Corp.
("NUAC").
Northeast will acquire 78NH in the Two-Step Transaction if the necessary regulatory approvals are not received by the Reorganisation Effective Date 11/
This will ,
enable PsHH unsecured creditors and equity sharehsiJers to receive a substantial portion of the cash Distribution I
Requirement at step A, pending receipt of all necessary The remaining I regulatory approvals to the Acquisition at Step 3.
cash Distribution Requirement will be distributed at the time the Acquisition is concluded.
- 1. step A In step A, tsWH will be reorganised under the Bankruptcy code as an independent company (" Stand-Alone P8NH") conducting all of P5NHis utility operations and retaining its interest in 11/ The p'tincipal conditions that must be satisfied before P8XH can be reorganised as Stand Alone P8NH in Step A of the Two-step Transaction are the same as those required to conclude the Acquisition und6r the One-Step Tranatetion, AAA suaIA note it, with one' exception. Step A requires receipt of regulatory approvals only from the relevant connecticut and J New Hampshire connissions.
In addition to the conditions which must be satisfied in step A to cresta stand-Alone PSNN, the merger cannot be censummated at Step 3 unless Northeast receives all other necessary regulatory approvals, including the t '5roval of the Commission and the TERC.
1 I'
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( .
14-4 Seabrook. Stand-Alone~ P&NH will not be a subsidiary of Northeast, 11/ but will-be bound by a merger agreement ("Mergerc Agreement") with WUAC.11/ - Under the Merger Agreement,- Stand-Alone pSNH will agren to merge NUAC into:it when: all- regulatory 1, approvals and other conditions are satisfied,-with Stand-Alone P8HH as the surviving corporation, whichiwould then be known as New 78NH, a wholly-owned public-utility subsidiary;of Northeast.-
7n erder to fund the approximately $3.105 billion: Cash Distribution Requirement, stand Alene P8NH'wi?2 vse an estimated
$20 million in cash on hand and issue'and/or sell certain securities. Stand-Alone P8NH will' issue up to-32.4 million shares of common stock,- or an estimated 21.3 sillion and 11.2 million shares to P8NH's unsecured creditors and'to its preferred and common shareholders, respectively,; valued at 820 per share, or approximately $440 million. 22/ ' .The1 32.4 nillion shares of 4
common stock will be cancelled when the merger is consummated in al/ Stand-Alone P8NH will be- subject to regulation under the Ac'.
after it is merged into thefNortheast system.
11/ The Plan provides that NUAC will have 1,000:authorised shares of common stock, $1.00 par.value per share, all of which will-be 8, sued to-and acquired by Northeast for--
approximately $318 million in cash prior to the nerger.
22/ The $20 value is a result of the negotiations which-culminated in-the creation of the Plan. The holders of Stand-Alone P8HH common stook will be entitled to roteive' quarterly stock dividends, the first-of-which will be payable at the end of the calendar quarter in which the Reorganisation Effective Date occurs. The stock dividends-will accrue centinuously from July 1, 2e90 at a quarterly rate of two shares per 100 shares outstanding for-the period ending December 31, 1990,-and thereafter at three shares for
~
evt=y 100 shares outstanding.
i
. 1
NEW & E xi, F. lM5 DIC. 21 ' 90 17:12
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15
- Step 8 and, in exchange for their shares. PSNH's unsecured creditors and equity shareholders will receive the $548 million Additionally, Stand Alone PSNH will issue in cash at that time. (1) approximately 5.1 and sell certain securities, including million shares of cumulative preferred stock, $25,00 par value per share, designated as $25 00 cumulative Preferred first stock, series A, to the public for approximately $125 millionsd(2) mortgage bonds, issued under the C&R Indenture between PSNH a New England Herchants, or under a nov first mortgage its indenture, as discussed above, 11/ escured by a first mortgage lien on non-seabrook assets for an aggregate principal amount fof approximately $342.5 millions (3) approximately $200 million o (4) approximately $282.5 million of tax-taxable NHIDA bonds: h exermt NHIDA bonds; and (5) notes under a term loan, whic Stand-Northeast projects to be approximately $487 million.11/ by North Alone PSNH will also issue $205 million in Notes (issu PsNH's common and Atlantic in the one step Transaction).
11/ 18.3 munra pp.10-11.
i 11/ The following table summarises the various is the Cash Distribution Requirements souwers or CASH TO STAND-AlcMt PEgg (Millions 5) 8 648.0 Common Stock 125.0 Preferred Stock
, Pirst Mortgage Bonds 342.5 482.5 NHIDA Sonds 487.0 Tern Loan Cash of PSNH at Time of Reorganisation
_1242 cash Distribution Requirement
$2,105.0
P.17/35 17:12 NEW g 3 7' MC 21 ' 90 l
. 1
. 15 preferred shareholders Wall siso receive sentingent warr sortificates (" contingent certificates") 2A/ to be exchanged i one-to-one basis for the Northeast Warrants, 21/
step 3 l
- 3. ll of the Under Step 3 (1) Northeast vill form, 'and acquire a (2) ~ NUAC will merge with f cor. mon stock of, NUAC for $318 million viving a
and into stand-Alone psNH ("Margar"), which i will be the sur tility corporation knowt Ms New 78NN, a wholly-ownedt publ k c-u l
subsidiary of Northeast; 22/ (3) Stand-Alone PSNH holders common held by 78NH's unsecured creditors and equity security will be cancelled and the holders will receive $20 f in cash per l share for such stock, or $648 millions (4) the holders o ,
l contingent certificates will receive the-Northeast'Narran d to North (5) New PsHH's interest in Seabrook will be h andtransf Atlantic for $700 million,-consisting of $495 million.in cas assumption of the $205 million of Notes originally issued b I
22/ contingent stand-Alone PSNH, rather at stepthan Northeast, willshould issue certificates A so:that, it-there be any delay in obtaining the regulatory approvals nece for N' theast to issue the securities, the issuance The of the contAngent certificates will not be affecte merger does not occur'in Step ~5.
21/Northeast
&As-323rA note 15 and accompanying text (discu Warrants under the one-Step Transaction). H's Northeast will issue the Northeast- Warran I
creditors and shareholders.
22/ As a result of the merger, New 78NH SAS 52RIAwill notebe the l
Stand-Alone PSNH's outstanding securities.2
' PSNM).
to 5 m, F. li/M
' E 2I 90 17:}3 i ,
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17
\
stand-Alone PSNH, thus releasing New PSNH from it l
l under the Notes. t ined )
Northeast states that, in the event that it is' de ers ll of the l that it is impractical & to effect some or a date, the maximum contemplated sales of securities on-the closing Atlantic-and.
f amount of short-term " bridge" financing for llion,North Northeast would b9 up to $400 million and_$500 mi respectively. W III. NORTIEAst's soURCs CF PUNDs. in cash in c
Northeast will invest approximately $458 i million e through a New PSNH and North Atlantic, which it proposes to ra s illion from bank or term loan facility of approximately $229 m d sale of up to other institutional lenders, & and the issue an Northeast k
approximately $229 aillion of its common stoc .
l
& Northeast sale of securities would consider if, because it impractical of unusual ~to andeffect current a unforesten economic, market or financial it were to circumstance beyond the control of the issuing company,ine that the y consult securities with in financial questionadvisors could notand be determ sold in the neces amounts, on reasonable terse and at a reasonable-c d by order W These amounts do not of up to $100 million for Northeast, as authorise reflect revalving 86), and cred dated July 29,1988 (Holding Co. Act Release No.h346 Plan.
$100 million for North Atlantic,-as proposed under to te W Tr.a term loan f acility will also be (1) i as nece used, provide Northeast with the necessary cashd'(2) interest obligations on the Acquisition financing to pays New pSNH an dividends payable on Northeast's common i idends stock un and North Atlantic are able to beginckpaying issuances. cash d v to Northeast on their respective common sto
l l
P,ll'35 NIF & WOLT.
l DEQ21 ~ 90 17:13 i
f
- 18 l ill be paid through the-l anticipates that the ters loan facility w illion of additional f issue and sale of up to approximately $340 mbe subject shares of its common stock, which will commission authorisation.
1V. NORTESAST'S PAYMENT OFy dividends DIVIDENDS on its Northeast requests authorisation to pad consolidated re common stock based 4v.
upon ita unrestricteYears earnings, 11/ for up tt l be subject At the end of that period, Northeast.wil PsNH. 12/
d by the equity i ited to the portion ted by dividends 24/ The amount of dividends will be calcu method of accounting, and will notis of consolidated retained earnings represen be l m distributed 30, 1990 to Northeastd by its subsidia of accounting, As of June earnings, calculated on the equity metho(2) totaled the restric totaled approximately $765-millient i (3) Northeast retained earnings of Northeast'sd subsidiar l esappro I
approximately $597 million and, socording y, ined earnings.
has available for the payment of 22/Acquisition, The Applicant states that, North Atlantic New PSNH and d will earnings and2n retire order their own debtcommon to maintain rather stock div to Northeast.-to Northeast's shareholders, icted retained Northea dividends earnings because cut of itswill there not be fficient consolidated ' sudividend-forecasteda unrestr
/
earnings available initially from the oper I
and North Atlantic to support Northeast s obligations. represent the Northeast's consolidated retained that are retained earnings accumulated earnings of its subsidiaries- d paid by Northeast to after dividends have been declared lt ofanA significa conditions its common retained stock shareholders.
earnings are restricted ge as bond-indentures a resu (c contained primarily in the first mortga
F. 20/M MC 2) ' O lhl4 N!W & Jixi'
. 19 prospectively to the limitatiens imposed under ithe paid Act, except that it will not be required to return the retained earn ngs f
from the undistributed retained earnings subaccount.
V, EXCEPT3CNS PRCN CCMPETITIVE SIDDING Exceptions from the competitive bidding requirements ih of ru 50 under subsection (a)(5) AA/ are roguested in connection w t ,
(1) New P8NH's the following issuances and sales of securities preferred stock, first mortgage bonds, pollution control bon and notes in connection with its revolving. credit borrowings term loan borrowings (2) North Atlantic's first mortgage bonds,
$20$ million in Notes and notes in connection with its bridge '
financing and revolving credit borrowings; (3) Northeast's Warrants to PSHM's preferred and common shareholders and co stock thereunder, additional shares of common' stock and n connection with its tern loan borrowings.
In support of its request for an exception from competitiv (1) New 78NH;will be emerging bidding, Northeast states that from an unprecedented utility bankruptcy and will be estab its entire capital- structure at a single time through the A2/Because ( . . . continued)and of the insufficient other debt instruments forecasted earnings notedof No abov Northeast aust use a portion of retained earnings that is undistributed Howevar, and ruleunrestricted 36(c)(3) requires that to maintain Northeast its c dividends.
file to paya declaration dividends out of under section undistributed 12(c)earnings.
retafand of the Ac 2A/ M in1IA note 41.
1
N!W f, jqi, I. 2 i c'3 f '
DI$ 21 ' 90 II:14
.s .
to (3) in tight of issuaness ehd sales of the proposed soeurities:
i the the substantie1 emplowities involved in financ ng be achieved Acquisition, the best price for the securities can syndicate through a sencarted pre. pricing markating effort i by a ment led by knowledgeable investaant bankers, er a private p sta (3) active participation with experienced and of the securities: ine the skilled investment bankers is needed d whether to best a determ appropriate terns of the soeurities to ibe blesteaued (4) thean public sale of the saourities is feasibis erunts, des ra proposed insuances requits flexibility asdjust to the to sno naturities, call protections and other terms, to aAequisition and prevailing sarket senditions at the time of theh t has been and to meet the financing needs er a transaction t ia in an will sentinue to be negotiated among multiple f part es attempt to implement an aseeptable consensual plan o i i amount reorganisatient and (5) the issuance of this in thesubstant one-Step t of new securities by New PsNH sunt beditional coordinatedshares Transaction with the issuance by Northatet of adrtgsge ,
of its common stock and by North' Atlantic of its first mo tends.
N!(tgo;7, P.22/3V DIC 21. ~ 90 17:15 83 vs. asocaer roa tassavarrow or avatseretteN h st has in either the one or Tve-step Trensastion, Nort ea i ns and requested that the Conniesion approve certain transact o reserva jurisdiction pyst others. 23/
In the One step transaction, Northeast requests a (1) Northeast's term reservation of jurisdiction evert k to raise additional borrowings, issuance and sale of eaumon steeth Atlant&e's espital and interin bank borrowings, it any; (2) i if Nor issuance of first mortgage bonds, interis bank borrow ngs, .
(3) the capital Funds Agreement any, and short term borrowingst ) New PtKM's betvesn Northeast and Werth Atlantici and (4 llution sentrol -
t tasvaness and sales of first mortgage bonde, po d short-tera revenue bonds, preferred stock, tars borrowings, an borrovings, a
!n the Two stop tranatetion, the Applicent requests f reservation of jurisdiction svara (1)k Northeast's termand interi '
borrowings, issuanse and sale of dsomeon short-stes korrowings, if anyl first sortgage bonds, $ntarim bank Dorrowings, if any, ar.
of that 22/sortain The record is not securities thatyet anyeenplete and theas be issued andtoborrowings terms the exact na may be effected to sensuasate the plan,indetermined one er persnearer to haraof, whish Northeast etstes Will be rate the Aoguisition date and vill be reflecteda application,fer those transactione avsr all otherthe record Vhich ord.
that the commission reserve jurisdiction over transactions, pending cospletion of the rec I
i __
p, g l
17:15 NEW & ROLT.
DEC.21'00
.- 1 33 tera herrevingsi and (3) the Capitti Funds Agreement betwnh !
Northeast an6 North Atlantic.
T12. 918098010W l In light of the facts, the representations contained in the I Application, our analysis of the proposed transactione sentained herein, and our eeneluetone below with regard to the applicable standards of the Act, the Commission believes that, susept_ as to d
those matters ever which $urisdiction is reserved, the propose -
The ceanission will condition transactions should be autherases.
its ordar en a reservation of jurisdiction, consented to by the-Applicant, ever sortain other transsetions, pending sempletion of the record. These transactions will be examined under the applicable standards of the Act by the Division of Investment Managsmant by delegated authority.
A. f aauanea ud Sala et aneurities The Applicant requests authorisation far the issuances and sales tf all oesuritiac ever which jurisdiation is:not reserved, including:-(1) in The One Step Transtetion, (a) 1,000 shares of pov psNM's common stock, 81 par value per share, to Mertheast- for
' approximately 531s million in eashi and (b) 8205 million in Notes.
issued by North Atlantic to pSNB's equity steurity holders; (2) in the Two=8tep Transtotion, all of WAC's common stock, constating of 1,000 autherised shares et seamen stock, $1. par value per shara, to Northeast for approximately (318 million in cash and (3) in either the One-Step- er Tweastep Transsetion,
P. 2U3i l7:)!- . NfJ (, HXI, MC. 21 ' 90
. 33
- Warrants to p5NH8s 8,413,000 of Northeast (a) up to approximately (b)' spen eversise of the preferred and seamen stecEnolders 8,413,000 shares Mertheast Warrants, the issuanes by ' Wortheast eensen stock, of of seamen stocks and (a) all af North 1us per Atlantin s.
sensisting of 1,000 entres of soupon steek, in eash.$1 par v6 share, to Northoest for apprezipately $140 i red millie- holding 7ne issuance and sale of eseurities by a reg ctions ste
- 4. and:7 etepany or a subsidiary thereof are governed / sostion 4(a) by se of the ' Act and rules 43, W So and 50(s)(5). 41 nd este of of-12/Northeast North WarrantsAtlanticto 8s, wuAr's and MUAC are also governed nje Wav p5NH's Rule 43 provices. in relevant part, thatt a(s)11. ame registered holding eenpany or subsidiary euespt- thereof sha directly or indirectly, sell to any sempany f the
&n the s hoiding sospany '
.a system . . . any securities . .
Commission . . .
11/requirer.
Unle35 otherwise exceptad,' apply atethe ente of rule 50(b) and (c)ing the . issuance everyeespotitive biddin or sale d holding declaration and application regardof ..."
i any Under sealed.
rulesecurities eenpany er subsidiary h soapany thereof . .=.90(b written proposals requires for thetsubmission e psecurities of and two independent to semply with the pr Rule 60(c)for the purchase er underwriting i sf securities.
r9141 red proposals Together, rule 80(b) and (e) address the eendit ons for the atintenance of eespotisive kidding.oo &nd sais of '
of-
'the ees otitive porth Attentie's, WUAC's and MeV p Northeast Warrants to WAC are 4Weepted ny thefrom . . inst.n bidding requirements-of rule 50 nave *>..n . under 'su s
=
ther.under wh.re they0 of the Act.gprov.d pursuant to section 6KN equity st's Northeast's issuones.of the Northeast W i
1
- i c
we = -m -r e a+ ,, ---n,, , e,- w, . -w r,- m --m- ea
p, ;3 /.5 NU 8 ET.
MC.21 ' 90 17:16 i
- S4 L
l prohibits tbs issue er sale of. e security by a registered holding-cospany or its subsidiary sampany unless the connission-l autherties the sale under'section T of the Art, ~
l The commission must first determine that the requiresente ef l sections 7(c) and (g) are estisfied. 41/ vnder sostion f(e) of I
l
... continued) '
41/(tesuanoe et consen stest and perth Atlantie's issuanc the Applicant has roguested that d i
rule 50 under the Aet.these issuances be oncepted free rule 80's subseatten the (a)(5) coepetitive thereunder.
bidding requirements of rule 50 the issuance and-sele of soeurities where the coenission fines,-in relevant part, that sempliance with rule S0(b) and Sc(e) is nett approprist6 to aid the Consission (in'etr y ing out the previsione of section 7 of the Ast) to semaissions or determine whether the other reruneratten to be pa fees,id directly or indirectly in eennection with the issue, sale-er distribution-of such securities,are
- reasonable. or whether any ters or eensitten of suen assw. er sale is detrimental to the i
-public interest er the intereettet investers-er sensumers . . . .
11/ 8ection 7(g) previsest
!! 4 State semaission er state securitica commission having $vriediction over any of the acts enumerates:in outsection-(a).-ef section 6, shall infers the commission, upon-reguest by the commission ser an opinien er otherwise, that state
. lows applicable to the act-in question have not-been semplied with, the Commission shall not pruit a declaration retarding'the att in question to beoema is consission effective satisfieduntil thatand unless such the semplianse has been effected.
Northeast states that no state cosaisaien has jurisdiction over the issuance ef Northeast Warrants or, upon exercita of the Warrants, the issuance of Northeast' oemmen steeX, and overNortheast s NUac's. issuance of common stock. (continued. . . )
1 l
l
l F. 2U35 I
DiC.21 ' W lh16 NEW&H0!.T.
l
' ab
(
l i A2/(...
WKWC continued)isdietion has jur ever North Atlantie's issuthee of esamen-steek and a regaest for authorisation has not yet been file with the NHPUC.
may have jurisdiction ever North Atlantic's issuance of $205 million of Notes with the determination of jurisdiction by theTh NxPVC not rossived.
the preposed issuance of soeurities and has approvet All ether transactions autjeet to its jurisdiction, with As exception of New P9NH's issuanes of seamen steek to Northeast in the one. step Transaction. Request for authoritation for New P9MH's issuance of seamen stock has not yet been files with the conn PUc.
on April it, 1990. NU8C0 and PsNM filed separate requests with the verment Pss and the Maine =PUC for declaratory rulings confirming that (1) any exercise of their respoetive jurisdiction over the Plan is presepted by the Bankruptcy Coder and (3) they las v eub$ set matter $urisdiction.over all security to all other transactions sentemplated NUSCO and P8MX also in stop h, t either lack jurisdiction or approve them.
filed a seaplaint wath the Bankruptey Court regJesting a -
tanporary restrait.ing order restraining the Vermont-Pst from l
commencing or continuing any action to regulate er exercise
! $urisdiction over tne Plan and a declaratory judgment i
deternining plan.
that the Vernent-ps3 has no $urlsdiotion ov matter.
en June 18, 1990, the Maine =PUC issued its order exempting from approval all aspectsOnof step A of the Two step Tr July 30, asso, the Vermont Psp aspects of the Aeg41sition.
issued its order approving the issuansas of securities and other transactions subject to its jurisdiction at step A of the Two-step Transaction. and deferred ruling on its $urisdiction in step 3.
Northeast states that ne other state eenaissions have jurisdiction over the proposed transtetions.
we note that the proposed issuances of these securities are subject to the terms ans senditions prescribed in tulo Itute 24, including the conditions set forth in rule 34(s)(3) .
24(c)(3) provides that
(!)f the transnetten is proposed to be sorties out in vnele or in part pursuant to the express authorisation of any state commission, such (continued...)
b 2/ -
F 2.1 E 15:05 6 & EI. -
i 36 l
the Act, the Commission shall not authorise a proposed financing
' unless it makes at least one of several alternative findings, including, that: *such security is to be issued and sold solely (A) .
. . for the purpose of effecting a serger, consolidation, or other reorganisation . . . ."
With respect to the issuances and sales of securities-for which authorisation is now sought,. ssetion 7(c)(2)(A) is satisfied. The issuances and sales of the North Atlantic, NUAC ,
and New PSNH common stock, the issuance of North Atlantic Notes, the issuance of the Northeast Warrants.and,. upon the exorcise of those warrants, the issuance of Northeast common stock, are each an integral part of the reorganisation of PsNH under the plan-confirmed by the Bankruptcy. court. The issuanceLof the Northeast Warrants and of the Northeast common stock thereunder are required by the Merger Agreement.
Once the requirements of ' sections 7(c) and 7(g) are-satisfied, the proposed issuances god saleslof securities shall 11/ ( . . . continued) transaction shall be carried out in accordance with such authorisation, and if the same be modified, revoked or otherwise terminated, the effectiveness of the declaration or order granting the application shall be, without further order or the taking of any action by the-commission, revoked and terminated.
Therefore, the effect of a state commission having jurisdiction over the proposed transactions denying authorisation, or modifying, revoking or otherwise terminating its authorisation vith respect to any transaction authorized by the Commission's order would be to automatically revoke and terminate the effectiveness of this order.
I M I, h 1 I.
D,[:.7) 90 ,)l:lI
- 31
~
be authorised unless the commiesten askes adverse findings under section 1(d). Aa/
with respect to the requirements of section 7(d)(1), we note that ths propose 6 issuantes and sales of securities are j oonsistent with commission preeedent.11/ Common stock is the f cornerstone of a company's espital structure. Further, the Commission has approved the issuanes of warrants by pub'41c 11/ saetion 1(d) prohibits approval of the issuance and sale of a security wherei (1) the escurity is not reasonably adapted to the security structure of the declarent and other soapanies in the same holding cpapany systemt (t) the soeurity is not reasonably adapted .
to the earning power of the declarants (3) financing by the issue and sale of the particular security is not necessary or appropriate to the economical and efficient operation of a business in which the applicant lawfully is engaged or has an interesti (4) the fees, commissions, or other remuneration, te whenseever paid. directly or indirectly, in connection with the issue. sale, or distribution of the security are not reason &kler (5) . . . I er sale of(6)the thesecurity terms and areconditions detrimentaloftothe theissue or public interest er the interest of investors or l
consumers.
l 11/ 111 Natteeni _tual nas ee., 44 8.I.C. til (1969?Lng (authorising company to sna issuance of sozzen stock by a utility held; effect a merger): cantrai waine powar ee . 13 8.E.C. 371 (1943) (authorising the issuance et various securities to effect merger of two public utility holding company subsidiaries) .
\
l l
. . ~ - - - - - - .. . .-- ..- - . .- - . _ - .
I 2k3i 17:17 li!W&HU.
IECJI ' 90 S w n several unutens here, u in were efteres as an uttitty heading senpuy eyesens warrantee terms of the the northou t tsmi nogettations, theholders heast to agree to the addes incentive for the share 2n the instant nt,ease,will the Wort proposed transaction. W Plan and the Merger Agreeme rsite prises Warrants are required by theanty five years, oparable will have outstanding for t market priots and are The pe be appraviaately 804 shove surrenutilities sensenly issue.
s where, as to the subscription rightsapproved the issuance'of note with the commission nas also eennection here, they are issued in commission generally utility essets. W while under .section 7(d)(1) the ratto of not requires a sesmon epity to total espitalisationd aspisitt fusions less than 304,17/ we have approvet wheresemen projasted if equity rettes of less than 30et censon steek would ineress
~
of espital through tha eale it 8.t.C. 884 warrants givi A.L Master tag holding sospany to issue 6,f su 43/ 111,91 right to purchase common pany stack to issueo, Melding C (194 holdses ty tad k h(authoris(authorising holding co (Feb. s, 1949) warrants giving right to purc e We, 25136 substalary).
331t&gy(proceeds JgJbfrom, issuanos Helding otsCo. fromAct company).-
associate Rele W &as, 84,1990)
(Aug. 27, t $41stse, used to seguire utility asse , Nolding MCo. Ac 8A, h1986),
W Art,20971 (Dec. 30, ir.1986);
ff's is & M ues a. aspenn 41
, 45 s.t.c.
8,E.C. 248.2,C. 39, 39 No.
j 404 T.3d 1848git,ing 610, 615.(1914),2) (3d Cgasternana 4XaAlgg1x.,23xgg, g6, 390, 444-4$ (19$
(1961).
P,3)/36 II:10 NEW & EI,
$'EC21'6)
.' 39 etJity to above 304 11/ With respeet to this Application, we believe that there are eenpelling eireusstances to warrant our typroval of a sense 11 dated epity espitalisation helev the tretitionally asseptable 30% 1evel.
Norther.st projects that, before it begin; selling ecomen Stock Se reply Att propeped berreWings, its eenfelidated eDamen stock e pity to censolidated espitalisation ratie veu14 he approxinstely 25% at the time the Accisition f.s earsumnated and would rise to 33% vithin two years.11/ We note that_a state ageney -- the MHPUC in its July 30, 1990 order ~~ has sensidered under the Rate Agreement the necessary finaneiras to sensunnate the Acpisitten and their effect on P8HH's espital structure. j,t/
h aec s t , Holding Co. Act Release 11/ 112, SA, 1121arn No. 24879 Ut u s .(authoriting equity Capitalitation (MSy 5, 1989) level of 38.9%).
11/ The RIe farta eennelidated espital structure of Merthsest and P3NH as of June 30, 1990, and projected as of July, 1992, reflecting the Acquisition is as follows:
j
($ Millions)
Accisition Pre $ections as t,f Egg 21:33 July, 1593
$hy'** 31,934.3 491.1 29.6%
8.8 33.0%
8O Preferred son,. rem st,eek os t .. 49... .0. ..'..
=nert-a = a8** ,,,;;;;i ntt 60t -
SA/ The MMPU:
prder states.that all financing proposals of P8NM and North A.3 antic have been considered within the Rate Agreement decision, although specific approval to issue North Atlantie esamen ste@X to Fortheast has not been sought.
IU & Ml.I. I' MC ] ' 9f) 11:16
. 30 Tunhermore, the cemaission to aindful of the unprecedented nature of the bankruptey preeeedings involving psNM and the need l to successfully reorganise 78W)! in the most officier.t and economical manner possible. Therefore, in light of the particular circumstanees surrounding the proposed acquisition so well as the projoeted rapid increase within two years of Fortheast's equity to total espitaliention ratio, we consiaer Northeast's projected commen equity to total capitalisation rette to be appropriate. The Comalesien does not find that issuanese end sales of the North Atlantis, WAC and New pSNN esamen stock, the issuRMe of Notes by North Atlantic and the issuance of the Northeast untrents and Northeast Common stock thereunder are not reasonably adapted to the security structure of Northeast and its consolidated systen. Section 7(d)(1) is satisfied.
The commission also finde that no adverse findings are required under eestion 7(d)(2) regarding whether the security is reasonably adapted to the earning power of the declarant. The securities being issued and sold include the initial shares of cor, son stock necessary to form the special purpose serporations that vill enable the Acquisition to be consunsated: these securities would have no current effect en the earnings power et the hoplicant. None of the equity securities involved in thest issu.nces has any special dividend provisions. Addittenally, the Notes are reasonably adapted to North Atlantic's earning power j because it anticipates having sufficier.t funds to meet its l
l
. , ~ . _ , . _ - _ , - .
NEW f D G, P.32/35 DI: 2) ' O 11:1E
. 31 e,uga ion. .aser the ,ete, .e a re. ult of the e .onsra ,
between it and Fev P8NH.
As states above, Northetet is seeking to pay dividends en its common stesk in reliance en its unrestricted ooneelidated. I retaines earnings. This method of detarsining dividende should j facilitate Northeast's ability to issue and sell odditional )
shares of its common stock needed to fund its equity investaant i in PsNH, without causing its surrent subsidiaries to pay up dividends greater than otherwise twcessary. To assure the earning capacity of the PANH assets being edded to the Martheast--
systes, the Rate Agreement commits the retopsyers of PsNM to an seditional six annual 5.5% rate increases and recovery of eartain t
costs and expenses. When coupled with the existing financial health of the Northeast system, the Rate Agreement should provide sufficient economies for the combined Northeast =p3NH system to meet both the obligations arising from the Acquisition and the general conduct of it.s electric utility business. Thus, the Commission does not find that any of such proposed issuances and sales of securities are not reasonably sdepted to the earning power of the declarant. Section 1(d)(2) is satisfied. .
With regard to section 1(d)(3), tne commission does not find that the proposed issuances and sales of consen stocke,' Notes and verrants is not necessary or appropriate to the economical and efficient operation of Northeast. Each proposed security
> issuance is an integral part of the Plan and, as disouesed herein, is calculated to be those best suited to attract l
p,33/35 17:19 NEW & NOLI,
$3C2)'93 33 investors and raise the espital neeessary to rund tne Plan as economically and efficiently se possLale. section 1(d)(3) is entisfied.
Under oe tion 1(d)(4), the seenission must examine the reasonableness of the fees and oopsissions or etner remuneration in connection with the propeoed issuanees and sales et securities. The fees, semaleelens or other remuneration to be paid with respect to these isevanees are estimates at $ssa.CCC.
They constitute normal acete of issuance, including counsel fees, and represent a minor part of the overall sect of the.
reorganisation and the Acquisition. Section 7(d)(e) is satisfied.
Concerning eastion 7(d)(6), the Commissian does not find that the terns and senditiene of the propossa Assuanees and saios of these securities by North Atlantic, FUAC, New PSNH and Northeast are detrimental to the public interest er the interest The proposed escurity issuances and of investors or sensumers.
sales are, as discussed anaza, an integral part of the Acquisition, which we find to be in the public interest and in tne interest of investors and consumers.- section 7(d)(6) is l
satisfied.
Tne commission finds that it is not necessary to impose any additional terms and conditione en the esaurities transactions under section 1(f) of the Act, with regard to .Spplicant's request for an exeeption frez corpetitive Didding with respect to the issuanoes and sales of W ' -- - .,, ,
g3,j3g 17:19 NEW& HOLT.
DiC21'90 33 the proposed sesurities, the ccanission finds that, for the reasono stated above, it is neither appropriate nor meesssary to sosply with the eenpatitive bidding teruirements of rule 80(b) and (c), ana such issunnoes and sales are heraby exemptes under rule SD(s)(6) .
p, paruialtiasm af sneuritten had Utility tenets sostion p(a) of the Act, in tulevant part, makes it unlawful for any registered holaing company or its subsidiarios to acquire any escurities or utility assets unless the censission approves the transaction under section 10. A1/
11/ Section 10 requires that an application be filed for apprevel under section 9(a) of the -acquisition of securities or utility assets or of any other interest in any musiness, 2f the commission relevant State invs have is been satisfied complied under subsection with, it is repired-10(f) that to approve a proposed aegulaitlen unear subsection 2 relevant part, that (1) such eeguisition vill tend towards interlooking reibtions or the sencontration or control of publicautility eenpanies, of a kind er to an extent 6etrisental to the public interest er the interest of investers or centuatrst L3) in sase of acquisition of securities er utality assets, the eensideration, including all fees, commissions, and other remuneration . . . paid . . . Le not reasonabis to tri sums invested er does th notorbear a fair relation the earning capa:- ty of the . . . Utility assets unseriylng the assurities to be seguirett er I
(3) such acquisition vill unduly complicate the espital structure of the holding company systen of the applicant er will be detrimental to the public interest or the interest of investers or consumers or the(continued...)-
l l
v wr --
e c--Y- -t'- y e w T-= *P?Te' T
-.- -- - . - . _ ~ .___--_ -___-___ - -_____
L ~
P;35/35 LEC,21 90- n:19 NEW & HDLT.
- $4
- 1. seetles seth)(3)
Section 10(k)(1) of the Act requires the consission to ,
approve a proposed seguisition unless the consission finds that it aviii. tend sovards intertecking .relattens or the eeneentratten of control of publin. utility. companies, of a kind or to an susent detrimental to the public interest er the interest of investors; or consumers."
As with any additten ef a new subsidisry to e holding -
company system, the nequisition will result in eartain-interleeking relationships between _ps43 and other Wortheast subsidiaries. 11/ These interleaking relationships are necessary 11/ ( . . . sentinued) proper funettoning of such holding *sespany syster..
Notwithstanding the provisions of subsection ic(b),
substetten ic(e), in relevant part, prohibits commission approval of (1) sn acquisition of securities or utility assets- . . . which . . . is detrinental to the ca m ing out at the previsions of costion all or
~
(t) the~esquisition et securities or t
I utility assets et a public. utility or holding eenpany unloos the Commission finds that eueh acquisltion will serve the public interest by tending towards the esonesissi and the offielent development of an integrated public-utility system.
12/ Raa 3-ariean waeurni aan ee , Nelding Co. Act Release (eenman directors asong Wo. 12992 (Sept.
companies 30, 1955) holding sempany systen is in a registered permissiblet an integrated pun 11e=us111ty holaing company systaa presupposes, in the interest of the existense of efficiencies interlockingand etenemies,irectors).
officers and d l
l 1
gga.g; g) }7:2( NEI $ h 2 I.
35 to integrate New P8FH into the Northeast system and vill be in the public interest and in the interest of investors and consumers.
New P8FH and North Atlantic each vill be a first-tier subsidiary directly owned by Northeast and vill be sub$ set to New Haapahire law and to MHPUC regulation. New 78RH's nine member beard of directors will consist of five senter otticers of Northeast (two of which vill also be PsNN's Chairnan and new President and Chief opereting officer) and four New Hampshire residents not employed by New P8NH or Northeast. In contrast, the boards of directors of Northeast's other operating companies consist solely of Northeast's senior management. North Atlantic, whose activities are lialted to holding 78NN'a seabrook assets, vill also have a board of directors comprised solely of Northeast employees. Furthertare, the relationship between New p5NH and North Atlantic and the other Northeast subsidiaries will be similar to the present relationships among'Northsast's existing subsidiaries.
The public interest is served by bringing a prompt end to the P8NH bankruptcy and by providing PSNH vith the management, capacity and financial resources to make it viabis again. The commission does not find that ths Acquisition vill result in interlocking relations "of a kind er to an extent detrimental to the public interest or the interest of investors or consumers."
section 10(b)(1) prohibits utility acquisitions that result in an undue concentration of econonic power. Section lo(b)(1) l l
l
. -. ~, . . .-.
NEW $ }RT, F.- 3 bf 0 2I U !I:26
~ '
. i 4 26 t as to the alleve the commission to
- exercise its best l eres, judgwen maximum eine of a holding' oeppany in revien a particu ar considering the state of the art and the area or I The commission reaches its determination o effected.* 12/ the basis of whether to prohibit the enlargesent of alsysten AA/ en all the circunstances, not on the basis of illeine not a one.
The addition of P8NH to the Marthea,-t h siseeyetem of the v significantly change the relationship between l nd electric te Northeast system and the balance of the New Eng a On the basis of peak load capacity, the utility industry. epresent i
Northeast system and the next largest system, W1EE, rctively approximately 334 and att et New England, respe i ately 894.
combined Northeast psWM systen fwill represent approx m electric customers When peasured by operating revenues,; number o s represents less and KwH sales, the combined Northeast-p6NH systeilities in than one-third of the largest electric ut 1978). In Dewar , inti,- 4 6 8.t .C.
32/ hrericam riseriee.
1299, 1309 (avs., 45~S.I.C. 684 (1975)=( i Waw rnaiand Decision"), the commission reviewed the reistofve d the combined three potential combining. numbercompanies, of electric (4) - kilevatt ancompani datas (1) operating revenues; ~ (3) custeners, - (3) kilowatt hour ("XvHa)- sales,in* kilowattNEES capacity, and-(5) electric power generated' England.
Decision would have represented hours. d combination t economies and about The comatosion, however, rejected the propose agnitude.
because of an inadequata showing of resultane No. 24566 Aff ggg sierra Pae. canterier Reasurees, Enersv Rolding Co. Act Release (J an. 28, .1988)
Release No. 34073 (Apr. 39,1986).
l 1
,M, $ h27, ?.
NCll Z l7:04
" l 1
37 resulted in the NEta ysterDecisient veil below the 404 that would havethe seabined Werthe l
when measured by total assets, 404 level. 11/
increases to 26 74, still below thesombined electric h will also result. in a The Acquisition within the mid nias range off t e utility systen that remains i holding _ company systems d and o ,
sight other registered electr cd electric utilities in the Unite ic holding company the states. W 31 largest invester-owneAmong the nine ,
systems, the combined Northeast. rating revenues end electric When compared to total assets, fifth in both ope t ic #wH sales.
custerers and seventh in will elec be,inrd theelectrie midsige utilities i the 31 largest investor-owne PsNN system States, the cozbined Northeast- d electric utilities as to range. Seventeen of the investor-ownetotal assets, would be la operating revenues', and is as to i
ize of the combined i 11/ The fo11oving tablember illustrates 31, 1989 the stha-14 ,
Ncrthetst-P8NH system ELEC.compared toutilities
.lidi 1 OPER. ML. 1 ~ (Millions)
TOTAL ASSETS 1 REL. A (000) 1 (SMillions) 23.7 23 3 '24,893 1.1
($ Millions) 1,244 2.d 2J11 6,523 25.7 2,206 24.7 .id ' J12 111 30.5 32,s48 31.0 NORTMEAST PSNH W 12.J 1,427 4,971 36.7 2,825 31 4 l TOTAL 100.0 10$,057 100.0 5,338 8,940 100.0 ,
IMCEST 24,467 200.0 J-1 to J-8 t ELtes.
I W 1as Arend. No. 13 to Application, Exh.
/
, e , - - - - ,n,-- --,s-. a.--.,. e.,- . - +
')
NEWf,Eli. J, [
DEC.2][ E.S lI:26 1
- sa l l
' than the Northeast =PSKH combined systen. 32/ Civen the approxinste sise of the Northeast-psNH systen and the resultant 3
' economic benefits discussed herein, it d6es not appear to the f
Commission that the Northeast-P$NN systes would exceed the econeries of scale of surrent electric generation and transmission technology or provide undue power or control to Northeast within the New England region er within.the electric
, utility industry.
One intervenor .(MMWEC) alleges that the Acquisition will adversely ef fect the voting and continued viability of the New &
England Power Pool (" HEP 00L"), an organisation comprised of virtually all of the electric utilities in New England,_ including We note that, at PSNH and the Northeast operating serpanies. 13/
the tire NEP00L vas created in 1971, and the voting rules were established and agreed upon_by all Ntp00L participants, the Northeast system had more than 35% of the total NEP00L voting ,
rights and, thus, possessed the ability to veto any action by refusing to vote in favor of that action.11/ Northeast's ww 11/ Under the agreement governing NEP00L ("NEP00L Agreement")
the region's generation and transmission facilities are Planned and operated as partNEP00L's of a single regional- New Management Committee is l England bulk power system.
the executive body with ultimate authority over most matters in the pool. _ The NEP00L Agreement was reviewed and apprcved by the PERC and signed by all NEP00L participants.
11/ Under the NEP00L Agreement, voting rights are determined on the basis of each member's peak load to the total peak load of all members. Actions of the Management committee are effective only it'75% of the total voting rights are cast in (continued...)
i
-~.
p, $
Di0' 21 ' O 17:26 NEW L HXT.
' 3D ac p ieition of PSNH vill increase Wortheast's turrent veting percentage, which is 234, to 194, te.r short of the 75% required Movever, this to take action but suf ficier.t to veto any action.
situation is sin 11ar to that which aristed at the creation of NEP00L. hirther, this situation presently exists through the voting rights of NEES' subsidiary companies. W Section 10(b)(1) also requires the Commission to consider The possible anticorpetitive effects 9f the Acquisition.11/
antitrust ramifications of an acquisition must be considered in light of the fact that public utilities are regulated monopolies and that federal and state administrative agencies regulate the rates charged consumers. 11/ A notification and report form under the Hart-Scott Rodino - Antitrust Improvements Act of 10')S, as amended, with respect to the Acquisition was filed with the 11/(... continued) faver of an action. Thus, a single NEP00L participant having at least a all interest could effectively prevent actions from being taken by refusing to vote in favor of ,
that action. The NEPOCL' Agreement further provides that et- '
least two aanbers having 15% of the total votes can defeat any proposed action. +
12/ Tor the past 20 years, the NEES system has had the abi NEES' operating subsidiaries are considered to be two (1) participants with more than 15% of FEP00L voting rights:
NEPCO, Massachusetts Elsctric Ccapany and Granite and State(2)'
Electric Company, are considered one participant, Narragansatt Electric Company is treated as a separate participant.
of Mass. v. etc, 413 7.2d 1C52 11/ igg Hunleieal riec. Assh, (D.C. Cir. 1969).,
11/ gag Amerl e a n ri e c , _ggw ar em i , 4 6 S .E . C . 12 99 , 1113 -14 (191s).
i 9
J E & WOLi, p, .
Mfil E 17.26
. . 1
. 1 I
- 40-i !
L Federal trate commission and the U.S. Department of Justice and )
the required waiting period has exp ired. ;
f The commission' hts approved acquisitions that decrease -;
competition when it eencludes that the seguisitions would recult.
in >snefits such as posaible economies'of soolo,~ elimination of the duplication of facilities and estivities, sharing' of production. capacity and reserves, and generally mora efficient
(
operations.12,/ - Given the approximate sise of the Northeast PsNH-systen and the resultant economic benefits discussed herein, &L/
ve conclude that the Acquisition does not tend towards the concentration of control of public utility companies of a kind.
or to the-extent, detrimental to the public interest-or tne interest of investors or consumers'as to. require _ disapproval-under section 10(b)(1). Section 10(b)(1) is_ satisfied.
- 8. Vestion 10(b)(3)
Soction 10(b)(2) of the Act requires that the conmission l
[
epprove Northeast's acquisition of securities of PSNH unless it finds that the consideration, including all' fees, commissions and other remuneration is unreasonable' in light of *the suas invested in or the earning capacity et . . . the utility assets underlying-the securities to be acquired."
[
Holding Co. Act Reinase No.
12/ ggg-eemtsrier rnarev cern,-,ission (co.m accepted forecasted'
~efficiencies 34073 (hpr. 29,4984)vavings as a basis for f.tadings thtt e are pro)abis).
h, 46 8.E.C. at 1324=J5 7 ohie town?lh, 44 8.E.C. 34c, ,
343 (1910).
11/1/S quata notes 82-88 and accompanying text.
4
- + , ,,,w_,
, ,--g --e,
-l i
- i NI L t D LT. P. 8 II. T21 ' VJ - 17:25 .
. .41 j The sentideration to be paid by Northust for P8WH, 48- l provided in the plan, was arrived at throug" W *austion" prooses- ;
in the bankruptey preseeding in which the inta;ents of PSHM investors and PSNH senaupers were both effectively- '
two other bidders and PsMH8e own management represented. 11/ d the prestated alternative plans ist investors and ratepayers,~ an months of 4
f Northeast plan ultimately prevailed only afte WUSCO negotiated the terms, on the one hand with f nogettations.
of the official'cosaittees of psNM's creditors representative) and shareholders, Who were essaitted to rossiving ther the highwat realisatis value for their-investmente in P8WH, and on the o hand with negotiators fer the State of New Hampshire,-who were
~
a in New Maspshire as lov as committed to maintain electric rates l ratsanably possible.
In addition, the consission has mesessed the reasonablancas i In of the consideration to be received by the various part es.
determining the fairness of the_ proposed transaction, h the Commission considered testimony presented i d the in conjunction wit Northust's application to the WHPUC.11/ We also rev ewe
projected Financial Statements of New PSNH and North Atla 44 5.R.C. 340,144 (197,0) - (prices i i s are 11/ & chte oever cem.errived at-througn trz's length ioget st on particularly persuasive evidence that section 10(b)(2) ,
is-satisfied)f.anuthern en , holding Co. Act Releaes(espistance o '
No. 24579 (Feb.12,1988) consultants-in setting consideration deem evidence that the requirerents of the Act are satisfied).
Anend. No. 13, Exh. P.9.3.
11/ $4d V ,
I I
r Dpi: 'i: n:2! la 6 Eu, 43
(* Financial statonnts*), which Northeast prepared and und as the besia ter this testiseny. W these statenents set forth the The assumptions sppoor assunptions made in the projoetions.
rassenable in light of their basis in setermining the fairness of the exthtnge to the investment Wortheast will make to seguire N#W P8NH. W the pre $teted financial statemente and their assumptions indicate the return en equity of Northeast's the projected investaant in New p6MH anJ North Atlantis. W return en investaant for Northeast appears reasonable for an acquisition of this site and represents an appropriate risk to Northet.st's investers and the public af fected by this investeent.
Sostion 10(b)(3) ales requires the Commission to consider the the reasonaMoness of the feet invstved in the esquiettien.
estimated 5855,000 in f6en and expenses anesciated with the issuan.es and suas of .e.uriues .e discussed a, eve under l
section 1(d)(4), arw also attributete to the proposed '
For j acquisition of these soeurities by Northeast ar.d New PSWH.
~ (1)
The financial statemente have been sva M ted byt W M.
the NMPVCf L3) the Conn =DPUC through its sensultant, Does, Allen & Hamilton, Inc. ("Dess Allen *) (4) (3) Northeast's censultant, Norgan Stanley & Companyl Wartheast's independent putlic accounting firn, Arthur Andersen 6ce lenders te Wertheast, New P8NH and North Atlantie, (a)(b) Chemical Bank a 5thkers trust cenpeny of New York,ing the Financial citinenk. Written reports evaluat statenants were prepared by the FHPUC and Sees Allen for O s '
conn DpUc. and were part of the basis of each etate commission's order autherising the Acquisition.
W 14 W Id.
1
)
I
f F, l v, \
- i: !! r ni m t tu 43
, eencluss that these fees and the reasons discussed 4>'-
> % cordingly, no adverse find 1nts expenses are ressenatie.
are required under section 10(b)(3) et the Art.
- p. sostiet 16(b)(3)
Section 10(b)(3) of the Act requires a proposed acquisition to be opproved unless the commission finds that it would
- unduly couplicate the capitti structure of the holding $ company system of the applicant er vill be detrimental to the pub)(c interest er the interest of investers or eeneuwers or the proper functioning of such holding-company system.*
The proposed post Acquisition capital structure of each of the effected entities in the eenbined systen is orpected to be as follows: (1) How P4WH may have first portgage bonds, secured and unsecured debt (using interent rate evaps, other hedging transactions or credit enhancement techniques), pollution control bands, torn betrovings (typected to nature in less t.han five years), prefstred stock and eennen stocks (8) North Atlantic nay have first nortgtge bonds, secured ar.6 unsecured long term debt (using thter r rate swaps, other hedging trantnettons or credit Zu The record is not yet complete se to the remaining fees and expenses to be incurred in connection with the Acquisition, which Northeast orpjecte vill be approximately $45 nillio oensented to by the Applicant, over the fees
'and jurisdiction, expenses incurred in connection with the proposed These fees Acquisition, pending completion of the record.ar.s expense 10(b)(3)- of the Act by the Commission's Division ofInves reservation et urisdiction.
l l
4 N!i & HOLT.
r. < UI.21 F. 17:27 I 44 anhnntements technigues), the Notes and retten stocki (3) ; Wortheast may have outstanding torn borrowings (exported to r.ature in less than five years), stesk warrante (erpested to be exercisable for five yttra at $34 per share) and common stock. shov1d the warrants be exercised, the underlying sonnen stock is expected to rep'tesent approximately Devon percent of the outstanding shares. As included in the gra KAZaa censolidated capitsi structure of Northsast-P8NH siscussed in the analysis of section 7(d)(1) above, the Anguisition will affect Northeast syster's capital structure principally through the issuance of approximately $1 8 billion of new debt securittee and approxinately 5354 million of new equity securities. The securities that would be issued are standard senior securities and other basic finar.6tngs of the type the connission frequently approves for registered holding companies. 11/ He attin note that Northeast's someen equity position vill decrease to approximately 344 upon consolidat the two companias but its consolidated equity position is forecast'ed to exceed 30% 22/ Within two years of consummetten serv. ee., Holding co. Act Arkanaan power & tieht 21/ gas, g , Few criaans pub.Releast(Dec.Wo.4,23812 1986) (Teb. 31, 1985): i cet, M01 ding Co. Act Rolessa Wo. 33934 celumbus and a. ehie time. ca , Holding Co. Act Relasse Wo. is149 (July 14, 1988); rmterev earn., Moldir;, Co. Act Release Wo. 35134 (Au". 27,1490). The Commission notes that the 22/ 133 aggra notes 49 and 47. before then, consiv* red and relied upon Marth forecasts.
N!W [, h'ZT,
, 1,:
r. U.? 21 J K 17:27 45 While the record is not yet senpiete as to the the Acquisition. specific terns and senditions associated withities these acquisitions the Commission believes that the amount and type of secur r proposed to be issued and sold to effeetutta the Plan vill not b detrint...s1 to Northeast s sense 114sted ospital structurs, 8 the Commission doncludes that the plan will benefit PSNH creditors, shareholdere, and sensumers by bringing an and to th bankruptcy, prpViding ressentble, payments to Credit 0TS &nd , shareholders, and providing consumers with the protection of an Northea st agreed limit en postabankruptry rate increases. shareholders and the customers of its operating subsidiaries w benefit tren the etenentes and officiencias i ysten. to be achie the development of a strenger and mere diverse util ty s Accordingly, the Cosnission takes no sdverse findings under section 10(b)(3) . 4 ametion 1s te)(;) of No adverse findings are required under section 10(c)(1) i the Act, which requires, in relevant part, that the commiss on I not apprrve the proposed Aeguisition if it mis detrimental to Under section carrying out the provisions of section 11.a 11(b)(1), r6gistered holding cetpany systers must limit their oper6tions 'to a single integrated publicautility systen, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public utility systew . . . .* 1
l
,g NEW f, CLT, l
J III b ' E II:27
' . 46 '
section 2(a)(39)(A) of the Act defines Sintegrated publi9 utility systet,* at applied to elastric utility sompanies, to means a systen eenstating of one er more unite of generating plants and/or tranesission linee and/or distributing facilitise, whose utilityassets, w uttiivy sempeniss, are physteenly intersonntsted or espable of physical interconnection tendittene and whichoperated may be scenemissily under normalas a single interconnected and seerdinated synes confined in its operations to a si.ngle area not se j er region, in one er more States,he state of large as to impair (eensidering t the art ar.d the area er region af fected) theadvanta , operation, and the effectiveness of regulation. Northeast's and PSNM's transmission lines are intet through a transmission 1Lne evned by Vernent Electric power conpany, Inc. ("vtLeo"), an invester-evned vernent utility corpany. Northeast's, pSNH8s and VELCo's transmission lines constitute a part of the 345 kV Northfield sectie line (*Northfield Boobie Li'ae"), which begins as a tfMtCo line near Northeast's Northfield Mountain paped storage prsject in north-central Massachusetts, extends north to the New Harpshire bord f The PSHH line 1 and connects with a 345 kV line evnad by pSNH. parallels the connecticut River in New Nampshire before it crosses the connecticut River into Vermont The VILc0 line and in VrLeo's eingis right of way transmission line. l continues for approximately one-quarter of a mile threvgh a substetten in Vernon, Vermont evned by the Wrnent Yankee N power Corporation ("Versent Yankee") and then tperosses the
- . ..n-., . . . . - , . - - - , -n _..n,. ..~.~n,.- - ~ . . . . - -- .- ,.-- -- . -...~..--. .._ - -- - . . . , . -- - - - - . - - - - - .
i i p, 2 , NEW & HOLT.
!!?2: L$ 17:17 !
.~
47 connecticut River so the same point it departed sev l Hanpshire. 21/ , vtico and certain other verment utilities have entered in a settlement Agreement, dated July is,1990, with Wertheast under 4 which vrteo strees to provide servise to Northeast and psWN ever yttco's portion of the Northfield semble Line for et least ten On the basis of this years, with no charge for such servlee. 24/ right of use agreement, we find that the senbined Wertheast PsNH system meets the integration requirements of section We find that the Wortheast system does and vill 11(b)(1) . 21/ satisfy the standards of section 2(a)(29)(A) of the Act. As discussed above, the Mattheast and PSNH systems operate in geographisally sentiguous states -- Connecticut, Massachusetts and New Manpshire -- Which are all located in New Englanc. 11/ &aA Amand. No.13, pp. 37-40. 11/ The Vtteo Agreement grants bertheast the right to use the V! Leo line f or ten years, with autenatic two yearexten There is aise a transmission agreement between Dortheast an NXPeo pending before FERC whish, if approved, would also provide an interconnection between Northeast's and piNM's transmission facilities through those of the NEES system. Molding ee. Act nelease up. 24o73 11/ _.neerfer e en.rev eer ., (Apr. 39, 1986) (physical interconnection requirements are met where power transmission lines that the companies have13a @ the rieht to use eennett the two service treas).risettle r 14 f.t.C. 38, n. 44 (1943) . _ serv. Dewar s tisht ee Nevertheless, the use of a third party cNanet be relied upon to integrate two distant utilities. 33A section 3(a)(39)(A) . system confined in its operations to a single area region . . ."). e-, . . - , - - - - , - , , , . . ,
l m.v x n w un. f. :! l l ' 48 Further, Few PsNH and North Atlantic will C be maintained as
- separate Mov Naapshire serpcrations sukjett to WWPU
$urisdietion, with four New haspshire residents on the Therefore, the advantages of leealised board of direrters. l tion annagement will be preserved and the effectiveness et' regu i the sentined Mortheast-vill centinue essentially unshanged. 2A/ y PsNH systen else vill rossin subject to ortensive regulator eversight by the commission, FRJte and the state utilluy commissions everseeft:$ each utility subsidiary. be operated We constude that the Wetthetst-PSMH eysten may i d in its as a single intersonnected and-esordinated systen f conf ne operations to a single reglen, Wow Enfitne, in the states o connecticut, Massachusetts and New Maepehire, en area.
11/ Holyoke, one of the 11 Massachusetse inUtilities, a there is no effective state regulation of Neap 1s47. The Comnission, in its 1967 Opinion, however, i to be f found that
*HWP and its subsidiary are now and will cont nue sub3ect to regulatten by theThere Masstehusetts making any finding as to the extent of requistion. le no wartheast otiin., 43 s.t.c. 463, 444 (1967).
retuirenant that the copsission, in approving an seguis is under section 10, find that a utility is subjoet to any particular daeree of state regulation er even that thereTh eenpany system state regulation at all.eleply that noe the we find that the holdin after t.he astuisition, vill not be The inclusion of ann is
. . . effectiveness of regulatten.a individual utility in a regulated he14 Lag company syste not barred if a state shooses not to regulate that utility.
, In the f(a)(29)(A), 1967[en cosaission and found we doWWP not new tochange be vi nour invie th of sect that regard. I _ - , - _ . - .. ,, _ , , _ _ - . , - - . ~ . . . . . . . _ , _ _ . ~ _ _ _ - , . . - . - . . . _ _ _ . _ _
litt t eti, F. M 1 I!?!! E 17: 27 i
,. \
4s l so isrge as to tepair the advanseges of lecentied mana, ent, l In efficient operation, and the offactiveness of regv10 tion. addition, the sembinsd Northeast.psxH systan vov14 be lasited Under sostion 11(b)(1) to *such other businesses as are reasonably incidental, or etenemically necessary or appropriate to the sperations 6f" the integrated Wertheast=p4NM systet. ' Other than the oporating utility companies, the eenbined Northeast =pfNM systes vili consist of the holding coopany, Northeast, and other subsidiary senpanies performing functions that are incidental and necessary and appropriate to the operatten of the utility companies: (1) Wertheast's (a) real estate subsidiaries, which evn facilities asased and used in connection with these utilities, (b) service company subsidiary, ' WBCo. Which provides services relearily to the other Northeast subsidiaries ,11/ and (b) other out sistories yhteh engage in the development and ownership of qualifying tegeneration and small power production facilities 21/ (3) 78WH's one active subsidiary, a real estate corpany that evns facilities that are and (3) North Atlantic, leased to and used in P8FM's business one of the newly formed companies sentesplated by the plan, which vill be a project finance vehicle owning an interest in the seabrook project, festion 11(b)(1) is satisfied. 12/ gag yerthanat utna. serv. ee. , Molding Co. Act Release No. 16519 (June 30,1966), (May
, Holding CD Act Release No. 2459)
,1f/ {gg Northaast UtH A1 l'l, 1989) l l
-e y - , - -- ,ve ,, , - - +---,e -n w w --
M;27 NEW f EI. I'N [* ;. } l ,O 80 With regard te section 11(b)(3), W as we dissunsed under oeotten 10(b)(3) above, the commissier, dess not find that the proposed toquisition and related financings will unduly semplicate the espital structure of the holding eenpany system. The a$dition of Wev pSNM, FUAC and Marth Atlantic to the Northeast pystes is appropriate and noseRary to asseeplish the Acquisitten. pleeing psNM's evnership interent in seabroek in a separate corporation should provide more effortive managerial contrei and regulation. Additionally, voting power will be equitably and fairly distributed among the security holders of Wertheast and its subsidiaries bergues all of the surrent and proposed subsidiaries of Northeast vill be wholly evned, except for the four existing Yankee nuelsar generating soapanies. W - Turther, all outstanding preferr64 stock of Northeast's subsidiaries following the Asquisitten vill contain the 'veting previsions required by the Canaission's standardli. W Section 11(b)(3) of the Act provides, in relevant parte that the ceraission require each registered holding company system take the necessary steps to ensure thats the corporata stmetu; or continued existence et any osapany in the heading-company systes does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power aeong security holders, of such holding company system. g weine var kaa aterie Devate ee. , 43 3,E.C.164 (1968); Varment Yarles Wuelaar PeVar eere. , 43 Sil.C. 693 (1968)! l eennecticut varAna Atekte eawar ee*, 41 S.E.C. 705 (1963); I ygggge Ateele time. en , 36 S.E.C. 153 (1958). l l 1
Ng g ni, F. Is
@ 21 ' E.i F:27 si l 1
- s. seettes sete)(s) l We adverse findings are repired under station tion of 1C(e)(3) of l the Act with regard to the econesis and offielent W opera the Northeast =PfWN integrated publie-utility systaa. lting j
l Wertheast forecasts total savings to Northeast =P8WW h resu tres the Aequisition to be approximately St3? sillion throughj year 2003. W This amount rapresents a substantial in perse of the $3 317 billion Northeast is to pay for PsWM, and is to sensuesste the s
~
tweens et the well estimated 545 million eest Phose savings fall into six setegories and are Accisition. W identified as the Seabrook O&M twpensa fynergy W, the po w the e,ene.ies and arti.ien.ies .uetnen ,emine. v. are, .by vir.us derived unvei. baeada Yne ee., the g un 883 affiliation.s F.38 533, $38 wineensin's (D.C. C&r.190s)ie denar !!srecasts of Specif 45 81.C. 489, 494 (1974) . future oevings are not noessaarily rap iredi a desenstrate t potential for economies AAa will sufflee a M arie_n riae.even eavec when en., those 44inneav areear no precisely wantifiable. cantariat 8.t.C. 1899 (1978); . Release No. 24073 (Apr. 39, 1986). These. W &as savings Amend. beveNo.13, Ruh. D.5.8=10, been evaluated by the WKp0C, 0.9 1 and theD.9.5. conn-DFUC Does Allen, and by vertheast's throush its eeneuttant,ivision of tovers, Astrin, perster & i j sensultant, crassp, a dCrosby, Inc., e management eensult i evaluate sesbrook savings. 19, 1990); l w 133 Amand. No.13, Part. 68A, pp. 77=74 (Nevenberearm<, ; cantariae innvev l (Apr. as, 1986). ! ill With the sepisition of P8W3, the Wortheast Ps W systas wNol W become the lead evner of sesbrook. Its multi-unit nuclear sparation orperience and experties wi,ll tillionbanatit e en a esaulative seabrooknot eperations praatnt value and persit basis (eentinued...) 1
l l T ,21 E !UU IM f. F.J.I, I+r ; e I
- 83 l
steea Unit Availability Wynetyy W, the Energy Supense Synergy w, I I l l l i l W ( . .The
.centinued) redueed operation and maintenance exponess for Unit pe.
1 v111 also benefit CL4p and other New Rngland utilitiesThe envings to Cl with evnership shares in Seabreek.other a peM ien of whink Joint will owners aise are projected and 8318 million, respectively, ties which purahase SeOreek i beratit eh er Nov England utili
, power throu6h power purchase agreements with 30tw3c or other beint owners.
W In addition, the sparation of the generating ' ndtransalesian companies is coordinated and sentra11y diepstshed under the NfPo0L Agreement. Under the Mtp00L Agreement any improvosentoftheperformanceofpSWN'sfoss11 steam generating unite vould result in a reduction in the amount of generating espatity New p5NH and Nov England mustThe to support. l NortheastapSWN eysten fram 1sproved generating unit availabilities is orpseted to grew to approximately 70 megawatts, for a total envings to the seabined Wortheast psNN eysten of $73 million en a sumulative not prasent value basis. Energy empense reductions associated with the fossil steam espasity reductions is expected te approximate 534 31111en for the sorthaast pdNH eystes. W Ncrtheast and WUsco state that the tuleting seabinedse satisfy the lead sors effectively and will lower energy expenses for the coc ined Wertheast psWW systen resulting in i an antisipated sayings of approximately Sans million on as effset by an increase in especity requirements (and energyMortheast and l costs to the remaining NEPo0L partiefpants.for the Joint owners of Seabro i Mvsco expost thatcertainotherutilitisewithindirectinterenteinsembrook, ' these east incrosses v111 he reducad by the savings trought about by Northeast's more e!!!cient operation and 133 aggta note 44. maintenance of Seabrook. j--t-sr eq-W9T--' e rw *T"W en < mr-Tw-a nW-c',-a- -w- re-e9:-+ e vma w w sww -w is. e ew-e-. *'*w--8' em*--*+ "P-' " "'+-*-
f.. M:25 !;it 5 )i g, II[ II U e as Aso arpense synergy and l . the peak tend elversity synergy 12/, the the coal purchasing synarty. AA/ P trie The commission notes that, in esses wwod involving fren e utility seguisittens, significant envings aan be ed the ponest better utilisation of generstian sapability an ennel, service of utility operattens, fossil tusi prising, pere 13/ elven eespany services and management infersation systems.tw the structural similarities between including these the electric utility senpanies, the record batste us, with previous Applicant's pre $ected pavings, and our orparteneethat t acquisittens, we conclude that it isii probable savings veutd result from the proposed Aegais t on. white the verths.st systs, has untersea11, onths. the experie w significant posk leads in the sunser and the vinter. tem vlnter are m ppWH system has its highest peak tests l peakdurin; leads The peak leads of the seabined Northeast *psNH sys expected to be lever than the sua of the annuacenaeque et the two separate systems. k Agreement. wortheast psWH systes vill be required imately 100 to provide capacity to seat its obligattens undar the Ntpoc This capacity reduction is espected toly be $14s l approx assavatts, or a pre octed savings of approxiante millisn en a cumula ave not present value basis. from the seabined A&ObeExpense synergy The navings resulti 11/ end the casi parahas ne synergy illion in 1. orpected to41 appreminatal [ hasis, consisisinistrative ting et approximately and general $124 m expenses and l purchasing,ly approvisate 53p sillion of esal purchasing reductions. 46 8.3.c. 1399 (1970) gg/ g g imerican time. Dover eat,Belding Co. Act Aalsas Wo. 13871 ti neFrie enerev. fact, (Nov. Is, 1958).
h I;it g g3, ? . $ '. MI'll'D 0 :25 l
. se s.seesion setti sostion 10(t) of the Art, in relevant part, prohibits it consission approval of an aspiettien itenteunder state section to appears to the consiesion's eatietantion het app I The appropriate stets reguietory lave have been observed. Aspiettien sensissione have yet to approve all sepeats of their hether the and related transnettens, and an Aseus aziets as to approval le needed in algtt et the b4. d state law is pursuant to wie 34(e)(3), when an issue un er tion 10, subject reteod, we may approve the transsetion under posThe to semplianse with state inv. W issued autherising the proposed As pisition subjec specifically and conditions prescribed in nie 34 under the Act, those under nie 34(e)(3).
C, Tatttavatam framanatiana l
- 1. Assespties of Wetoa W en the The assumption by perth Atlantic of the Wette
' in Seabreak are transfer to it by New psWM et its in',', rest
=
ty lag aggga note 43. 38635 gy esetent and s,w. eavm<, Welding Co. Act R41e4 p6MH at (Popt. 14r 1983). 12/ The Wetes veu14 he issuedininitially the One- by S Atlantie in step s, and issued by Werth Atlantie stop Transaction.
I. 22 J ((!,2*; O j':2$ NII $ CI.
- 55 i
ouhjeet to seetten it(b) of Oc Act W ead rule 45. M/ The assumption v111 sonstitute part of Werth Atlantiale payment for l the seabreak interest and, se an intefrel part of the Ascisition, to nosessary and appropriate. sostion 13(b) of the Act to satisfied. J 3, portbeestle perment of Dividende Northeast's proteses payment, for up to five years, et dividendo en its sensen steek in tellenes en its eeneelidated 1 of the Act makes it unlawful for any M/ Section 13(b)lding eenpany or subsidiary thereeft regietered ho to land or in any manner extent its credit to
. . . eny company in the ease holding soapany.
eystem in sentravention of such 3%1ee and regulations or orders os the conaiasion deens-i neseessry er appropriate in the public interest er for the protection of investore er seneumere or to prevent the oireusvention, of the previsione of this title or the rulae, regulatione, or armere thereunder. i W Rule 45 previtte, la relevant part, that no registered holding eespany or subsidiary sospany "shall . . . . tend or in any senne:r extend its orodit to nor indemnify
. . . any oespany in the ease holdin except pursuant to e declaration . .g . and . . . order eespany system, of the C+amiesten . . . .*
j i l
1 NII $ h?lI. I. 23 [ij.21 EJ 17: 23
. 86 unrestricted retained earnings 16 subject te costion 12(c) 13/ et ,
the Act and nie 26(c) 11/ thereunser. 11/ 8ection 13(c), in relevant part, makes it uniewful for any registered bolding osapany or its subsidiary sempanies: to declare er pay any dividend on any escurity of such sossany . . . in contrevent2en nf sud rules and regnistions or orders as the commission deems necessary or appropriate to pratect the financial integrity of eenpanies in holding g any systems, to safeguard the working aspital of public-utility eenpanies, to prevent the payment et dividends out of capital or unearned scrylus, or to prevent the oirtuavantion of the provisione of this title or the nles, regulations, or orders thereunder. , 11/ Rule 36(c) requires, in relevant part, that (e) tvery registered holding senpany and every subsidiary senpany thereof shall hereaf ter follow the epity method of accounting ter investments in any subsidiary opspany. (3) tvery company subject to this rule shall saintain a subaccount to its retained sarnings account which shall be periodically debited or credited with its proportionate share of undistributed retained earninge of subsidiary coepanies. (3) po company subject to this rule shall declare er pay any dividands-
. . . frun er en the basls of any ,
balances recorded in the subaccount referred to in paragrrph (3) above, axcept pursuant to a ,'aclaration undar section it(e) of the ist. We note that Nertheast will L subject to the limitatie.ns of rule 36(c)(3) of the Act at the end of the five year period. Novever, at any time after three years from the date of the Acquisition, de Cesaission may require the Applicant to (continued...) \ I l
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Northeast's payment of dividends in reliance en its sense 11 dated unrestricted retained earnings for up to f(vo years after the Aewisition would enable it to continue paying the level of dividends approved by its Soard. 12/ This techni pe thould en21e Northeast to issue additional oesmen stock when needed to fund its equity investments in p*NM without etusing its other subsidiaries to pay up dividands greater than would otherwise be necessary. 3A/ sostion 13(c) and rule 24(c) are satisfied.
- 3. gransfer of seabrook New P8NH's transfer of Seabrook to North Atlantic is subject to asction it(d) of the Act W and rule 43. AW 15/ (. . . eentinued) justify the continuation of the exception to rule 36 c)(3) and may axercies its authority to reveke, modify or a(rtend such continuation en a prospective basis.
W &&A danZA nate 37 and ateospanying tert. New PsNN and Aspaying noted above. to Hertheast forNorth up toAtiantis may net begin five years. dividends 11/ l Northeasthigher distributed statesdivthat,idendsr to No thif its other operating subsidia l have in the absence of the Aequisitioneast than they would portion of their capitalisatione would,be reduced.the ceanen As a equity result, the higher distribution ecult be sharacterised by regulators, subsidy security et the analysts and rating aganetes as a Asgulettista. W Bection 13 d) et the Act m
' registered (holding eenpany:akes it unlawful for any to sell any . . . utility assets, in sentraventlen et such rules and regulations or orders regarding the consideration to t..
received competitive foreenditions such sale, (and) maintent:.ce of ceanission deems necessa. ry .et. as tM qqropriete in (eentLaued. . . ) 1
l
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$8 f u , the I
We have dioeusse1 under eestion hoguisition, it(D)(3) e 333 l sensideration to be paid in oor.neetten with b the k including the $700 million to be paid for psNK's t Sea roo The $700 million to be paid for the nt Seatreek asse s assets. M1/ l is the value established by the plan and purther, thisthe Sate hgressa approved by the WMpUc and isthe appropriate. seset from one My transfer to Werth Atlantic vill merely neva ispast en Worthstet subsidiary to another sad should have n cowpstitive sonditions. Au(...oentinued)lic interest er for the prettetion of the pubinvestors or sensumers . . . .* that no registered sha My Rule 43 provides, in tslovant part[1, itiesdirectly or erholdi ', indirectly, sell to any senpan t oenpany systen er to anyderafoffiliata the . . . any s l pursuant to a dosisration . . . and . . . or Commission . . . .* i perth My In either the one-step- or two-step Transset on,-illion in eac Atlantic Vill pay pSNN approNitately $495 mtep Transaction N In additionh805in the million one s of potes for distribution ume inin . will issue asserdance with the plan, which Notes it will ass the Tve step transastion. 1989, psNN valued as of December 31,lan values thesenassets MU As noted above,790 billion. The p of the sesbrook at $700at tillion,
$1 a
- which would result in a write-dow premium
- et value of the sesbrook sesets.- Newever,igned under the appre.ximately 5787 million has been assplan t 0
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l Nil I. CLI. E. 2f [i.2l ", E l':20 4 se art msersare pen asharse 4 ne out signittunt issus raised and arguments made by the intervenere may be summarised as follows: (1) eencontratten of control questions under poetion 10(b)(1)r (3) the new eeenentee and effielencies rep 1 resent under costion 10(e)(3); (3) espital structure /seet of espital concerns under e6etiens 10(b)(3) and l 11(b) (3) and (4) the single integrated systes standard of j eestion 11(b)(1) . l tvanty-two entities 111/ eppesed the proposed Aspisitten en the basis of eestien 10(b)(1). These entities argue that f l Wertheast and P8WH are the only utilities with essess generating espasity available in the Nov Sngland reglen. They also apart that the proposed Aspiettien will give Northeast "sonopolya centret over transmission eerriders into and out of the New England regten, sentrary to the pre sespetitive federal antitrust policies 111/ Another petitlener, WEf8, filed seaments stating 111/ Repests for a hearing en the basis of aestion 10(b)(1) - were made by: APPA. WMcA. EAF, Nase DPC,100ftc, Vermont = DP8 and Vermont 785 and the 11 Nassachusetts Utilities. Natiets of Appearanse on the beste of section 10(b)(1) were filed by Maine pyc, Mass-AO, Rhode Island A8 and Rhode Island bPUC. 121/ With regard to these senserns, Northeast attues that the basic faste about its shara of the New England transmission and surplus generation espasity are undisputed and that, in the absance of any material dispute about these facts,- there le no nood to devolte them futtner in a hearing. It asserts, therefore, that the dispute before the conniesten le not one oenestning significant issues of material fact, but rather of the eenelustens to be drawn from the facts. Furthermore, Northeast states that, because of the transeission commitmente entered into in eennection with the propped aspisitten which will esuse Northeast to give (continued...)
1 h!W & QT, ?. 2 55 .II U .U2! l 40 l ~ ( ) grounds if l that it would oppose the Asp isitten on eestion 10 b PERc fetis to approve the transmission agreement reathed betwe l Northoset and WIPte. To the extent a propeese esplettien will result an sensentretien of sentrol detrimental to the i pub has 11e interest er l the interest of investors or seneumers, the seemiss on
$urisdiction under seetten 10(t)(1) i ion assess oforthe het to ee 413ecation of sweees generating papetity, transm ss holding the fiev et electrisity ever tranesission lines of any soapany systen. AAA/ to the autant that those matters arei i specifiselly regulated, they are properly within the jurisd et o cf Finc and the appropriate stats soumissions.
We have sensidered the eine and t other d the abarseteri the Northeast =psNN syetes after the preposed Aequisit en an resultant economie benefits, discussed agaza. We be have found, in13I glia, that the Northeast psWH sembined system would dispropertionate in sise to the other utilities in NEp001,, or other New in,1and ut(11ti.s, . d that e.ene.t. enefit. vill er i it&/(. . .sontinued)up a substantial seasure of its centret of trans fes111 ties, the aspiettien v111 ineresse the availatiitty of Northeast's and PANN's transmitsien facilities New England utilities ande-in the prosess, see not have escurred without the proposed seguisition. 035 l Agg/ ggg ettv at taf avatta. ' taulaf 411 U.S. 747 (1973): amauunteimai
- v. are, 434 y,3d,941, r (D.C. Cir.1911) of wana., 4 . 3 .3d at 1058 99.
3 sam 1
69 3343, r. :: , m Il N it::t
]
di
.. As a are likely to essult free the proposed AsWisit!*'n.111/
result, we de not find that an ineroese in sentre1 ever tranesission sorridere er eentrol ever eveess generating l especity, en balanes, regire disapprovat under section 10(b)(1) er the leposition er senditions under eactien it(e) et the Aseerdingly, we de met find that the Aeguisitten tends Act, 112/ i tevards the eensentratten er sentrei et ponte utility eenpan es et a kind or to an extent detrimental to the pelle interest l er the interset et investers or consumers as te repire disapprova under section 10(b)(1). Eighteen parties 111/ epposed the propoped As s isitten en i d the grounds that it Aid not meet the regisite 'new scenem es an twelve of these ef fistensies' standards of seetien 10(c)(3), parties (the 11 Massachusetts Utl11 ties and WMaDCA) argue that the potential for new esensales and effisionsies should be caratully examined in a hearing, but they fail to sutticiently The Maes DP9e bevever, allege disputed issues et fast er law. disputes the projected economies and officionales 444ssted from the Acpisition, sisesifying such projections as *either ' 121/ Aga 333g3 notes 814s and accompanying text. , 122/ Asa Huaietmai rise. Anan, at wina , dis p.3d at 10sc.s1. i 121/ Repeats for bearing raisingConn-DOC, issues under EAT, Mese section DFU, 10(c)(3) l were filed by the APPA, W32CA,ies and New Raspahire=0CA. c MPfttsc, il Nassachusetts Utilit f i
, _ ,_ _ _ _ _ . . . _ _ . _ . ~ . _ -. . ~ . . . _ _
- . _ _ . _ - . _ - - . -- - .- - _. . _ _ - . . - ~ . - . . - - -- - - - - - - -
i 1 filt & n;;7, Y. h Li; 21 ~ H M!i df several speculative, monoxistent, or everstated.' 143/ intervenero 114/ argue that the alleged esenestes and ef fielenstes do not serve the publie interest beteuse they arise 2n-at the arpense of other utilities and their eustomers. addition, they sharge that these proposed benefits are attainable vithout the Aequisition er already asset due to the joint planning and operations outrently taking plass under WEpocL are thus het scenemies and officionales arising 'by virtue of the eff111ation,* adding that the Aegisitten merely alleve Wertheast to reallosate these benefits to itself, and that various agreements between the merging selspanies tend to silocate
/
economies away trea Wertheart affiliates and towards PsWM to the detriment of the customers of the Northeast affiliates.
'the ceanission has evenined the econesima and eff Among 1.hese synergies, associated with the proposed Aequisitten.
several vill be new and eeutd not result ersept free the The eembined system wili benefit, for auseple, Acquisition. front (1) Nort.heast's sulti-unit nuclear operation experience 10,l/ With respoot to the petitioners' shellenge regarding the existense and suffielenty of new seenemies ano of fisleaciou, Northeast again argues that there is no factual dispute as to severen of the synergies it forecasts, and that es to ethers, the shallenges are largely unsupported by any af ter of proof thes wouldWortheats argue require a hearing, Additionally noneoftheseamentsentheramalningtypesofsavings predicted in its application, suggest that the sav different. AFpA, WAtcA, conn 0CC, EAf and MMytc. 112/ 1
i P, 3 *s III '2l ED 17:2r Nii ! DLT.
- s3 and awportiest (t) the seabined sapacity of the Wortheast summer i peaking systee with 78tiWe winter potking systeal (3) sortain administrative and general servises of Northeast's servies eenpany subsidiary, WV6 Col and (4) seal purobasing efficiencies which de not presently suist within the p6WN systen. Wortheast has attributed $497 million of their stated $s37 stillon of total envings resulting free the Aequisition to these synergies. Thes-savings are not unwubstantiated. Wortheast has desenstrated a potential that these savings "ill ossur. Such a showing is suf ficient for purposes of section 10(e)(3) of the Act.111/
Interveners assert that eartain synergies sheund not be sensidered bosavse they ressit from a reallocation of savings at the orpense of third parties. While sertain reallocations effecting third parties may ecour as a result of the Ae g isition, the commission has nevertheless sencluded that, in light of the benefits of the resulting efficiencies and toenemies, 411/ the hcquisition is sensistent with the public interort prevision of section 10(e)(3) . As discussed sunga, the Commission is eatisfied that the j App 1 Leant has ahewn en the record that the Aegisition and related transactions will result in esenemies and officionales 111/ Asa suaza mets 81. 111/ 13a 333ra note 86 (east increases vill be redused by the savinge brought about by Wertheast's more efficient operation and maintenance of seabrook).
t NE W i, D !.T. p,3; l II) 21 ' C li:2E 64 i for the reevitant integrated pelle utility systen as restred i under seetten 10(e)(t) nat senti not be tehieved otherwise. two petitiswra filed submissions seeking a hearing under sections 10(b)(H and 11(b)(8) en ne finanotti aspects of the Aegisition. SAF argues that the ospital and corporate structure j proposts by Wertheast is too eenplar, as it would ineresse the n ,or e, os.,or.ueno and ee.,1teate t,e oest .uxauen roies l and espital strutture arrangements. RAF aise arped that the espliention ineks basis information that would anable the commission to determine whether the espital ettveture is unduly De conn-Dec empressed eensern regarding 'the esoplicated. apparantly incomplete and/or insufficiant substantiation relating to the finansist assumptions upon which the (Alpplication is based,* and notes that several aspects of the Aequisitten's I financing raise issues of .aterial feet which would regire addittenal analys' in an evidentiary hearing.112/ ne co.ntesten has .sa.ined the ,re,e.e4 -su,le l financings (hh, esamen steok, preferred stock, long-ters and short-torn dent) and the capital staveture of the Northeast *pSNH 111/ *sgarding the seneeras the petitioners expressed relating to the isek of infersation on financine for the proposed isition and the possible of fsets of the financing on , Acc%sast For affiliates and easteners, Northeast asserts that these sent.orns fesus, herever, en the possible effects of the fineneings en Northeast subsidiaries, rather than enth [ be subjoet to subsepent cessission approval. It then arp es that the application is already staarly suffisient to show the ispart of its finansing arrangements en Northeast subst41eries and therefore no hearing en the matter should be repired.
i E $ HXT. F.32 f 21 ' M 17:29 45 i erstem, instuding 6 th u v psku and versh Atlantie, in eenne. tion l ' with the Aec isttten. ne len,-tors debt will snelude rirst nortop mends and ters toans. neee propeest eorurity innne . and the resulting espital structure are ne different than these of the three existing Wortheast cystes operating utilities er of other holding etapany systens replated under the Ast. With regard to the Northeast Warrants, as discussed agaza, their issuante is repired by the Nerger Agreement and the Ceseission has previously autherised the issuanee of verrants where, as purther, the here, the standards of the Aet are satisfied. W allocation of oosts sesociated with the'issuanet of these securition is also routine. As diosussed amaza, we de not believe the propeeed espital structure to be unduly eespier. M&/ With regard to the Interveners' argueent that the Aegisition will unduly eeng.11eate the eerparate structure of Wortheast, we note that, although ptJAC will be erested 'ee a transitory corporation to sensammate the Aspisition, the transactions proposed herein ultisately will result in the creation of only one additional serporation, North Atlantia, which vill own p6FN's interest in seabrook. With the eweeption of the sehbrook interest, tho' assets and function of PsWN will be virtually identical after the Ae g isition. . W AAA note 45 and assespanying tout. 31/ 113 agza note 1173 and accespanying text.
I h3 $ MI. I.33 I?. 2L ' ?? ll:2f ' ss The Commiselon has esamined the financial assumptions that relata to the proposed financings and sonaluded that, as to the i proposed 1sevar.see and estes of seamen steet, Netos by North l Atlantie and North 6ast Carrants that the Commission is opproving herein, the reeerd is sufficient to asks the required findings , under the het. The Intarveners that clats that the record is inadeguate have not sufficiently explained why the record to ineenplete with regard to these soeurities that the consiesien is 1 approving herein. With regard to the proposed securt. ties over which $urisdiction is being reserved, suffistent information has bosn prevised to establish the routine nature of these soeurities and the parameters of the torna and senditions that will be i associated with their issuanee and sale. The terns and conditions will be provided by the Appliesnt and will be examined under the relevant previsie se of the Aet by the Division of i Investaant Management by delegated authority. t [ cne petitioner, Wsts, argues that Wortheast and psWH are interconnected by only one line at the versent Yankee site in Vernon, Versent, and that the fievs of elastricity aeross the New l England grid are such that the merged entity, without trsassission service by NEPco, would not sensist of a systam I *which under normal senditions may be economist 11y operatte as a single interconnected and esordinated systea,' as required under , section 11(Ir)(1) of the het. NIES states that the Northeast- ! NEPCo agressent is currently before the FRAC, and argues that a j i l l ^ l
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i e
E.M , II I ' f) I': U NIW !. E 7
- 47 i bearing en t.he preposei Aequisitten vill be neeesonry in the ?
event that Frac diss11pve that agreesent. We have previously noted that the il Vereent 47tilities have entered into a Settlement Agressent with Wortheast and F3NH that-grants to the pertheast.p4NN eembined systen sentrastusi rights to use that eersent of the Northfield.Seebie Line evned by VIWo. The Settlement Agreement previ6es Wortheast.pSNM the moetesary contractual rights to operate the merged antity as a single integrated electrie utility system under the Aet. The pending-Northeast.FtpC0 agrennent would only add integration support to the Acquisittent it is not necessary in order to establish integration, which we have found is satisfied through the Wsrthfisid.ssobio Line. Section to of the Act prevides, in relevant part that I
*(ejrders of the conniesten under this title shall be leeued only after opportunity for hearing.8 nt/ Rule 33(d) further prevides l that '[1)f the Consission desse that a hearing to appropriate in t
the public interest er the interest of investere er sensumers, it vill issue an order thereen, and in that event e declaration er M1/ Rule 3)(o) under the Act provides that the Cesaission vill publish nottee of the filing of a proposal in the Federal Register giving *(alny interested person . . . not later than fifteen days after the publication of such nettee er other date as say be flued tharoin . . . to request in ' stating his reasone writing that a hearing therefer and the nature of his he held, interest." Weties of the filing of the Application was published in the Federal 55 Fed. Reg. 4,506 (1990?, Register giving interesteden F6bruary persons8,1990,il unt Fabavary 26, 1990 to fale car.mants or to request a bearing in this satter. I l 1 I
I DiC.2) ' M lIl2*v !@ $ fAI. , I' l
'.* 08 application shall met besses effective essept pursuant to further couaisoien eW ien.' ,
i i En anclysing a hearim roguest, the ceanission determines
.e e, e re, set nises a .1,niti.nt ise,e of een ., le, thei is relevant to thm findings the Act requires the conniesion to make in order te grant the typtisation er permit ehe declaration to besene effective. As eleple neeertion that a particular etanderd of the Act has met been met does het suffice te rates a l
significant issue of feet er 16v.' R2/ Furthermore, aithough sonstitutional requin sente of due presses may re wire a hearing in eene aircumstances even in the abeanee of a speelfie statutory requirement,114/ the conatosion to not required to hold a hearing if the issues before it would het be further , developed in e hearing." 12,V with regard to the interveners' roguests for hearing and their replice to the Applicant's reopensee, the commission hos olysedy addressed many of the beves presented by the intervenere n ~_
- M2/ Asntariar una m eaa., Nolding Co. Amt Release Ms. 34013 (Apr. 29,1946) .
h1/ Tor instance, there sunt be an evidentiary hearing et the roguest of en interested party when there le e teoue of-l material feet. - AAg indemandant tankara intan, at an, v. Repre of soverners of the end. Manarva aves, 314 f.2d 1806, 1880 (D.C. Cir. 1976); danarai untara em m. v. rame, 654 F.84 791, its n. 7 (D.C. cir. 1941). 4 Agr mastern tstiin. Annama . Nolding ee. Act Release No. 34641 (May it. 1986), siting etty er rafavatta v. ame, 454 F.2d at 953 (bearing not regul. red *in metters where the vitimate decision will not he enheneed er assisted by receipt of the evidence."). l I
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. 49 in its discussion sonoeming the proposed transactions. We the entent that ne seemission has not discussed the leaves presented by the interveners, we have eensidered them and eeneluded that a hearing on the Application is met warranted. '
- 23. sostStetts The comeission has earefully smantned the Appliestion, the i numerous teaments and reposts for hearing (1104 and supplemented by the intervenere, and the hypliment's responses to those interventions. We have sensiderad the applicable standarde of the het, and eeneluded in each instante that the propeeed !
hepisition is sensistent with those standards. The canaisaien reached tasse sene19eiens en the beels of the esaplete record before M. We hearing to retared to develop these feats further. tne cenaission finds that the hoguisitten and reisted transactier.s and the ropest for an exeoption from the sospetitive bid 4 Lag reptrements of rule SO(b) and (s) under rule 50(t)(5) are not an uusasenable seursa of setion, de not repire severse findings, and are eeneistent with the rapirements of the-Act. Further, as no issue of feet er law that wou,14 warrant a hearing has been raised, we eenclude that the r* peats for hearing should be denied. 4 Due nottee of the filing of said hyplication has been given in the manner prescribed in rule 33 presu1 gated under the Act, and no bearing has been ordered by the Ceanission. Upon the i I _j
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70 basis of the facts in the record, it is hereby found that, except as to those matters over which jurisdiction has ) Peen reserved, the applicable standards of the Act and rules thereur.ds? nre satistiad, and that no advarse findings are necessaryt
!T 28 ORDERD, that the requests fer a hearing be, Md they y heraby are, denied S IT 28 FURTNER ORDERED, pursuant to the applicable provisions of the Act and rules thereunder, that, except as to those matters ever which jurisdiction is reserved, the Application be, end it heraby is, granted and pavitted to become affectivc forthwith, subjett to the terms and etni14* m e prescribed in rule 34 under the Act, including ths enditiina set forth in subparagraph (c)(3? 3ersunder, with regard to: (2)
Northeast's issuanos of Northeast Warrantet (3) WAC's acquisition of Northeast Warrantsi (3) New PdWM's acquisition of Northeast warrants: (4) Northanat's itsuance of common stock upon exercise of the Northeast'elarrants: (5) North Attentic's issuance and sal, of common stock to Northeastt (d) NUAC's insuance and sale of common stock to Northeasts (7) Nov P8MM's issuance and-salt et common stock to Northeastr (4) Northeast's acquisition of (4) North Atlantic consen stock, (b) NUAC common stock and (c) New 78NH cosmon stock either directly or through the merger'of. WUAC into stand =Alone P8MMt (9) Worth Atlantic's acquisition cf PSNN's interest in seabrook and its assumption of related obligationst (10) North Atlantic's assumption er issuanos cf the )
' P33 II;29 l@ $ D.I. ,! '21 ' TJ 71.
fer of its interest ; 53c8 million of potest (11) New pSNN'sis trans 86(c)(?; Werth Atlantis; and (13) waiver of ruen Wenheast's in Seabroek t: d d requiraments relatlng to the peyment of divi en sd hereint provided eensen stock, subject to senditions discussef notification info ming the that, Wertheast file a certificate o h VEL 0s-ceamission, within ten days amend, of any hetime te minate er Lnder t e Northeast Agreement, of the intention nt, ortoof its actual otherwise affest the Valse-Northeast Agreeme to mination in any event hou14.be, and it IT 18 FURTHER ORDERED, that $urisdiction ssactions,'pending hereby is, reserved ever the folieving tranctions are to be swamined sospletion of the record, wnish transahet by the Diviolon of undst the applicabl+ standarde of the (1) Wortheast's nysetment Managemee by delegated rits espital, authority issuanes and sale of adiltional ings, if aaft (3)osamen Werth L4eck to, term borrowings and interia kank borrowbonds, interis hank: Atlantie's issuance of first sertgage ings: (3) the capital-borrowings, if say, and short-tors borrow h Attenties (4)'New Funds Agreement betvean Wertheast and Nortage bonds, yellution Pars issuances and sales of first sortgds and preferr ,
.eentrol revenue bon and . (5) usep't as ' te borrowings and short-tors terrevinge under sostien 4855,000 in fees and expenses discussed abovees associated with t 1(f)(4) of the Ast, the fees and expens AcgJiratient and M , 'k @ e AD/ AQr ----A
t p,3; DE '21 '90 NEW 8 WD!.T. t
, I }
13 37 Is yggfitta ORDERED, that jurisdietten should be, and it hereby is, reserved to further sensider the propeeed transactions l in the svart that the Rate Agreement betvean WU8C0 and the Governer and Attorney Osnaral of New Xtapshire does not take ettect. By the Couaissite. n ,., ./* .i.. /-
. .. i g /f, ' ,. . '. -
l Jonathan C. Matt . Secretary Dated: December 31, 1990 I l I 1 1 ! _}}