ML20091Q358
| ML20091Q358 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 01/30/1992 |
| From: | Feigenbaum T PUBLIC SERVICE CO. OF NEW HAMPSHIRE |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NYN-92012, NUDOCS 9202040342 | |
| Download: ML20091Q358 (76) | |
Text
.
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New Hampshire Yh hh Ted C. Felgenbaum President and Chief Executive Of fner i
i NYN-92012 j
i January 30, 1992 United States Nuclear Regulatory Commission Washington, D.C.
20555 Attention:
Document Control Desk
References:
(a)
Facility Operating License No. NPF 86, Docket No. 50-443 (b)
Appl; cation to Amend Facility Operating License No. N P F-86 to Authorize North Atlantic Energy Corporation ("NAEC") as a Licensec, to Acquire and Possess the PSNil Ownership Interest in Seabrook (c)
NHY Letter NYN 91138 dated, August 28, 1991, T.C. Feigenbaum to Document Control Desk (FERC Opinion and Order Affirming In Part, Modifying In Part and Reversing in Part initial Decision and Conditionally Approving Disposition of Facilities)
Subject:
FERC Order on Rehearing, Opinion Na. 364-A G e n tle r:--:
New llampshire Yankee (NHY) hereby supplements the Application filed on November 13,1990 'n the above Docket [ Reference (b)].
In Reference (c), NHY submitted the decision of the FERC Commissioners approving the merger of Northeast Uti'ities and Public Service Company of New llampshire subject to conditions relating primarily to the merged company's obligation to provide transmission service to third parties.
Several parties motioned the FERC for rehearing of the transmission access issue. On December 10, 1991, the FERC issued an order scheduling oral argume nt on th-issues and presented for argument a FERC Staff transmission pricing proposal. Oral argument on the motions for rehearing was held on January 8,1992.
On January 29, 1992, the FERC, by a 5 0 vote, issued its final order on rehearing.
The enclosed order modifies some of the conditions of the earlier FERC decision and appears to have addressed the most critical concerns of the States of New Ilampshire and Connecticut regarding transmission service. The Connect. cut Department of Public Utility
{
Control is scheduled to issue a final decision on the merge on March 31, 1992. With the Oeo issuance of this decision, the final federal approval needed for the transfer of ownership to CO' take place is that of the NRC.
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New Hampshire Yonkee Division of Public Service Company of New Hampshire P.O. Box 300
- Seabrook, NH 03874
- Telephone (603) 474-9521
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United Sta'tes Nuclear Regulatory Commission January 30, 1992
'.1-Attention:
Document Control Desk Page two If you have any questions on this matter please call Mr, Terry 1.. liarpster, Director-of-Licensing Services, at (603) 474 9521, extension 2765.
Very truly yours, M C [.44 Ted C. Feigtnbaum TCF:AMC/ss cc:
Mr. Thomas T4 Martin Regional Administrator U.S. Nuclear Regulatory Commission Region 1 475 Allendale Road King of Prussia, PA 49406' Mr. Gordon E. Edison, Sr. Project Manager Project Directorate 13 Division of Reactor Projects U.S. Nuclear Regulatory Commission Washington, DC 20555 L
Mr. Noel Dudley NRC Senior Resident inspector P.O. Box 1149 l
Scabrook, NH 03874 Mr. George L.-Iverson, Director Office of Emergency Management l
State Office Park South 107 Pleasant -Street Concord,'NH 03301-t
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UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION
{
OPINION NO. 364-A j
1 Nertherrt Utilities Service
)
Docket Nos. EC90-10-004,
. : p a r.y
)
ER90-143-004, ER90-144-004, rt c rs.p ' ; c Fr-cice Oc r m*;
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)
r:nn 145-004
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rr.pchire)
OhDER ON REHEARING Issued:
January 29, 1992 PROPERTY r~
AND INTOR;
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TABLE OF CONTENTl I.
Introduction 1
II.
NARUC's Motion To Intervene 4
III. Benefits of the Merger.
5 A.
Standard for Attributing Benefits to the Merac-B.
NEPOOL Savings t
IV.
The Effect on Corpctition A.
The Relevant Ccrparison B.
The Eclever.t F *:ct:
C.
Ma r'.:e t Pcwer V.
Conditions c0 A.
Disposition of the Merger.
20 d.
Gent: L1 Traneric..sa COtnitrents 1.
E>:ic tira Trans.miccio: Ca;
' i ',
a.
Native Load Priority
- ' 1 b.
Opportunity Cost Pricing For Firm Transt:irrion Scr' ice c.
Tie Line Adjustment Charges 33 2.
New Transmisri n Capscity a.
Coct Pe poncibility and Pricir9 for Transrai-clon Upgrades
^
b.
Ir.rutable Conrtreints 3.
Whc: May NL u..uummate the Merger?
C.
Scw Harpchire Corridor Prcposal
.; 9 1.
Eligibility 2.
Deadline for Subscribing.
b7 D.
Regional Transmission Arrangement and NAPUC Sc E.
NEPOOL Voting VI.
Return on Equity.
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UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commisrioners:
Martin L.
Allday, Chair an:
Charlec A.
Tr4bandt, Elizabeth Anne Moler, Jerry J.
Langdon and Dranko Terzic.
Northeast Utilities Service
)
Docket Nos. EC90-10-004, m,_-
, _, m.
- con,
,4..
nn.,
(Re Public Lc;.. c Cor
- 7.',
of )
- ;*:-LO4 a EL90-;-:C4 2 - -
4< n g;,
OEDER ON REHEARINC (Irrued January 29, 190?)
I.
'.nfraimiion L n 1.u g u c t 192.,
t..c (~.
.culcn
- _ca ;. n t p. :.. e n a n d Order (Opinion) conditionally authorizing Public Service Cenpany c: Ntw Har p:i. t re (P5Nn; to cir..:.
of al:
'I
- ts Juratuictional facilities.
u' Concurre' with the ci :
r
. ; c:. of fri.'t.
PSNH wou'd crge wat'.,
ar, a suti;li
', Ncrth(
C:
c.
( N'O.
(Mc r - ' i 'a c t, the d'=-
2>,
v: !n:
a the merger '.11 be rtierred t; i:4';o A ct. :. A abl y).
On Septe-ber 6, 1992, the New Eng1--1 Pcwcr C-
, (!:r' :
filed a request for rehearing and clarification.
On September 9, 1991, requcsts for rehearing were filed by:
b1rtheast Utilities Service Company, an NU subsidiary filing on NU'n behalf; the New Harpshire Public Utilities Commission and the State of New Hampshire (ccilectively, New Hampshire); the Connecticut Department of Public Utility Control (Connecticut) ; the Vermont Department of Public Service and the Vermont Public Service Board (collectively, Vermont) ; the City of Holyoke Gas & Electric Department (Holyoke); the Towns of Concord, Norwood, and Wellesley, Massachusetts (collectively, MassTowns) ; a number of parties referring to themselves as Certain New England States and Utility Systems (NE States and Utilitics); 2/ Central Maine 1/
Northeast Utilities Service Company, Opinion No. 364, 56 FERC 1 61,269 (1991).
The presiding judge's initial decision appears at 53 FERC 1 o3,020 (1990).
2/
The NE States and Utilities consist of Arerican Public Power Association, Holyoke, Maine Public Utilities Commission,
.-- 2 e -- - w rMassachusetts Department of Public Utilities, Massachusetts (continued.
)
b 3
'i
(
Docket Nos. EC90-10-004, si al.
-2 t
Power Company (Central Maine); Canal Electric Company, Commonwea3th Electric corpany and Cambridge Electric Light company icollectively, com/ Electric); Bangor Hydro-Electric Company and Maine Public Service Company (Bangor/ Maine) ; the Americar P*per Institute, Inc., MASSPOWER, the Electricity consurers Resource Council (ElCON), and Four States 2/
(collectively, OF Supporters): MASSPOWER; Boston Edison Company; 4
- w ma j
~s 1 a.cegei3ti-- c<
- ngulatory Utility corrisniencr-( ?'p F.' T.
'.. c c..
~:p'-
tr 9, Ir01, NAPIC filed a motion tv
'nr :,. 'r 9 3, t !,
JF Supp -
fi'ed an arn e t-
..~
m.
On October 1, 1991, the Commission issued an order granting Ichea:ing
!~
t '. e-purpore ci turther conrideration.
197, tr cc--
- i c r. " -
orn-J: ga.n e.t en 17.2
^-
issuc-1 u s artunity/.r.n
.Lol wat p:
.ng ar.d immutable c:n tr-irt p;::
arcr, includina the Cc - - i r :on ct'If's prer: sed 2/ (... continued) l Municipal Wholesale Electric Company (MMWEC), MassTowns, Rhode Island Division of Public Utilities and Carriers and Rhode Island Attorney General, Ten Eastern REHVEC Utilities I
(the electric systems of Boylston, Braintree, Georgetown, Littleton, Princeton, heading, Rowley, Shrewsbury, Taunton and West Boylston, Massachusetts), and Vermont.
2/
The Feur States consist of th7 Maine Public Utilities Commission, Massachusetts Attorney General, Massachusetts Department of Public Utilities, Vermont, Rhode Island Division of Public Utilities and Carrieraband Rhode Island ~
A +
r - ~.- cnneral.
4'
+i i
Docket Nos. EC90-10-004, et al.
3-resolution of these issues. A/
The Commission also allowed the parties to file written statenents addressing these issues. E' on January 14, 1992, NU filed a supplemental pleading concerning certain committents it made at the oral argument en Janua ry 8, 1992. 5/
On January 21, 1992, responses to NU's supplemental pleading were filed by Connecticut; the Ten Eastern REMVEC Utilities; the Four States, * ?e Ear
- m P rv.'F r U t : : *-
and the Arer3can Paper Institute, Inc.; MMWEC ar.d the Ma c aTem
- d the Munici;32 E;cetric Syr.ters.
on ', u e r)
- <sponses to NU's supplemental pleading were filed by the r,r
- o v :
M :2 Ut:lities and the New E r.g :
.; c -
nrat A r ~, - i -
In the present order, ine Cor 114 on decide the meratL the requcsts for rehearing.
The Corrission acnera11y rcaffirrs the Cpinien ir approving the rergcr subject to ccrtTin cond; tic.s.
However, the Commission rodif 2 c r sore of *- h e
-".iltic"c ir-red in thc. p ; r. ; o n.
Cer!=in argur "ts raiEc3 cn rehearing h > cc
- a. r( a y L e r-n rcrsed by the Conmission and warr.n* no further ren ; ;:
c.
~'
" art ip:nts ;: the c.:,rgarcnt were NU, Cc" c;icat, Sr -hire, the Four Stater, NEPC:
a g: _,
-f ut
- t.
reic: :e.: to a-
.M
'E.
- n 7EMVEC Utilit cs"
(;
-r'eut Ecston Ed:sor. Carpany and Mont aup Elt ctric
_.pany), cen.. 1 Mail.c, Bengor Eydro-Electric Corpar.y, the Ten Eactern HEM;..
Utilities, a group of entities referred to tnc M u r. : Cipe_
Electric Systems (HMWEC, Holyoke, MassTowns, and the American Public Power Assocjation), MASSPOWER, the 1.r e r ; c a r:
Faper Inctit ute, Inc., the New Englar.d Cogcr.e.atlan Association, MMWEC, MassTowns, ELCON, and the Vermont Public Service Board.
E/
Written comments were filed by the Secretary of Energy, the Connecticut Industrial Energy Consumers, and all of the participants in the oral argument except Central Maine and the New England Cogeneration Association.
6/
At the January 8, 1992 oral argument, Ens Tr.
6-7, 203, and in its January 14, 1992 supplemental pleading:
NU committed that, when it competes to make off-system capacity sales with other bulk power suppliers who are relying on transmission service under NU's tariff, it would apply its transmission tariff to its own off-system sales on a non-discriminatory basis.
. e n._ wa, m.y
,,.~cm,3..
4 UU's January 14, 1992 supplemental pleading at 1.
d
Docket Hos. EC90-10-004, et 0.1
-4 present order generally discusses only those arguments not already adequately addressed in the opinien.
II.
NARUC's Motion To Intervene NARUC states that it is a quasi-governmental organization i
whose members include the state officials charged with regulating the retail rates and services of elect-nd c "- ut'14'
'r NARUC asserts that certain conditic"r irpered bS the _.
- rier in the opinion "will di rr^t 1'
' re ct t'
- ' ti on < -
operations of the State 1egulatory connission:.
- ingland, I
who are '
.rs of tr.c NARU, ar i4 11 a; t'
retam ratetuve, the cgcd company and
- ng1,nd t;.
NARUC argues that it has a strong interest in intervening to support its transmission policy, as contair-d in te re clutine attached to its totion.
Cne of these resolutions war enacted 1 NAKUC :1.
f an; rupports federal ] c., i r l a t _ _. p:
'M protecting statc authc.:t,
'a interests on transmission.
ano other recclut:cn was enacted by NARUC'c rc gicnal ;!;;11;te, the New England Conference o f Pd : i c Uti1 ities Commissioners, 1rc
( N E C F'.'0 )
?'i.
J0's rc;;1ution urgc c t!..
C;.. J : c ;.n t u that it "does not intend to exercise broad authority over transtission siting, oc c;s, and pric;ng: : ther,
.C w.
4 defer to the New Englund States' offtrtr to aevc ' cp a RI A
[ Regional Trancrir*'r-Arr cerent). " 1 NARUC states that it kill litit its participation tc supportin7 NECPUC:s resolution.
NARUC also agrecs to accc thc r
record as it stands.
NARUC etetto that, in light ei the ircu: e in this proceeding, NARUC was unable to adopt a position until the New England cotrissions reacred a limited concensus.
NAEUC argues that this procerding has becore "a rajor v hicle foi the consideration of important and far-reathing reforms to Federal transmission policies." 1/
NARUC asserts that, as the national representative of the state commissions sharing jurisdiction over transmission matters with the Commission, NARUC is directly affected by and concerned with the Commission's resolution of these issues.
We will grant NARUC's untimely but uropposed motion to intervene.
NARUC's motion meets the requirements of section 214 of the Commission's Rules of Practice and Procedure. S/
NARUC and its regional affiliate, NECPUC, were unable to adopt a positian earlier in this proceeding because two of the New 2/
NARUC Request for Rehearing, Appendix A at 2.
8/
NARUC Motion to Intervene at 4.
. m,x w..w
. c.mun-me w:
9/
18 C.F.R. 5 385.214 (1991).
t B
8
$ g Docket Nos. EC90-10-004, el al.
5-England commissions support the merger, while the other commissions cppose the merger.
This rift among the New England c1. ; y by their united opposition to commissions was overa t
certain aspects of the opinion and constitutes good cause for NARUC's delay in filing.
Moreover, NARUC's interest is not adequately represented by the other parties.
Finally, NARUC's inten'ention will not dirrupt this proceeding or place additional burdens on the :ther portii
. nn NAT " has acreed to linit its p?rticipation t:
- a WJ;UC'c resM ut'^n in arrapt the reca:6 :~ i*
11;. I - ' i t s_.c f _ t h e_"-
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SE.1 ' r t f 1r_IttE b
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The Ccnrirsion rujtsd jn *he Cpinion that a clair ( l L._ :. - f i t should be attr:buted to the rerger cven if t h e. t bene!It was achievaH e w:
t the lne ccrrir mit r'
4 th t, Ltcause t:.e Tuaeral Power Act ( Fi.
.t hc_...s rergers and &cs not t re "
r~-r as pm urrtive har-fu),
rcrger applicants -erd not prcn that a rerger in the c. n l y r., a n s of a - -,r; 2 ' :.;
t-t.tu*r'<
^jr;tiver Tu c'r--
rejected the contrary apprcach of the U.S.
Departnent of t;-
.:. Cu.s
..c c undcr,nich ;'.ai
- d ncrge.
... t. c Jt e
'urt be obte 4 able c nl y ' ' '
ger The
.cn
^-~
r e a r ^ " ^ -' t h,. t the ""' '
nterect under sect'-n ' '
of tM FM ir a:
tt " the pn..~
"f ti c 2
.5
- cticr 203 requirer
-.m
~
2t:
to approve
- c... ; :.erger that 1r ccnsistt r.1 with O.-
puol.c inter
- -t.
On rehearing, several intervcnors challenge the Commission's conclusions.
For exarple, the NE Stater and Utilities argue that the Ccran sic: chould have ap; ' ied the antitrust prlicy of the Merger Guidelines. 11/
They argue that the Commission must take antitrust policy as it finds it, and must apply that policy in the anticompetitive element of its section 203 i nqu i ry.
Similarly, MASSPOWER argues that Supreme Court precedents 12/
construing the Bank Merger Act of 1966 11/ require the 1D/
56 FERC at 61,994-96.
11/
NE States and Utilities Request for Rehearing at 22-26.
nee also MassTowns Request for Rehearing at 18-19; Central Maine Request for Rehearing at 10-14; Holyoke.Jquest for Rehearing at 5-6.
11/
United States v.
Phillipsburg National Bank and Trust Company, 399 U.S.
350 (1970); United States v.
Third National Bank in Nashville, 390 U.S. 171 (1968) (Eashville).
l
-,g-v
+
l 1]f 12 U.S.C.
5 1828(c) /'" Poi.
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l
Docket Nos. EC90-10-004, 21 A1 6-Commission to ignore claimed benefits achievable through non-meraer neans. 14/
MASSPCKFR asserts that the FPA and the Bank Merger Act of 196t apply the same "publ.c interest" standard for decisions en whether to approve a merger, and that the rules for judging claired benefits must therefore also be the same.
The intervenors argue that the Commission's ruling is rcM rarv to a staterr"*
h-the D.r.
Circuit Court of Appeale
!t/ the th" Cor-!eeien nurt cer. cider whether a cignificant rf er
'it___
t c.
~*
~" inn corp'nies is Offset b "corpensating ; uclic benef its wnich otherwise were not likely of achim.
~cnt." Lff
': h e intc: ccnors ! u r'
- r ccr; that the Ccr losit.n ap..
different standards in analyzing the merger's benefits and' anti'o.petitive effects. 11' Ihey argue that, in reasuring verger detrinents, the cc'nrission gave no weight to the c r'
<e harr t'~*
-"it
(-
hSut tre
- 'm',
~
_.p2, tb.c harr th:
?
2d Irsult in the Iutare e.._ n 11 tR' and P"H ":" i n ur.3ffiliated cc-: --icc.
They accert that, n;rre i t.,
Corniscion focused
"-lv on the incrcrer.t'.) anticorpetitive c f f.
'r of the merg;, L :.l y. :.21_ :
'tdl bcr.efit; chcula counted,.i. %._, benefits that could not be achieved absent the 361.
u
- r. it c ggn s
y... r
,rq937ing, y e c - - g i -..,-
p n ] j c., p
+ - -
that ; U Ccgni t. c!
i Clair.L
- 7. v ;
L i !.
10 c;tc.: able cf TCJ r.cn-:crger means it apprcpriate.
To reject sucn :::.cf a ts becauce they L.le ett-.:mtle thrown non-merger tcune is to preter ncn-rerger rrrer.gementr cver r r "gers.
The Bank M rgc" Act ns tot U
construed as containing such a preference for non-merger arrangerents, i.e.,
as tarring a merger dependent upon benefits cbi..Inable through cthor means. lef
'I h e same poilcy appet.rs in the Merger Guidelines.
The FPA, however, is not hostile to mergers, does not treat them as presumptively harmful and, thus, contains no such preference for non-merger arrangements. 12/
Since the FPA contains no preference for non-merger arrangements, 11/
MASSPOWER Request for Rehearing at 5-9.
11/
Citizens for Allegan County, Inc. v.
FPC, 414 F.2d 1125, 1130 (D.C. Cir. 1969) ( Al l e,gaa),
lff NE States and Utilities Request for Rehearing at 26-27.
17/
Id. at 27.
18/
Fashville, 390 U.S.
at 189.
IS/
56 FERC at 61,995.
See Pacific PowercC light company"v.-
l FPC, 111 F.2d 1014, 1016 (9th Cir. 1940) (PP&l).
l l
l l
f.
1
<s Docket Nos. EC90-10-004, p1 A1
-7 the FPA also does not require the rejection of claimed benef its obtainable thrsugh non-terger means.
Although the Bank Merger Act and the FPA both use the p..I a se "public interest," this phrase is very broad and derives its meaning "from the purposes of the regulatory legislation." 20-As explained above, the Bank Merger Act and the FPA express different policies toward mergers.
This concluci:n is confirr by the bank Merger Act's requirerent tnat a propose < rc:
s ar.t i ccnpc t it ive effects rust be "c! car]y o'.'s'd" e 1
t't Intercot" by the cerger's etne11ts, J2e cust IJ;auce L z,
be r.t f 2 ; t o t h r-
- u t i i c.
As :*7ted by tr
.,rcne x r";r n1 irtrnt cf tbc Ba r; r Act bank mergers first to be subject to the utual antitrust analyris if a..rg
- failed th :t scrutiny, it was to be permissible on..
.1 tl.e
.aina hantr ern'..
(
Alich that
- V serger'c :
.;t.
the c o n n u n. '. ;
autwo ab its anticorpetjtive disadvantages.
21]
The FFA, in contrast, r(quires only that a cerger be "conaastcnt with the public nterc;;," not that tri --
- rJ._
- .c t m
Ecnef:t to the public.
?
'r rtated in Opr.ier 30, merger er.licants need not show that e ; citjvo nefit ta t'
pt.
.511 rccult ': - a p,
'rs ul
+
O.:r position is not ur.u rrined by tL t. a. _
- ?
- .
that claimed merger benefits should be othe rwise
".ot lite
achievement."
This statement in AllesaD was mere dicta, noted by the court in holding that the Commission proper]y accorded significant weight tc a city's political decirion to rell 2*
electric system to a utility. 23/
Also, the statement cited by the intervenors was simply quoted f rom the Cottission's order on rehearing and reflects an approach that the Commission has since abandoned.
In any event, crediting only claimed benefits otherwise "not likely of achievement," is a far cry from the intervenors' proposed standard of crediting only claimed benefits otherwise "not possible of achievement."
Allecau does not endorse the standard sought by the intervenors.
2,0/
NAACP v.
FPC, 425 U.S.
662, 669 ( 19'16 ).
21/
Hashville, 390 U.S.
at 182 (emphasis added).
22/
PP(L, 111 F.2d at 1016.
21/
S6 FERC at 61,994.
See EE}1, 111 F.2d at 1017.
1..~
.--.2,.--m c
-e
,m 21/
Allesan, 414 F.2d at 1130.
48
. s Docket Nos. EC90-10-004, gi al. We also reject the argument that the Opinion applied different standards in ascessing the merger'n benefits and anticompetitive ha rm.
In both contexts, t.
Cemmission aatc med the merger's likely effects by comparing the pre-merger situation to the post-crger situation, i.e.,
by comparing what exists today to what will exist after the merger.
In neither context did the Commission's analysis focus on the uyriad of possibilitiec that micht occur in the c at-ent the merger.
"~
P.
,[r ep_N _ r -
t.
- i-inio:
cor-r:
r i l y a f f i r~ e d
- S e p-ng jud -'
- -. c.c
-. e r * '. <,
rei ge, :. o cc). " single I artic:;
't rt et n in NLiOOL. ;"/
The Commission noted that ringle part;cipant status would c. ave th; mcrged company ap;;roxi; atc ly f 3 f 4 million in NLPOOL costs, but that these ecsts would be shif tec to other NEiGL r er.bers.
Severd inttrvt:_:_ ;rgue on reheari:.g that the Cc :.c i icn should enndition the rerger te prcvent thn cost erift. ^jf The intervenors argue that the Cornission inconsistently reiected l
a cens tion preventing the
~OL cart rh ft w h i ! r-dc; -
a condition limiting the merged ccapany's NEPOOL voting rights.
22/
Nc
.st c r; c :.ci s urgu; t.
. th< C o r.r i s _. - - air :ed the i
NLI'00L voting condit a :- 1 cNr e t% f: nding NEPCCL mc-berr
'd l
not anticir'*o a mer"er al.c+:ng i m c or r-r" reh as I;'m and NU to gain o veto p r
'T i M 2n
..it :
.r asnt: :
t*'t Arg:c 'In analy.ing i...
the Cor-irrion f ailed to ai rly ac tame proposcd cert thift conditions, ido 11..ed tc ar. 1LJe th..t such conditions were varranted because the foundina NEPL members did not anticipate a marger causing a large cost shift.
The intcrvenors challt age the reliability c f the }zcira y evidence cited by the presiding Judge (testimony by NEPCO witness Bigelow that the parties negotiating the NEPOOL agreement anticipated, and allowed, such merger-based cost shifts). 2E/
The intervenors contend that Mr. Bigelow is bound by NEPCO's settlement with NU to support NU's request for single participant status and thus is not impartial.
They also assert that Mr.
Bigelow's testimony is subjective, anecdotal and speculative.
25/
56 FERC at 61,996-97.
See 53 FERC at 65,213-14.
24/
Ree NE States and Utilities Request for Rehearing at 3-15; Central Maine Request fcr Rehearing at 21-31; Boston Edison Request for Rehearing at 3-6.
22/
NE States and Utilities Request for Rehearing at 9-10.
.:, m g -s,r:x = w...
c.n 21/
Boston Edison Request for Reher i g at 5.
1
y 3-10-004, et al.
9-1 7
.end that it is difficult to assume that the NEpooL l
teraders anticipated the unique merger proponed in this case.
The inte rvenor b argue that the Commission wronaly took for granted that allcwing single participant status f6f the merged company will result in a massive cost shift. 23/
They state that the granting of single participant status is not Etr E2 uniect, !"t rout that tb< cost shift in this care UMuld be r rcentec I n :4 results frer an ant'"-'
- itive nerger, ine 11 a rve challenge the presle;*
judee's tinding that the M ' Mt ent er c;.
_.J e n parties tc ;
'It mt st;t"r.
' s c y
,.. e a,
n-t' ugicc ent c'grcccly cncturages eligille pa: :co 11 t single participa..c status, this statement is outweighed by the agici ent 's general prohibition againct parties tu.ing " advantage of the provis1 ors of the Agrecrent so as to harn anothcr I-
-ir t
to p'.ju:1.
ttx
,r tion of any F
- cit
.t
.c
^-
i the electrac uti.ity business."
They alt; r.c i e t:4 a t c; e of NEPOOL's st3*ed eLjectjver 1s th* "cluitatle rhaling of the resulting benefits and cocts."
We Icject the inte rve nors ' argaments.
The evidence 1
- c. a i ng N Li 4 L merl _. r.
in fact.... 2cipatea
- oret;ates t..
the p:n
- !i ty of a r<'ger uausing a largt c;_t ". i i t
': hen t '. e p esiding Juegc arked Mr. Pigelow ('
b e y n o c
- n *.
-f thu cr.ginal N ! ** ^ ! carr- ~
't) why ti.c C c._:. ; -
- : : ; 2 :.
2:
'r PSNH to, :.; eve NLrv>L aavings at others' expencc, rc. Bagw cq'. air.ed that ; t ] hn best way I u n nns. : inut i s L t.c. t when we put NEFM L tocether :'O ye:rr ago, we recognized tt t these thingt might happen." ll/
Mr. Bigelow went on to state:
And we did discu.c at length what would happen because we reco7nized, in fact, we were then coming up to a potential merger of Poston-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.
[12/)
22/
NE States and Utilities Request for Rehearing at 4-8.
lof Boston Edison Request for Rehearing at 6.
11/
Tr. 4619.
a.
..n
=
12/
Id 2
b 1
k 8
a Docket Nos. EC90-10-004, ci al.
10 -
Mr. Digelow's testimony on this issue is persuasive.
While the intervenors challenge the reliabiljty of Mr. Bigelow's testimony en this issue, they cite no evidence rebutting his testimony.
Mr. Bigelow's unrebutted testimony on this issue is entitled to
- re weight than the unsupported arguments of counsel.
As to the Commission's alleged inconsistency on the issues of Sr?OOT c cts and NEPOOL votina, we arn aware of no evido-~ cn th NPDOOL voting issue ririlar t o Mr. Bigelow'r tectirc.y on tlc N r. ic c -
5c Crrir-icr'r i
& r r r-on the i.-
NGt ?L cost.s and NLrOOL voting is consistent with Mr. 1iqH ow'-
. ; L r.;r c-~ r 2.d the lack of
- b c
- ;c on vet.
We ccc nc' rcrit in toc i nt e rv c n: rr '
- z. g u r c r. t.
t.no t the Commission ignored che possibility of granting single participant status yet proventing the cost shift.
'1 h e prirari e!!(ct of single participant status is the cost shift.
Our dorision to allew r"i-st r : t
_cc.: our v.c.
tY*
tht " r F '. _ i., ;
antic;rcit.2 such cost shifts.
We reject the arguncnts that the coct rhift chculd tc ba rred ac centrary t o t he public 2.t e rc.
under section :'03 of the FFA.
The NF POOL 1. :rc erc r:t war cratted in ar*icip;tirn cf ::ct c z v ;. g s L. r. 2 L._ t ferth pr0;edart_; e; ).c.
such savings would be chared.
No compelling reason has been rair;d t.
rrat a Cor..;saica-n..pasea
- .
- 1 cation of th
- T r ' ~ m e n t.
NEPOOL will c>.-nt inut t'
- coduce ravings aft;r
- mercer.
"9
~ mirrs for shar:,ng the--
- - ' i r. - -
--c cent'
'%c filcd L_.
?L ?:
4 do r.;t arrant c i.rt h e r
-ent investigatj;n here.
Finally, we find mere relevance in the NEPOOL Agree:
ot'r explicit endorsement of single participant status than in the agreement's genera'l goal of " equitable charing" and prohibit n
on certe:r " tar.ing aavantage" of the agreement to harn or prejudice other members.
The NEPOOL Agreement specifically encourages eligible parties to seek single participant status; the provisions cited by the intervenors are general, not specific.
Construing the general consistent with the specific, we find single participant status for the merged company consistent with an equitable sharing, as envisioned by the NEPOOL Agreement, and not violative of the ban on taking advantage of i
the agreement's provisions to harm or prejudice other members.
IV.
The Effect on Comnetition A.
.The Relevant ComparisQB To determine the merger's effect on competition, the Commission compared the pre-merger competitive situation with the competitive situation that vould result from an unconditioned l
. ~.. -
n,.un:-n
.w.+
[
t l
l l
l I
Docket Nos. EC90-10-004, et al.
11 merger. 12/
The Commission held that, contra:7 to NU's argument, NU's transmission commitments should be conaldered only in the remedial part of the opinion, af ter t.he Cormi,sion determined what, if anything, needed to be remedied.
"he Commission used NU's commitments as the eta:'.ing point of its conditioning analysis.
NU argues M rehearina D e NU's commitmer,t' '
oa0 teen considered in the Cerrice on'c corpc*'*
r ar,]yc!c, r e dial analycir, f_.
m' a : t n - t:.t
'c improperly considered bU's con,u tr
- nts as
- y er.e pop u ;
4 :
"rt cf i.,arry
.f pctc ntial mi..
.; u :.
1: trc r
judicial pr., de :
3 Cor t i ssion to ar.a] y: e thc mergcr'c cc pet:'_ive c:
.._a
's commitments, instead of first analyzing the competitive effects of an unconditiened rerger and then analyning the renedial effects of NU's commitments. 2f/
be ;cject NU's argutcuts.
A r.,
u t a t e d in.
Opinica, the Commission Froperly began its an?. lysis by enri:.ing the unconditioned rerger:
We must compare the competitive situation which existed Lt! cc t'
al. : to 1: -
corretit;ve cituation v..ch vr'Od result en unconditioncd rcrr--
'n erder to est3511ch d D3Cil:"'
IDr dete C2'.
M WhCth!, th should be conditioned s il L:,
- n what ways.
Without such an in,tt.ial at.c
.-.it,
-e canno. determine whether t.dditit ml conditions are necessary to mitigate any anticompetitive effects of the merger.
We find :. t sufficient, and appropriate, ir 23/
56 FERC at 61,999, 2_4f NU Request for Rehearing at 59-61.
Eqq alrg New Hampshire 4
Request for Rehearing at 34; Connecticut Request for Rehearing at 41, 15/
NU Request for Rehearing at 60.
26/
NU cites United States v.
Connecticut National Bank, 362 F.
Supp. 240, 283 (D. Conn. 1973), vacated on other croun_dn, 418 U.S.
556 (1974) (Connecticui); United States v. Atlantic Richfield Company, 297 F.
Supp. 1061, 1068-69 (S.D.N.Y.
1969), aff'd cub nom _ Bartlett v. United States, 401 U.S.
986 (1971) (Atlantic _ Richfield); and White Consolidated Industries v. Whirlpool Corporation, 612 F.
bupp. 1009, c..~.~i m sc1028,~1032, iniunction-vacatedr 619 F. Supp. 1022 (N.D. Ohio
(' tite).
1985), aff'd, 781 F.2d 1224 (6th Cir. 1986) p
Docket Nos. EC40-10-004, el A1 12 -
consider NU's proposed transmission commitments in the rerndial part of our d e c i s i c r., alter we determine what, if anything, needs to be remedied. [12/)
The Commission's analycis of the unconditiened merger demonstrated that the merger would enhance NU's market power,
- m. Commicsion than o ' - - ' " ' ' t' ' c
--~~d
--'d4*
en; and determi--
tt it tr :: conditicnc, i'
~'-'1 recpects, v.1d r.c t m te.
-it:
tre re, exarple-tue ec-irri en found t nt t '" ~cpnsed !ivs-year um durai c:
u..
servi;
'o1 ) :
- i.
ndiv'd" neg t.
.i;:
v:.
~ :;ur t nad ;t
.I c '.. r ; the Comrisc; a thc. required a longu du: < ; ion c' t
service. 21/
The Commission found that NU's proposed seven day rinimum duration of non-firm service also Lould net adequately riticate the merger's antico petitive effcete the im.n._q.'
'1 to 01'rr : one -.;.. r.
a 1r or
' ~ '
these examples ana :n general, the Commission did nct ccr.s a d er NU's prcp ;ed ccnditionc et only r.nc rce_ii.ility " c' u t of an a cay of potential mitic-tion rearures."
Inste31, the ~
r n
treatcc C's ; : posed ccr.ditions i.,
t'.
principal :.. l t ig u i. c n measures and modified those conditions only when necerrary to ensurt Lac
_:gcr'r cona ntency
.it.
the public a r.t c r t ; t.
"c canes cited by
'r' d-
'Iuite a de_u.
These cases sta ;
.ly f;r +hr. propsc.1'
- i t,.i r.
edle
- prepcse, by n;.rge: applicants must L; con 'dcred, not that such remed2rs must be considered in the factrinder's cc.rp.etitive a r.c l y r i s inctn ed of its remedial analysir.
In t-e of there caser, thc merger opponents argued unsuccessfully that the merger applicants' prepoced reredies should be wholly ignored. 30/
Here, the Conmission has not igncred NU's p:oposed condition
- but has considered those conditions in the Co mission's remedial analysis, not its competitive analysis.
In the other case cited by NU, the court used an analysis similar to this Commission's own, examining the merger applicants' proposed remedy after finding that "the permissibility of the proposed transaction 12/
56 FERC at 61,999 (footnote or
- cd).
23/
Ld at 62,033-35.
2 29/
Ish at 62,035.
10/
Connecticut, 362 F.
Supp. at 283 (rejecting the argurent that a proposed divestiture "should not be considered by the Court"); Atlantic Richfield, 297 F.
Supp. at 1068 (rejecting
~r-- v
'~ the argument that a proposed divestiture "should be completely ignored by the court").
%g 4
8 Pocket lios. EC90-10-004, Lt. 31 13 hingeld) entirely upon" the offica"y of the applicants' proposed re eiy. 41/
B.
2hcJ.&XaDLhrAtt.E IN arguer thai the Cormicsion erred in finding transmission cervice to be a rt levant product 2/
Im argues that the
'*rr, ria.re utilitier, v lue
.a..-..
$p g.,, liver r bu.
t r: -~ i c z. ;.
.ia.
cnly to tht ( e. t o n t it allows thtr., to obtair.
th 2t
's 1
c.
- c t..<r.
x
- trther
et-t '- t defin)"q t/ ant--it lon as a relevant product co.**
ic
. i.r - 1; s a t t' < ic :^n i n };r.
'~
';-c in VIsi
't
!L,' :4 L 2 dl 3
" '. n o di 3
, _ s relevant price fu 'Ne purpotr.
<' m kira a deter..nati r of whether Duckeye (an oil pipeline company) can profitably increane its t2...;; crt.'*:!rn pricec abeve the co pet itive level it the f
deliver ^d product price."
in particular, !N cites the t '. +
t a kt t pc'.vr in tne C: rl: :.. n '. is
..:.i ng i n t:ansportation of goods can Lc 11:tited by delivered product
}
.*!de L c t h r :..u c t and t r e.nc port a t i en.
cui p.;.t-:,,
.icsion erat) in ;gnue.ny van a s
- R
..iLo.rgues
- hat the u.
r '.' S n t i t u t e sources of bulk power, inclu!ina local non-utility genetat.
10:21 utility gex'
.M and derand-a2ae ru nag ement i nvc ctr ent.L. 3U stes that the ava21 ability
- . e ed
- treer vould fc t :
e:'-
1 y t *.e g o d c c.i p a r.)
c.
uru a t t, i."*-
t
- an-
'. s t 1cin c aph a ty to r.1 -
.!!:-' M '/
r s. 2 t
- p2.cas.
r.crts that tr-Ccrrisrien ignored sever *.1 cacc involv market-based rates in which the Cortmission examined the buycr's e.upply options to deterr.ine whether those options preven'.c d the soller f rom e>;crcicing market power. M/
!W
!urther asserts that the Coraission ignored cases in which the Cor.nissica f ound that flew England utilities operate in a i
i 1
\\
11/
lihit1, 612 F.
Supp. at 1028, 3))
Im Reques'. For Rehearing at 48-53.
Sag nin_Q liow Hampshire Request f o,
'lehearing 'st 33; Connecticut Request for Rehearing at 39, 12/
O p i r.i o n ll o. 240, 53 FERC { 61,473 at 62,666 (1990), I.ch's stelLind, Cpi ni on lio. 360-A, L5 FERC $ 61,084 (1991).
13/
1m Request for Rehearing at 46-47, S3.
.a;.e,; e...
3.-
w..
m.
LDJ lt. DL 63.
.b a
_t
' iA
.&....~
Docket Nos. EC90-10-004, et al.
1%
competitive environment and that NEPooL serves an important role in assuring transmission access in New England. 40f Despite NU's arguments on rehearing, the Commission continues to believe that transmission in a relevant pr oduct in this case.
As stated in the opinion, transmission r.orvices in New England are relevant products because they can be, and are, traded separately and because, for many buyers aM ii nellerr there are no subt t i* ut er for this product. i?/
Defining trnr.r': cion an a rv1(.-
prcHu-t 4 r. ~ +
'tra,
Fince the product r.arket in that case was detined as the
..cn of re!ined retroleur ;
i '.c pred iran--
r*
'n'h i ).. t% Cc~ricr3
.rc
. i i. t r.
<xar:ining ine deliscred product pricc, tMt !ocus W
,..priot,
-m, in that cane becaute there were adcquate and competitive rubrt it ute.
for thc delivery of such products by Buckeyr.
$c:
exarple, the Connic. tion noted that Duckeye'n custe*ers could have j
h.t Utroleur plc
'ts deliverri by t ruck inrttua.
y pipelirr. D/
L'ectricaty, howcVer, o r. t.. tc de:ivered by truck or other renns:
the only mode of trannport at d an t raerri rr ? on lines.
The cr. l v rubatituter f or *.rnnr mission et t 1 ov.ric it y c rc 3 c 0- 1 T M ration ard.. ; r. ;; J L i d e r ; n a g e r. L....
- a Commission has found these options to be inadequate substituten
- here, w....
..ing..a t "all of these u]tetratAven have tco long a W w lorrt nt period and t! < pri m at wh!ch thei s uld 1<
available are te U",rcrtain for it.m to r - iie adeau3tr }a;;r-dl
'ip).'-
in :n;at-1.t:
._r r,arkets." 0 0f On rr' has taisto no argurents demonstrating ctLerwir:r.
cance th(
record in this cabc Jt:..snstiates no adequate subctitutin for transmincion of electricity in the New rnglard 1(71on at this tico, transpicsjon of electricity is a relevant product.
The Commitbion's findings here also do not cont ravene its finding? in cases allowing market-based rates for New England utilities.
The Comm! cion's focus in those cases was on the options availabic to specific buyers when they selected specific sollers; the evidence in those cases addressed the options available at definite timca in discrete areas.
The Commission neither examined, nor reached conclusjons on, the entire New l
g/
NU cites Ocean State Power, 44 FERC 1 61,261 (1988), and Dartmouth Power Associates Limited Partnership, $3 FERC $
61,117, (1990).
12/
56 FERC at $2,002.
l l
M/
53 FERC at 62,663-64.
Mj 53 FERC at 62,666.
.... u _
~
. w ww %.y.
.. f.y.,
30/
56 FERC at 62,003.
.o 4
Docket Nos. EC90-10-004, el al.
15 -
England market.. The focus here is on all of New England for all of the foreseeable future.
The record in this cace does not convince us that the range of optionc previously tound availabic to spacific buyers at specific times will be availabic on a dependable and timely basis throughout New England for the entire relevant period.
Similarly, while the record reatfirms NErcot's beneficial role in coordinating utility services in New England, the record also demonFt rates that P"N rw et c '
thn needs for tranr*'iraion ae ccr :' e w t n g l a r.
. 71/
Our f indirmr F ore are,
at" 1,
- ' ~ +
case, not on findings in part c'res where the eviaence was re-limited i n t e n..r c f !rth ti.
2. c cf d t he ef
.r ena: 7 -! n.
C.
Miric1_l% T.I The Cor. mission found in the opinien t Mt the rergrr vruld i ncrea se 1:ll's e3rkrt j e wc c
- the b
.;r
<ris network. SU
'! h e Orzicsion explained that the rterger would cubstantially incroise NU'r c'.ncrrhip of ).cy Mcw ::.gl and transtnission facilities.
Additjenally, the
- nircion found the
- Lc mergcr '..Duld redw e c c.~ p u t i t i c r. L,,. lc-ar.g c:..j cnt e s: +...,,
instead of two, to control transrission accero by New England utilitics to power f rr t h e !;t.c s u : ',. Ic. r 1001, ' chec nd Maine.
The Commi: ;1on al.
Icu
+ '- at the "w:
.c o '.
t nts
+'
a rcrged cerpany's m:.:w_t power in llc L....t-term bulk I'ecr n.a l k e t. M/
The Commission ncted that, after t!.c tergc~, f...
would control more than 65 per cent of 1:ev Er a nd ' r cu ; )us generating capacity from 1993 through 1998.
The Commission reasoned that NU's cominant share of excect capacity would allow it to exercice rarket power in rhort-tern bulk po er.
NU argues that focusing on its ownerchip of transmission facilities wrongly ignores the extent to which those facilities are contractually committed to long-torm uses. 5_4f NU claims 4
as an example that, absent capacity expansions, the merged company would control only five percent of the uncommitted transmission capacity into Eastern REMVEC in 1991 and less than 30 percent for the rest of the decade.
NU asserts that analyzing total capacity instead of uncommitted capacity con'. adicts the 51) 1.L at 62,006.
12/
Id. at 62,005-06, i
M/
li. at 62,006-07.
t
(
~ c"ab3/s-NU4 Request-for Rehearing-at 57-59.
En also Connecticut Request for Rehearing at 41.
l
.y Docket Hos. FC90-10-004, el Al.
16 -
decisions of federal antatrust courts, M/ as well as the finding it. the U.S.
Departrent of Just ice's Merger Guidelines that total capacity ray v.w; state a 11rn's competitive signi11cance af that capacity is already committed.
NU argues that the Commiosion erred in finding that the mcract would end competition betwecn !!U and PSNH to provide ir,
$. " annert s that, for geographical tranrriroion !r-rv:
re:
vr, N" n n 1. t c'. i a re nr* cer:
're fer the transmission of
-.icnr (Ma i t. -, Vermont and i.-
3 ;,;,.
3 3
1.nte!n hEMVLC).
!C
.ates that:
.no utilities do not adjoan 1;.
'nd h ve a l.*
d t-
- iH t o reach routhern utili les;
'J r :
i an r 't
'irr't
' ct ed to IE' a' d, hr a practical mat t e r, r rt u t e L. ';ii t r rc ach NU; and cnly one Lastcrn REMVLC utiljty (N1 P
- ) can reach both PSNH and NU and thus treat the au competitorr or its tranrmission needs.
!W states that the other riu t ern RI' TC utilities can reech PSNH and NU only
.. t the c, r p r, ! ave no ar
- eJ ; -.ng - tern i.rge gna, s.
acccca v.1.
- ,EPCO:s syster.
NU airo argues that itr
,micclen cotr.it-rnte will allow U,,
O 7 ::d ut;.21',it; r..a c h I c r c t'
-i;;!: n aca thr.n P.TH
-M NU would of f er ac st and-a. lone companies. 52/
NU argues that th( rcrger t!.sc c..
aa. o nhahl n itc *
,t i
c.r in trar.cr.icsion ma r).et c.
?
t o t h o r t - t c r: :
t
. Nt' orgues that tne t..; rg ed coc;~ r,) ' s r ' re of ex7 cs carM:2iy. nuld provide no market i cw c :-
because the reg.iors daand :: cuch capacity is ;ow and because othc r Fuppliero could rr ndily r c et tL ic:and. SP/
NU also contends that the 1:erged company's surplus capacity cannot justify transmircion conditions that last longer than the surpluc or involve recre power than t he m :unt tf the surplus.
We reject NU'n argument that ownership of transmission capacity is an inappropriate measure of market power in this case.
Our focus; here in on market power over both the long run and the short rt.r.
We are concerned with the merged company's market power not only in the year after the merger's consummation, but also into the future.
Ownership is an k.5/
NU cites UnitM 5taten v. General Dynamics Corp., 415 U.S.
486 (1974) (Gip.tnl.fynn.migE).
5,5/
NU Request for Pet eering at 53-57.
5.1/
Id2 SB/
ld:. at 61-62.
,1nt alEg New Hampshire Request.for Rohearing -
' ' ' ~ ~
l at 35; Cennert' nut Request for Pehearing at 19-40.
l 1
1
. ?.
Docket Nos. EC90-10-004, et al.
17 -
appropriate measure of control of transmission services over the long run.
Availability of transmission capacity, in contrast, changen upon contract expiration, and can change even more quickly depending upon other factors.
A company owning contractually-committed transmission capacity may have little market power
%y& gain substantial market Power when the centractr
...I..-.
The extent to which contractual access mitigatcs a en evner's centrol i1.ur
- d. ;.
0: ruch factorn o
Icngth ct the c'ntracts and the other contractual terms.
When "h infornation is comple'.e 'nd ev ilable f or e t.e c:.'
cc-tract rights to Ic ng-t c cc fir: t r e'.'
tion.erva j
can be a relevar.t considerati,n.
In thic cm, however, the record on availatility et trancri" fon capacity is incorplete, since contractual c:rrdt: ntu are not i d te r ' i f i e d by each facil:ty't m '.t r, i' no record of how much of the aiallable capacity wall Le t y t 'u merged corpany on ir.t c ri a c( c wi
- h rort than<
.e c;nt:c:' '
owner.
Also, the terms of exintir.g contracts are not dercribed.
En. il atil it y of th(. cerb J cc.1 pani 's t ra;.a:~ c c ion facilitic.,
cannot be determined without contract-by-cont ract identification f,
i nt e r r 'm, the owner of the facility, the duration of tht cu-
't, and the terms of the comr.it :nt.
1:oreo w.r, ev<*
'.1 ]
of + k i s i n f e r.P t i n, we re in evide":c, ave llabili t;' a l one wu..
st
- (
wfficier.t to de t< 3 - i nc-t h r-
- .;rac r 's o f f ect c.
centrol ci transmission facilities over the tcrg: ~'s indo!1 nite t'*e span.
While this merger is expected to continue indefinite]y, NU's ccntracts do not.
1hus, in our view, ownership remains a proper consideration in this case.
NU's claim that it will control only five percent of tht uncommitted transmission into Eastern REMVEC in 1991 is unconvincing.
NU derived this number through an apples-and-oranges comparison, dividing its share of gaggpmitted transmission capacity into Eastern REMVEC by the total transmission capacity into Eastern REMVEC.
The oroper comparison is between NU's encommitted capacity and all uncommitted capacity or between NU-o'.ned capacity and total capacity.
NU has further skewed the calculation by reducing its amount of uncommitted capacity to reflect transmission commitments not supported by record evidence.
While the court in General Dyllariga focused on uncommitted coal reserves and not contractually-committed reserves, coal can be used only once; once committed by contract, cosi rese rves generally do not revert to the owner and become a renewed source of market power.
Contractually-committed transmission capacity, in contrast, is generally usable again; when the contracts
' expire,~once-committeds transmission: capacity reverts to -the owner and can again be the source of market power.
t Y
'e m v. N J.
EC90-10-004, ftt al.
18 -
?rhe Commission also rejects NU's argument that the merger would not reduce the competitive options available to New England utilities.
Contrary to NU's argument, this reduction in competitive options does not depend on whether all such utilities are directly interconnected with both PSNH and NU.
Instead, the Commission's conclusion rests on the existence of major strategic corridors and interfaces of electric trade in New England.
Buyers and tellers need to use the rtrmtegic corr:cerr even if they are not directly connected to them.
Ohuc, a utility controlling the str9tegic ccrrid;rc r:
5 v r - 6. c - 1
- c utilities that are not directly connected to 1:x corridors.
Inc relevant markets in this care are cLrvi crired by tw '.tratem cer:id ui:
one, c:ntrolIcj Ly NU, to'"
.r other, centrolled by PONH, to the north and vect. E/
M ne corridors are essential paths between buyers and oc31ers in the New England market, constituting the 12nks used 1:y rany buyers and sollers to conduct electricity trade, certain utilitics may require edditional centract arrarm ntr.;
t-re-there corridors.
Lven utilities requit ar.g such ancillary as rangtr<ct.ts, however, are likely to reek access to pu.cr rupply courecs availabic over either of there two corridors.
After the reract Leth corriders will Lc ccntaolita Ly NU, nat 1, a.2 pendent and self-interested companies.
Thus, contrary to NU's argurt.it, NU's potuntial market power is not liriteu tu those ut;;itics with which it is directly interconneettd and an unconditioncJ crn r would in fact reduce the ccrpetitive tronemissien Opt. nr in""
En? land.
We again find that this ruarger is r.at justified olely by NU's argument that the rergcd company will offer r re transmission access than NU and PSNH would have offered absent the merger.
According to NU's argutent, any merger of any nunber of companies could be justified by the most meager and meaningless improvement in trancmission access, regardless of the merger's effect on competition.
We find no warrant for such an analysis and do not believe that such an analysis would protect the public interest.
As we stated in the Opinion:
Even assuming that NU's transmission commitments will improve the transmission service offered by the applicants, this fact alone would not render the proposed merger pro-competitive, as claimed by NU.
The issue is not sirply whether the merged company will EE/
56 FERC at 62,005-06.
Egg also Utah Power & Light Co.,
Opinion No. 318, 45 FERC 1 61,095 at 61,284-85 (1988), grder pJl._Eph ' g, Opinion No. 318-A, 47 FERC 1 61,209 (1989), knifI on reh'a, Opinion No.
"18-B, 48 FERC 1 61,035 (1989),
~wenanded=omother. grounds' Auh D9Er Environmental Action,
^
Inc. v. FERC, 939 F.2d 1057 (D.C. Cir. 1991).
9 1
o Docket Nos. EC90-10-004, el al.
19 of fer improved transmission service.
NU's argurent ignores the ether focal point of the anticompetitive aralysis:
the merged company's increased market power and incentives to une that pcwcr.
Thus, in our view, the incuu is whether the transmission service to be of f ered suf ficiently mitigates th a-* 4 -- p : t it ive c'fr-*-
- i t h._ r.
J cccpany'c inercased rati.e. pwer
..nd 3
4 adequately mitigetc the r ~ c r ' r a rt i c-~
. i t : -
ferts. (gy; NU has not perruaded us etherwise on rcnc.trir.:.
We agree with NU that exccos capacity, in and of itself, is not a rource c f market power in the ch^rt
- r-bulk power nrt:ct.
Exciat c..pacity : hoc thc ar -
.t of cap.n. t y rc m" i '. y nvallable but not yet demanded in the naihet.
However, enangen in circumstances, i n, der..and 91c.eth, c:m cor. vert excr en capacity into a t re h t - a f t e " r - -i.
c epportunit y * : < ; r ej. m?.rket pc.er arises if the o nerbhip of t ht' leadily-avail?lle capacity is concentrated in a ting)" entity and ruch e cbnrge in circumstances occurs.
Here, NU s
- c>.pect ed to cer:t ro? more than 65 }<re.:nt of the exccru ity in New England r rang tr.;r c
d F c '. d e.
.t -Mr,
- any ! -.c E n g '. a n Ita.
to necd adai icncl generating cal d ~'n,thir ti
- c. D.
Ul. } c some of these utilitics plan on ta cling the.r n r.e d with ne 'ly-built capacity, t2/ construction of generation spacit y
'n subject to delays. Of Ar the domir. ant c:urcc of exicting surplus capacity, NU will be able to exercise market power in short-term bulk power markets, absent conditienc.
rinally, we reiterate that the Commission's conditions age imposed to mitigate enhanced market power in two markets:
g transmission and short-term bulk power.
The merged company's a market power in transmission will be broader, and will last for the foreseeable future.
While NU'a enhanced market power in short-term bulk power may dissipate over time, its enhanced market power in transmission fully warrants the scope of thak}
Commission's conditions.
f.0/
56 FERC at 62,012.
51/
Ex. 176 at 2.
.. 5, 2. / g.d 2,.,.,a t I
1.
,a. ~. -
E.1/
Exgs, Tr. 5831.
4 Docket Nos. EC90-10-004, ci al.
20 -
V.
CRnditionn A.
DJrrsfilfl2D._9f.. thg Me roer The Cetnission decided in the Opinion to approve the proposed merger subject to certain conditions. fAf The Commission found that the merger Vould produce substantial
"-- +, i ;
- t ! :. ' those l'enefits were cutweighed by t!.c merger's 1.:.cly c.ntic: petit;ve (!fects.
The Commission concluded that
.s si,
. p r* o.
.rpr:ving the tergt:
and thus 2t. : iring thn merger't benefitr, while conditioning the terner io ri*.
r i; likel' c r.t : t erp c..t ivt effects.
NU asserts that *he Cc.massion never meaningfully weighed the costs and benefits of the proposed merger, fi/
According to NU, the merger wcu2d save ratepayers approximately S800 million. reso}ve PSNH's barAruptcy en a basis that le'vos psN1:
financialj trong, c :J.una 11 ansmission acc e ss c n the NU ryst e and place NU's "nighly regarded" nuclear organization in charge of operatir.g the Fr ;l rock Nuclear Plant. 11/
NU argues that the Corriscion r9:es enly pn ting ref ercr.re *. ; the re benefit n t ut r.ever weighed inem Itcperly against the merger's costs.
The Massit4ns 2:gue that monetary benefits do not of f ret ant icorpctitive harcs, since the tcnefit at f harrs are of
ferc7.t t, j. c and
!ft-different groups. L2/
The Par:.: 2 an ert that this et ; pr'r bent!itr accreo sniely -
NU's stockhol-crs and possibly its custerers, wh22e the anticot;ctitive harrs will affect everyone cire in New England, plus othcrs in surrcunding areas who will be less abic to L2ade with suppliers or customers in New England.
We find the arguments on rehearing unpersuasive.
While NU claims tjat the Commission "never meaningfully weighed" the merger's3 costs and benefits, NU offers no different method for "meaningitally" weighing such costs and benefits.
NU instead of fers on2y conclusory arguments against the results of the Commission's method.
We stand by our judgment in the Opinion.
The MassTowns' argument that the merger's monetary benefits do not offset its anticompetitive harm ignores the conditions luposed by the Commission.
These conditions adequately mitigate the merger's anticompetitive harms.
The proposed merger, with l
l 61/
56 FERC at 62,011.
61/
NU Request for Rehearing at 44.
._!.dit/
ld_v.
. m _.., :.a_. _.
.g - -. _ w
+
s c g.y -
l f2/
MassTowns Request for Rehearing at 20.
l
s s.
j 4..
l Docket Nos. EC90-10-004, ci al.
- 21 these conditions and in light of the merger's benefits, is consistent with the public interest.
l B.
General Transmission Commitments 1.
Existina Transmission Canacity a.
Native, load Priority t'..J:r NU's ConcIal Transmission Commitmentt J: ;' j,
sought to limit its obligation to provide wheeling rcrvice ~tt of exicting trancmicsion capacity by rt.we s ' ng (1) a ten -
p4iority for the transmission of existing curpluc y;neration on NU's system (later expanded by NU to all existing NEPOOL turplus generation); and (2) an absolute priority for. power purch" cc made on 1 nalf of its native load customers. LE/
In rejecting these native J oad priority reservations, the Cer.icsion ruled
- 1 that firm transmiccion. service thould generally ce t r:orded priority over non-firm service, even if the latter would otherwise benefit the merged company's native. load cuctomers.
-fd/
However, the Commission allowcd the merged u::pany to reserve firm transmission capacity needed to ensure reliability of service to its native load custorers and to honor existing
. contractual commitments to others.
The Commission n31:ved NU to use transmission capacity reserved f or cystem relichility.for non-fi + transactions.
NU' argues that the Ccmmiscion's rejection of there native
[
load priority provisions was not based upon a morger-related change in competitive conditions. 12/ ' According to NU, the decisive question is whether the merger will enhance market power by significantly. reducing buyers' alternatives cc.rpared to their alternatives absent the merger.
}RJ argues-that, absent the cmcrger, both-NU and pSNH would have=an untettered right-to uce-
.their transmission systems for-economy' trades on behalf of their native load' customers.
NU asserts that buyers alternatives-will not be affected by the continuation of'that practice after.the merger and.that the Commission's conditions lack a sufficient-legal nexus to any merger-related anticompetitive harm._
I iS/
Ex.-178 at 1.
' fd/
56 FERC at 62,018-21, 29/
NUlReguest for Reheari gn at 34-37 tiicut ReqiieWfor 'CoriMc_kJtt_Alst, New Hamp RequiisOf8P'~lGFeiT'16Dt'"36 ;
~
~
j Rehearing'at 37-38.
)
=v-e,--.-.
,m.-
-,, e m. m
..--,_--.=-m~--,-..
2,.*~..,--.--.--,-e....-v....--+-,-.~~.,,,,-m.r,-,
,n,r---
s.:
Docket Nos. EC90-10-004, c1 sll.
- NU also argues that a native load priority for economy trados Js not anticompetitive. 21/
NU asserte instead that a utility's use of its transmission system for economy trades to reduce its customers' costs f urthers the antitrust goal of lowering consumer prices.
NU argues that courts have concistently held that even a monopolist controlling essential fac!11 ties need not allow access by others if their uno would increare cocte for its curtera-e. 22/
T r. p=r+ic"la*_
UU states that two court; recently havt held that : :crving a nativc load pricrity for ncn-firr trr ~ uti-
- c
'1 2)l/
NU also argues that the citiciency gains c1 :tu economy trades ar<e no irr - prot cted bv the ant. rast lawr *.*
criicicncy epina of..talit.
-t n
21/
NU argues that the CcrM ccion's priority provirinne wculd improperly favor the non-firm tr m actions of others over NU'n nen-f i rm tranca rt i ens. ~~
NU e rcrtc t!.'i 4._ wheelin; customers may purchace 111m cervice and use the capacity f or non-firm trhncactions.
NU asks the Con.iccion te rot irc that wheeling customers "either te uring the service f er their evn firm capacity transactions vt loac any priority c,u NU'c own non-firm uses." 21/
Alternatively, NU proposes to allow firm wheeling under its ccrpliance ta: 11 uly Ict f i r:.. c 4 ac i t y that would be spec 'ici in the request for service."
~7' If the Co.w ssion 1caff.' c i ts ruli:g on prior;*
'J acks the Co=.iccion at least to clarify the rc_,v ci t !.e 21/
NU Request for Rehearing at 37-42.
22f NU cites a number of cases, i ncluding Illinoit v.
Panh.ndlw Eastern Pipe Linc Co., 935 F.2d 1469, 1486 (7th Cir. 1991),
and Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 368-69 (9th Cir.), cert. denind, 488 U.S.
870 (1988).
Ste fLisj2 New llampshire Roquent for Rehearing at 29 n.17, 36-37; Connecticut Request for Rehearing at 13.
2)f NU cites Cities of Anaheim v. Southern California Edison Co.,
1990-2 Trade Cas. (CCil) 1 69,246 (C.D. Cal. 1990),
Appeal Dendina, No. 90-56375 (9th Cir.), and City of Vernon
- v. Southern California Edison Co., 1991-1 Trade Cas. (CCli) 5 69,336 (C.D. Cal. 1990).
23/
NU Request for Rehearing at 42-43.
21/
11,_ a t 6 5-6 6 ; New ilampshire Request fo'
=chearing at 12.
2ff NU Request for Rehearing at 66, n.~n:.g 3 - m wrn.r m m w n,.
m___
7
- 'a Docket Nos. EC90-10-004, et al. '
" reliability" exception. 2E/
NU argues that this exception is uncicar and could be construed an applying to only as much transmission capacity as NU needs to ensure compliance with NEpOOL and Northeast Power Coordinating Council reliability criteria.
NU suggests that:
It is-irportant that " reliability" be defined
- . includ; it'. m :nne r* i c:.;:acity that --
althc w not strictly nccennary for the u. g * :. y..,,...
4..
- g _._
- ,; g ty 7e g e g 7,
cbligatienr -- was installed to "back-up" largc q :.c : tien ed"' tach r,
a system and to u.- m :.,; c rc11at.. ti in ca.c2gency co:iditions.
(12/ )
NU asserts that detaning " reliability" as excluding cuch capacity would discc-u-85e the f uturc construction of such capacit y.
New Hampshire argues that eliminating the native lead priority vill recult in lens trancen sion capacity being avalleble. EQf New Harpd re
~ c rt
- that, v3thcut a n*tive load prioilty, state siting authorities will opprove only the bare ninimum of transmission upgrader or vill impose conditionn in order to protect native load customers, while ctate regulators wil} deny cost rt cVery fer trantnission facilitiet used for third-;ar'.. d.c el f t.a.
No ' Hr;' chl: - ale erg u thc.t prererving the r.nt ive load pr;.t:i t y
]y fer reliability purpores meanangless in this case because reliaLility in Nov r.ngland is assured by NEPOOL. L1/
New Hampshire acuerts that climination of the native load priority is particularly onerous in light of the presiding judge's findings that:
(1) NU and PSNH have planned their transmission systems primarily to serve native load customers:
(2) native load ratepayers of NU/pSNH, not future transmission customers, have borne the costs of the existing system; and (3) the native load ratepayers have used the existing system, planned on it and relied on it. E2/
la/
Id2 at 26-31.
23/
NU Request for Rehearing at 27.
E2/
New Hampshire Request for Rehearing at 6-14.
31/
New Hampshire Request for Rohearing at 11-12.
Egg alig NU Request for Rehearing at 7-S! Connecticut Request for Rehearing at 17 n.19.
'r'H2/' New Hampshire Request for Rehcarinf at ~21-22T-~*da 53kERev --~
at 65,221-22.
F
kg 49 Docket Nos. EC90-10-004, p1 al.
- 24 New liaspshire contends that the Commission lacks authority to preclude " economic" service to NU/PSNil native load customern.
W New Hampshire states that the FPA limits the Commission's l
authority to matters not regulated by the states and that the Cc:=ission "has no authority to set retail rates, to abrogate retail tariffs, or to preclude NU/PSNH from using ltra system to provide ' economic' service to its customers." M/
In p--tictinr, Ncv Harpshire cortend: that sections :'02 and 212 cf TTA M/ both prchibit the Commission from issuing any a
"~'. '; e der i pa;. ring a r* ilit y's r'ility to provide n9-t rvice, er op; ernd to just allakJr service. Ef/
Che NL Statts and Uti;at;ct argue that f i r; whccli;., ch wl.
have the same priority as reliability of service to NU's netive
. load. E.2/
They argue that firm wheeling customers have their own native load custeners and that reliability of their customers' service also dererves protection.
They argue that a priority fer NU't I~ t is e iced reliability is thus dircririr,atory, unjust and anticompetitive.
They also argue that a priority for native load reliability it inconrictent with the Commission's ru)ca requiring that nstural gas pipelinet offering open access transportation must do so on a non-discriminatory Losis.
Tbc MaccTowns assert that NU should be required to give a2' f i r: vheeling the.v:e priority er NU's native load.
P_f,./
Altprnativcly, the Masciacns argue that wheeling custcr.crr shet.:d be roured of receiving capacity cdit within NEPDOL regard]< r of the trans:.ission service priority.
The MassTowns asscrt that those conditions, if riot applied to all power wheeled by NU, thould at leact bc cpplied to any New York Power Authority (NYPl.)
preference power wheeled by NU.
The MaccTowns assert that the Commission erred in allcwing NU to reserve, and use for economy trades, transmission capacity needed for reliability of service to native load customers, a.2/
The MassTowns assert that this principle is too vague and is subject to overreaching Ly NU.
The MassTowns also argue that E.2/
Nav Hampshire Request for Rehearing at 23-26.
BA/
& at 2.A.
i 3.5/
16 U.S.C. 55 824a and 824k (1988).
31/
New Hampshire Request for Rehearing at 26-28.
3.2/
NE States and Utilities Request for Rohearing at 15-20.
33,/- MassTowns Request for Rehearing at 2.
, ;g %.
~..w
_,,,,:p _,.y
,,. :y %.r_.,..
g 4
1 MJ
& at 2-6.
' - ' ~ - ' ' -
-'v ny
,,,,e,
--,,,,._,p.-
,,,,,,-.-,,-,,,,,-r,,e,e..
y
,,,,,-3,,r-r*t--w-w w-
d Docket Noa. EC90-10-004, et al.
25 -
the Commission-arbitrariAy based its ruling on NU testimony in this proceeding that it bailt certain transmission lines for reliability of service to its native load, whila the Commisr. ion ignored contemporaneous
- -d centrary NU testimony that the lincu were built to serve all of New England.12/
Bangor/ Maine argue that the Commission erred by not alininating a priority for native load greuth ove wheeling services. 2J/
They asset t that the Cormission eliminatc d a F:.i:rity for native lead growth for nu e I p ' nM i t - -
e Order No. 436 12/
They argue that the Commission arrotc.3ra]y failed t.
sixplain its departure from the courr< t Wen in 0:J :
No. 4; In response to these arguments by NU and the inte rvonors, we again reiterate that under_Do cirru n un; c will NU be rcquired to provide firm wheeling service out of existing transmission capacity where doing so would impair c: degrde re1iei1ltj ui service to native load customers. 92/
In OpAnici. No. h4, the Commission defined " native load cut ar crs" as those cuotem-.rc c:.
whose hchal f fiU, by statute, franchise or contrart, ik/
The MassTowns c.te Ex. 123-I] at 5-6 and Western Marr.achusetts I,lectric Co.,
3d FPC 7?3, 737-33 (19(.
p; I(g
.tnigd, 40 TPC 296, 31['d r3 _nnr t, finicipal Tlectric l_w d
b of Mass. v.
FPC, 414 T.
d 1206 (D.C. Cir. 14t ).
Elf Bangor/ Maine hequest for kehearing at 17-21, 22/
Order No. 436, FERC Stats. and Rogs., Regs. preambles 1982-85 5 30,665 (1985), yarattd, Associated Gas Distributors v.
FERC, 824 T.2d 981 (D.C. Cir. 1987), p_cri t_dtniid, 4 t b U. S.
1006 (1988).
Bangor/ Maine assert that, although Order No.
436 was vacated, the Commission put Order No. 436 back into effect through Order No. 500, FERC Stats. and Regs., Regs.
Preambles 1986-90 1 30,761 (1987), yDeated, American Gas Ass'n v. FERC, 888 F.2d 136 (D.C. Cir. 1989), ssrt;a_Anning, 131 S.Ct. 373 (1990).
Elf The GTC also expressly allow NU to not provide transmission service out of existing transmission facilities if NU needs those facilities to meet "then-existing contractual commitments" to others.
Ex. 178 at 1.
We approved this provision in opinion No. 364, stating that "[t)o the extent that this provision prevents NU from reallocating the use of existing transmission capacity from 'then-existing contractual commitments' to other subsequent arrangements, and from subjecting such ' commitments' to incremental cost pricing because of a subsequent transmission constraint, we e findsthistprovision-acceptable in this-proceeding."
$6 PERC
+
at 62,014.
s.
Docket Nos. EC90-10-004, tt al. undertaken the obligation to plan, construct, and operate its system to provide reliable service. E1/
In our view, this definition includes both NU's retail native load customers, as well as its wholesale full and partial requirements customers, to the extent NU must provide power supply services to these types of customers. 11/
NU's retail native load customers have a right to service that stems f rom stdte statute and/or f ranchise law.
In contrast, NU's whclesale requircrcr.tr. customers' rjahts to service are def ined I; contract.
Een Electric Pates; Construct i:c. F r', in Pre 7 r -
'.t!c -
- 'it.s>
IP-1ic' tion, a
Docket No. RM86-6-0DO, OracA fi c. 474, IERC Stats. i. bega. $
30,761 at p. 30,715 (Tr90 1E, 19E7).
Thus, ' hil < the basir c,f and c..
- r. i t tr3nrrirricn -
i hc Obi-iga t ic n t - p l :t n, c:'
depending en whethcr the customer n a retail customer or wholesale requirements customer, NU has the obligation nenethelecc.
In return f or the ut ility's obligation to serve, NU's native load customers are responsible for the fixed costs of ti.(
t ra ncr i r r ion syr t er c c.d cont rit" i e to thora costs tt"*v,5 retail and wholesale rates.
Accordingly, NU rnou}d be allowed to give pr3crity to providing safe and reliable ser/ ice to its native load custerers ucing existing transmission capacity built te r-e c th:2e custcmers.
Many.u crvenors hcce req u ied t!.at the Ccr-4 r,ricn offer some guidance as to the r. caning of rc13 ability, arguing tr'*
NEP. 0t alresdy entures "that the lights do re co cut."
Sim!iarly, NU asks the cc c i e n '. - clar: f y that:
(1) some reservation of trar.tn.iusion c L;~ city to back-up NU's large generating units is legitimate, and reliability-related, (2) transmission capacity that is used to provide generation reserves cannot be fully preerpted by third parties for their own wheeling transactions, and (3) " reliability" encompasser capacity needs for some reasonable planning horizon into the future.
[25/)
We generally agree with the principles proposed by NU but, on NU's third point, will require that any capacity needed for l
reliability purposes within a reasonable planning horizon must be l
offered for wheeling use until NU expects to need the capacity 1
f 21/
56 FERC at 62,014 n.259.
1 Rf/
As discussed in n. 93 and on p.
42, we do not intend the merger conditions to abrogate NU's existing contractual commitments, whether for sales, purchases or transmission.
m' g--.-~
~,. w w w..
l 35/- NU Request for Rehearing at 30-31.
v
l l
Docket Nos. EC90-10-004, el al. for reliability reasons.
Also, in these circumstances, native load growth must bear its nrp rata share of the incremental cost of expansion.
That is, if an upgrade is planned to meet the needs of both native load and wheeling customers, both sets of customers must bear part of the incremental cost.
We also recognize the difficulty in precisely demarcating transmission needed for " reliability" purposes from transmission needed for "c en^-*r" r" recer.
Thir tack, howeve" belongs in the first instance to NU. Elf We note that if NU t cks and is allowed imnity c
- n, ardiuru wd n ' Sc next section, th1r. chould reduce any incentive for NU to ev e - r <- t r.: t e the wount of existing tranr-ission capacity nee & d
';; nativi 1:ad rs;;..;.13ty purposes.
On rehearing, NU also seeks to limit the types of transactions for which a wheeling custorer may use transmission capacity it han purch-med fror NU on a firm basis.
Specifically, recV authca.t y to rt ? tire "that purd
- ers of firm transmission must either be using the service for their own firm capacity tron: actions or lose any priority that this service vnuld have over NU's own ntn-f':~ uses." 99/
This requcrt is derJcl.
P.u c c.i r, at u al a r g ur..c n t, NU a..ccdtd that it has na problem with allowing a purchaser of firm transmiccion cen' ice from NU to re ali 2t, "as long as the tre doction to which it is r 'M d dcean't have a dif"trent clectrical impact on the NU cp.cm."c'
- n !! At of thi. concensicn, NU's rehearing cr.
this pa;..t appeals to be moot.
In light of the conditions imposed in Opinion No. 364, the ability of the third-party transtission customer to rcassign its transmission rights provides further assurance that the merged corpany will not be able to exercise market power.
Without reassigntent rights, a third party might hesitate in making the financial commitments to obtain long-term firm transmission se rvice.
Reassignment will allow the third party, during periods when it does not need the transmission service f or itself, the E1/
Clearly, any party denied wheeling service out of existing transmission capacity because of " reliability" concerns would be free to challenge the basis for UU's refusal.
NU would be required to justify its position upon such complaint.
And, such a challenge would not relieve NU of its obligation to build new transmission facilities to meet the request.
Mfe Section V.B.2.a, inf_ra,
h1/
NU Request for Rehearing at 66.
..a.
m
. ~... -
._.,.. g g;..
m,.g.
m.
y, ER/
Oral argument on January 8,
1992, Tr. 20.
j
/.
Docket.Nos. EC90-10-004, at1gl..
opportunity to recover some of the revenue it pays NU from other third parties and thus reduce its costs. 122/
Accordingly, we will require NU's' compliance filing to include a specific provision within its firm transmission tariff permitting a' purchaser of firm transmission to reassign transmission rights on a firm or non-fi m basis, so long as the assianment would not affect operational terms or conditionn of the original sale (22g2, the point of receipt, point of delivery, quantity).
If NU believes the assignment would irpore ara additior.a1 costs upon NU, the burden of filing for recovery of the additional costs and the verification thercoi vill rest with
- U.
We note that the New Harpchire Corridor Proper 31 expijcitly provides that transrission service rights are transierable in whole or.in part. 121/
b.
Opp 3nyttity Cost Pricino_F_qr_If ra Transni nzj on Service opportunity costs, in the context of electricity transmission, are-the revenues lost or costs incurred by a utility in providing third-party transmission service whci transmission capacity is insufficient to satisfy both a third-party wheeling request and the utility's own use.
For exarple, opportunity costs might include the revenues lost or costs incurred becaure a utility rust reduce its evn off-systcr purcheres or salcc in order to overcone a constraint on the oeid.
122/
The Commission stated in the opinion with regard to opportunity cost pricing for non-firm transmission service:
Under the conditions imposed here, however, we are requiring NU to upgrade its lap / Egg generally, pacific Gas and Electric Company, 53 FERC 1 61,145 at 61,505 (1990).
121/ Ex. 154 at 6.
121/ This example obviously is not intended to constitute the universe of possible " opportunity costs."
However, as discussed below,-opportunity _ costs must be legitimate, verifiable costs incurred by a utility and clearly must not.
include monopoly rents.
As even NU acknowledges,
"(1)egitimate lost opportunity costs.do n2t ir.;1bde the loss of revenues that result from losing a wholesale sale because of competition and do not include foregono revenues from purchase end resale (brokering) transactions such as those.
condemned-in-4)tah*Powar+ Lichh8w NUrRequeeW for: Rehearingw c - -
2-at 23 (emphasis in original).
m.w.
m e
m,
---,x vv 1 -
..e
-r -,
y.
s '.'
s, Docket Nos. EC90-10-004, et al.
29 -
transmission system when necessary to satisfy requests for firm transmission service and to offer firm transmission service by tarif f at a cost-based rate.
It is possible that these conditions will sufficiently mitigate NU's market power over transmission customers so as to render the imposition of lost opportunity charges just and reasonable for non-firm service. [210/ )
However, the Commission declined to decide the issue until rucn time as NU fi'ed a r;ncific proposal seeking to recover lent opp ct unity costs through a non-firm t ranniorit rato. i ne '
on rehearing, NU argues that opportunity cost pricing is appropriate for 11rn transmission service because "it is 11rn transmission service that the Commission has af forded a priority over non-firm transactions on behalf of native Ic3d customers."
1M/
In support-of its proposal, NU argues that opportunity costs do not represent monopoly profits but r,crely reimburse NU for real-costs resulting from the provision of transmission c e rvice. 1M/
rurthermere, ITU r.oter that any cpportunity costs recovered through third-party firm wheeling service would be ficwed back to native load cutterers to reduce their revenue requirement. 1n1/
NU arguce that the Commission's conditions, unless rm'i!!(d to allow recovery of lost opportunity cocts f or : j rm service, will impede the efficient operation of bulk power naarkets ana threaten economic harm to the resit.cs of Connecticut r.nd Ncw Hampshire. 193/
NU asserts that the Commission's conditions would allow a firm wheeling customer to preempt NU's economy trades even when the customer's use of the transmission capacity is less efficient than NU's.
As an example, NU hypothesizes that 1Q2/ 56 FERC at 62,027.
1Q1/ The Commission also noted that the issue of whether lost opportunity costs are properly includable in a rate for non-firm transmission service is currently pending in another section 205 proceeding involving NU. Id.
That proceeding, in Docket Nos. ER90-373-000, gt alt, is being decided concurrently with this one.
121/ NU Request for Rehearing at 18.
193/ Id. at 22.
222/ Id. at 23.
M***er *Ptetr?! hir-G.WWFWWG'*% '
a
+
1QB/ Id at 19-22.
I I
l
s.
Docket Nos. EC90-10-004, et al. a customer could be expected to use NU's transmission capacity for any firm wheeling that allows the customer to realize savings greater than NU's wheeling rates, even if thobe savings are much less than the amount NU could save for its native load by using the capacity for economy trades.
NU also asserts that the recovery of opportunity costs for firm service would not elic inatt incentives for UU to expand transmission capacity. ins /
NU notes that, under the GTC, NU mutt build new trMrniccien c'; -ity when constrainte exist.
P" suggests alternatively t hat lost opportunity costs could be capped, after a reaconcble period of up to live years to allow expantic~. cf the system, te no ru e than the inercrcntal cart ef expansion.
Connecticut argues that NU should not have to provide firm wheeling when:
(1) the capacity is needed to maintain reliability f or native lead c'ert erera r (2) the carseity ir neMca for reasonably foreseeable economy sales or purchaces, unless the wheeling customer pays NU'c opportunity costs; or (3) the uce of the capacity would irpose incremental costs en NU, unlecs the customer agrees to pay the incre ental costs.
Connccticut's proposal would require NU to cre:e.t to native load rates any revenues received for opportuni'r costs or incremental cects.
Connecticut cuq~csts that the Comcirsien can cap any transmission rate increases f er foregone economic trancactic:.r i
the cocpetitive price levels uct in the New England bulk powcr markets.
Connecticut also suggests that the Commissior. t ay consider allowing a wheeling party to elect cither:
(1) a variable increment to its transmission rate based on purchases or sales actually foregone in the futurs; or (2) a fixed increment to its transmission rate based on NU's reasonabic current estimate of future foregone sales and purchases.
As a result of the concerns raised on rehearing with regard to native load priority under the GTC as modified in opinion No.
364, the Commission, on January 8, 1992, held oral argument "on the subject of opportunity /incremontal cost pricing and immutable 11Q/
While the Commission did constraint procedures.
1Q2/ 1514 at 24-25, 11Q/ Egg Northeast Utilities Service Company (Re. Public Service Company of New Hampshire), at alt, 57 FERC 1 61,340, mimeo at 2, Ordering paragraph (A) (Dec. 10, 1991).
In the December 10 order, the Commission also scheduled oral argument on these topics in Northeast Utilities Service Company, Docket Nos. ER90-373-003, g1 al2 However, while mw-;~ ---oral-argument-on both cases was held sequentially on January
,w _
8, the Commission did nnt consolidate the proceedings.
~
o.
___._____a
g' r.ocket Nos. EC90-10-004, et al.
31 -
not limit the substantive scope of either the written or oral presentations by the parties on these subjects, the Commission did request that the parties address Statf's Proposed Transmission Pricing Proposal (and seven identified questions),
which were attached to the December 10 order, nl/
Certain parties, including NU and the Connecticut and New H
, hire corrissions, supported the d ption of Staff's proposal, with certain clalifications/ modifications.
Other
' tier
~ 1 r - ! r.g t h e cther New
- 1. ;l n " ntato ccrrinnicru,
oppert" the adeption of Etaff's proposal.
These parties raised a variety of ct'cetionr, ineluding th.c ; r;c<
- concerns, d i s c:. : i na t i c. n c ol.ce;,.r, and p;t 'nt lal a dmi n i r t r '.t ive ;>
.1( :.
With arplerenting the spccitic pricing principles set Icrth in Staff's proposal.
We are now confrented with th< nced to prcvide NU with rncugh Lpecificity regazdirc; what it will be allowed to propone for the pricing of future thi rd-pa rt y wheeling se rvice,
t.o that the tenpa:.f can decide whether to proceed with t!.e rerger.
We n!"
cannot ignore the need t o i. c t.. t expedit iously as pmible given the cor..telcial realities and Line pressureb p re s e n t.ed in corporate entters subject 1 cur jurirdiction, H 2/ and in particular the need to resolve a bank' Wtcy sit uat ion. H1/
At the care tire, we art confrcnted W
' the need to ensure an adcquet. recc:
en pricing issues and afford,11 pnri.tr :n adequate opportunity to vejce their ob
" pons.
balancinq these respective needs, si conclude that the best course is to provide guidance on pricing issues, but to defer specific pricing issues to the compliance phase of this proceeding, or to subr.equent cases where the Commission nay consider rpeci!ic proposals from NU in a concrete, factual M1/ Isl., mimeo at 1 and Attachment B.
j H2/ Gulf States Utilities Co. v.
pPC, 911 U. S. 747, 762-63 (1973).
H)/ While PSNH is now operating on a stand-alone basis, it is still subject to the continuing jur!.cdiction of the bankruptcy court, and PSNH's bankruptcy will not be resolved until necessary regulatory approvalu are received.
We also note that this proceeding presents the differing interests of various state commissions actively representing the interests of their respective stakcholders.
While much han been said about a possible Regional Transmission Arrangement (RTA) that is being negotiated in New England, the simple fact is that we have not yet been presented with such a
document.
We nevertheless encoutwtfu' the 'rekpoetivo
^
. m* ~
interents in New England to complete this undertaking.
De Net Nos. EC90-10-004, gi gl. setting and with a more developed record. 114/
At this time, the Commission believes it is appropriate to announce certain basic goals that will guide our subsequent deliberations.
We find the three broad goals stated in the Staff's pricing proposal 111/ to be appropriate in deciding pricing for NU's transmission service.
First, the native load customers of the utility providing transmission service should be held harrieus.
111/
Second, transmission customers should be charged the lowest renconable coct-based rate for third party firm tranreiscien se rvice.
Third, the pricing should prevent the collection of monopoly rents by the transmission owner and promote ef fich nt transticsion deciclons.
In ruling on specific proposed rates, s will balance thcLe three goals in light of the facts and circumstances presented at that time.
We believe that these pricing goals are fully consistent with our ctatutory responsibility to ensure that NU's transmission commitments, 112/ as modified by this commission, fully n.itigate the increased market power of the rcrged corpany.
We do not believe that mitigating NU's market power over transmission involvec cntablishing tranrmission rater that do not fully compensate NU for legitimate and verifiable costs that it tay incur to provide transmission service.
113/ This is the basic approach that the Commission has f ollowed in other recent section 203 cases.
Eng, g1g2, Ekah, 45 FTEC at 61,292; Kansas Power and Light _Cqi, 54 TERC $ 61,077 at 61,252 (1991) ; LLt.111cara_JJ111ted. Inc., 56 FERC 1 61,031 at 61,119, re h ' s_dtnielland_glarificatio11_g rant ed, 56 rERc 5 61,427 at 62,528-29 (1991).
We note that we addressed the
.ssue of opportunity cost pricing for non-firm transmission services and so-called out-of-rate charges f or firm transmission services in Docket Hos. ER90-373-003, et al2, issued concurrently with this order.
111/ 57 FERC 1 61,340, Attachment D, mimeo at 4.
liff Egg Section V.B.1.a, nynta, for the definition of native load customers.
NU concedes that holding native load harmless does not include pricing which allows collection of monopoly rents.
Oral Argument of January 8, 1992, Tr. 183.
112/ These commitments include those set forth in NU's January 14, 1992 supplemental filing, as well as its agreement to permit reassignment of firm transmission service.
Ecc nMEra at mimeo at 3, 27.
To avoid any misunderstanding, we specifically condition our approval of the merger on these ac.wb commitmentssdn addition toutbar other, conditions set, forth in opinion No. 364 and in this order.
1 s
tog Docket Nos. EC90-10a004, ci al. In announcing these transmission pricing goals, we do not foreclose the possibility that there may be different costing methodologies that meet the three basic goals.
Accordingly, NU on compliance may propose rates which include legitimate, verifiable opportunity costs, or any methodology it believes will meet the three goals.
If NU does file a proposal to recover opportunity costs, it should address the following issues (1) whether opportunity costo should be capped by incremental expansion costs or any other cap; (2) whether current wheeling and wholesale requirements cuct or t r sheuld be treated differently from future wheeling and wholesale requirements customers, gugt, by receiving " grandfather" rights to embedded cost rates for the amount of tranreiscion capacity they alicady use; (3) how NU will identity those custoraers responsibic for growth on its system and what particular new facilities are necessary to acccmmodate that growth; (4) whether and how third parties should be protected from uncertainty regarding fluctuations in opportunity costs; (5) how the pr: posed rates will prevent the collection of monopoly rents; and (6) how the proposed opportunity costs will be verified. lif/
on compliance, NU shall file a pricing proposal which will meet the above goals and general pricing approach and address the enumerated isnues, and others may oppose NU's proposal as they see fit.
c.
D _!in d djug men.t changen Connecticut argues on rehearing that tie line adjustment charges represent a cost to NU associated with providing firm trancmission service over the New York tic line. H2/
Accordingly, Connecticut suggests that NU should be allowed to recover these charges, as well as other costs from wheeling customers.
However, in light of the limited record developed so far on these charges, we decline to rule on the merits of these 11R/ We note that in the oral argument and in written comments filed before the oral argument, certain parties argued that opportunity cost pricing would be inconsistent with the non-discriminatory pricing the Commission has required of pipelines transporting natural gas.
On January 14, 1992, NU filed a commitment, discussed nynIA at mimeo at 3 n.6, in response to these arguments.
However, we need not address these arguments at this time.
In its compliance filing, NU must specifically show how its commitment will work with regard to non-discriminatory pricing and non-discriminatory terms and conditions of service.
At that time, parties may raise discrimination arguments.
--.--.~ j_p ww.mfwr r m - -
a e
1 re' M2/ Connecticut Request for Rehearing at 31-33.
m____.___m_________-..______
1 I
e e.
+
Docket Nos. EC90-10-004, pt al.
- 34 charges at this time. 12.Q/
Rather, HU may propose the recovery of such costs in its compliance filing, with NU bearing the burden of proof, and all affected customers will have the right to challenge these claimed costs.
2.
lifw TraD9missign Capacity a.
Crst Rtestinibi1 Lty_atit_Pri.cinet _ f 01 TlallElliMiQIl_UMLad.01 The Corrission ruled in the Opinion that the merged company nay be allowed in certain circumstances to charge its trannnicsion customers the incremental costs of the rpecific f acilities used to provide service. 32.1/
The Commission generally described the test as a "but for" test under which incremental cost pricing would be appropriate when firm wheeling across a particular int ^rface would degrade reliability absent upgrados.
The Commission declined to decido certain other pricing issues, including the issue of whether NU may charge a wheeling customer both a pro-rata charge for particular facilities and a rolled-in rate for the rest of NU's transmisnion system.
The Ccmmission stated that the proper forum to decide the details of cost responsibility issues is a section 205 rate case.
The Commission stated that, in such cases, NU must justify any direct assignments of ccats and support any argunants that reliability is degraded by a particular firm transnicsion service.
NU construes the Opinion as requiring embedded cost pricing unless the transmission upgrades are:
(1) built in order to serve wheeling loads (the "but for" test) and (2) shown to be needed for "reliabi)ity" purposes. 122/
NU r gues that the
" reliability" limitation was not suggested it any testimony and is not based on any economic ef ficiency print ble of which NU is aware.
NU argues that the " reliability" limi, tion is simply a proposed subsidy to independent power produce.$r(IPPs) and other iirm third-party users of transmission.
MASSPOWER argues that the Commission erred by deferring certain cost issues and, particularly, by not deciding that NU should only be allowed to charge new transmission users either a 12pf We also note that the appropriateness of NU's tio line adjustment charges is being more fully litigated in another pending proceeding.
Egg Northeast Utilities Service Company, 52 FERC 1 61,077, reh'a denLgd, 53 FERC 1 61,159 (1990).
121/ 56 FERC at 62,020-32.
-. y.r y,,,
- 9..
4.u; p,,g,w,,,g.#
122/ NU Request for Rehearing at 25-26.
._.-_--____J
Docket Nos. EC90-10-004, at al.
35 -
4 rolled-in rate or an incremental rate, but not both.122/
MASSPOWER asserts that, while particular questions of cost attribution may be deferred until those questions arise in an actual controversy, NU should not nov 'e allowed to impose an "anticompetitive" ratemaking methodolugy, particularly where deferral will likely lead to excessive litigation and additional market uncertainty.
MASSPOWER asks the Commission to either define the kinds of costs that NU may charge a new transmission user or prohibit NU from deviating from a rolled-in methodology absent future Commission approval.
In asserting that NU should not be allowed to charge both an incremontal rate for upgrades and a rolled-in rate for its base system, MASSPOWER argues that NU's approach inconsistently applies two different pricing theories.
Specifically, MASSPOWER argues that NU supports an incremental rate for upgrades by arguing that new wheeling customern cause the need for the facilities, yet NU supports a rolled-in rate for its base system by arguing that (regardless of causation) new wheeling customers REn the bace system.
MASSPOWER argues that both upgrades and the base system must be priced consistently on either a " causation" test or a "use" test.
MASSPOWER also argues that NU's approach anticompetitively favors NU's surplus sales, since NU does not price its surplus sales to include both an incremental rate and an cmbedded rate.
MASSPOWER argues that in no event should NU be allowed to charge more than the greater of:
(1) the incrorental cost of upgrades needed when the customer's new transmission load is added, or (2) the rolled-in cost of NU's entire system, including any upgrades.
Dangor/ Maine argue that the Commission's precedent requires roll-in of the cost of upgrades that provide a systemwide benefit. 111/
They assert that, even when facilities were constructed at the request of one customer, the Commission has required roll-in because the facilities benefitted all customers.
125/
Moreover, they contend that the clarification they seek was previously granted in PSI Enercy. Inc.,12f/ where the Commission stated that "the cost of facilities should be paid for by all customers that benefit from the use of those facilities."
122/ MASSPOWER Request for Rehearing at 9-19.
123/ Bangor/Maj ne Request for Rehearing at 13-17.
125/ Bangor/ Maine cite Great 12kes Gas Transmission Co.,
45 FERC 1 61,237 at 61,700 (1988).
116/ Opinion No. 349, 51 FERC 1 61,367, order on r_nh'g, Opinion No. 349-A, 52 FERC 1 61,260, order on clarificatipn, 53 FERC 1 61,131+(1990); spDeal-finnbp<Rqe90-1528 4 D?Ov-Cir.y -filed r
November 19, 1990) (PSI Enercy).
l
~
4 Docket Nos. EC90-10-004, gi al. -
They argue that-the Commission has offered no explanation for departing from its precedent.
We are unpersuaded by the arguments on rehearing that we need to modify the basic principles adopted in the opinion regarding cost responsibility and pricing for transmission upgrades.
We continue to believe that:
transmission upgrades necessitated by third-party, firm-transmission use should be paid for by the requesting party and not by native load customers. [122/)
We accepted NU's "but for" criterion au a framework for establishing and assigning cost responsibility for a particular transmission expansion project or upgrade, on rehearing, a number of parties are urging the Commission to definitively answer the " rolled-in versus incremental" rate issue without the benefit of a specific rate proposal or a specific upgrade before us.
We will not.
However, we will articulate more fully how we envision that pricing for transmission upgrades will work, by cpecifically adopting Core condition 5 as recommended by MASSPOWER and other intervenors.
Core Condition 5 provides that:
In any rate proposed under the Merger Tariff, the NU Companies shal) not propose to collect from any transmission customer at any time an amount exceeding the gretser of (1) the incremental cost of new network facilities required at the time the customer's new transmission load is added or (2) the rolled-in cost of all network facilities required to serve the combined transmission loads of the NU Companies, including any required transmission additions. (123/)
This pricing rulo "does not preclude particularized cost allocations to specific customers where appropriate," cuqt, distribution facilities, generation leads. 122/
But where transmission facilities are fully integrated and support the entire transmission system, NU will not-be permitted to charge both an embedded cost rate and an incremental cost rate for firm wheeling service, since charging both rates would unjustifiably require a wheeling customer to pay rates for part of NU's costs 122/ 56.FERC at 62,030.
123/ Egg Consolidated statement of Conditions of Principal Inte rvenors, Condition 5, dated September 21, 1990.
mW5dpt==*M9h'Ma**& 9.w2 wv w ~ ~ # +
e-122/ 53 FERC at 65,222 (citations omitted).
8 4
se Docket Nos. EC90-10-004, gt al. based on cost causation while paying rates for other costs based on use of the system.
Ecs aunta at p.
(mimeo at 35).
If the rates based on the incremental cost of an upgrade are less than the rates based on NU's embedded costs, NU will be allowed to recover a traditional, embedded cost rate.
Conversely, if the rates based on the incremental cost of the upgrado exceed the rates based on NU's embedded cocts, and NU can demonstrate that the facilities would not have boon needed "but for" the third-party wheeling request, NU will be allowed to e
recover a Erg rata contribution to the incremental cost of the upgrade.
If the upgrade would have been needed and built eventually to satisfy native load requirements and the third-party wheeling request merely accelerates the construction schedule, the incremental cost rate should reflect only the cost differential associated with building the upgrade sooner.
112/
These pricing principles will adequately protect NU's native load customers where NU must upgrade its system to satisfy a third-party request for firm wheeling.
Furthe rmore, where NU is able to support assigning the incremental cost of expanding its system to the third party requesting service, an incremental cost rate will provide an efficient price signal to the entity responsible for the transmission expansion.
These incremental pricing principles represent a departure from the rolled-in approach that the Commission has traditionally used for pricing transmission service. 111/
In the past, however, utilities generally have not had an obligation, voluntary or involuntary, to build transmission f acilities in order to wheel for third parties.
Where, as here, a utility undertakes the obligation to provide third-party transmission service -- including the obligation to build any transmission facilities needed to provide service -- ths incremental cost responsibility for upgrading the transmission system properly belongs to the party that causes the need for the transmission upgrade.
While we adopt the pricing principle that a $t9eling customer may be charged the higher of embedded cosu Jates or incremental cost rates, the threshold issue to be determined even before this principle is applied is whether incremental pricing 11S/ Egg opinion No. 364, 56 FERC at.62,031 (emphasis in original), where this method was explained as being based on the " difference in NU's revenue requirements assuming NU does and does not provide the third-party service."
111/ D.ut see _U_tah, 45 FERC at 61,291 n.163 ("[w)here additional capacity is needed to meet a request, rates may be designed e _,.
tb7pecifically*Ess' igd"tWe6ht of ' that capacity addition to the party requesting service").
46 c-m e-v-
~
l O
i.
s Doc);et Nos. EC90-10-004, ni nl. -
is justified for a specific customer, our decision today in no way affects NU'c burden of prcof to justify r;ecifically accigning the incremental coct of upgrados to a third party requesting wheeling service.
As stated in the opinion:
While the Commission is willing to accept incremental-cost pricing for third-party t r :*.t r ;. ; i c
, we t,. i r forun. to decide the deto21s of ecst re ;e -!t11.ty yr-*'.o:-
i t. ;. r r,-
- t section 205 ratt cace.
- n such a care, dU r st _ "~ti!y c y dir ~t
- c"4---
cf coct:
c rw wi~ c t i.r.i a r.:. _ ni.,,;.i rn i....'
h gradcd )y a 1 articular firm tr; --intacn service.
No prerurption is eteated by NU'n "but f er" criterion that f i s t, wherling cuct omere a..yr caune * ' r n<
f:r up:m dcn.
Where t ranrriction u; grades are m mrr y, b.
screed t:
ident ify the speci fic up?ra3-needed end te pr 'ide 9 jnitial cort tstirate of t.scanding the rystem.
Unx: ine terr-ei tne GTC:
'igatacn:
(1!
o NU
,h,.ll hcvc the :
4
' h r *,.' f :
prior te the t.:
c.
the c
-tr'i-
- -'r-irc::r syster that it anticipates reasonnay could regaire the construction of additional facilitic:
during the term of the hi:1;.., contrect, (2) to provide its best estimate of the maximum cost to that wheeling custoner (in then-current dollars) to remove each jdentified potential constraint, and (3) to include in its planning adequate provision for wheeling services (other than non-firm wheeling) which NU has contracted to provide for others.
[133/)
As noted in Opinion No. 364, NU has committed to cap the third-party transmiusion customer's incremental cost responsibility by this initial expansion cost estimate. 133/
Where NU intends 112/ 56 FERC at 62,031.
112/ Ex. 178 a t 5-6.
114/ However, as noted in the opinion, NU cay "sec); recovery through a rate filing where construction costs exceed its
,e
. +
1 T estiinate due to major unforeseen events which are ' '
n,.
beyond the ccrged company's control."
n6 FERC at (?,032.
sf,.
e
,p_,
,w
g'
+
Docket Nos. EC90-10-004, et M.
39 -
to directly assign the incremental cost of new network facilities to a third party reque-ting !irm wheeling service, NU will be required to file the increcental cost rate, including all necessary cost support, with the Commission.
If necessary, questions regarding tiU's initial estimate or allocation of expansion ecsts, or reliance upon the "but for" test, may be explored at that time, b.
ICulkit GDEtrAhl.Lc In the opinion, the Commission stated its intent to construe very t-t l y
'"t e r ~~-ritrent to bui;d additicnal t ra n: : i t: s i on
- -a i l. icr to
..: nh.tt v n e t. u. :. IequcLtt. ;
1:;.ccvct, the t.
of t he GIC regai z e liU to tui 1 addit. nal t r:.nc.miccion facilities only where:
(3)
NU d c aN r feasibly to construct t'ene ex ditic:.al f aciliticc, cenr.ist(nt s.th. c. ; c. )
and regional reliability and siting a ncjr.rationr, and with the order.ly e.d ef fir'c m o:pnnrion cf t he exist!ng tru.. :ai nd cn g ri.e. nnd (i) tiU, aftcr m 2 r.;.enr:nabic hect efforts,
't at'+
t, cbtain all re,Jotcry hrprovals i s q. in d - 4r r ~'
a <* m tion to tam pico, en t it c. not irpai: t !.
ft:
~
ility u the project.
( M6f ]
The er;de4nt ;.roredurer crtab]iched in thc Cpin;;n specilicd that, if NU's defense for not providing iirm whcoling service was that a transnist:fon cor.straint was "immutabic," the Commiscion would convene a tcchnical conference at which NU, all affected customers, and all affected state commissions could address the issues of whether the constraint was immutable and, if so, how to allocate NU's existing capacity most efficiently and equitably.
The Commission indicated that it would accord substantial weight to an agreement by all affected state commissions that a transmission constraint was truly immutable.
Similarly, the
' Commission stated:
if all affected state commissions agree on the most efficient and equitable allocation
-of existing transmission capacity on the NU system, the Commission will accord 1M/ LL at 62,024.
.. m
.. w. --,, w a s.3 r e-12L/ Ex. 178 at S-9.
_ - - - - -. ~
t s '.'
Docket Nos. EC90-10-004, 21 d.
40 -
substantial weight to their agreement.
[D2/]
However, the Commission unequivocally established that UU would never be required to satisfy a request for firm third-party wheeling out of existing capacity if providing such service veu'i degrade reliability of service to NU's native load customers.
12U C n rehearing, New Hepshire.merte that t !' - "
"tr" it:
" immutable constraint" procedures are unprecedented, lack any rc crd support, and are unrelated to the rer?cr'r *ect ce scipctiti n. lyn /
!;", Connecticut a.a m b r.;a..~.
-. r s u that the irmutable ce!4traint procedures r art N revibed t-
- .c _
l NU's native load customers harmlens if NU is unable to obtain the requicito state or Tcderal authc.rization for transmir.sion construction. 14Q/
Connecticut c'airn that the ritr* tion in h England it, not ut. lo:20uc to tr..t.Meh n ' r.
ent i n 1l *,.f.,
Egnra, where a singic state had " strategic regulatcry control" mccr the authotiration of trar.rmirr!cn expanr mn.
Connecticut and NU clair that in t'
!!cv f ngland reg.icn "the key int e rf acc r vaere constraints t,ight arise -- particularly the La u t.o r n EE"'
interf ace and the North-South int erf ace -- require regulatory apprcvals tron all ctates afIceted in order to : (
- (.' n centirhirtu." j i)/
N H:mpr h _ re ; t e.fict c t h e t *v con-freien't i: atau r constraint procedurcs may actually discourage thr. constr =tler additional transmission capacity. 112/
NU argues that the pr. cdure wrongly rc quires state regulatort tc "tr:ng their negative transmission siting decisions to the FERC for federal review" to have those decisions "second-guessed by federal regulators. " R3/
NU argues that such a procedure inappropriately subordinates the environmental and land use 1
D]/ 56 FERC at 62,024.
DJ/ 1d. at 62,021, 62,024.
U 2/ New Hampshire Request for Rehearing at 18-19.
ILQ/ NU Request for Rehearing at 9 and 33; Connec'.icut Request for Rehearing at 6 and 24-25; New Hampshire Request for Rehearing at 17-18.
lil/ Connecticut Request for Rohearing at 19-20; NU Request for Rehearing at 68.
11./ New Hampshire Request for Rohearing at 17.
7 o m w w nq m w - p y % s u w m y ~.
7%e -
147/ UU Request for Rehearing at 31-33.
Q, 1
a,;,
e:.
.o Docket Hos. EC90-10-004, ni al.
41 -
concerns irvolved in a siting decision to the Commission's desire to foster-third-party transnission accc:_ for bulk power ra)es.
NU and Connecticut further argue that the procedure infringes improperly on Icgitirate state authority. 11A/
In support, NU cites the statement in section 201 of the FPA that federal regulation extends "only to those tatters which are not subj ect to regulation by inc Stttt e. " 14" '
c't--
~'
the TPA's 1cgislative history and to a 5 preme tcurt decisic n indicating that the TPA'r perper-
~
r r :"19 t ' -
'*c;
- :y:n:
state authority " bot not to impair or dirinish the p: vers of any State commission." J M/
rier11y.
E :pshire curic
~- ' '
t if ale t.n; tr;.n: ;;icci;
- 4..
ty c: h;
.ctc.
. rc t.
" reallocated" at sucn est ed in thc ~4 inien, it v n. _.
it;_.
tu abrogation of centracts of NU's customers and woula therefore contravcnc the Robile-Sir.rffs doctrire.
'a'/
Wc n:te that a conci:fcrat:c r-
.t c'
- are en: c : ; c:- h is s.
been expended in this proceeding on the issue of what hapecns if a pa:iicular trancrission corridor or i r.tr rf e te ie n.r c : mw "irrut2bly conc
- rained."
The use of thir +e - ic ur':rtunat e because it suggests LL,.
a transmission cuastraint cann:' : t elimireted in any manner or-at any cost.
Cc -tain]y, this Commission has neither 1 6.e intention tr.*
the pt.w r) to
-'.n t ts the rport; ale.
However, we wculd 2 ikt
+m
.us the iiscussion on what we b lleve ic th c :. -
- ing-i r.
-ert situatiene:
r*
emra. car epana it: tranceirtien 4 --
to satisfy a third-party wheeling requcrt?
In ccme carcc, the incremental coct of upgra. l ng SU's cycic:
to' accommodate a firm wheeling request may be substantially higher than in et
'ases.
In many cases, there may be any number of ways to %
- the transmission cy; tem to satisfy a particular request.
. I siting or environmental considerations may prohibit what wours otherwise be the most efficient and economical way to upgrade the system.
To-the extent the most efficient and economical upgrade planned-to remove a constraint cannot be constructed, an alternative upgrade, albeit more expensive and perhaps less efficient, may need to be considered 11A/ Id1 at 33; Connecticut Request for Rehearing at 23.
111/ 16 U. S. C. 5 824(a) (1988).
146/ Sen. Rep. No. 621, 74th Cong., 1st Sess., auoted in Connecticut Light & Power Co. v. - FPC, 324 U.S.
515, 526 (1945).
142/ United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 m-m;;w.eU~ S7 J37-'T1956) ; FPC Yi ' Sierra Paci fic Poker Co., 350 U.S.
348 (1956).
~
ne
hb s,e --
Docket Nos. EC90-10-004, et al.
- 42 in order to provide the requested wheeling service.
Most, if not all,-censtraints that a:ise een bc eliminated at Erne cost of expansion, although the cost of such expansion may be so high as to render the proposed wheeling transaction uneconomical, As diccusced cbove, we proposed to establish a technical conference, including all affected state ecmmirsione, to help dctur:.:n il.
t c f f : :i < r.; m. :
.;..L.u "a1 w ;atlon" of cxisting transmission capamity in the face of an inmutabic c:n"tre _.t.
! ;. r t,' '
- e_
- .
.___n, w; h.cc deelded not to renvene technical confc:
nces f or the purpoce of reallocatin 7 r
tra-t rien c:racity, l'c,5cr thc trr :m.u 1: n accc.: cc:.d i t i u.9 wc h:.1 a.g a.
Nr u. a l r c.s c.,
.cl to N evidt f i rr, m
tr:nt ~ rion service t third pulties cut of t; an::..: ion capacity which is not required for pm poses of system
.diability. 14L9 rur+ 5 o r:
the cor. min Jon has elearly ctated that it uld never a:1c'att t'arrimien car : city th't n.::
> < c rr.el i ci: t,-
rc i i ty cd ser..
o r-
.ve 2 cad.
149/
Nor deer the Commission intend to abrogate existing contracts as al] y d by a rtc2n partict : :. r(nearing.
EE.s n.c3, l M e.
Accc-din 71",
ve now belitve that convening a t e -5nical cer!(ren;c to debate irsac
'n -'tability" ;.nd "reallecation" cf cristing tr.-
'irrion ai t.;ity we t. d hc of little value aad veul- :
. rnly to c' t
<v."n and rccnur:co away fr - *Se legiti ate ir trcining the
- '-*' tal cer* :> f,. n exparmion to NU 's tranr"i sc ion r yster that p21 alleviate a particular ccnctraint.
As nOttd chove, Phcrc NU rust build new trar.smisc ion e-pacity in order to mcct a thu.d party wheeling request, NU will be permitted to propose a rate to recover the incremental cost.of expanding jts transmission syster to alleviate the tranctission constraint. 250/
Thus, our central focus should be on determining what is the incremental cost of expansion.
131/ The Commission stated that it would not 'fe: Jit NU to deny a request for firm wheeling service ased upon a reservation of additional transmission-capacity solely for purposes of "ngaging in economy trades."
56 FERC at 62,021, 149/ Id. at 62,024.
350/ We are in no way modifying the criteria adopted in the opinion for assigning incremental cost responsibility to a third party.
In order to support an incremental transmission rate, NU must satisfy the "but for" testaand
~ demonstrate that the' need for such expansion' is"chusWWN
~
acceleratcd by the tnird-party wheelina requer.
l
.. ~ _._.
-t s
O.
Docket Nos. EC90-10-004, gi al.
- 43 We recognize that NU's identification of the facilities that need to be expanded as well as 1 s initial estimate of the cost of expansion may be-controversial and may be the subject of a proceeding before the commission.
NU, any affected customar, and all affected state commissions (including any regional transnirsion association or relevant multistate resource planning organization) will be afforded the opportunity to rurticipate in
+-----din 7 Fuch.' proceeding vill provide reasonable baals (and a fully developed record) upon which this Commission
- : 0 :ve e app:cpriate inerenental cost.
We crpharire t h :. t the purpose-of any prMeeding regarding NU's estimate of the incrr enta; ecct cf upgrading its transmissicn rystem to
-..... a n t c ; c r. t : w. t ^
- .', to recena-g css Icgli;m ;c
- ns c;
J oc9 t't;ni, decisior..
To t $ r contrary, the prt;teding v:
provide a forum in which all affected state commissions may participate in ordcr to ensure that NU's estinate et the ir.cre ents) mrt c' crp m ien ir factored into transmissier
- . a
=.alc r': ncr and rclater to a t:
.c r i t; ' *
- upgrade which can realistically be built.
disallowing
'T"' r r" pos a ' to inc:ude a 25 percent c a..u.g o ry actor in 2La e,Linate of expansion cats, the Cernission stated its intention "to allow NU to seek racoverv
.nrcugn a rc*c filir.3 wnere construction corts exceed its ori:;inal est_matc duc to - jcr unforeseen
- 4. vents w'.tch a:e 1.
ed c: w v's es,'_.
- 1. " Hl/
Uc cnvision that ! i* ' s
+.
4nitia. est;m:-
.. *5e 2r "r-r:
2 cost c:
eg'-
- e c, to eliminate a constraint will Le part of the transmission ratt
^
chich r.uct tc fli+
with the Commiscion under the individual i
c :'. j e r agreement or trsnsticcion rate cchedule between NC c :d the third party _ that-has requested firm wheeling service.
Consequently, any subsequent rate filing under section 205 to change the incremental cost of expansion in a rate schedule on file with the Commission could likewise be the subject of a proceeding where all affected state commissions could participate.
As noted in the Opinion, "the burden of proof in I
demonstrating both the unexpected nature of the expense and the determination of which customer (s) should bear the associated cost responsibility, will be upon NU." 152/
Any third-party r
I wheeling customer will have the'right to file a complaint under l
section 206 if it believes that the incremental cost of expanding L
NU's transmission system that is on file in its transmission l
service agreement is too high.
l
\\
l
' 1721/ 56 FERC at 62,032; 1
l
6
'?
t,s Docket Nos, EC90-10-004, 91 al.
- 44 3.
When May NU Consummate the Mercer?
The Commission ruled in the opinion that NU may consummete the merger when NU submits its compliance filing. 1 52/
The Commission ordered NU, within 60 days of the opinion's issuance or within 15 days of the Commission's decision on any requests for rehearing, to make its compliance filing, including a ct:.tencnt accq. ting or rejecting the Cc:=iccien'c terger conditions. 211/
NU acks the Commission to modi fy the revirion requiring N' to make its comp] u.r.cc f d 21rq within 15 days after ua C m,3csion's decialw. m runearing. 1 15/
hT c2 gut s u1u t :t cannot respond to the ordcJ cn rchcarin;i unt.t1 stc.t< :c e.
cs in connecticut and New Harpenire take fin?1 action on the rcrger Also, NU argues that it will nted more than 15 c:-yr to revice it eM i mee filing to reficct any che ";-
r
ring.
- Thus, eskc tc chan.c the. deadline f:'
it: cceplicace
- ...r-tm ); c ej r after final action on the merger by all applicable regulatory agtnricr.
MU states that, rinct the Ccn ic ion b.n d NU trom cencummating the norgcr until NU m kcr itc compliance filing, t:
-proposed change should have no acverse effect on :nc public interest.
The NE Stateg ar.d Utilities argue that the Ccrn a._1ct. sd. a a not alJr-censur a tion of tSt r.er.r unt,.i N"';
c-- a innce-. -.
l h,
been fo".i tc le ir, suu tantial c pl.m.a vi.
l 116/
Specjfically, these intervenors ask the Cormission to * -
the merger's concur.mation until the Commiccion iccuns notico ci NU's filing, rcccives public concent, completes its initial l
review and finds that the filing substantially complies with the
-Commission's rulings.
The intervenors assert that such a review should take no longer than six to seven weeks, The intervencrc argue that the Commission's ruling in the opinion could allow NU to consummate the merger upon filing a single piece of paper captioned " Compliance Filing,"
The intervenors argue that their p,oposed procedure is supported by-a recent commission ruling requiring Commission approval of a pipeline company's compliance filing before certain certificates to implement a gas inventory charge.would be allowed to become effective. 157/
112/ & at 62,024-25.
211/ & -at 62,054.
115/ NU Request for Rchearing at 91-92.
y w E States and Utilities Request for Reh. earing at 39-42.
N
.n
..-rw-mypw nn:.: w ~-
1.5.2/ ANR Pipeline Company, 56 FERC $ 61,293 at 62,201
(". W '
,~,,.-,f,.-.w-<
m
a e
g
~.
Docket Nos. EC90-10-004, el nl.
45 -
other intervenors assert that consummation of the merger should not be_ allowed until the Commisrien accepts NU's compliance tariff. 111/
They argue that NU's General Transmission _ Commitments are too vague to ensure that NU's compliance tariff will adequately mitigate the merger's anticompetitive_ effects. 112/
They note that, in two recent cases, the compliance filings differed from the Commission's enndates to ruch that the c.---i
~i-'
er 7 fr-d : refiling of the tariffs. 160/
They argue that co::.pliance turif f rates are effective when accepto: t-y ' '
N
~
mt s: 1 1 d r:
- he utility. Ifd/
'Ihey assert that delaying errger consum.mation until acceptance of the
- ' i r "e filina wall n-
'nvolve cat:.runtial dela;
'-t
, tc u
.:.y
. _ : i.g
- t - i c f s the cc ~ircion's rul."
- c. : '- acceptance wah.:
6'
- of i21ing.
4 m
They alco essert that the Co=iccion has ruled that the " cure" should be coterminour with an expected cxcrcice of rarket powcr.
1D/
In any event, they arrert that any concern fer deley in ec.nsu r at ing the g : gc ;..
t.:tyc ighe d L.
t..c pub 2 c :, :,
cst.:.
picventing anticompetitive hart.i.
l'.ASSPOWEk argues th 9t if the F -7
- ' ;ien does not 1 consi6c it; deci;. ion to uppr; ic u.
Lcrger upon realpt c-2 th ' u compliance filing, the Corrission should at 1 cast set a'hearina schedule immcdiately up a : cceipt of NU's 12,.'e dita conridcr the filing and ircue an cr.
by i date cer m.,
101/
258/ I,q,- Com/ Electric Request for Fehearing; Boston Edison
-Request for Rehearing at 6.
ERA ale 2 KASSPOWER Request for Rehearing at.4 (consummation should be allowed only after the Commission accepts and approves NU's compliance filing).
112/ Com/ Electric Request for Rehearing at 3.
11Q/ Idt The cases they cite are Utah Power & Light Co.,
46 FERC 1 61,086 (1989), and Transmission Agency of Northern California v.
Pacific Gas and Electric'Co., 56 FERC i 61,325
_(1991).
161/ In support, they cite Electric District No. 1 v. FERC, 774 t.
F.2d 490 (D.C. Cir. 1985).
152/ Sfg 18=C.F.R.
% 35.3 (1991),
t-152/ In support, they cite PSI EneEgy, 51 FERC at 62,193-94.
. w r. ~.~. _.., <
m 164/ MASSPOWER Request for Rehearing at E.
l-l l:
l
[
Docket Nos. EC90-10-004, el al.
- Bangor/ Maine argue that the Commission erred in the opinion by not addrerr.ng tranreission rate issues. ]i5/
They assert that, without 1imits on the transmission rates NU may charge, NU's duty to wheel for others cannot by itself climinate the proposed m:.rger'c anticc titive offccts.
They argue that NU will likely price its transmission service so high that the offer of service will be meaningless.
Bangor/Mainc ulso argue that the Cor. mission, and not NU,
_.:.: 31 e
-..rnien 73 n
- 73 y ; gg,
,e,,
t3e rate charenc' until tre ccr.mi ssi on rules on NU 's p re;'e r ed rates.
JiL
(*
ir..
they a*
N r.
filed Ly NU for i.ir in;;;c perio; c :: c.ect f.
.~ n r _. p r: afts t r.c rer.
'r c
cr ation (whilt 1:.t.gation on thecc ratc; r c c-Jc) and may be high enough to exclude carpetition.
if so, they argue, the prcrise of cventual refunds would not -itigate *his har*.
Thur, thc' a c r e " *~
the C:-
'"cio:
urt ce ablich an it.it !.1 r ;. ; t
- h '. t W1..
e
.-.c anirmi: C t.
ion c:
until the Corc.n : s sion rul es on pe rr.anent trannmission rates.
hey arp. ti suc :, un 1
- att ' pp! ra ch ir ccnr'-tunt w.th the supre e court'r t c'o--isnict.'r rc ~;
- en in " tura! gas c c. :
i* the nets to w i it :sonable itterim rates wnen a Iote proceeding wil) like'y t 9c a }ong tire. Lf2' They contend cppropriate int er;. raic vould bc NEPOD:
't Section 13 that c*
rate, t er ;<r k 'n' p fear.
u em j m c,y r + t
.,u cc--
, ; :, _gt rc-that any tran.
.a len rcict set in future proceedingr. fer service under the trant-irsion c. -iter nts he set at a level whien
- rc; otes c c.; c r i ti
- n :.:..llcwt the t;anLL.icc;m. ccu.itmentr., tc be effective as a check against NU's exercise of its market powc r. 10ff Boston Edison argues that the Commission should require NU's compliance filing to reflect the multiple typus of service NU should offer to transmission customers, e.a.,
separate tariffs for transactions crossing only the New Hampshire or Connecticut parts of the merged company's transmission system. 169/
Boston Edison also argues that NU's filing should avoid the J.fd/ Bangor/ Maine Request for Rehearing at 5-8.
166/ ld,_ at 8-12.
M2/ They cite Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U.S.
378, 390 (1959).
16_ff Bangor/ Maine Request for Rehearing at 12-13.
~
~
ifE/ Bcston Edica R guest icr Rehearing at 7.
q
..u Docket Nos. EC90-10-004, et al.
47 possibility of-pancaking rates for crossing multiple irt rconnections within the NU system.
Boston Edison' asserts that the Commission should clarify how the compliance tariffs should address the directicnal nature of each transaction, i.e., whether a reservation of 100 megawatts of firm transmission allows service that is mono-directional, bi-di ~'tirnal (vheeling in tr cut] cr rulti-dirc:ticr-1 ;0:r ar/
purpose from any source). 170/
Holyoke argues that the Commission should rnquire the crr;115nce tarif f: (including the TD; tt-i ff) to cffe? - o rv i c e c4 er tht rcr:,cd corpany's c;;zince cystcr at a gi--
en '.he costs of tu conbined tacilit-er, inctead
. ter. ce at the higher of two tariff rates, one for PSNH and the other for pre-merger NU. J'2 Lc NL J'atc:. ;nd l't'2itic-cr~:e that certe a.
(
changes to the 7mpliance tar 111s shou;d be filed and reviewea
- recticn 3 of the FFA. JR/
Spec i f i c:_ ; 1 y, t!'y ac cert that, in trA r to enrure the r' ged crpany's adhnrence to the pw : cin underlying tne conditione, imposed by the c m.2 l u s i o n, the section 203 standard of review should extend beycnd the corrliance phase and apply to any futurc prgonea ch L n.g c r te tnm diC provicions of the ca.plic.cc tariffs.
.Ir respmse tc tnese argu cr.tc en rehearing, the rr will modify the Opinion in the following respects.
As ncted by NU, the regulatory coc-irsions in both New Harpsh.re and Conntcticut cre expceted to review the merger to c:nsidcr tne effects of this order.
Therefore, NU asserts that the earliest it could submit a cotpliance filing in this proceeding would be wittiin 15 days of the final action by the two state ccc.missiens.
173/
As NU correctly notes, the Commission has prohibited the merger's consummation until NU submits its compliance filing to the-Commission.
Therefore, th e extension of-time should not harm the public interest.
Accordingly, for good cause shown, we will require NU to submit its compliance filing within 15 days after final action by the state commissions in New Hampshire and
-Connecticut.
Several parties ask the Commission on rehearing to not allow the merger's consummation before the Commission accepts NU's 170/ Id. at 7-8.
121/ Holyoke Request for Rehearing at 12-13.
112/ NE States and Utilities Request for Rehearing at 42-43.
~_..o.
.m -, m _
. g.... u,=% n.m.
122/ NU Request for Rehearing at 91-92.
~.
LDocket Nos. EC90-10-004,. c.t al. compliance filing; These parties speculate that failure to accept the compliance filing before allowing the merger's consummation may not adequately citigate the rerger's enticompetitive effects.
This argument ignores the statement in the opinion:
In reviewing NU's filing to ensure concliance with this Opir. ion, we wi13 :.ald NU te a s.,
high standard.
As NU itself states, '(i)t NU fails to cc ply with th; Icit::.: rpir.; _;
such [ Commission) requirement, NU would be subject to summtry jud; nt vith rerp::t to nny ang et of am.
coa.plaa:,;c ! ' l I r. :;. *
[174/]
We believe that the rerger'r enticompetitivo effects ore adequately ritigated th cugh the conditicer irposcd in t$n opin'on, an luodified be ein, rarther.ure, v.:
it;ac uny
.e
. appropriate summary judgment, to ensure that the submittal substantja21y cctplies with our decisien.
Uc are not pe rcut dcd to 23ter car perition ar rtated in t!c Opinien:
Wo believe that NU and PS!'M are entitled to a prorpt and fair re:n ctic9 of this Troceeding.
At the car; t.
intervc. 0rs aro (
- nave.
.;cc bc;:
c c m at practica., ;c.,
tner vsth e fair resolution of any disputes raired re garding NU's compliance 11):ng.
Jsceordingly, we belicvc that it is in the best interests of all parties to allow NU to concummats the merger when it subtits its comp 1.iance filing.
We shall airo require N3 to begin honoring requests.for transmission rervice under the GTC, as modified herein, at that time. [175/)
Therefore, we see no reason to delay the merger's consummation until the Commission has accepted NU's compliance filing.
Bangor/ Maine argue that NU may file an initial rate on l
compliance.so high as to exclude competition.
Therefore, Bangor/ Maine ask the Commission to establish an interim-rate to ensure meaningful transmission service until the commission establishes a permanent rate.
We note that Core condition 4 of the Staff /Intervenor merger tariff (supported by Bangor/ Maine) proposes an interim rate, to be superseded-by a rate proposed by l-
- . n y 1./.m.6 FE.R,,C at 62,025.
~
11 5
. ~. -. - w.:..
2
m.., cha
- s e
Docket Nos. EC90-10-004, et al. NU within 60 days of the Connission's approval of the merger.
In light of NU' right to inrediately file a preposed replacement rate for_any interim rate ordered herein, or NU's obligation under Core Condition 4 to supersede the interim rate within 60 days, we fail to see how an interim rate will prevent the harm alleged by Bangor/ Maine.
We believe that the primary goal of adopting an interir rate was to ensure the commencement of t r a n c r. i t.. c n c c. ~,..
L y !."?,. :
- _n u p a s c a i. >., a 9c64.ve have achicved in the opinien by-requirang service to comrence
- e m t- ~ - * ~,-,:10. -. :.;
- :f :".
- .pl. :.. t.
.c. ; t ; ;.1, f u r t he rmore, as noted in the Op. icn, NU's ini*ial trarcmissien rate propotal wil:
l+
rut 4 rt to rei.
witho.t a refu.J floor.
thc ; c f L t.;.
I.' c o r
.'t Ls ti.e rate ult:,.tt y f c -md to be a.
just and reasonablc by the r ::'r.isc; n.
Boston Edison asks thc Corricsj a on rehearing to clarify tr-*.
- 'e reter to Le filtd by NL under t'r
,-i*f will
- r. :. i c; the imssibility oi pc.
rc' a fer tne ace et td ;ne PSNH and the MJ systems. J7fz/
boston Ed;r.cn's concern, hm over, arree re to have ! a n a.'dr( c rc d a: ':" h r.0 c.1 ready cct.nitted en thic rc rerd t ' at, "[t"--i:..cn.
.. e ratec f:r
- treate using both syster
NiJ rn:
- 1..,H j will be based on the higher of the two.ryntr~ rates." ?71/
Finally,.s c / c : ' interv mors alto n N the C
- Lnion on r 0 2. 0 '.
0 ;'OVice ;.
- M r;' i nG the + " 7, ** " ** ; i.e t
+
rater, to:: a.u c--
- ions of tnc rc Sc r
- filed by NU en compliance.
As discu<
e-a abt
, however, ve declino te decide the tulk of the dctailc of NU's post-r:r;;r trancticcion ta: lt f until NU sut:u ts its co;,ilar.cc filing and others have had an opportunity to review and respond to that filing.
Accordingly, the parties raising there issues on rehearing will be frce to renew their argurents when-NU cubrits its nerger tariff in compliance with this opinion.
C.
New Hampshire Corridor Proposal 1.
Elicibility The Commission ruled in the Opinion that eligibility under the New Hampshire Corridor Proposal (NH Corridor Proposal) should extend not only to southern New England utilities (as proposed by NU and NEPCO) but also to northern New England utilities and to qualifying facilities and independent power producers (QFs/IPPs). 178/
The Commission ruled, however, that the northern utilities would 12f/ Doston Edison Request for Fehearing at 7.
122/ Ex. 123 at 182.
- m. _
r.w J78/ Jj. at 62,039-41.
w d wA e
Docket Nos. EC90-10-004, et al. be eligible only through a "second-tier" offering, in order to prevent any short-tern ine f ficiencies that NEPCO argued might to caused by seller control of Corridor capacity (since most north / south bulk power sales in New England in the near future are expected to involve northern sellers and southern buyers).
The Commission ruled that QFs would be eligible only if they waived their PURPA right to require a utility to buy from them and purchase their oatput at avoided cost.
NEICO arguca cn :G. caring that QFs/IPPs should not be directly eligible for Corridor capacity.
Alternatively, NEPC#
arquer, that QFr/JFP-r5nuld in eligible on)y in the second tit r end only if they have a bena fidt transaction to sell their capacity.
NEPCO argues that the NH Corridor is, and is likely to rerain, a constr 'ted r'
. for rewcr flcwing nort! t: routh, m. Nm R expresses concern that the Cerri?mr should bc ccd to its !ullest cxtent to benefit all of New England's custorers and argues that QFs/IPPs may not usc their share ci tnc Corr.dcr once they acauirc cuch ri; hts.
NEFCC asserts that on)y utilitics, and not QFs/IPPs, have an incentive to use or assign their Ccrridor ri-Sts ir ordre to avoid prudence-based rate dizdl:vances.
NEPCO argues that, tscause a QF/IFP with a definite L.ycr mM Ltain CorridOI.ights through the buyer's eligibility cr thrc;gb : c'.ci 7,
the c.nly qts / IFir a f ' ' : t e -i b; n,1bility are t::;c without a buycr, Ic1....
1sch
.;~.
the need for transtier n ir Lhus speculative.
NEPCO c ntends i
that dircet eligibility would allow such QFs/IPPs to improve the marketability of, or price obtained for, their generation by locking up scarce transmission capacity and excluding competitors.
NEPCO argues that this harm may be long-term because, despite NU's and NEPCO's commitment to expand the Corridor, additional capacity will not become available until expansion is economically justified, all regulatory approvals are obtained and the facilities are built.
NEPCO further argues that eligible utilities will acquire essentially a " lease" on corridor capacity, usable when needed for any current or future transaction.
NEPCO argues that this type of arrangement was not designed to be used by QFs/IPPs and cannot be used by QFs/IPPs as efficiently as NU and NEPCO intended.
For all of these reasons, NEPCO argues that direct eligibility for QFs/IPPs, if allowed, should he conditioned on "the existence of a viable project or other demonstrable evidence that the NUG [QF/IPP) will actually use its rights." 180/
NEPCO also argues that QFs/IPPs should be included in the second tier (if at all), along with northern U.2/ NEPCO Request for Rehearing.at 2._
, u,_,
g..
!An/ NEPr0 Recuest for Rehearing at 6.
1
3 w ew..y.yg; c.
y.,
4 Docket Nos. EC90-10-004, 21 gl. utilities, for the same' reasons NEPCO initially suggested a necond tier.-
The QF Supporters argue that there is no legal basis for conditioning a QF's eligibility on the waiver of its rights under PURPA. 131/
They assert that the Commission's rationale for restricting or qualifying QF access was rtcently rejected by the D.C. Circuit Court cf 1.ppeals in PSViro Jental Act! L _ILL v,
IEEC, 939 F.2d-1057_(D.C. Cir. 1991).
In the passages quotcd by the QF Supporterr, the D.C.
Circuit:
(1) rejc rtt _ th; ar;r ;nt that mandatory access-would give QFs an unvarranted certct edge over cellers lacking FURP/. richte, stating that the parpre of c:.titrust policy is not to L:he c.u M : Lors u, u] 1ut tt protect corpctition and that any advantage given to U c by IL.J;.
was a direct result of Congressional policy: (2) rejected the-argument that QFs ray distort a market by fe:cing sales at above-market prices, statino that, because the price for cu-h cslec tost he'the buying utility's cvoided cost, a gr r :st L as efficient as its competition or must sell below its own c o s t.s ;
-and (?) rejceted the argurent that QF acccre was net neeced to mitigate Pacificorp'r rarket power, stating th?.t. ud obligated-to-.hvel for QFs, Pacificorp could raticorpetitively-increase prices to conrurers by preventing lower *ric=1 competitors from reaching the r-arhct.
The OF rapporters c
- r. tend tn. the Ccenission ra* n ti-
- ticnale for itr c;cicien by incerc ;tr '
- teing Ors only conditional access to the NH Corridor, but approving unconditional QF access when such acecas was of fered in EE1
-Enercy, sucrc, and, in this case, by h"J unda its Gcacrcl i
Transmission Commitments. LE1/
The QF Supporters also argue that the Commission's-treatment of OFs under the NH Corric or Proposal constitutes undue discrimination because there it no record evidence of factual differences between-QFs and other power producers.
i-The QF Supporters assert that competitive bidding programs are widespread in New England and limit QFs, if they are to make a sale, to charging the buyer's avoided cost, e.a.,
the lowest price for power available to the buyer. 1R2/
Thus, the QF Supporters contend, unconditional QF access-to the NH Corridor cannot lead to forced sales at above-market rates.
The QF Supporters also assert that the Commission has previously 131/ QF Supporters Request for Rchcaring at 2-6.
18?/ QF Supporters Request for Rehearing at.6-7.
.c e + m.mmage n.
~- m n w ~. -
,r
]-
1P3] Ij;L,. at 10-11.
~c Docket Nos._EC90-10-004, et al. accepted competitively-bid avoided cost QF rates as market-based rates that are just and res onable for a non-OF. J84/
The QF Supporters argue that unconditional QF access to the NH Corridor is supported by the same arguments and policy that support such access for northern _ utilities.
Finally, the QF Supporters contend that the Commission has a statutory obligatien to encourage the dcVelop' -
Cfs, a C;ty Congress.;r;scd.;.
order to promote the use of efficient and renewable fuel technologics and thuc : ud_cc L;. -
a..;i'a. ;p :.n d o n a. c..
.;rc.c; oil and foster a cicaner enviren cnt.
In their am ar to IEiG 's r; tion s iu 2: icatica, the U Supporters argue that req. iring proof of a b0nc 1;de tra.aaction only from OFs would disfavor OFr/IPPs corpared to northern utilities. JLA/
The QF Supporters assert that this ploy cal M t'rr3 rosts en the unsupported pe ' re that, wnile utilities will act a ionally and not reserve Corrid r capacity th<f do not need, QFs/IPPs may irrationally reserve Corridor capacity whether they intend to use it or not.
Thc OF iupporters ccnten. 10 the contrary that, sinct "FL7FFs crc genera 2)y financed en a non-recourse basic, QFs/IPPs can hardly F::ord to irprudently pay to reserve transnissien ec - " ty +' y do not
""ed.
The QF Supporters alguc that NLPCO, by argu2b:.
J.
- tne " rrider Propocal was not dcsigned to tc used by QFs/IPPs, na: L.: 3_y cdritted its intent to a;..uly ci scr_:
n t(-
'. n s t OFe/IPPs.
Vermont argues that the Commisrion should clarify that, at part of the second-tier effering of Corr _dcr capacity, Verrent entities will be eligibic for cccess to the entire New..:..psn.re Corridor. 386/
Vermont states that the merging companies have offered Vermont entities access to the corridor en]y as fa:
south as the Vermont Yankee nuclear power plant, at the edge of PSNH's current system.
Vermont argues that Vermont entities need access to the entire Corridor in order to reach buyers and
-sellers in Eastern REMVEC.
Vermont asserts that, without such access, Vermont entities will be unable to compete fairly with the merged company's off-system sales.
184/ The QF Supporters cite Doswell Limited Partnership, 50 FERC 1 61,251 (1990).
185/ We will accept the QF Supporters' answer to NEPCO's motion for clarification.
While parties are not permitted to file an answer to a request for rehearing, see 18 C.F.R.
55 385.213(a)(2) and 3 85.713 (d) (1), parties may file an answer to a request for clarification.
Blue Ridge Power Agency, Opinion No. 363-A, 57 FERC 1 61,400 at slip op. at, n (.1991).
2
..>...ma y.~
lEs/ Vermont Request for Pohearing at 2.
O e
Docket Nos. EC90-10-004, ti gl.
53 -
In responding to the arguments on rehearing, we vill distinguish between IPPs and QFs, since different outcomes are appropriate for these two groups of power suppliers.
First, as to IPPs, we reject NEPCO's argument that IPPs should not be eligible under the NH Corridor Proposal. 187/
NEPCO argues that IPPs might seek to raise the sale price for their generation capacity by reserving, but not using, corridor transmission r;;; city.
We are unpercunded, hewcVer, that IPP: would pay for unused transmission capacity in the hope of recovering the cost t ' e 17 ". : - inercertf salt price for thcir po.rer.
This cort cf fiscal speculation is perticularly unlikely for IPPs financed on a non vrourr bacir.
Ccatrary to NEI Q'r argument, we tclic;c t r ;. t IFrs are less.;kely thcr. r(gul tcd ut211 tic; tc take such investncnt rishc, since rcgulated utilitics have the oppertunit; to prove the prudence of sach invcstments based on long-term needs and thus may potentially rccc.ver such costs fror ra t e:pa ye rs.
We also re]ect NEPCO's alternate argument that IPPs should be cligib3e only if *:m y da :rr trate that they v..I c.ctually trc the Corridor c'r'Oity.
Thir argurent icots on NEPCO's r: e taulty premise that IFis Lay reselve, but not use, Corr 2 dor capacity.
Since IPPs are even less likely than regulated L 11; tics to engage in cc::
tchavler, there is nc basis for 4
irposing NEP:C's p:,Osed requirement on IPPs alc;...
We will, hos;-
, tdopt NEPCo'c prer---I tc 7'
~ '*~
in the second tier, along with northern utilities.
As noted above the Conniccion placed northern utilitier in a second tier in order to prevent any short-terr inefficicncies that might bc caused by seller control of Corridor capacity (since most north / south bulk power sales in New England in the near future are expected to involve northern sellers and southern buyers).
Since IPPs, by definition, are sellers, the same reasoning warrants their placement in the second tier.
As to QFs, we reach a different conclusion on rehearing than we did in the Opinion.
In the opinion, the Commission ruled that QFs would be eligible only if they waived their PURPA right to require a utility to buy from them and purchase their output at avoided cost.
Since issuing the opinion, we have reexamined the Conmission's authority to require wheeling for QFs. 188/
Based on our analysis in the Utah Remand, which we incorporate by 182/ We distinguish between IPPs and QFs based primarily on their different legal rights under the FPA to seek mandatory whccling, and not based on NEPCO's arguments about the economic motivations and behavior of the two groups.
J88/ Utah Power & Light Company, 57 FERC T~~61,363 (1991)"(Utah" PS 3as).
$h Y m
v 4
2.,
p..
Docket Nos. EC90-10-004, ni al.
- 54 reference herein, and our review of the record in this case, we conclude that requiring NU and NEPCO to wheel for QFs under the NH Corridor Proposal is neither within our authority nor required in order to mitigate the merger'r. like: y anticompetitive harms and make the merger consistent sith the public interest.
First, as we concluded in the Utah Pe. mand, the Commission has na statutory acthority under PURPA tc force utilities t:
wheel for QFs.
Congress excluded QFs from the group of entit:es that nai ccck a whccling order ficr2 the Consission under erMir-211 of the FPA. 189/
In promulgating regulations to implerent FURPA, the Conmirrion acknowledged th;r rtatut^ry exclusich by conc,La ng that w w 2;n; for QFs "cun c:.ly
- u with the concent of the utility to which c nc
- gy or capi the qualifying facility is made available.
Thus, no utility ir forced to wheel." 190' While we have approved voluntary offers by utilition in other cases to wheel fer OFc, includinn N"'E volun*.ary offer to include OFs under tM 0;;, wc e ignore the statutory scheme and nonctheless irpose a manaatory duty cr unwilling ut ;1 it ic s t o > ?.cel for QFs.
Seccnd, mandatory QF access is not needed to reu:ay any anticompetitive effects of the rerger.
The QF Supporterr have not demonstrated, and in our view could not demonstrab, th't t'
mer ;er's likely anticorpetitive effects cculd 2 fect QFs.
Abst:
the rergcr, QFs ha.T no right to r: datcry wheel.'.
cc:
' -icning the rerger en m:nintory QF whccling on the NH Corridor would exceed the Commission's authority under scction 203 (a) of the FPA to mitigate the merger'r likely anticcrpct1' vr bar:..:.
While the QF Supporters claim that mandatory QF access i t, needed to prevent undue discrimination, Congress' exclusion of QFs from those entities that can seek to obtain involuntary access under the FPA provides a rational basis for treating QFs differently than other power suppliers.
Furthermore, mandatory QF access is not justified by the Commission's responsibility to protect consumer interests.
While the interests of consumers must be protected, such protection may 119/ 16 U.S.C.
5 824j (1988).
In contrast, Congress in the same legislation allowed QFs to seek an interconnection order under section 210 of the FPA.
16 U.S.C. 5 8241 (1988).
190/ FERC Statutes and Regulations, Regs. Preambles 1977-81 at 30,872.
This order was appealed in American Electric Power Service Corp. v. FERC, 675 F.2d 1226 (1982), reversed _im part, American Paper Institute v. American Electric Power Corp.7461'U!S. 402"(1483).
However,"the regulation that
~
"~
led to the quoted language was not raised on appeal.
a+
4 Docket Nos. EC90-10-004, et al. be provided only within the statutory framework of the FPA and PURPA.
Based on our analynis of the statutory scheme, we have '
discretion to order mandatory QF access in this case.
- However, consumer interests are protected to the maximum extent allowed by the FPA and PURPA in that utilities may subscribe to Corridor capacity in order to buy from QFs, consumers benefit by the ability of their local utility, acting as their agent, to buy the QF power on their behalf when doing so is econcrical.
Moreover, even if the Conmisrien had the a wr'*,
require mandatory QF access, such accesr would not necercerily protect consurers to the naxirar extent.
As one court na ed, PURPA's guaranteed pricc M t aca ecst)_ ny be nct only r n 1 i tut even grcater than, the p; ice that would be received :.. c competitive market in certain circumstances. 191/
In other words, a state regulatory authority's or non-regulated c1cctric utility's adminirtrative deterninstion of avoided ccst ray not equal the rarket price. E L'ncendi tic: ed trar micsion access for QFs would only exacerbate potential problems inherent in administrativc dctortinations of avcided cost that do not re on competitive rarkets. 1R1/
Since the trancrission conditions in this case are long-term,.candatory QF access va ld require the Conmission to constantly monitor whether administratively cetermined avo.deo cocts in New i:. gland wcm, in fact, equal to then current rhrPet prices, in crder to enrt a that concur:rc vc rs protected to tr
- x:: J c>:t c n t.
mi U
rd-inistrative burden of r._ch an undertakin; would be enormous.
Only OF access conditioncd upon QFs waiving the;r nandator)* purchase rights under PUhPA, cuch that consurers be served with the OF pcwcr only if it were corpctitivc vith other supply options, would protect against this potential in an administratively acceptable fashion.
If we had the requicite 191/ See Greensboro Lumber Company v. Georgia Power Company, 643 F. Supp. 1345, 1373 (N.D. Ga. 1986), aff'd, 844 F.2d at 1538 (11th Cir. 1988).
192/ See cenerally Docket No. RMB8-6-000, IV FERC Statutes and Regulations 1 32,457, 53 Fed. Reg. 9331 (March 22, 1988).
193/ In addition, administratively determined avoided coat can only represent an approximation of market price at the time of decision and, particularly over time can only equal market price at any moment by chance.
194/ h'hile the QF Supporters argue that competitive market conditions in New England prevent forced sales of QF power at above-market avoided cost rates, they undermine their
~
m ~ argument ^by seeking to obtain access to corridor capacity without naving to waive thic supposedly rearinglerr right.
,G e
4 O Decket Non. EC90-10-004, et al.
- Sc -
authority to' order this type of access, we would do so because we believe it would best prottet consumerc' r.t e re c t s.
For all of these reasons, we will not expand eligibility under the NU Corridor Proposal to include QFs.
However, while a facility'may meet the requirements for QF status, its owner nevertheless may elect to be an electric utility as defined in section 3(22) of the TPA 191/ rather than have thc facility be treated-as a QT.
If such a facility nells electric energy at wholetale in interatete cer cree, t he c..c r is al:.o a public utility. 396/
If the owner of the facility e]ecte electric utility status, it may then requ^st vhocling under section ?ll cf thc FFA, All/
Thus, a (i owner has the option to rennin a QF and seek voluntary transmission fion its local utility or in effect to waive its PURPA rights by electing to be an electric utility and thereby obtaining the ability t o seek involuntary wheeling under the FFA.
If a facility in New England that would otherwice be a QF electe electric utility status, it would then be eligible under the NH Corridor Proposal. ]S3/
The final icnue on eligibility f c r c c :"r i d o r c c.r E t y i n Vermont's sequest for clarification'that, in the cecond-tier offering of Corridor capacity, Vermont entities wil] be eligible for accett to the entire }trc L
thc Ccrridor.
Vermont explains that, consistent w;tn the proposal by NU and HI.E,
Verrent (:.t ities are eligiM e :
thc ' '.
tier f:: cnly a truncated portien of the Corridor, As vs.
- nderr'and Ve 'c
c requcst, Vcreont seeks assurance that Verront entitics, like other northern uti3itien, will also be el:gible for the full 195/ Under section 3(22) of the FPA an "' electric utility' means any person or State agency which sells electric energy; such term includes the Tennessee Valley Authority,-but does not include any federal power marketing agency _." _16 U.S.C.
$ 796(22) (1988).
121/ Enn 16 U.s.C.
5 824 (b)(1) and (e) (1988),
191/ We are not aware of any requirement in PURPA that
-facilities that meet the definition of a QF must sell power as QFs.
123/ Upon electing such status, the facility would relinquish all rights given to QFs by PURPA and the Commission's regulations and, if they engage in a sale for resale in interstate commerce, would have to comply with all of the statutory and regulatory obligations imposed on public utilities, including various filing requirements.
In contrast, under the approach accepted in opinion No. 364,
~
s,e
- QFs~would'have had to waive only their PURPA rights 'to mandatory purch?ce and avoided ccat rates.
7.-
am
e 4
4 s>.
Docket Nos. EC90-10-004, et al. length of the Corridor in the second tier of eligibility.
We see no reason for allowing other northern utilities to subscribe to all of the Corridor in the second tier, but limiting Vermont entities to only a segment of the second tier capacity.
Thus, we will grant Vermeet's request for clarification.
2.
Deadline fQr Subscribino The Commission required NU and NEPCO to allow first-tier and second-tier " initial offering" subscription periods (each three months long) for Corridor capacity. 122/
Vermont argues that the Commission needs to clarify the parties' subscription rights from the end of the second-tier initial offering period until the (nd of the entire subscription period, i.e.,
May 1, 1995.
Vermont asserts that the merged company could interpret the opinion as allowing it to subscribe to all capacity remaining after the second-tier initial offering period.
Vermont argues that the opinion should be clarified so that the second-tier period continues until May 1, 1995.
We reject Vermont's argument.
In the Opinion, the Commission described the subscription rights under the NH Corridor Proposal as follows:
If the Corridor capacity is undersubscribed in the initial offering, NEPCO has reserved the first right to claim any remaining Corridor capacity on NU's system "above and beyond the 200 MW initially allocated to it."
Any Corridor capacity remaining on either NU or NEPCO's system, which is not subsequently committed by either party for 3ts own system use or for service to others, will be made available to subscribing partiec on a first-come, first-served basis. [222/)
' Vermont's purported clarification would nullify these previsions of the NH' Corridor Proposal's subscription scheme.
Vorwont has offered no persuasive argument for this restructuring of the NH Corridor Proporal.
The NH Corridor PropcLal requires NU and NEPCO to make 200 megawatts of Corridor capacity available during the initial of fering periods before reserving more for themselves.
In our view, that is adequate.
122/ 56 FERC atj 2,041.
200/ Id. at 62,036 (footnote omitted).
See Ex. 154 at 5.
o 1
. o.s
.s Docket Hos. EC90-10-004, it al. D.
Reaional Transmission Arranaement and NARUC The opinion imposed a condition requiring NU, within six months af ter consummating the merger, to submit to NEPOOL a proposed regional transmission arrangement (RTA), prepared af ter consultation with other NEPOOL members, state regulators, and other potential transmission customers. 221/
The Commission also explained that NEPOOL's members are free to negotiate and file an RTA that would expressly seek to supersede the Commission's merger conditions.
The Commission noted, however, that any such RTA would be subject to the Commission's review and approval.
On rehearing, NARUC asks the Commission to clarify that it does not intend to exercise broad authority over transmission siting, access and pricing, but instead will defer to the efforts of the New England states to develop an RTA. 2S2/
NARUC argues that the states retain substantial authority over the certification and siting of transmission facilities, as well as the retail rate recovery of residual transmission costs.
NARUC asserts that, given the overlapping authority of this Commission and the states on transmission issues, all parties should support the use of consensus building procedures such at the RTA.
NARUC argues that the alternative to cooperative development of an RTA is likely to be years of acrimonious litigation between this Commission and the states, and between the states.
NARUC argues in particular that the Opinion's immutable constraints procedure would allow the Commission, while expressing an intent to consider state commission views, to ultimately decide the need for transmission capacity, the availability of sites for new corridors and other issues that NARUC argues are within the states' jurisdiction.
HARUC asserts that, as an alternative to this possibly preemptive procedure, the New England commissions should be given an opportunity to develop their own consensus-based solutions to siting, access and pricing issues through an RTA.
We do not believe that the opinion contradicts the spirit of NARUC's arguments on the importance of Federal / state cooperation and the desirability of a regional consensus on transmiasion issues.
As noted above, we welcome and encourage the efforts of the New Englar.d state commissions to develop a regional approach to transmission issues.
If an RTA is developed and submitted to the Commission, we would give due deference to the parties' agreement, to the extent possible consistent with our responsibilities under the FPA.
For New England transmission
~~.2,1.~/.56 FERC at 62,042-43 2
. u w y p y g g e.~ y g y g g w
~<--n 222/ NARUC Request for Rehearing at 3.
1
s
- Docket Nos. EC90-10-004, at al.
59 -
Assues, a comprehensive, consensual approach is preferable to the carc-by-case approach otherwise necessary.
To date, however, the partien have not yet reached such an agreement.
P9nding such an agreement, the Commission must decide the merits of this case on the record procented and cannot dictate in this case the optimal resolution of all transmission issues for all of New England.
Consistent with the FPA, we have sought to ensure that approval of the' merger is concictent with the public interest.
In licht o! the Commission's responsiti: Atles under the FFA, we can do no
-1 ca t".nn is ordered M re.
II'fD VetiD9
_ re -irr. ion coniitivatc. tht rerge: t *:
chibit :.c,
d.
~~
the first 90 days af te r censummation of the merger, from using its peut-merger voting. power to block prep ced 2,rendaents to ti.e UEFO'L Agreement which tay limit NU's ability t: veto NEPOOL's M snn - nt con: ; t t ec d
.iriant
^ 1 NU arcues that this condition cannot be jt:5 ti fied by any m a r ',,e t powcr NU gains by the merger bemuse the CorrisFion has c
'tioned t*
r ergc : in ethe: Wyr to prew-s n enhancerent rf NU's market power. 203/
NU uluo argues that the Conmission 4 ;c l i < C - % ; hET00L'c rcrl:ro ray
. y c:.nt th;c nnditi.'n ly the 75 Oc c-t vo'.c nacdcd for af-tt."c acti n
.1 : F RL ' r Manacctent Cone ttee, instead of by t.*.c 65 percent "ote rem;:=
- - the Nr O-:: 1.gre ront.
Fina;.3, F
=rgus.
L.
this conaltiv:. L :
- t 4 cast be limited 0: that Nis vott cann:t tc : t L :cd belt.c the share that cf d tc ::. l cu l u t t ;., a tv o time of a particular vote, for the pre-merg:r NU system.
This exception would allow NU's voting power tc reflect any increased charc warranted by its own non-merger load growth.
The Commission rejects NU's argument that the NEPOOL voting condition is unjustified by any cnange in NU's market power.
A veto would allow NU to block or handicap other generation or
. transmission options requiring NEPOOL approval. 205/
This power under NEPOOL, in and of itself, would be a form of enhanced market power attributable to the merger.
The NEPOOL voting condition is a direct response to this form of enhanced market power.
To the extent the NEPOOL voting condition prevents NU from using its veto power to block competition, the NEPOOL voting condition will also prevent NU from limiting the effectiveness of the other conditions imposed to mitigate NU's enhanced market-power.
Thus, the NEPOOL voting condition may help to ensure that 202/ 56 FERC at 62,043-45.
J_03/ NU Request for Rehearing at 88-90.
u
.-n,,..-
mm-. e,,,e.
. - ~.
.,.w
?05/ Ex. 603 at 76-78; Ex. 277 aE 10 y.11, 23; Ex. 477 at 16-19.
r.
o.
Docket Nos. EC90-10-004, at al. the merged company's enhanced market power is fully mitigated, and remains so, to render the proposed nerger consintent with the public interest.
As to NU's argument that an 85 percent vote is needed to implement the NEPOOL voting condition, the Commission intended no inference in the opinion that a 75 percent vote would suffice.
On the other hand, we did not rule in the Oninion, n;r do we ru.'c hete, that an 85 percent vote is needed.
We decline te d<--
this icruc at this time, since we fird tbr irrue i r.
'y eddressed in the record.
We also tin: this 1stue not ripc Ic:
decirien, since thero is no i r -' i ca t i c :4 that thc cther ?ETC;L renbers will actua'!y vote tc 4 p1rr
- t hir cem the outcore-of r-uch a vott rS dcpc' en whM 4 o n E '-
+ -ren; vote As needed instead of a 75 percent vote.
Until tnc n, this issue is only hypothetical.
T i r/ '. : y,
rojcci
,,J's prop? rcd nc'i'icatier vote whatever chhre its oc rw!iMi loaa 9: c vald warrant.
While this prepcral has the superficial r-erit of all w:*:g 1:U the sar..e voting share it woLid be entitled to cbrent the tcrger, the argurent igrerce the neiger's ofte tt.
The merg.:.
c-cote entiruly new company, one with a much larger territory,.:.ach more cu. trol cf vit t:arsriccicn p ths r-3 dcLirm:.
th'"r of El vt-terr surplus cg' city.
This new ccrpany will h dramatacolly enhanced incentives to st that pwe r.
A veto po cr
- n the rb c th2s
- .c L.
- ul stronger cocpany it
- + -
- ana tnt w a.ning than a veto power is the..adc cf t 'c -m p.
Thus, the mcricr 'c anticc',pctitive ( f fects justify the 00-0 y veto limitation, even if the smal} cr and vethe'~ pre-ro ryr N would have had a sufficient voting share for a veto.
VI.
Roturn on E g itv In the opinion, the Commission decided the proper return on equity for the Capacity Interchange Agreements and the Seabrock Power Contract.
For the Capacity Interchange Agreements, the Commission summarily affirmed the presiding judge's adoption of the Trial Staff's recommended 13.5 percent return on equity, rejecting the 14.5 percent return proposed in the agreements.
295/
The Commission also updated the 13.5 percent return to reflect recent capital market conditions, setting a 13.17 percent return for the period before the Opinion's issuance and a 12.93 percent return for the period after the opinion's issuance.
For the Seabrook Power Contract's first ten years, the Commission adopted the Trial Staff's recommended 13.1 percent return on equity, instead of the-13.75 percent return set in the 235/ if6 FERC 'at~;...g,.w,m.62,050-51.
+,e ge gw
,s
.s....
61,993,
1.-
Docket Nos. EC90-10-004, et al.
- 61 contract. 291/
The Commission also updated the 13.1 percent return, retting a 12.53 percent return for the period after the Opinion's issuance.
(Since, ic Scabrook I o er Contract becomes effective on the date the merger is consummated, the 13.1 percent return was not effective before the Opinion's issuance.)
The Commission also summarily affirmed the presiding judge's rejection of a provision automatically adjusting the return on equity after the certrr.ct's first ten
.r.
t08/
on re'n ring,
?"'
et re orndr
')
Dr.rirr r hou l.i not have required Lug cur.
t c tra Scabrook T:e t C;rtract.
N'.1/
IR at:te that t1 - Seamrock p s
- e ntrac:t ic re rt of an nterrel?'ed pack
" ' 30t 4 ' W d.
iT '? " ' ~ !
'7 anscrte t'
t the f ee s
" C e n '.
ct t'i!!
't only huui ' s ratepayers and that their interests were represented by New Harpchi:c't Gcmerner. /,ttorney General a:.d legiriature.
UU concedes that thc Cc:: mission is not bound by the partit t,
but are at the Cor -i c s j :
ruld ' ' Jo the proposcd re.t e..
s nu e I c. w :. u <.ithin a cne ct re n c o n a b l o ts e s s.
NU argues that the "cuc' *2cncen of t
Scabrook Pcwcr Contract, i nclurling t.he 13.75 perc'nt return en equity, ir perruasivcly cde "" r"
.hr dP'
' ens of :
% the United States Bank':uptcy Court for the District of New Hampshire and t!
' ' 7ch it e
.at'..
'v C
~' -inn to an t':.u contract.
5 nt
._r.
- ec 1 i
^ m. :.. v:
<5-N
.mi'r.ved t 13.75 percent reta:r. ca. u.2tf propreen in tnc beatrc.
I ;.ce r 3
Centr;;',
Jr-'
u d nOt havc rc 2 l'.d Lp;n t',
t !T i'.iorm discounted cash tlow (tict') en3lysir prcrented t'
"t r i c ' Etaff.
210/
NU contends that this case's unique aspects preclude the use of a DCT analysis and instead require the Cor-iscion to consider the Sc ablook Fowr-r Contitet 's unpr-adented nature.
lar example, NU states that investors will recover only one-half of their Seabrook investment, and that the part recovered under the Seabrook Power Contract will be phased in over six years.
NU states that the Seabrook Power contract bars North Atlantic (the NU subsidiary taking title to PSNH's share of Seabrook and selling Seabrook's power to PSNH) from seeking a change in the return on equity for the contract's first ten years.
NU also argues that North Atlantic will be unable to pay dividends for at least two to three years, and that its sole customer, pSNH, will 2_Q2/ Ma at 62,051-54.
708/ M2 at 61,993.
209/ NU Request for Rehearing at 75-77.
t.
. _,. _._.. ~. - -.... _..
m 21Q) Ma at 78-88.
o.
Docket Nos. EC90-10-004, pt ;Ll.
63 while North Atlantic received provisional ratings for its debt rocurities that were below irvertter.t grade.
NU characterizes Trial Etaff's adjustment as "nothing more than Staff's opinion based exclusively on prior precedent," and notes that the presiding judge rejected the adjustment.
UU also challenges the Commission's updating of the return
- - ;;it;
- --t curre r2rkct cor.dition;..
I/
trU u pcu that shsrt-tcrn adjuctmente are inappropriate here because he -
re. - c n t r e -~ '.
c
'
- sj j
- i: - 1 t er tu,
- n s.
'J asserts that updat ing is particularly unf air hr re be c:m r e i r+ nrest ratcr h *.v e r t W a
r.
as a rrcult of t:
- t-
..d Tt ;; _;
L_ ; ;..
en; 10
...s
- ;rt.
.t 1
r.
W * ' I t r.. : argues tL L up htin;.rc:.-]y assuccc a d:
t.:
correlation between U.S.
Government obligations and equity costm.
?!U ascerts that the Conniccion's gcncric benchmark rate of return dec2 i ned by or '.y
? ! borir points du i ng the update period int.2ac cf the C;
. u-n ' s 57 k p rit. ard te.
W a: 9ars it,t
_c any updating rhcold at least L.e limited to 34 basis points.
- 737, a
NU also argues that the Cor
_ ;sn shou 2a nct have Ieject'a 4
the SeabrooP Power Co-t ract 's r rovi si on e'c*-- 7 t i n11y arH usti ng
.tu;n cn equ.-2 61cor tN t mt re ct 's titst ten yt arc.
218/
NU arc
> that t*-
o
.- 2. :, ' s d e c i s i e r'
- cntrary to
*t'cr cf the Nat~-
- i. tract.
provision t'
th..
...e
-~ ' ' :.,.
L1 th_ State -
,c..
'c recuest.
ITU cc:,Lenus that the Commission's past rulings rejecting such provisient are all dirtinguirhab!r. in light of the unique facts cf th;; na c.
Fin:.lly, for the same ressant discusced above, NU asserts that the 7:lal Staff's DCT analysir, does not justify a change in the return on equity for the Capacity Interchange Agreements.
219/
In addition, NU argues that the capacity Interchange Agreements reflect unique risks that Trial Staff did not account for in performing its DCF analysis.
We are unpersuaded by NU's arguments on rehearing.
NU argues on rehearing that the Commission is not obligated to 216/ IdL. at 86-88.
217/ NU incorrectly determined that the change in the Commission's generic rate of return during the update period was a decrease of 34 basis points when in fact the change vas a 34 basis point increase.
218/ E. at 78 n.52.
-~
2:O/ Id. at 86 n.55.
a o e Docket Nos. EC90-10-004, et al.
62 be highly 1cveraged and, with limited exceptions, cannot seek a retail rate increase for seven years.
NU also argues that-the six-year phase-in will reduce North Atlantic's actual return on equity, that North Atlantic will not be financially self-supporting for two years and that North Atlantic has marginal financial indicators for at least its first seven yc_;s. LLL/
!C also cites testimony L, its chief financial officer that Trial Staff's proposed return on equitv prc;CnLO C011cuO JOCOCTCC abCu t v1.c ;T.c r t!.C tranCactle. - ii 2 -
tinanced.
- n gues that the c:aar w 23.31 p e rce r.t return un e j ustif ied ty_ TENH's 01. 5 billion write-of f c f SC.t rook inve& i nc. ;
that wil! not be recoverod f ro:n ratepayers. 212f NU arnerte that tb Cce ission wrongly ignoreu thic write-off and the entnt t o whir" it is reficcted in tha c1ci ed return c r cguitv pcrt of an c~.
- ' ' l C Z c r.
package Ni a:scrts that Trial Staff'r CCF analytic 1c 11avcd t:c;ure it produce: a negativa :... preriun, with a :ccenrcnd;d retur- :r equity t10 bacis points below tarth 1.tlantic'r dcct costs.
213' NU Frates that Trial Staff's own witnecs testir!cd th't a p: cit:ve risk prenium of 200 to 300 basis reints is typicc..
NU also argues that ~. ; ; ; l. '. a f f 's DC r a na l y;; s
- 1... c. i rl y a s r ur - 4 m.U
- ct
- i. price fully reflecte the risks c'
the acquisition; adopte d an ur-',r mably 10.- gr.<th
- nr :L :
failed fully to consider the unusuaT circunstances of UU, Non 8 Atlantic and PSNH; irproperly' adjusted the cort cf cquity fa.
fictation costs; and would not produce rcasc;.able financial indicators for North Atlantic. 214/
ht also attacht Trial Staff's dcwnward adjustment tc its b;-
based DCF results to reflect the lower risk of-North Atlantic compared with NU. 215/
NU argues that, after the merger, it will be a large, diversified utility serving over 1.5 million-customers in three states, while North Atlantic will be a highly leveraged start-up company owning a lone asset (Seabrook) with a troubled and controversial history and having a lone customer (PSNH) with its own-marginal financial indicators.
NU also argues that NU has bond ratings for its subsidiaries of BBB+,
4 211/ IcL. at 80-81.
212/ Id. at 81-82, 211] Td.
21A]
at 85.
. n.a.y.w.,.,
, 4. g
~
1
? 15/ 11._ a t 03-84.
.c Docket-Nos, EC90-10-004, et al.
- 64 review North Atlantic's proposed return on equity using a traditional DCF analysir.
Rather, NU _iggests that the Commission should concider the entire set of_ bankruptcy / merger agreements as a " package" rather tr.an reviewing the reasonableness of the Seabrook Power Contract in isoldtion.
This argument ignores the fact that the Comm.nsion sumnarily affirmed the presiding judge's rejection oi NU's " untouchable package" argument. 220/
In f act,, _ as note d in tr.: n.itial ; _. _ i c ;.,
211/ the Commission has rejected the t re crgurent rcth on rshcaring of the origu.cl hs., A c: d :
e...
m.
^^'
r rehrsring, NU later order grant ing clari fication F,:m raised no now fact; c-materi.1 s.a z anti:
l' cecision on this issue.
NU acecrts that less than one-fourth of the Seabrook investment is being reccVered under the Scabrook iover Contre t.
T'i/
NU alte suggests that the accerted '
cf approximatcly $1.5 t: lien cf S c r c r ee': juctitic:
e re;u'. on equity in excess of that supported through Staff's DCP analysis.
NU appearc to be ceaking recevery, in the icrr ci cn inf2ated 1
equity return, of "invcst._cr.t' c;;;ur related tc Pcat:ta.
HowcVer, an NU witncss explained that NU's !?.: L: 111cn acquisitior price ef "cNH clu2' Pc '-9 en down irto three segments of approx:rately:
(1) $700 rillic n f or Seabre
'c in the Scabrook lower Contract; (2) OE00 2
..on for an acqu....ics i r c t i.:- ? and (3) U t0 nil 2 ion t er NN4 's no rmEc;._ ~:1 asce
__??5/
NU admits that bot!
th.
E:,2ic t..an ;-.w_iu-2-" rr-Seabrook assets will be recovered through retail retes. ?.?ff Accordingly, NU will be given the opportunity to carr a-retu r equity on every dollar oi its $2.3 billion ir. vest;;. cat in PSNii.
Furthermore, as we concluded in the opinion, North Atlantic is not entitled to claim a rate base greater than its $700 mill.
investment in Seabrook as reflected in the Scabrock Pci'er Contract.
KU argues that North Atlantic's only source of revenue is PSNH, which is just emerging from bankruptcy, is highly 220/ 56 FERC at 61,993.
721/ 53 FERC at 65,234.
222/ 51 FERC at 61,481-82, 61,484-85.
222/ 52 FERC 1 61,046.
223/ NU Request for Rehearing at 79.
~
3 M KeJ a(,44.,,J0, lex.,239A,at 52-53, 64 and 73.
226/ Tr. 1711, Ex. 9 at 24 and Ex. I at 49.
.4 Docket Nos. EC90-10-004, r1.q1 leveraged, and is prohibited for seven years from filing for return on equity changes in retai) rates.
Accordingly, NU asserts tnat North Atlantic facec more, not lecs, risk than NU.
We~ disagree.
UU's assertion that PSNH's questionable financial position in some way diminiches North Atlantic's guarantee of recovering al! of its costs is refuted by the terms of the Seabrook Powcr Contract.
The contract provides that PSNH's obl3 7atic-tr ray "-**'
l-
'7r Scabr ok 10:
- uir - ' '
not hr 0;*ncted by <--, -ircum tences, including, without.!! H +n*'icn,
(.
v 3*
w c1 Ir _ ~ ^ '
- 4 ~,
2, ru:.
..-..on, r '
a: range: st, l i g t.
w t ! ' n sar*
proceedings relatina to__Juyer, f;c:11e r, end cther Joint Owner rf the Unit, o r r. ny aftillate thereof T 2 ?2 / '
The absolute cbligation under the Leotrook iowcr Contract for PSNH to pay all of North At'z.ntac's cc '- pmm i to a cont-of-service fe mula was also described 3r the S Ha rchire Public Utility cc=isi c n pt vc< _.;:
' bullet-V cot' o b l ig a t. i o n.
v.
a
??8/
Regarding NU's claim that PSNH's financial ratier vi31 he below inaastrf ragt
- busch < -lained tlat.:
c
- ?
~- k c r f i r r.c.'
1,*
cf [ North Atlantic an;
_NH) in th e ectly >
folleving reorganitr_ien are not cause for a) < t c becata e of tne contrut-tual protections available to PFhn t."1 Marth 1.tlantic and because the [ financial) ratios will be strengthened over tire
[ _22E/ )
NU also asserts that North Atlantic faces more risk than NU because it has only one customer as its sole source of revenues, unlike the Yankee companies which sell their output to several purchasers.
However, NU ignores the Commission's precedent of recognizing the reduced risk of a single asset generating company due to its contractual guarantee of recovering all of its expenses through the sale of all of its output to a single affiliated purchaser. 230/
Also, as discussed in the 227/ Seabrook Power Contract at 9 (emphasis added).
228/ Ex. 239-A at 101.
229/ Ex. 1 at 49-50 and Ex. 209 at 3.
222/ South Carolina Generating Company, Opinion No. 280, 40 PERC
<.+ : - T'61,116'(1987).
-J_e_g also Consumer Advocate Division 'of the
~~
(continued...)
l l.
l
o c.
DSeket Nos. EC90-10-004, el gl. i l
Opinion, PSNH's financial viability is further bolstered by Pcm!'s guarantecd 5.5 percent annual increase in retail rates for 1
each of the next seven years under PSNH's retail rate agreement with the State of New Hampshire. 231/
Accordingly, we are not persuaded that the reduced risk faced by North Atlantic due to their contractual guarantee of recovering all of their costs is diminished by the financial condition of PSNH.
The Initial Decision corpared the pre-tax coverage ratio
...u
.)
- 2..
Ly utilitic; to the rctic re;..Iting f: : Staf-itc c nd at ic+
' ce nclud( d that St a f f 's equity return -' ul t e in ratio th t a too it. ~' 3 ? /
S l :.11 a rl y, c; rd
.::. ' 'J tains that t h<
< af f s uts :n on (quity will result
.a>; covc: cge ratics fcr NLrth AtIantjc. 23L unti.msonabio p: e Howevar, there is only a slight difference between Herth Atlantic's pre-tax coverage ratio of 1.42 resulting fror Staff'c equity, ^Se/ and tPr Tre-tax cover m r'tio of
- 1..; E
- t t rr m reculting fre-N-
requt ;
13.75 percen. retur-
" e i+3 735/
Ir fact, according to NU witness Olson, kola coverage ratiou (inclu f.ng that ratio product.: ty NU't own 13.75 ;...:nt rcic of returr cn cguity p.
posal) w uld bc ac c:. u.ted v i th h::.J -
that are bc1cv investment grade. 236/
Therefore, there ac no n i- 'ricant di f f e rence tc +
en the financial indicators -red"re?
tl Trial Staff's recommendcd retur!. and NU 's ov.% propost; return.
Tert..;.
Jo, cr NU witnt;; _.;;;h explsinc;;
iS)ince all of N::th Atlantic's costs w...
L.
billed to PSNH and those billIn7e vill flow through the new PSNH fuel clause, Seatrock's operating costs will be directly revaverable 230/(...continucd)
West Virginia Public Service Comm'n and the Maryland People's Counsel v. Allegheny Generating Co.,
Opinion No.
281, 40 FERC 1 61,117 (1987), order on reh'a, 42 FERC 1 61,248 (1988) (involving only three affiliated purchasers).
21.1/ 56 FERC at 62,053.
212/ 53 FERC at 65,234.
233/ Ex. 207 at 28-34.
As explained by Staff witness Watson, the pre-tax interest coverage of long-term debt shows the number of times total annual interest is covered by pre-tax income.
Ex. 623 at 19U.
734/ Tr. 6695.
215/ Ex. 207 at 29..-
-:n..
~..,p
- . m ~.-
.1 9 '.i ld. at 39.
, t, Docket Nos. EC90-10-004, gt al. from ratepayers for at least ten years without the need to recover them in separate general rate proceedings.
[Therefore),
~
the weaker financial ratios of (North Atlantic and pSNH) in the early years following reorganization are not cause for alarm because of the contractual protections available to PSNH and North Atlantic and because the (financial) ratios will be strength ^ned e cc r t ir.c ro that the
.;t a '*-.
are healthy when conventional rete regulation r e s u r.e s. [1) ?./ )
NU also claims that Staf f 's D7 analycis is fatally flawed because it produces a recetrended return on cquity that.i r-6 0 basis points below North Atlc.ntic's rupposed debt costs, or what has been referred to as a negative rick prerit*. ?38/
Pt?f" cxplal: _a that "' North Atlantic] he.s a h2cher cet; 5 mot nec_;se during the negotiations of the bankruptcy [ North Atlantic]
was fi Mr.ncd with below-investrent grade bonds" roted " bb. " ?) V Staff noted that,
"[ North Atlantic]'s fir:nrial c -fitien i r cxpcctcd to improve during the 3990-96 period to a level where its bonds could be upgraded to 'BBB' and thur el3cw Narth.
Atlantic to further reduce its ccht cost." 2LO /
As Sta11 typlaan;d, North Atlantic ir not prahibited frc: :efin
-ing its initial erledded dcht coct if low;; interestr rates are u.:.--
the ture.
Also, NU ci tts Staff'r airccycri
..a*
that a risk premium of 200 - 300 basis points is typical and NU ase,19 that this same risk premium range should be adopted for North 237/ Ex. 1 at 49-50 and Ex. 209 at 3.
223/ The record demonstrates that, in fact, North Atlantic's g
estimated debt cost as of June 1, 1990, is actually 12.70
-percent.
Ex. 207 at 30-31.
When compared with Staff's j
recommended return on' equity of 13.10 percent for North Atlantic, the result is a positive, rather than a negative, risk premium.
NU cites to record evidence indicating that interest rates on 30-year Treasury bonds have increased by approximately 100 basis points since NU prepared its case-in-chief on about January or February 1990 due to "very R
turbulent market conditions" caused by the persian Gulf W-crisis.. Tr. 6124.
Therefore, NU's use of a 13.70 percent debt cost reflects the addition of about 100 basis points for increased debt costs during the hearing in this case.
L L
222/ Tr. 6681 and Ex. 209 at 1-2.
=
wm-
.u:.u n ws w y m m m e w. m y w y.
~
240/ Id.
See also Ex. 1 at 48.
l l
i
'O?
Docket Nos. EC90-10-004, et al.
68 -
Atlantic. 241/
However, NU itself included a risk premium of only.105 basis points in its proposed rate of return on equity.
112/
Accordingly, we conclude that the record evidence indicates
-that the risk premium associated with North Atlantic's return on equity will also improve'over time.
On rehearing, NU also claims that the Commicsion failed to consider record evidence indic;..
- +
Staff'c r"" ar.al;_.s was flawed. 213./ - All of NU's record cit o;2 eas rr f e r to the rebuttal tcctimtny c1 UU wit!-...
- __. n..
HowcVer, NU f ails to acknculcH.ge that Staff witnt
'non revised her direct
- rtim::.y &ri -
- c. e 1. c -
..n; te incer;..t c upated laurn cn u.ity c al.eis ;m: forred eftt.
c-u p
rebuttal testimony. 744/
- .:. Watt:- 'c revic,e t e s t it..cq moots a nunber of NU's arguments.
First, NU ascerted that St a f f 's an*1ycis did not fully reflect th6 risks of the pSNH acquisition.
r,
.c=]Iy, N1' ' s witness stated that "even the risks reflected in NU's final plan are not reflected in Ms. Watsen't dividend yield, since more tusn half of the perled cynr which c!.s calcul?ted thr-
- c;;
'_2 clapsed prior to mic-December [19L9) vnen tne plo'n var finalized." Pih/
Pavover, Staff'r updated dividend yield analycis used the six-mont h period frer March to Iugust 195t.
246/
Second, NU
?]eg:s th;t Staf f improperly ?"j ur:ed it:
return en equity for f]otation cc-.. ci_
i:cwc.cr, S t.a f f updated its propose d fattation cost edjucttr-!
the 0 ;5
<-~
percent amount referred to in Dr. Olson's rebuttal testirony to 4
0.18 percent. 248/
Third, NU asscrtc that Staff adepted c:.
unreasonably low expected growth rate of 3.01 ps. unt in its 241/ We note that no party in this procceding per!crmed an actu:.1
" risk premium" analysis to determine the equity return premium that should be allowed above North Atlantic's debt Costs.
ZA2/ This amount represents the difference between the proposed 13.75 percent return on equity and the 12.70 percent North Atlantic. debt cost.
Tr. 6682.
243/ NU Request For Rehearing at 85-86.
233/ Tr. 6644.
215/ Ex. 207 at 9.
i lis/ Tr. 6647-48.
247/ Ex. 207 at 23-28.
._ -%- m._p
_,, ~-
1d_8) Ex. 623 at 38U.
t o.,
Docket 'in?. EC90-16-004, r* a].
69 analysis Again, b
- 11ed to consider Staff's updated analynis, veirg a 3.42 percent expor* cd growt h rate. ;r/
rourth, Dr.
O)ren alleged it; h:c rebttal testimony that several flaws ex:cted in Staff's comparative risk analysin. 2h9/
Again. NU fails tc c:ncider important changen inccrporated in Staff's updated analycin including:
criteria for sel-ction of comparable utilities: niro of the corparable group; and, sttbstitution of 7.-.
7.
. pni.,ti..
pre-:
rganization data. 2M/
- m.. <-.
i t rc :: ? Acn rairirc
- 1+
t' s
v nilaty to 11n'ance Nerth Atlantic bated on c:ra rns.bcut tt tur n -
4 er v.
Ag2.n, the tectir ny cite 1 staf<'
+,
--xnm
- (r:
t.
ett*1'r
...n:1
.ti cf Itturn on cau;ty ted iinalysit 11 sed the roccrrcnded c ~... e tid o t 1. n.
.i i
return et, equity f or North Atlantic considerably f rom the 11.25
- crcent rett.rn re!crrcd tc in !!! ' c cited te stimony U2/ to 13.1 pr w nt. 2M/
Accrrdingly, ?!U har failed to ro d ne3 any
.~id con.ctm er :rb
- r. ~ t -
-culd Ic.ad us to gatst an ' he 4.
accuracy of f tal l 'c analys:c and the resulting recommended return cn ( c..ty of
.201at
- c. t.
'v alt _
.t ; (x t h e '.. c s, m t.
t h o t., Le aus.e the Seabrook Pevnr Contract barc North At lant ic
- er te" years f rom rr ekino a chuqe in 1-ty.
n, tf e Cetr.icnich's updnte of the c i nm a equaty to reti, ; ns s
w nges in financial. :: r.et conaiticus
^
- reprinte.
7hr C or..._ i r.
a's pol.,
on up e t _
t h<
- u r" on e.p i t y h e t
'n cent.
ently.spplied in recent casco to it!'ect pest-record cnanges in capital markets and has withetood *)udicia' icview. Pf4f Contrary to NU's argument,
' he t c r -yc a r c nt ra'ct ua ? rc"triction en NU'n aLility to 1 lc I;r a change in return on equity undt'r the Seabrook Power Contract muT0 tic the adoption of a f or 'ard-J coking return on equity.
We belicvc that St at f 'n recor rended return on equity, which rc flectc the only return on equity study conducted in this record, should be updated to reficct current rarket conditions.
2D/ Id t at 320.
2,10/ Ex. 207 at 15-23.
2]lf Ex. 623 av. 13U-100, 33U.
752f Ex. 6 at 56-58.
2 2 5 '\\ / Tr. 6648.
214/ Boston Ecison Corrany, Opinion No. 299, 42 TERC 1 61,374, re_t '1L.clenied_iA relevant p3.ri, opinion No. 299-A, 43 FERC $
l 61,309, aff'd, 685 F.2d 962 (lat Cir. 1989); Public Service Company of New Mexico v. FERC,~832 P.2d312017 121 V (10th~
3 Cir. 1987).
9 4.
_m___________.-__.___._._____._m-_-__----------------------------m----
,e i
- 6. s,.
Docket Nas, EC91-10-004, et al.
70 -
Finally, NU argues that the basis for the Commission's return on equity update inappropriately accumec a dir t
correlation between ten-year ccostant maturity U.S.
Treacu ry Donds and equity costs.
UU asserts that a(s)uch a one-for-one correlation clearly does not exist in this case where interent rates have been volatile." 115/
The Commissicn has long endorsed the use of ten-year con cant maturity U.S. Treasury bonds as providing a " good fin:ncini indicator of trendc in mar).et co;ts of capit:.;."
sht/
Moreover, with one exenption, R12/ we have ernrictently used the ten-year conctant maturity U.S.
~.
arf b, ah t o updote the cost of (cuity capital erly w3 thin the nm of reasonabicnccc established based on record tva n nee.
Additionally, as one court noted
[E)ven if we actuac, fer the cake of argurent, that chm;es in reasonable uti ;ty chare returns do not exactly track changes in bond interect ratec, the Suprete Court bac
- ca dc clnar that 'infirmitics' in C :. : lon methodology are 'not iLportant,'
previded that the ' result reached,' the
' impact of thc rate order,' cannot 'bc said tt be unjust and unreasonable.'
E2;1r_IM Py er_ O min.532D V-liODP_En Jfl!'JL COTl h,
320 U.S. at t02. ( Mf/ ]
We believe our updated return on equity of 12.53 percc:.t results in L just and reasonabic equaty return f or I; orth Atlantic in the Seabrook power contract when compared to the range of reasonableness used by Staff.
Trial Staff did not determine a separate range of reasonableness for North Atlantic, but used a range of reasonable returns on equity for NU of 11.61 to 13.55 153/ NU Request for Rehearing at 87.
211/ South Carolina Generating Company, Inc., Opinion No. 280, 43 FERC 1 65 -217 at 61,562-54, rph'a denied, Opinion No. 280-A, 44 FERC j,1,008 at 61,038-39 (1988); New York State Electric end Gas Corp., Opinion No. 254, 37 FERC 1 61,151 at 61,377-78 (1986).
While KU proffers the Commission's generic rate of return as a better measure for this purpose than ten-year constant maturity U.S. Trersury bonds, the Commission has since decided to abolish the generic rate of return.
58 FERC 1 61,013 (1992).
-112/ Union Electric Co. v. FERC,.890..m.2d 1193. m (D.C.
F Cir. 1989).
~.
. ~.m mmm. a.s _
e
~
l Eks/ Boston Edison Co. v. FERC, 885 F.2d 962 (let Cir. 1989).
l 4
v
- s..
Docket Nos. EC90-10-004, ti al. percent. LEE /
Adjusting this NU-specific range by the 40 basic point adjuctment for North Atlantic's Icwcr risk prcducec a range for North Atlantic of 11.2) to 13.25 percent, a range encompassing our updated North Atlantic return on equity of 12.53 percent.
UU also claims that the commission should not modify the proposed return on equity in the capa ci t y Int t : chm.m O,.rc enc..tc.
However, we note that NU has raised no issues on reheas 2na that have r.;t been either rejc:ted aboyc in th. Ct tc;._: M./ u.
Contract discussion, or been adequately addressed in the 7n' tis)
Decicien and rummarily af firmed in the C;! icn.
Accerding.j, will deny NU't, equest for rehtaring regard 2ng that.
- o c. u c.
The conitulon orders (A)
NARUC's late rotion ie intervene is herr,/ cranted fci good cause shown, as discussed in the Lodi of this order.
(B)
The requests for rehcaring of opinien No. 30-4 are hereby granted in part and denied in part a: cet fe:th in t N body of 't.is order.
(C)
Within 35 days after final action by the stato conniccicnc in !!cv Harpchire and connecticut, !orthe et Utilities service ccmpany chall n.che a ccr.j:liance !!11ng with the Commission, ine;uding a statement either accepting cr reje rt ang the terms and conditions set forth in the opinion, as modified in the body of this order.
If within the aforecentioned period ne con.pliance filing accepting the conditions sct forth in the opinion, as modified in the body of this order, has been made, commission approva) chall be deemed denied.
By the Commission.
Commissioner Trabandt dissented in part with a separate statement to be issued Inter.
(SEAL)
Commissioner Holor dissented in part with a l
separate statement attached.
e l
Lois D. Cashell, Secretary.
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212/ Tr. 6648.
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l'ti1TED STATES OF AMERICA TEDERAL E!JERGY HrGU1ATORY CCMMISSIO!J
!!or tneast Utilitien Service
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Docket JJ e c. E c ', '. - 2 0 - 0 0 4,
Corpany
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1:R9 0- 14 3 - o p4, Eppo.144.co4, (Re Public Service Coapany of
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Ek90-145-004 and LL90-!#-004 11ew Harpchire)
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MOLEh, %-+.;issioner, dife
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I wLeont from that part of t he Comminnion' t cpinion excluding Oualified racilitics 1101. the.:iceling requiri t !,t n o f the 1:ew liarpchlic corridor Propor al.
I d o n o c,1 *he cano reasons expressed in my ditwc:.t in* ' l'13t h p1 tape. jj Y.
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.e C 'L :',m i r c: iont?
If Utah Power & Light-company,' 57-FERC-1 61,363 at,'l,196-
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62,200 (1991)(Moler, diccenting in part).
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