ML20095F754

Forwards State of CT Dept of Public Util Control 920331 Decision Granting Final Approval to Northeast Utils to Acquire Public Svc Co of New Hampshire

ML20095F754
Person / Time
Site:	Seabrook
Issue date:	04/17/1992
From:	Feigenbaum T PUBLIC SERVICE CO. OF NEW HAMPSHIRE
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
NYN-92050, NUDOCS 9204280291
Download: ML20095F754 (34)

Text

i i

j New Hampshire khh Ted C. Feigenboom i

President and Chief Executive Officer N YN-92050 April 17,1992 United States Nuclear Regulatory Commission Washington, D.C.

20555 Attention:

Document Control Desk

Reference:

Facility Operating License No. NPF-86, Docke. No. 50-443

Subject:

Connecticut Department of Public Utility Control Gives Final Approval to Merger Gentlemen:

As part of our commitment to keep the NRC informed on the status of the merger, enclosed please find the Connecticut Department of Public Utility Control dec:sion dated March 31,1992, that gives final approval to Northeast Utilities

• acquisition of Public Sersirc Company of New Hampshire, if you have any further questions, please call Mr. Terry L. Harpster, Director of L'icensing Services, at (603) 474 9521 extension 2765.

Very truly yours, h/N / t)itIL ' ' ' '

Ted C. Feigenbaum TCF:J BH/ss cc:

Mr. Thomes T. Martin Mr. Noel Dudicy Regional Administrator NRC Senior Resident inspector U.S. Nuclear Regulatory Commission P.0, Box 1149 Region I Seabrook, NH 03874 475 Allendale Road King' of Prussia, PA 19406 Mr. Gordon E. Edison, Sr. Project Manager Project Directorate 13 Division of Reactor Projects U.S. Nuclear Regulatory Commission Washington, DC 20555 0I 4000-,

0 9204280291 920417 PDR ADOCK 05000443

/

M PDR l

New Hampshire Yonkee Division of Public Service Company of New Hompshire P.O. Box 300 a Seabrook, NH 03874 a Telephone (603) 474 9521

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T STATE OF CONNECTICUT DEPARTMENT OF PUBLIC UTILITY CONTROL u

1 5

Qgeket No. 91-09-07 l

l DPUC REVIEW OF NORTHEAST UTILITIES PLAN TO ACQUIRE i

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE t

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and 3

Docket No. 90-07.

I t

- APPLICATION OF PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE FOR WAIVER OF APPROVAL TO I ECURITIES IN CONNECTION WITH THE SECO P OF THE ACQUISITION OF PUBLIC SERVICE OMPANY OF 2

.NEW HAMPSHIRE BY NORTHEAST UTILITIES i

P i

agcisioN L

MARCH 31,1992 L

(-

One Central Park Plaza

• New Britain, Connecticut Of051 An Equal Opponunity Employer

i Executive Sununary The Authority's goal in this proceeding.has b e.en to ascertain the basic reasonableness of the acquisition ant' merger and, if the morger ap? ears to be in the public interest, to put into place realist:,c, workable conditions that insulate connecticut ratepayers from undue risk.

The NU Board of Directors is ultimately responsible for determining whether this acquisition is a

good investment, with prospects for an

]

appropriate return for NU shareholders.

Tho Authority need only determine the more

limited, but for connecticut ratopayers

crucial, question of Vhother ratepayers can be adequately protected from potential negativo impacts, when balanced against expected bonefits.

The Authority concludes that the benefits to Connecticut ratopayers of the NU/PSNH nerger outweigh the risks and that approval of the merger, subject to certain conditions, is in the public interest.

The Authority is mindful that uncertainty remains regarding actions in other forums, and ther6ftge, it has imposed conditions to protect against possible futur9 chhnges.

The synergies, or savings, to all ratereyces of NU's main subsidiary, The Connecticut Light and Power

Companf, from combining the PSNH and NU systems are e pocted to be in the rango of

$100 to S300

million, under All reasonable assumptions.

Deponding on the level of syner31u achieved, CL&p residential customers would experience annual w el ravings of $3 to $17.

Savings to customers of The Ur;ited Illuminating company would be about S3B million dollars.

The approval conditions providt raasonable protection for

- Connecticut ratepayers against all Snela rj%s.

In order to insulate CL&P customers from the business arJ. financial risks of the merger, CL&P must notify the Authority if the amount of equity in its. capital structure (oxcluding short-term debt except that amount in excess of 7% of total capitalization) will fall below 36 percent, and the Authority may conduct a review.

In future rato cases..

CL&P will accept a

methodology for determining the cost of capital without relying on NU's cost of capital.

These conditions vill remain in offect until at least one year after the New Hzpshire fixed rate period ends in 1997 and until NU demonstraces that PSNH's capital structure and bond ratings meet certai standards.

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i The Authority finds that Federal Energy Regulatory Commission opinion 364-A provides CL&P with the opportunity to gain sufficient compensation for the use of its transmission system and precorves its ability to protect native load customers.

Since Opinion 364-A could be changed upon appeal,

however, the Authority requires that at least half of the potential merger benefits are reserved from the risk of changes to opinion 364-A.

In order to guarantee a certain amount of savings for CL&P ratepayers, the Authority intends that at least S0 percent of of projected savings in administrative and general CL&P's share in future expenses will be used to reduce revenue requirements CL&P rate proceedings.

In order to prevent connecticut rah ' yers from being disadvantaged as a

result of the merge;.,

other conditions require that:

eall administrative and general ovethend costs be allocated fairly among the operating companies, othe benefits of off-system capacity sales be apportioned based on a specific formula on a systom-wide basis,

.the Department be notified in advance of any proposed changes to the Sharing Agreement or capacity Transfer Agreements that govern :ertain power transactions among the NU system companies, and

.the benefits of CLEP Clean Air Act Amendment allowances be allecated to CL&P.

The Authority finds that if PSNH hsca the New Hampshire Electric Cooperative

load, it would adversely affect NU shareholders but would not be detrimental to Connecticut ratepayers.

This Decision ends a

review which formally began in November 1989.

The merger, if consummated, would represent a regional solution to a regional problem and probably the final chapter of the Seabrook saga.

The Authority further grants final approval of the s

issuance of step-two securities and the implementation of all other step-two transactions by PSNH.

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DECISION I.

INTRODUCTION A.

PSNH/Seabrook Backcrround Public Service Company of New Hanpshire

("PSNH"),

incorporated in 1926 under the laws cf New Hampnhire, is the largest electric utility in New Hampshire, supplying electricity to approximately three-quarters of tho state's population.

By virtue of its 2.8% interest in Millstone Unit 3, it is a foreign electric company within the meaning of Section 16-246a of the General Statutes of Connecticut (" Conn. Gen. Stat.").

PSNH owns a

35.6%

joint ownership

'interent in Seabrook Unit 1

("Seabrook"), a 1150 MW pressurized. water reactor nuclcLr power plant located in the town of Seabrook, New Hampshire, and has entitlement to the. same percentage of Seabrook's capacity and energy.

The scabrook project was initiated by PSNH in the early 1970's as an 800 MW nuclear powered ' unit.

Prior to initiation of construction, PSNH, Which controlled the site, offered other New England utilities the opportunity to purchase chares in the unit.

Shares of the offering were well subscribed and plans were nkdo for a' nocond unit.

PSNH retained a 50% ownership interest in both units.

The United Illuminating Company ("UI")

van the second largest participant, with a 20% ownership share.

The remaining shares were auctioned to interested New England utilities under the auspicos of the New England Power Pool

("NEPOOL").

Northeast Utilities

("NU"),

parent of The Connecticut Light and Pownr Company ("CLfP") owns slightly more than 4%.

Construction of the Seabrook plant commenced in

1974, after PSNH receivod its siting certificate.

The plant was planned as a twin 1150 MW reactor plant with a projected total cost of approximately

$973 million and with completion originally projected for Unit 1 in November 1979.

HowcVer, on May 7,

1979, the Now Hampshire Legislature enacted the

" anti-CWIP" law, prohibiting recovery in rates of costs expended by utility for consWetion of a plant until the plant is in commercial operation.

PSNH began to experience difficulty in financing its sbarc of Seabrook's construction, and was effectively precluded from continuing to generate internally the funds needed to support its ownership position.

By April 1981, the estimated cost of Seabrook had risen to $3.6 billion and commercial operation datos for Units 1 and 2 were announced to be February 1984 and May 1986, respectively.

PSNH then sold off 14.4% of its Seabrook ownership position, reducing its original 50%

investment in the proposed plant to 35.6% in 1962.

In November 1982, the estimated costs roce to $5.1 billion.

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g Jviewicf sharply Toscalating construction costs, natate regulatory

-commissions, _ including = the-Connecticut Department of Public Utility ~ Control

(" Department") re-examined - the1 need for Unit - 2.

and NU to disengage.

In7 Augu3t 1983, the-Department-crdered UI

=fromiUnit 2.-

See:. Docket No. 83-03-01,.Annlication of The United

,~

T11nninatina connany= to Tncrsase Its Rates and

Revenues, EDec;sion dated August 22, 1983, Appendix, pp. 10-11,-

.:In' March 1984, a new estimate projecting. total costs at $9 for Eboth units was released, commercial banks became

? billion unwilling to provide PSNH with credit under its revolving credit arrangement; and PSNH was unable to meet its ; payments for the costs.L The :project came to a halt on ' April 18, 1984.

The' Joint Owners' acqu:, red a new managing agent to. replace - PSNM and in Seabrook August 1984 the construction restarted on Unit 1 only.

Un:,t ~1 was put into commercial operation' on June 30, 1990. -At 4 was approximately

that time, the total cost of Seabrook Unit

$6'.5 billion.

Df that total, the amount ir. vested by PSNH was estimated t-'be $2 9 billion.-

On January L 28, 1888, PSNHT filed a voluntary petition for reorganizttion under Chapter 11. of the1 United States Bankruptcy

- Code ' _ (case' No.

88-00043).

PSNH's Annual Report to the-

-suurities and = Exchange commission (Form lO-K) - for 1989 linxad

.the bankruptcy Edirectly to PSNH's investment' in Seabrook.

Page 1;ofEthat-filing states-that the financial difficultien that led

.to -its ; bankruptcy were attributable to - a combination-of several factors, ichief, of which was "the magnitub of the company's

'investmentc in = thew Seabrook Nuclear Generating Station Unit 1,

than half of the book value of the -

'which, represents. more Company's-assets on its financial statements...."

Following the i

cbankruptcy filing, representatives of-the. State of New Hampsh re

- pursued -negotiations with several. parties concerning.the level b

charge' New Hampshire PSNH T mayf e-V allowed ' to, irmation of a-plan of of T rates o which any conf ratepayers for electricity under:

reorganization. _ Negotiations resulted in. plans Proposed by PSNH New' England Electric-System-("NEES").

m management,ENU,LUI'and the:

.On -- November ' 22,. 1989, the LState _ of: New Hampshire entered The New into - an ' Agreement with NU to resolve - the bankruptcy.

Legislature approved,a Rate: Plan on= December 18, 1989,

-Hampshire F

the7 essential terms of which suspended the anti-cWIP law for the 5.5%. increments 'in -

Reorganization and> provided for -seven annual:

'PSNN's retail

rates, commencing: January 1,.

1990... Shortly thereaf ter,. on December 28,- 1989, NU - filed its Third Amended Joint Plan of :-Reorganization

(" Merger Plan").

The Merger Plan

. as ; accepted by secured.and unsecured creditors and equity PSNH H and confirmed by_ the-United States Bankruptcy w

holders c of 1990.

It court --for the-District cf New Hampshire on April 20, the-subject of the instant I

-is - this - Merger Plan that has - been

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proceeding.

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Dock *.A! ~ Mco; 91-09-07::& 90-07-25 Paga.3 4

NU/PENH Raeraanization= Plan

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'i The7eoquisitionswould occur in -two steps and result in the F mergeri of,the _ PSNH E system into. NU.

Step one, - - in - which PSNH emerged ifrom : bankruptcy as a stand-alone - reorganized.public-(

' utilityr 'ewrurred on May 16, 1991.-

The - reorganized PSNH is comnitted 'to -a; merger with the: NU-owned F:.eheast Utilities

-Acquisition: l Corporation

("NUAc"),

a

.she i New~

Hampshire corporation.

-__PSNH is being operated by WU through its

< subsidiary, Northeast-Utilities Service Company ("NUSC0").

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' To emerge; from bankruptcy. in Step one, PSNH paid off its O

secured _ creditors, made e, ash payments to its unsecured creditors 1:

and istued reorganized PSNH common stock -to the unsecured p

creditors and - to, current-equity holders.

The E cash to-pay off J

secured creditors and make payments to the unsecured creditors F:

cames from' the issuance : of t ' $125 million in proferred - stock in b

reorganized PSNH;.'$342.5 million in first mortgage bonds secured p

by PSNH's; non-Seabrook - assets;_ a five-year term loan of:- $452 Juillion;L $287.57million in 1 tax exempt pollution controlL revenue

)

< bonds;--.$229c nillion in taxable - pollution control revenue bonds, and. $29 million in: PSNH cash -holdings.

An _ additional $844.3 j

million in common equity and' contingency notes was issued to the pj unsecured-creditors and equity holders.

.In~

thexisecond step, NU _ Mould buy all the, equity in.

- stand-alone - PSNH'which would then merge -its-non-Saabrook assets lwith NUAC leaving -PSNHL an. the_ surviving utility.

PSNH's ownership' in-the" Seabrook 1 nuclear power plant, the land surrounding. the Seabrook site, and its nuclear fuel would be transferredL to ' the NU-owned ~ North Atlantic Energ'y Corporation

[_

(" North Atlantic").

'A second NU' subsidiary, NU operating company, jnow rknown as Horth Atlantic Energy Services company, 1

h would be - created 1 to. operate Seabrook-on 1.ahalf of its joint 3

owners.

s To merge with PSNH in Step Two, NU would-be required' to

~

raisa 'approximatwiy $897 million--in cash, plus the-amount -of any'

additionali PSNH common. stcck dividends accrued {in.1992.

This moneyLandL approximately 8_.4 million NU warrants would be. used to t.

retire $640 million in stand-alone PSNH common stock, additional I

--stock dividends,. some-short-term debt,.and to

- off NU-pay iginally 1

J expenses :and -the Newt Hampshire-transfer tax.-

As or

[

. planned,- this ; money :would be raised -initiclly through the issuance of- $150 : million ' in NU. common shares, a LS392 million.

1 term, loan,and. $355. million in North Atlantic debt secured -by F

seabrook 1:.

Due to improvements in 'the financial

markets, 1

however, the cash will be raised by the: issuance of $250 million I

ithrough _ two : separate - ESOPs (Employee Stock Ownership Plans), a 4

public. ~ off ering of $200 - million of NU common shares, and $355 4

million'in North Atlantic debt secured by Seabrook.

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Do9kst'NCO. 91-09-07-I 90-07-25 Pago 4 To = complete the merger, NU.would enter into several agreements with PSNH, which are, in brief:

Rate Aoreement -

specifies the form of the trant. action; sets the recovery period for the acquisition premium; provides for 5.5%

rate increases for PSNH for seven years, as well as fuel and purchased power clauses;-

establishes minimum and maximum NU equity returns; requires PSNM

.to attempt to renegotiate existing contracts with small Power Producers and the New Hampshire Electric Cooperative

("NHEC"); and requires PSNH and the State of New Hampshire to negotiate rate relief if NHEC is no longer a

partial requirements customer of PSNH; Power contract -

a life-of-unit contrac't covering the sale to PSNH of all of the capacity and-energy generated by North Atlantic's share of Seabrook; sharine Aorcement -

defines how the combined - NU/PSHH system will be planned and operated and-how the synergies from tr.at combined operation will be shar2d, to witt 75% Initial System and 25%

PSNH for savings from syner#;ies associated with combined syst. ems NEPOOL capacity savings; NEPOOL onergy savings allocated first as if Initial -System and PSNH were k-stand-alone utilities, with combined dispatch synergies allocated 50/50; energy transaction b

savings allocated on a

pro rata basis; expires after lo years; coeacity Transfer

'Aeroements -

the first agreement defines the

" slice-of-system" - mix and price that cL&P will sell to PSNH if PSNH does not have adequate resources to meet its NEPCOL.

capability responsibility (capacity to meet

+

peak.

load and a

reserve 3

requirement) ;

the second agreement k

defines the

" slice-of-system" mix for PSNH to sell to NU if MO cannot meet its capability responsibility (the price has not been calculated) ;

expires after ten years; e '-- Auuas 'Ava crio~ili'ih E' ifugi y h 900 0

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=

carz-l Docket Nos. 91-09-07 & 90-07-25 Page 5 i

i Moraer Aereement -

sets ft.rth the legal framework for the morger; establishes the structure for conversion of PSNH securitias upon merging; sets out the neassary regulatory approvals and other conditions precedent to the merger; Manacement Services Acreenent -

provides for NUSco' to render all necesnary management and operational s n 'loes to PSNH until PSNH becomes a

wholly owned subsidiary of NU; during Step One NUSCO provides nanagement services for Scabrook upon approval by the Seabrook joint owners and the Nuclear Regulatory Commission l

("NRC").

4 II.

ER,0CEDURAL HISTOME I

l A.

Docket No. 89-09-26 On October 5,

1989, the Department issued a Decision in T

Docket No. 89-08-26, Estition of the Office of Censurer Coutsgl I,

and the Attorney -- General Rccardina Northeast Util_ities Plan to

-Accuire Pub 1}e Service comoany of New _Hannshire, denying the request by che Office of Consumer - Counsel

("0CC")

and the Attorney General ("AG") that the Department hold a hearing to investigate the potential effect on CL&P and its ratepayers of the Morger Plan.

The Department found that, because the Merger Plan submitted by NU in the PSNH bankruptcy proceedin;; was one of many before the Bankruptcy Court, the request was premature.

The Decision indicated that the Department would be issuing data requests on the NUSCO proposal and based on the responses and the actions of the Bankruptcy

Court, the Department would l

determine how to proceed.

By letter dated November 14, 1989, the Department granted a request by the OCC and the AG to expand the scope of Docket No. 89-08-26 to include a review of the proposed acquisition of v

PSNH by UI.

On December 22, 1989, the Department issued a N:3tice of Hearing in Docket No.

89-08-26.

By that

Notice, CL&P was ordered to file testimony on eleven issues relativo to the proposed acquisition of.PSNH.

B.

Docket No. 90-01-01 By Decision dated January 10,

1990, in Docket ho.

89-08-26, the Department determined that the circumstances prevailing at the time of initiation of Docket No. 89-08-26 had changed significantly ' onough to warrant a change in proccoding.

s w-

Dock t N:J.'91-09-07 & 90-07-25 pa;3 6 Citing tha withdrawal of UI's properal to acquire PSNH, an well

)

as the multiole rt ;'inions to the-Merger Plan and coveral dire tives frer-the Barkruptch court having

,) u r i s d i c t i o n o v e r Ph.E; the Department closed Dot

• at No. 89-08-26 and initiated Dodhet No. 90-01-01, DEUC Invenuantien of )[ertheaFd;- Utiliting Plan to Accruir.g,_,Eublio E.9.rvice comenny of New Hgnochire.

The Department detornined that Docket No. 90-01-01 would not be a contcated proceeding and the parties to Docket ho.

89-08-26 would bece o participants in the non-contestod proceeding.

The focun of Docket No.

90-01-01 would be to examino the implications of the proposed acquisition on (1) CLEp ratepayers, (2) Connecticut electricity consumers generally, and (3) the New England electricity infrastructure.

The Departncnt incorporated all material filed in Docket No.

89-08-26 into Docket No.

90-01-01, including the request that CL&p provide testimony on the issues indicated in the Departnent's Deco d r 22,

1989, Hotice of Hearing.

docause the now docket involved substantial and complex issues of fact and law, the Dopartment determined that outsido expertino was required.

On January 10,

1990, the Departnent innued a Requent For Proposal to conduct a nanagenent audit of the NU preposal to acquire PSNH.

The audit request sought evaluation of the transactions anticipated and the identification of the potential impacts of such transactionc on CL&P, its customers and the regional clectricity purkets.

By letter dated Fobruary 2,

1990, the Department selected Boors Allen & Hamilton, Inc.

(" BAH") to perform the audit.

BAH filed its first Rnport as required under its contract with the Department on Apr'l 20, 1990.

By Notiet if Hearing dated January 10,

1990, the Department condt.

ed a

hearing in Dockot No.

90-01-01 on February 5 and 8,

1990.

The hearing was continued to February 22, 1990, when it was opened and innodiately continued to March 20, 1990.

On March 23,

1990, the hearing was opened and irmediately continued without date.

By Notice of Continued Hearing dated March 29, 1990, the hearing was continued and held on May 1, 1990.

On January 8,

1990, NUSCO, on behalf of HU and its operating public utility subsidiaries, made soveral filings with the Federal Etw;gy Regulatory commission

("FERC")

seeking certain approvalo concerning the.Morgar Plan.

On March 2, 1990, FERC einnted the NUSCO motion to consolidate the filings, which became FERC Docket Nos.

EC90-10-000 et al.

To further tho interest.a of Connecticut electric ratepayers, the Dopartment intervened in the FERC prococding.

On Janupry 28, 1990, the law firm of Van Ness, Feldman & Curtis was donignated is Special Assistant Attorney General to reprorant the Department beforu FERC.

The Department's proceeding on Docket No.

90-01-01 remained inactive during th:.o tino pending a ruling by FERC.

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u Dock;t NC5. 91-09-07 & 90-07-25 PCgo 7 a

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On January 29,

1991, the NeV Hampchire Electric cooperative ("NHEC") signed a c o n t r a c t w i.t h N o w England power r

0 Coapany

("NEP"),

allegedly in violation of its power contract i

n with PSNH.

NHEC is one of PSNH's largest Wholesa),e customers.

O PERC accepted NHEC's contract with NEP on March 28, 1991, but i

suspended itL affectiveness pending a

datermination as to Y

vbether, and to what extent, NMEC's contract with PSNH precludes it from taking power from NEP.

NHEC filed for bankruptcy on May 1

C, 1991.

1 By letter dated KAy 1, 1991, the CCC requestod that the L

Department recommence its proceedings in Docket No. 90-01-01 to i

?j review the proposed merger in light of developments that had occurrod in 1991.

By letter dated May 22, 1991, the Department 1

advised the 000 that it would continue to monitor events closely, but would dofer reconvening the proceeding until the FERC rondered a final decision.

on August 6,

1991, the Department itkuod a Procedural Order and Notice of Prehearing Conference in Docket No.

i d

90-01-01.

In that document, the Department took notico of two I

milestone developments and re-inititted the docket:

(1) the j

draft FERC order issued on July 31, 1991 (subsequently adopted by the FERC on August 9, 1991, as Opinion.No. 364);analysi(s and

2) the September 3,

1991, Report by BAH with and y

recommendationo concerning tho merger proposal, except ac to

}

FERC matters.

A prehoaring conf 1.renco was held on August 20,

]

1991, for the purpenr of discushing the Procedural Order and time schedule, d

)

on August 21, 1991, the Dopartmont adopted a resolution urging FERC to reconcider Opinion 364.

Thu Department expressed concern that the decision left unanswered several critical "j

transmission pricing incut,s,

did not adequately protect the 4

interests of the ratepayors who have fiaancially supported the k

transmission system, and threatened the economic benefits and reliability of the Now York tie lines (the intorconnection of

.l

NEPOOL, through the NU transmission syntem, and the New York i

Power Pool).

The Dopartment petitioned FERC f or a rehearing on q

opinion 364, other partios, including NU, alco petitioned for rehearing on a number of incues, and FERC granted the rehearing.

on August 29,

1991, the Department issuod a Notice of l

scope of Procaeding and Notice of Intent to Initiate Separate, j

Contesto'd Docket

(" August 29, 1991 Notica");

a Revised 9

Procedural Order; a Scheduling Ordor, and the minutes of the

]_

August 20,

1991, prehearing conference.

The August 29, 1991 Notico advised that the scope would be limited to the offects a

i that the Morger Plan would have on Connecticut's electric j

utilities and their ratopayers.

Purcuant to Section l'G-2 ( c) of the conn. Gen. Stat., on september 3,

1991, this matter was, reassigned from a panel of I

three to all fivo Commionionern who constitute the Public e

Utilities control Authority

(" Authority").

On that same date, l

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1 Dock;t Nc3. di-09-07 & 90-07-25 pega e BAH provided the Department with its Updated Ruport on the proposed acquisition. _ By lotter dated Septenbar 6,

1991, the Department advised the participants that it had taken Administrative Notico of the UpMod Report and included it in the file for Docket No. 90-01-01.

On September 30,

1991, the Department requestod BAH to provide an Addendum to the September 3,

1991, Updated Report, that refined DAH's reconnendo0 conditions to the Herger Plan.

On October 10, 1991, BAH provided the Addendum.

C.

DRshet Nos. 91-09-0? and 90-07-25 By Notice of Combined Hearing da*vd October 11, 1991, in Docket No. 91-09-07, DPUC kevi.ew of Northoest Utilities Plan to Accuire _ _the Pulilic Service _ Comegny of NOW_,y8moshim and Docket No.

90-07-25, Aeoliestion of Public Servnce Qggany

qL_ggy, Haneshire for Waiver of Anoroval to_

issue Securities 2 connection with the Second Steo _of the Accuisitien of [ghlig gervice Company of New ligochire by NortheenVJ.lities

(" October 11, 1991 Notice"), the Deg Mnont indicated that it would conduct a

contested public hearing to determine the offectn that tho Merger

Plan, if

approved, would have on Connecticut's electric utilitics and their ratepayern.

By the October 11, 1991 Notice, the Department took udninistrative notice of all written documents f :, lod in Docket No. 90-01-01,

. including the Updated Report and the October 10, 1991, Addendun to the Updated Report; the tronocripts of the public hearings; all prefiled testimony; responses to intorrogatories and late filed exhibits and incorporated thea into the record of Docket i

No. 91-09-07.

The Director of the prosocutorial Division of the Department van designated as the legal representative of BAH.

By tho October 11, 1991

Notico, the Departnont alue reopened Docket No.

90-07-25, Anplication of Public Servien goneany of New Haneshire for Waiver of Aboroval to Issun Beeurities in Connection Vith the Second Stee of - the Accuisition i

L of Public Service Cornoany of New Hamnnhire by Northeast Utilities.

In its initial Decision dated August 29, 1990, in that docket, the Department gnnted conditional approval to the so-called " Step 2" financing arrangements as set forth therein and confirmed cy the Bankruptcy Court.

In no

doing, the Department reserved the right to review any edditional or difforent transactions or arrangements that may bo inposed or required by the FERC, and to modify or revoke the Step 2

approval.

[

By letter dated October 15, 1991, the CCC rcquested that the Department suspend the procoodings on the merger until a final decision from FERC on the proposed norger and a final decision regarding the NHEC bankruptcy.

Citing cthor issunn l

that warranted maintaining the hearing schedule, the Department denied the OCC requent without prejudice by letter dated October 17, 1991.

i l

.- e u n---- -

-, y f:.a;.auy I

Docket Nos. 91-09-07 & 90-07-25 Pago 9 Pursuant to the october 11, 1991 Notice, the Department conducted a public hoaring on October 21, 22, 23 and 24, 1991.

The hearing was continued to November 4,

1991, for croop examination on lato filed exhibito, after which it was continued without date.

By Notico of Tochi Meeting dnted October 25, 1991, the held a Techn cal Heeting on October 31,

1991, to Department discuo the Auditor's Implementetion Formula for Condition No. $

contained in its October 10, 1991, Addendum.

On November 15, 1991, CLLP filed a Motion for Discosition arguing that any evaluation by the of All Issuco Involving NHEC, Department of the impact on ratopayers of the potential loss by PSNH of the NHEC load could and should bo performed based on the evidence already in the recori The AG filed an opposition to the NHEC Motion on NcVember 21, 1991, and roquented that the Department not rule on the merger until the NMEC litigation is resolved.

By lotter dated November 27, 1991, OCC joined in the AG's oppocition.

By lettor=

dated Decembcr 6,

1991, the it required Dcpartment adviced the Partion to this dockat that additional infornation in order te rule on the Motion or tho opposition and ordorod OCC, the AG and CL&P to provide that information.

The AG and OCC provided the roguestod information separate filings of December 13,

1991, and CL&P made its infiling under Protectivo order on December 20, 1991.

On December 16, 1991, the Dopartnant issued a revised Limited Scheduling Ordnr to nove ahoad on issuor unrelated to FERC decision, including the NMEC issues.

The schedule the regarding FERC issues continued in subponsion.

By Lotter Decision dated December 20, 1991, OCC requested that the Department suspend the schedulo regarding NHEC issues.

In support of its request, OCC cited possible logislation in New Hhnpshire that could undermine the Rate Agreement between HU and In a letter dated December 24, 1991, the Dopartment found PSNH. the hearing on the NHEC isnues that had been scheduled for 1992, was indeed prenature and suspended the hearing that January 14, The remainder of the Limited Scheduling Order remained in effect.

However, in ito Decicion, the Department also indicated dato.

its intention to issue a separate order cetting forth the scope of any hearing that it would eventually hold on the NHEC issues.

On January 24,

1992, the Department issued a revised Scheduling ordor.

On January 29, 1992, FERC issued Opinion No.

364-A, Order on Rehehring.

The Department incued a Scope of Hearing Order and Notice of Continued Hearing on February 7,

1992.

Pursuant to that order an.1

Notice, the Department conducted a

hearing in its offices on February 24,

1992, outstanding issues related to the FERC Opinion concerning 1992, to cover The hearing was continued to February 25, issues concerning NHEc.

That hearing vac sequestered pursuant 364-A.

1991.

to a Protective Order dated October 8,

' Docket Hos. 91-09-07 f 90-07-20 Page 10

~

D.

Partien and Intervonorn By tho October 11, 1991, Notice of Hearing, the Department designated the following partien to Docket No.

91-09-07:

The Connecticut Light and Power Corpany, P.O.

Box 270, Hartford, CT 06141-0270; The United Illuminating Company, 90 Temple Street, How Haven, CT 06506; Bozrah Light and Power Company, P.O. Box 7,

Gilman, CT 06810; connecticut Municipal Electric Energy Cooperative, 30 ' Stott Avenue, Norwich, CT 06360-1535; Office of Consumer Ccunnel, 136 Main Street, Suite 501, New Britain, CT 06051; Office of Attorney General, 1 Central Park Plaza, New

Britain, CT 06051; and office of policy and Hanagement, 80 Washington Street, Hurtford, CT 00106.

Connecticut Industrial Energy Consumers ("CIEC") requested and was granted intervenor utatus.

Pursuant to the September 30,

1991, revised Scheduling Order, Parties and the Intervenor filed Prehearing Memoranda and Statenents of Pocition.

On March 4, 1992, Parties filed briofs, followed by reply briefs on March 10, 1992.

Tho Department issued a draft Decision on March 20, 1992, hnd the Partice and Intervenor were provided the opportunity to filo Writton Exceptions ans present oral Arguments.

III.

AUTHORITY ANALYSIS A.

In General

First, the focus of the Authority in this unique proceeding differs from the perspectivo ordinarily employed in the rato wetting process.

In the cource of cutting rates, an in other regulatory activitics, the Authority is directed by statutos and judicial procedent to bC ance the competing interectc of the utility company and its customers.

Herc, the Authority's primary concern has boon all Connecticut elt.;tric ratepayorc.

The financial health of the NU holding company and the protoction of its shareholdern are the fiduciary responsibilities of the NU Board of Directors not of the Authority.

.While tho overall financial hoalth of the holding cocpany and its subsidiaries can affect ratos charged to connecticut custonors, the Authority's goal has been to ascertain the basic reasonablene'ss of the acquisition and norger and, if the merger appears to be in the public interent, to put into piece realistic, workable conditions that insulate connecticut ratepayors from any undue risk.

The NU Doard of Directors is ultimately responsible for determining whether thic acquinition is a good investment, with prospects for an appropriate return, for HU shareholders.

The Authority need only deternine the more

limited, but' for Connecticut ratepayers crucial, question of whether ratepayers can be adequately protected from potential negative inpacts, when balanced against oxpected benefits.

~., ~.. -.

., 2.u

..;.t. a Dock;t NO3. 91-09-07 & 90-07-25 PCgo 11 The Authority appreciates the involvement of all the throughout this lengthy and complex proccoding.

participants The OCC and AG were particularly helpful in furthering discovery and probing the issuos.

Both the OCC and AG take the position in their briefs

that, should the morger be

approved, the Authority should impose conditions to protect Connecticut ratepayers from the risks.

The Authority has considered the recomr.cndations of the Partien carefully and believes, that while all of our determinations may not mirror those that they proposo, they achieve the desired result.

B.

Moraer svnerales In datormining whether the Authority should approve the morger and what conditions, if any, should bo imposed, we nust evaluate the balance of benefits, _ costs, and r: sks to CL&P,

and, derivatively, to Connecticut electric ratopayers generally.

The Authority nust determine that the benefits of the merger to Connecticut ratopayers outweigh the rieks ascociated with the trancaction.

An NU summary of Connecticut (CL&P and UI) synergion, including Scabrook operating and maintenance

("O&M")

and administrative and general ("A&G") expennot, projected to result from the combination of NU and PSNH systems, indicates the following on a cumulativo not present value

("CNPV")

basin (thousands of 1992 dollars).

Exhibit JWN-lo, 8/30/91.

((U_ ANAINRT S' Cl32 ILT.

CI Enurgy Expenso

$177,093

($59,191)

Scabrook OEM 19,049 98,778 Peak Load Divorsity 28,928

(

1,955)

A&G 74,100*

Fossil Steam Unit i

Availability

-2.749 Total S301,919 S37,632 S340,351 l

• Based on NU updated Plan These NO-provided data indicate that the combination of the NU and PSNH nystems will provide nubstantial ' cost savings for j

connecticut ratepayers.

During the hearing on Fobruary 25, 1992, a Company witness described how events since the filing of JWN-1s had affocted the synergies and indicated that the synergies will remain about the same as indicated in that exhibit (see above)

That witness also stated that the energy expenso synergy may be slightly higher than indicated in JWN-1s because of the larger differantial betwoon the price of coal and oil and because PSNH loa 6 is growing r.oro slowly than tnat of NU.

TR 2/25/92, pp.

6-8.

-s-s..

D ekst Nca. 91-09-07 & 90-07-35 Pcgo 12 i

Data also wore provided by BAH, the Departpont'o auditor, assessing the benefits of the Herger Plan under different I

scenarios.

In BAH'o response to Interrogatory EL-42, estimatco of the various synergian for the base case, including analysen uf differences with NU's projected

savings, were developed.

Data from EAH's most likoly

scenario, the base

case, are summarized as follows, using NU's discount rate and allocation factors where applicablo (thousands of 1992 dollars).

DAM ANALYSIS CL&P 111 Energy Expenso

$69,799

($29,693)

Saabrook o&M No substantivo differences with NU peak Load Diversity 31,106

(

2,702)'

A&G 39,000*

Fossil Steam Unit Availability No substantive differences with NU

• Based on a roduction in A&G staffing levels l

equivalent to 30% of PSNil staf f an indicated on page II-20 of 9/3/91 DAH Report BAH also provided projections of synergies for a high case and a low case, in addition to the base case.

BAH estinated real CNPV savings, in 1991 dollars, to CL&P from the morgor synergies to range fron 595 million to $309 nillion, of which S47 million to $177 million would be realized during the first 10 years.

9/3/91 BAH Report,

p.

II-B.

Under BAH's base case, annual real

savings, in 1991

dollars, to CL&P residential customers are estimated to begin at $3 to $4 per customer, increasing to about 56 by the year 2000 and thoreafter.

The norger also offers other less easily quantified benefito.

First, the merger would provide the NU system with a more divoroified gonoration mix, enabling NU to exercise a wider range of options during timec of. uncertainty and volatile fuel pricco.

The takeover would also resolve the uncertainty currounding the ownerchip of PSNH and its Seabrook asset, which benefito both CL&P and UI.

Since PSNH is a joint owner with NU of M111ctone Unit 3 and Maine Yankee, the resolution of the bankruptcy would reduce the uncertainty surrounding the support of these other nuclear annots.

Although individually each of thoco benefits to CL&P nay not be significant or easily quantifiable, together they reprosent a

lower rather than greater business risk to the NU system and to CL&P.

Thu zorger, i

if consumnated, would represent a

regional solution to a

l regional problem and probably the final chapter of the Scabrook l

Saga.

1.

Enorav Synerales The major difference betwoon NU and the auditor in the energy expense synergy projection.

Approxinntely 80% of this difference in due to NU's revised nothodology, which tho, Company i

1

~ n;. _,_.

?_

7;,

• Drchet Nos. 51*09-07 & 90-07-25 W;

Pago 13 M1 claims captures additional savings from what it t iills M

" day-to-day" circumstances.

The conputer model used by BAH doop 4

not capture thece circumstancon, such an secotinos overlapping 4

unplanned outages at two or more unito.

At such times, the y

projected joint dispatch energy exponco savings incrence.

Whilo 9

there arc many factors that can dotormino the amount of energy h

expense savings, including, most significantly, the price of 4

fossil

fuelo, the Authority believes that the evidence and V,

testimony show NU's revised nothodology to be reasonable and n

valid and that tho additional savingo projected have a

g-reasonable chance of being obtained.

[d Another reason for the difference in energy synergy projections betwoon NU and BAH is that NU ignores the effect of q

capacity transfera (exchanges of capacity between the initial system and PSNH, see Section III, E.,

infra) entirely, with the understanding that the feilure to capture the economic benefits to CL&p from the transfers is offset by the higher energy expenso savings.

NU estinates net benefits to CL&p of the i

capacity transfers to PS!m at approxinately $12 million.

In its September 3,

1991 Report, BAH doos not separately conpute the w

capacity transfer benefits in its dotormination of the

.g acquisition benefit to CL&P, and indicates that those benefits depend on the relative load growth betwoon thu two systems, NU's Q

other off-system sales, and fuel costo, v

While the savings in perpetuity may bo overcut%sted by NU, are sencitivo to changes in fuel price, capacity nix and outages, and whilo long-term cotinates of the energy synergy, may be problematic because both NU and PSNH may build or purchase new energy capacity, the data and testinony presented indicate that HU's approach is reasonable and in a botter representation than BAM'u analysis of the long-term value of the energy synergy.

2.

Peak Lead D1versity Synercion With respect to the peak load diversity synergy projections, the differenco betwoon DAh and NU (approtinately $2 million) in duo to the slightly nore pessimistic view taken by s

NU.

While BAH belioven that load growth in other Now England

i utilition will create a market for CL&P's sharo of 62 MW by 2001, NU does not project a significant market for capacity from the NU/PSNH system until 2002.

In quantifying the capacity cavinga, HU has anticipated a continuation of historio weather patterns, and has assumed that the net capacity value in 2002 is

$123/kW-year.

BAH used the historical average of the peak load diversity projected into the

futuro, which captures weather variation, but does not incorporate the differences in load growth botvoon NU/PSim and NEPOOL.

3.

Ad ni nis t r a t i ve & _ _ qe ngrALSyn e r g i e s Regarding the A&G synergy estinates, BAH assunen A&G staffing levels could be reduced in the mergor by the equivalent l

of only 30% of the PSNH staffing levoln, rather than the 50%

reflected in NU projections.

BAH basen its estimate on its

.... 4....,.,

(

-e,-

r n

- - ~ ~ ~ - - ~

' - ~ ' - * ~ ~ - ~ ~ ~ ~ ~

~'

~

~ ' ' ' * ~

~

'DockOt N33. 91,-09-07 & 90-07-25 Pago 14

]

. +.

H

?

experience with other mergers.

NU han provided a

company-specific analysin based on its 1992 budget proceso and believes that an in-depth, bottons-up or one-on-one analyoic would provide a

more refined. estimate of the A&G Expense synergy.

NU subsequently provided a plan to achieve A&G expense savingo.

The

plan, part of tho 1992-1996 budget process, j(

identified and captured the norgor cavingo in the budget.

The i

hthority has analyzed the data and testimony provided and han determined that the Merger Plan is reasonable and appropriate a

and that the projected savings of $74.1 million on a CNPV basis

' t, can in fact bo obtained.

4 4.

Conclusion en svnerov Covinag NU data indicate that bonofits fron the mergor will also accrue to UI and its custonero.

The lower Soabrook O&M costo will be partially offset by the reallocation among other NF.p00L participants, including UI, of the Energy Expense and Peak Load

)

Diversity Synergico.

However, the net U1

cavings, which approximate S38

nillion, are still naterial NU data above).

Date, provided by BAH with respect to th'(Goo e Seabrook O&M synergy for UI indicate no substantive difference from NU (sco BAH analysis above).

i 1

Baned on the. cvidence provided with respect to the J

nynorgies, the Authority nuat conclude that although the precise lovel of savingo to result from the acquisition remains difficult to quantify because of the nany variables and

)

uncertainties, there is 'little doubt that connecticut is likely i

to enjoy bonofits in the rango of $120-$350 million from the s

conbination of the NU and PSNH systens under all reasonable

)

assumptions, f

C.

Rink _R,gducina Nechanien RMated to the Syneraiga 3

The Authority believen that any decision approving the merger can be justified only. if cuch approval.is conditioned upon certain safeguards designed to protect connecticut's ratepayers from the riska annociated with the norgor.

l Accordingly, the Authority banen its decision in this proceeding upon certain conditions to be fully discupuod herein, docigned to reduce risk of har'n to connecticut ratopeyers.

i

]

First, certain conditions are necessary to addrocs the A&G

{

synergy and related conplexity.

One such condition encures that A&G cost savings materialize (i.e.,

that these costs decreaco as i:

nuch as expoeted) and ensures that CL&p ratepayers receivo their l

share of the projected benefits.

BAH, in its 10/10/91 Supplanental

Report, refined its A&c/o&M Condition 4, which seeks to ensure that these synergies occur.

The Authority, based on its analysis of the evidence and toctinony procented, believes that reasonable risk-roducing nochani ns should be inposed, and that they be practical and

workable, as well as fully cost effective.

To address the n,~. t,.,.

Dockst'N;3. 91-09-07 & 90-07-35 Pag 3 15 3

l the methodology,indicatedDepartment problans of cost allocations and charges as in the will continuo its audit of INSCO Aug'ust 1, 1991, Decision in Docket No. 90-12-03, Application _of_

i The Connecticut Light _

and POVer Cornany to Amend Rate

'1phedules.

As has been the practice, the OCC is welcome to join the Department's audit.

Also an indicated in the Decision in Docket No. 90-12-03, the Authority will address the allocation a

I.

of NUSCO chargos in subsequent rato procoedings.

i section 16-19o(b) of the Conn.

Gen.

Stat.

empowers the 3

Department to audit NUSCO A&G costo allocated to CL&P.

The Authority is wall aware of the impact of NUSCO allocations on CL&P ratepayers and will continue its vigorous examination of thoce charges for propriety and validity.

To f acilitate future audits of NUSCo, the Authority will require that NUSCO file detailed annual reports of all direct and allocated A&G, O&M, and Imsco charges billed to each of the subsidiaries.

Rogarding the A&G

cavings, BAH reconnended that the Department condition the nerger so that, to the extent that annual synergies are loan than 500 of the amount projected in tho Merger Plan (total CNPV of approxinatoly $74 million), the i.

Department may reduco rates by the difference between the 50%

and actual savings (Condition 4 (d) ).

As indicated in Section 4

III.,

B.,

3.,

supra, the Authority is c.onfident that the projected level of A&G synorgies can be obtained; therefore, ratepayers should receive at least 50%

of that amount.

Requiring such a coraitment fron CL&p is reasonable, considering 4

1 the potential for further savings based on our analysis of the 2

updated Morgor Plan.

The Authority, therefore, modifies BAH 2

Condition 4 (d) to stato that the Department intends to reduca l

rates to reflect at least the 50% synergy savings.

Future CL&P rato applications will include at leact 50% of the A&G synergy a

savings projected for the ratonaking

period, or the actual amount of savings if greater than 50%.

This ccndition will A.

continue at least through the end of the Now Hampehire fixed rato period (7 years, through 1997), and until the Dopartment determines otherwise, but no longer than the ten year tern of the Sharing Agreement.

To resolve problems with naasuring the

savings, parties and the Department will noot within 60 days after the merger is approved.

DAH, in its September 3, 1991 Report, obcerved that a cap on Seabrook costs could raise a substantial cafoty concern for the Nuclear Regulatory Coraission

("NRC"),

which has yot to issue a final ruling on the nerger.

BAH 9/3/91

Report, p.

V-11.

Also, the NRC has strongly emphasized that the transition of Seabrook's operation to NU nust continue the priority of safety over cost considerations.

Attachment to Response to Interrogatory oCC-28, Sursary of Meeting with NRC.

The Authority cencurs with the NRC

and, therefore, we will not require any guarantees of the Seabrook O&M savings.

. -. -(

Dockot Hoc. 91-09-07 & 90-07-25 Pago 16 D.

off-synten capacity Saled The Authority is concerned that the fixed rate period under the Rate Agreement creates incontives for the merged NU system to favor off-system capacity sales from PSNH over those from CL&P because PSNH capacity sales inure to the benefit of chareholders.

Because revenues frcm CL&P capacity salon are used to reduce retail rates, CL&P ratepayers could be harned by uuch incentives.

Both BAH and NU recoghite the existence of such an incentive.

9/3/91 BAH

Report, p.

E-16; Sabatino Testimony, 9/91, p.

10.

BAH recommended that for the period af ter PSNH acquisition and during the fixed rato period of the Rate Agreement, off-system capacity sales benefits for CL&P ratemaking purposos be based on apportioned NU systemvide off-system capacity sales 10/10/91 BAH Supplemental Report, Condition BAH filed a

formula to implement this apportionment on October 31, 1991.

CL&P filed comments on the BAH

formula, in which it impicmontaticn prcposal; however, generally agreed with the CL&P recommended that final accounting treatment details could (and nhould) be deferred to another forum.

CL&P Comments, 11/1/91, p.

9.

The Authority believes that Condition 5

represents a

reasonable and necessary offset to the PSNH capacity sales incentive identified above and the economic risks it imposes on CL&P.

The Authority agrees with CLLP that the mechanisms for incorporating this condition into CL&P ratomaking are more appropriatel considered in the Company'r.

next general rate proceeding. y

~

L.

Canacity InterchqtngA The Sharing Agreement and its attached Capacity Transfer Agreements are among the nunorous Agreements entered into by :tU as integral parts of the Herger Plan.

These ton-ycar Agrecmcr.cn provido details on the types and prican of any capacity purchases or sales (interchangec) betwoon the existing (initial)

NU system and PSNH.

Due to the locked-in nature of the capacity and price provisions of theco Agreements over such an extended time frame, the Authority is concerned that conditiono could develop within the region that would mako NU transactionn under these Agreenents uneconomic.

For

examplo, CL&P could be providing capacity to PSNH to fulfill tho terms of the Capacity Transfer Agreements, while it has to purchano or generato moro expensive power to moot its own noods.

The Authority believes that the probabic net banefits to CL&P ratepayers fron the Sharing Agrooment, nome $93 million to

$174 million, are sufficient to outweigh the risks of possible uneconomic exchanges under the capacity Transfer Agreements.

Exhibit FPS-5R+8R.

To address the potential problem of other unoconomic transactions, BAH recommends that the Authority condition its approval of the Merger Plan on NU's agreement to prior approval or prudonce review by the Department of any power supply decisions other than those under the capacity Transfer l

l ye.

=, 3

Dock,t N:s. 91-09-07 & 90-07-25 pago 17 Agreements.

BAH 10/10/91 Supplemental. Report, Condition 7, pp.

27-29 The Department regularly conducts prudenco reviews of capacity sales and purchasen prospectively in the biennial, integrated resource plan filings required under S 16-243a-2 of the Regulations of Connecticut State Agencies.

After-the-fact prudence reviews are standard in Cenpany rate proceedings to assure not benefit to ratepayors.

These standard

reviews, coupled with the projected overall net benefit result of the I

Sharing Agreopent, support the detornination that the Sharing i

Agreement is reasonable, obviating the need for subsequent j

reviews of individual transactions prior to their execution.

DAH also raconnonds the Department's prior. review of any filing with federal authorities for changes in, or extensions i

of, the Sharing Agroonent or the Capacity Transfer Agreements.

Condition 6, BAH Supplenontal Report, 10/10/91,

p. 26.

CL&P has agreed to notify the Departnant of any proposed modification or extension of those Agreenents at least ninety days prior to the offective date of such action.

Sabatino Testimony, 9/91, p.

+

24.

CL&P has also agrood to provido the Department with a copy of any proposed changes or extensionn at least thirty days prior i

to any such filing with FERC.

Sabatino Testinony, 9/91, p. 24.

l Purther,-

CL&P han connitted to support the Departnont's participation in any FERC proceeding related to those a

Agreements.

Sabatino Testimony, 9/91, p.

24.

The Authority believse that 30 dayo is inadequate for Department review and take possibic action; therefore, we will require CL&p to file proposed changon or extencions at 1 cant 90 days prior to filing at TERC.

F.

Businonn ancLFinancini Risk

)

As discussed in Section nl.,

B.,

supra, the nergor of 3

PSliH into the NU systen has several quantifiablo benefits that sten from consolidating diversified operations.

These savings have the ef f ect of lowering the busineDD risk to the NU systen

[

and its subsidiaries, including CL&P, all other factors remaining equal.

Ysile business rink can be reduced for a company through divers.fication (as in this case), nuch of that risk reduction only mirrors the risk reduction that investors achieve through diversified investments.

As such, it has ninimal impact on the

~

cost of capital to the company and little benefit to ratopayers.

The Merger Plan also poses cortain risks and contc.

The primary rink is financial and scens from the incroacingly leveraged position of NU as it undertaken the merger and the vaak earningo of the pSNH cubsidiary during the first few years of the nerger.

Both of these occurrences place a

additional, though indirect, financial stress on CL&P and may hindor its access to the financial narkets and distort its cost i

of debt and/or equity.

Since CL&P is dependent on NU for infusionc of equity, a norger that leaves NU financially weak and saturates the narket with NU connon equity jeopardizes CL&P's accosc to equity.

--...> n...,,,,,

Dockot Noc. 91.o9-07 & 90-07-25 Pago 18 4

In addition to financial

risk, the morger ' has certain aspects that will contribute to the business risk of NU in the near future.

As a

nerged

entity, the PSNH subsidiary is rostricted in the degree and manner of rate relief it can achieve by virtue of the Rate Agreement.. This Agreement awards PSNH fixed rate increason regardless of the company's actual operating results.

The rick that the granted increases will bo insufficient is partially offset by an adjustment clauso flow-through to customore of cortain expenses and a " floor" and

" ceiling" to earnings.

In addition, the ability of the merged systen to achieve the projected synergies and savings is uncertain and contributes to the business risk of the antire systou.

1 The very real possibility exists that the financial markets will perceive the NU holding company as a differont, more risky, entity than CL&P by virtue of the holding company's more loveraged position and the initial, additional busincos risk of the merged system.

Assuming the mergor takes place, it nay no longer be appropriato to use the NU holding company as a proxy for CL&P for the purpose of determining the cost of equity for ratemaking purposes.

Not only night the degree of leveraging differ between the two entities, but the narket i

porception of business risk might diffor as woll.

It is reanenable to assume that the weakened financial condition of the parent may have an inpact on the bond ratings and debt costs of CL&P.

The financial condition and risk of the paront may have important rerarcussions en the market's perceptaon of the ability of CLfP to support its debt obligations.

It is not appropriate for CL&P ratepayern to incur capital costs that s

reflect the additional icveraging and busincou risk accocitRed with NU'c acquisition of the PSHH system.

The potential financial risks of the merger to CL&P must be understood in view of the level of forecasted PSNH rovenues over the fixed rato period.

During this period, large increaucu in costs can only be accommodated through increases in PSNH sales.

NU and BAH developed two different forecasts that resulted in o significant disparity in projected PSNH nales.

BAH forecactn relied heavily on the NEPOCl

crecast Report of

capacity, Energy, Loads and Transmission 1991-2006 (CELT L

Report).

NU based its analysis on the 1991 PSNH Forecast Late Filed Exhibit No. 2-21.

NU was highly critical of the accuracy l2 of the CELT Boport, arguing that it consistently undolforecasted h

PSNH load growth.

BGB Testimony, 9/91, pp. 9-13; TR 10/22/91, pp.

196-199.

However, a

closer look at the PSNH forecasts relied upon by NU since 1989 indicates that these forecasts hhVG consistently overestimated load growth.

In addition, the PSNH ferocast does not rcilect the full offect of the current recession on Now Englad, in that it assumes a lower level of unemployment than actual as -well as improved economic conditions

[

by December 31, 1991.

Lato Filed Exhibit Nos. 2-21 and 2-22.

1 The Authority also questionc the PSNH disregard of the potential impact of conservation and load management _ programs and the potential less of load from customers that choose to

... ~,...... 7

noso d

l Dockot Nos. 91-09-07 & 90-07-25 Page 19 A

L t

self-generato.

The Authority finds the 1991 Foracast assumption that a PSMH annual conservation budget exceeding

$1 nillion would have abnolutely no inpact on pSNH sales during the fixed rato period to be unreasonabic.

Exhibit BGB 7R, p. II-8.

[

The BAH forecant outlines key assumptions of its high, mer.um, low and shock scenarios.

9/3/91 BAH Report, p.

IV-4F.

'd comparison of sales growth rates suggests tMt BAH's "high" l

t'SNH sales growth rate corresponds to the basa...no growth rato in the 1991 PSNH Torecast.

BAH'n avurage sales growth rates 2.

were negativa for the years 1990-95 in the BAH " low" and "sbock" d

cases, becoming positive for the years 1996-2000.

Under the "j

alev" case e,ssurptions, NU earnings per share (EPS) would drop and could put pressure on CL&P to increase its payout ratio

-q (percent of earnings paid to the parent

company, NU, as dividends), although coverag6 ration (tne degree to Which protax earnings are sufficient to make interest payments on debt) would remain adequato.

In the " shock" caso, NU carnings would be insufficient to naintain current dividends, 'which would create 4

Q^

financial pressures on CL&P to nake up a portion of tho -reduced

earnings, possible consequences to CL&P would be increased payout and leverage ratios, and a higher indicated equity cost j

(duo to lower NU share prico) 1 Although the assumptions contained in the

" lown and L

" chock" cases are pessimistic and the " shock" scenario is very G

unlikely to occur, these forecasts are useful in illustrating the financial viability of the merger if economic conditions in Now England remain unfaverable or worsen.

The BAH range of p

forecanto in highly useful in evaluating the sensitivity of the financial concoquoncos of the merger to changes in economic

j circumstances, especially since NU presented only a "basclino" forecast for PSNH and the initial NU system.

The BAH analysis

~

i shows that the merger would still result in enmulative net w

prosent value bonofits of $95 million under its locs optimistic j

" low" synergies assumptiono.

9/3/91 BAH Report, p.

II-6F.

BAH

'f did not evaluate the bonoritn under the shock scenario, but uced I

that scenario to toot the financial viability of the merger.

The uncertainty surrounding tho actual outcomo of sales and the performance of tho morgod

system, and the real possibility that CL&p will be exposed to additional financial and business risk under the most likely scenarios mandato safeguards to protect Connecticut ratopayers.

BAH'o multipart condition 3 addresses the financial repercunaions of the mergor, and the Authority finds that two parts of that condition, those that are not already provided by Department regulations or stato

statutes, are necensary to insulate CL&P ratepayers from tho potential effects of the merger.

one part of Condition 3 wou e imit CL&P's equity ratio to no less than 37%, unions the Authucity was notified of such an occurrence or pending occurrence.

The measured ratio would exclude short-term debt from the total capitalization coacure, oxcept that amount in excess of 10% of the total.

This would

Dock;t N^.;9. 91-09-07 & 90-07-25 P0go 20 allow the company to have an little as 34% equity in the total structure, including short-torn debt.

The Company expressed concern that an equity ratio of 37% would restrict its near term flexibility, since its equity ratio is already below 38%.

In

addition, a

37%

equity ratio is more than sufficient to safcguard CL&p's financial health.

The Company suggested 34% as the ninimum level.

TR 10/21/91, pp. 46, 61-68.

The Authority will adopt the BAH condition with three modifications:

1)

CL&P's minimum equity levol will bu set at 36%,

2) for purposes of this condition, the total capital structure will exclude short-term debt except that amount in excess of 7% of total capitalization, and 3) breach of the 36%

minimum will cause the Department to take certain steps to safeguard CL&P's financial health.

The Authority finds that such a

modified condition providos more initial financial ficxibility for NO (relative to the 374),

yet excluding lasr short-term debt from the capital structure calculation provides the st.no level of protection as the original BAH condition.

Further, tho 364 1cyc1 is consistent with the Department's March 4,

1992, Docision in Dockot No.

91-01-07, Aeolication of The Connecticut Linht and Fower Cornarv to Innue Firstand Refundina Mortnaco Bon (is_and Preferred Stock.

The Department FAddressed the innuo of capital otructure in that Decision and ordered CL&P to submit with its next rate application a detailed study of the appropriato degroo of leverage for a company of CL&P's cuciness risk.

As part of the study, he Company ic to provide specific steps to achieve the proposed appropriate leveraging by June 30, 1995.

Decision, p. 9 Regarding CL&P'D cuggested equity ratio of 34%,

the Authority finds this. to repropont too weak a financini position to be much of a safeguard.

In adopting this condition, the Authority will not limit the upstreaming et CL&p dividends to NU (paymont of CL&P earnings to NU in the form of dividends).

WhLlo this approach of protecting CL&P was explored on the record, the Authority believes that the company is already limited in the amount of dividends it can upstrean by CL6p's earnings and indenture covenanta on retained earningc.

TR 10/21/91, pp.

162-168, 225-237; Late Filed Exhibit No.

2-5.

The Authority is persuaded by the Company that such a novo would be viewed as unduly adverse by the financial markoto.

The BAH condition on equity

level, as

modified, should give NU onough floxibility and control over CL&P's dividends to keep the financial community satisfied while safeguarding CL&P'n financial health.

The Authority will further condition its approJai of the merger by reserving the right to choose those proxico it determines appropriate an the basis for sotting allowed returns on equity and for determining debt coste for the Company for ratemaking purposes.

A Company witness agreed that, with proper support in litigated proceedings, this was the Authority's prerogative and pledged that the company would not challenge reductions. to the CL&P indicated market cost of debt under l

.....n,.. v. -,..,

3

,g,

. Dock t NO3. 91-09-07 & 90-07-25 Pago 21 J

certain circunstances (e.g.,

in the event CL&P'o bond ratings arc downgraded after the merger by at least two of tho three major rating agencios).

TR 10/21/91, pp. 43-44; TR 10/24 / 91, pp. 60-65.

In attaching this condition to the norger, the Authority modifies Condition 3(d) advanced by BAH, and accepted by the

Company, by expanding upon the limited occurrenecD that BAH proposes to alhow the Authority to modify or adjust CL&P's indicatea debt costs for ratemaking purposes.

The BAH linitations do not recognize that it is fully pencible for debt costs to be unreasonably affacted by the norger without CL&P bond ratings being downgraded post-nerger.

The Authority will continue to hold CL&P to the above thrco conditions until cuch tino an the PSNH subsidiary is no longer under the fixed Rato Agreenont (i.e.,

is back to rate base ratenaking) and has an investnent grade bond rating from at least two of the three major rating agencien.

G.

Few Ha_npshire Electr_ic Coonorativ_e Matters

NHEC, one of PSNH's largest wholesale customers, has sought an alternative power supplier, docpite boing under a power contract with PSNH.

NHEC signed a contract with New England Power Company ("NEP") on January 29, 1991, allegedly in violation of its contract with PSNH.

FERC accepted NMEC's contract with NEP on March 28,

1991, but suspended its effectiveness ponding a determination an to m' ether, and to what extent, NHEC's contact with PSNH precluded it from taking power from HEP.

Matters were complicated when NHEC filed for bankruptcy on May 6,

1991, and its future as a

whoicsale custoner of PSNH will, therefore, remain uncertain until it energen from its Chaptor 11 prococding.

Supplenental Rouponse to Interrogatories CCC-21 and 23.

The company presented evidence that loss of the imEC load, while detr.5cntal to PSNH and the combined inJ/PSNH System, would have the o.' netting benefit of increased energy expenso savings for CL&P because nore of PSNH's inexpensive units would be available to be diopatched to meet CL&P's load.

Noyes Supplemental Testinony, p. 15.

Data were also provided by BAH regarding the impact of losing the NHEC lead on PSNH and on lW and CL&P.

Ropponse to Interrogatory AG-3, filed under Protective Order.

These data, which analyze the loss of this load in the base, high and low cases, were updated to reflect a 1992 acquisition date and a current estinato of 1991 sales.

Supplemental Recponse to Interrogatory AG-3, filed under Protective order.

Tho update focuses on the financial consequences of losing NHEC in the low casc, and cencludes that CL&P ratepayers would be sufficiently in ulated from the adverse consequences of the lonc of the NHEC load.

g..,..

.g.

y L

" DockOt No3. 91-09-07 & 90-07-25 paga 22 n

NHEC represents approximately 8%

of the PSNH load.

Although more of the lost revenues attrihtable to the loss of this load would be allocated to NU shareholders rather than PSim ratepayers in the low case, NU would be abic to implenent ito current financing plan with only slight adjuctment.

Therefore, the Authority agrees with BAH'n conclusion that CL&p would be protected fron the consequences relating to loss of the imEC load.

In addition, PSNH has lossened the risk that it will lose the imEC lead anytine soon by entering into a proposed agrenmant with imEC and the State of New Hampshire.

The proposed agreement would provido for a full resolution and settlenent of tho disputes between imEC and PSNH and forms the basis for moving NHEC out of bankruptcy.

Under the proposed agroenent, imEC would continuo to purchase most of its wholesale power requironents from PSNH under a new long-term contract that values PSNH's approximately 36%

share of Seabrook at

$700 ni) lion.

The contract would run at least until November 1,

2006, and could be extended by imEC to Novcaber 1,

2011, with advance notice.

Supplemental Response to interrogatories EL-21 and 23.

This proposed agreenant in subject to the approval of the Bankruptcy

Court, tha New Hampshiro Public Utilities Commission and FT.RC.

i H.

FrRC Opinienc J64 and_364-A NU necdc the approval of FF.RC,

inter

alia, prior to concurrating the nerger.

On August 9, 1991, FERC issued Opinion 364 approving the proposed merger, but imposing a number of conditions on the merged. system's use and expansion of its transmission network.

A number of 'these conditions would have left a post-merger NU and CL&P unable to pro".ect their native j

load customers from the uneconomic use of the network and/or insufficient compensation for network use or expansion.

j A number of partice to the TERC proconding, including NU i

and the State of Connecticut, appealed opinion 364.

Upon rehoaring, TERC nodified and clarified its conditioned approval in Opinion 364-A.

Opinion 364-A alleviates much of the concern the Department and others had with opinion 364 with regard to NU's and CL&P's ability to protect native load custonors.

Opinion 364-A appearc to allow NU and CL&P to charge third party users of the transmicsion network tho value of lost opportunities their uso inposes on native load customers.

Such an allowance would maintain NU's and CL&p'c ability to use and benefit from the transniscion notwork after the proposed nerger.

NU represented during the instant proceedings that FERC had indeed granted this allowance.

BAH reviewed opinions 364 and 364-A and filed comments and recommendations thereon.

BAH Supplemental Report 2/18/92.

The primary concerns of BAH are that Opinion 364-A could be changed appeal and that FERC nay not allow all appropriate spon opportunity and/or incremontal coots in NU's future transmission l

3_*3'_

Dockot Hon. 91-09-07 & 90-07-25 p;g3 23 tariffs.

'This latter concern staan from FDC's decision to leave for future compliance tariff filings the determination of specific costs appropriato for recovery by NU.

Br believes that due diligence by NU in proceedings before FDC sill gain the company appropriate compensation and NU confirmed and

]

supported this representation.

To guard against the risk to ratepayars that opinion 364-A could be changed upon appeal, EAH proposes that the Merger Plan be conditioned such that costs stemming from changes to the l

opinion, to the extent that they are merger related and in excess of en det benefits of the morger, be excluded from l

recovery through retail rates.

While the Authority believes that such a

ahold harmless" condition is appropriate for transmission

benefits, the BAH proposed condition does not i

reservo for ratepayers any potential nerger bent. fits (e.g.,

those resulting from the A&G synergies) should there be an adverse change to Opinion 364-A.

The BAH condition limits the impact of such a chango to opinion 364-A, but allows increased risk to ratepayers that the nerger will ulti.mately not benefit them.

As discussed throughout this

analysis, the proposed

?

merger-is not without ricks to connecticut ratopayers, even absent the transmionion riska.

As such, it is neconsary that ratepayers benefit from the proposed merger.

If ratopayers are truly insulated from transmission risk, an adverse occurrence in this area should not wipe out all the benefits of the proposed merger in the non-transmansion area.

The Authority has rolled on FDC opinion 364-7 and NU's interpretation of it in analyzing the Herger Plan.

The risk L

that opinion 364-A nay be modified on rehearing or judicial

review, or that NU's interpretatin of the order uay be determined by FDC or the courts to La incorrect, must rest with NU and its shareholdors, not CL&P ratepayors.

The Department will datormine in future CL&p rate proceedings the extent of any disallowance of costs resulting from an adverso change to opinion 364-A, taking into account as an offset the net benefit to CL&P ratepayers shown by CL&P to be attributable to tho a

merger;

however, in no event will more than half of the detonstrated cumulative not b snefits be used as an offset.

An adverso change will not necessarily include achieving certain different

results, cuch as a

lower FERC-nllowed roturn on equity, than requested.

)

I.

clean Air Act Amendirent Allowanegg 4

During the course of the hearingo the Department raised l

l the concern that sulfur dioxide emission allowances awarded to l

CL&P for the year 2000 and beyond under *he Clcan Air Act Amendments of 1990 ("CAAA") might bc jeopardized or less than fairly compensated for under the merger.

TR 10/22/91, pp.83-124.

BAH introduced two conditions to addreas this concernt 1.

The benefits of any allowances that will be provided to CL&P under the CAAA will be allocated to CL&P.

l

~:x n " ;.:..

.s

Dockd N:s. 91-09-07 & 90-07-25 p:ga 24 3

l 2.

CL&P agrees to provide for Department review prior to implementation any plan or policy that would govern the sale or transfer of CL&P allowances to pSNH.

See Late Filed Exhibit No. 2-19.

t l

Thu Authority believes these conditions vill adoquately protect CL&p ratopayers vis a vis the CAAA, and will adopt them.

(

j IV.

FINDINCS OF FACT

(

i 1.

Connecticut will benefit from the combination of the NU i

and pSNil systors under all reasonable assumptions.

Certain conditions are necessary to ensure that A&G costs ai

^.

do not incroace due to the marger and to ensure that CL&P l

ratepayers receive their share of the projected benefits.

3.-

The fixed rate period under the Rato Agreement creates incentives for NU to favor pSNH off-system capacity sales over those of CL&P.

1

(

4.

Conditions could develop within the region that would mako NU transactions under the Capacity Transfer Agreements j

uneconomic.

e 1

(

5.

The probable not benefits to CL&P ratopayers from the i

Sharing Agreement are sufficient to outwoigh the risks of

(

possib10 uneconomic capacity exchanges.

l G.

Without proper conditions, the proposed merger could have i

an impact on the indicated debt and equity costs of CL&P.

J 0

7.

Without proper conditions, the propoced morger could lead to increased financini and businass risk to the NU holding company and indirectly to the CL&P subsidiary.

4 i

a 8.

The loss of ths NHEC load by

PSNH, Phile advorcely h}

affecting NU shareholders, would be unlikely to bo detrimontal to Connecticut ratepayors.

l}

9.

FERC Opinion 364-A provides NU and CL&P with the opportunity to gain sufficient compensation for the use of y

J their transmission syst6m and preserves their ability to protect nativo load customers, if interpreted as L

represented by NU in this proceeding.

3 i

10.

FERC Opinion 364-A 10 the subject of rehearing petitionn and court appeals.

It could be modified to the detrimont of Connecticut ratepayern.

11.

post merger, CL&P might not be proporly cocpencated for sulfur dioxide emission allowances it is granted under tho I.

CAAA.

l L

<. y,.

~

D'ockot! Nos. 91-09-07 & 90-07-2S P0go 25 d

--CONCLUSIONS AND_0RDERS V.

]

A.

Concluel2DA

[

Based on the ovidence presented, the Authority concludes s

t. hat the benefits to connecticut ratepayers of the merger between NU and pSNH outvcigh the risks and approval of the subject to the conditions cet forth herchn no reflected 1

merger, f

in thu ordera below, is in the public interest.

The Authority d

is mindful that uncertainty remains regarding actions in other forums, particularly the New Hampshire legislature, the Nuclear Regulatory Commission, the Securities and Exchange commission, N

and the federal courts petitioned to review the FERC Opinion j

f 364-A.

The Authority has an obligation to act in what should bo an orderly regulatory and legal process, but a process in which 1

it is not possible to foretell every outcome.

The Authority i

believes that the conditienc vs have attached to the merger, as y

manifested in the orders, provide reasonable protection for connecticut ratepayers against.all known riskn.

3 The Authority further grants final approval of the

~

issuance of stop-two securities and the implementation of all other step-two transactionn by Public Service Company of Ncv 3

Hampshiro, as requested in Docket No. 90-07-25.

The terms and a

3 conditions of the approval granted herein for the step-two j

financings must be in confcrmity with the Third Amended Joint plan of Reorganization confirmed April 20, 1990, by the United States Bankruptcy Court for the Dictrict of How Hampchire and 3

with the ter::.s and conditions set forth in the order dated July 1

20, 1990, of the New Hanpshire Public Utilities Commission and any suppic.eental order tharste.

w B.

Ordern u the event that PSNH is merged with NU as approved in 2

i Section v.,

A., supra, the following orders will apply.

Please h

submit an original and ton copics of the requested material, identit~ied by Doc).et Numbor, Title and Order Humber to the Executive Secretary.

1.

Beginning May 31,

1992, and annually thereafter, NUSCO shall file with the Department detailed reports of all direct and allocated A&G, OEM and NUSCO chargos billed to each of the subsidiarios.

L 2

In each future rato application, CL&P shall incorporate at least 50% of the A&G synorgy savings projected for the ratomaking period, or the actual amount of cavings if f

greater than 50%.

The Conpany shall also provido a report L

on the amount of actual CEM cavings.

This order shall l

continue at least through the end of the fixed rate period l

(?

years, through 1997),

and until the Department doterminos othervice, but no longer than the ten year term of the Sharing Agreement.

Further, no later than June 1,

1992, the Company shall request that the Department 3

~..,....

Dockot Nos. 91-09-07 & 90-07-25 Pcgo 26 schedule a technical meeting to discuss the maano of measuring A&G and O&M savings.

The expense of tracking the savingo will be considered in future rate applications, ao would any other proposed expense.

3.

For the period after the PSNH acquisition and during the fixed rate period of th2 Rate Agreement, CL&p shall determins off-syctem capacity sale benefits for ratemaking purposes based on apportioned NU systemwide off-system capacity sales using the formula filed by BAH on October 31, 1991 (Condition 5), as clarified by NU's Comments of November 1, 1991.

4.

CL&P shall file testimony with its next rate application on the mechanions for incorporating Condition 5

into ratemaking.

5.

CL&P shall file with the Department, for its review and possible action, a copy of any changes to or extensions of the Sharing Agreemont or Capacity Transf er Agreements at least ninety days prior to filing at TERC.

6.

CL&p will, at all timoc, commit its bact efforts to maintain a 36% equity ratio (as described in a) below).

If, at any time, CL&P:

a) projects that the ratio (expressed au a

percentage) of -CL&P'c Common I;quity to Total Capitalization, as defined below, as of the end of the next fiscal quarter will be below 36%, or b) plans to take any action that will result or can reacenably be expected to result in reducing the above ratio below 36 porcent, i

then CL&P will notify the Department in writing at least forty-five days before such action is taken or event is anticipated to occur and will provide a

cortificate showing the calculation in reasonable detail.

in monitoring this Order, and at its diceration, the Department conduct proceedings to review the ratio, the effect of may CL&P's payment of dividonds to NU on CL&P's financial condition, and whether CL&P's ratio Vill have been adversely affected by this merger.

If the Department initiates such a proceeding, it will do so within ten days after its rcceipt of CL&P's notice and complete it no later than thirty days after receipt of CL&P's notice.

For purposes of this Order and Order Noc. 7 and 8, the followini; l

definitions apply:

l

~ common Eaulty - an amount equal to the cun of the aggregate of the par yalue of, or stated capital represented by, the l

l l

l n s

.. DockOt H03. 91-09-07 & 90-07-25 PCg3 27 outstanding shares of common stock of CLLP and its subsidiaries, and the surplus, paid-in, earned and other, if any, of CL&P and its subsidiaries.

the aggregate of all amounts that would Total Canitalization appear on CL6p's balance sheet as the sum oft (1) the total principt.1 amount of all long-term indebtedness. of CL&P and its subsidiaries (excluding, however, indebtedness (not to excoed

$320,000,000) existing under any nuclear fuel financing so long as the proceeds of such indebtedness are used solely to finance the purchase and carrying of nuclear fuel),

(ii)

-the-aggregate of the par value of, or stated capital represented by, the outstanding chares of all classes of capital stock of all classes of common and preferred

sharca, of CL&P and its subsidiaries, (iii) the surplus of CL&P and its subsidiaries, paid-in, earnod and other, if any, and (iv) the aggregato unpaid principal amount of all short-tern indebtedness of CL&P and its subsidiaries over 7% of the sum of clausco (i),

(ii), and (iii) aboyc.

Indebtedness - neans, without duplications (i) indebtedness for borrowed money or for the detorred purchaso price of property or servicos (excluding any obligation of CLEP to the United States Department of Energy or its successor with respect to disposition of spent nucicar fuel burned prior to April 3, 1983),

(ii) obligations as lesnee under leasen which shall have been or snould be, in accordance with CAAP, recorded as capital leases, (iii) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise assure a

creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in (1) or (ii) above, (iv) liabilition in respect of unfunded vestod benefits under plans covered by Title IV of E:RISA.

This Order shall remain in offect as indicated in order No.

8, infra.

i2

4

~

i D cket Nos. 91-09-07 & 90-07-25 Pago 28 4

7.

In future rate cases, if the Department so chooses, CL&p will accept the following basis,for determining the cost of capital:

a) adjustment of the cost of debt issued since the prior rate proceeding, for retail ratemaXing purposes, using i

appropriate debt cost at the time of the issuances, should the Department find that CL&P debt costs are unduly influnneed by NU's merger with PMN, and b) developig CL&p's ROE on that of comparable companies rather than on NU's cost of common equity.

This order shall remain in effect as indicated in order No.

8, infra.

8.

Order Nos. 6 and 7 vill terminate no earlier than one year after the sovon-yoar fixed rato pcried specified for PSNH in the Rato Agroomont

and, subject to effectivonoso provicions set forth below, When CL&P files with the Dopartmont a certificate that demonstrates that:

a) the ratio (expressed as a percentage) of pSNH's Common Equity to Total Capitalization as of the end of the

,ij most recent fitical quarter, calculated in accordance t

With

GAAp, and determinM with reference to the audited financial statements included 113 PSNH's Annuni j

Report on Form 10-X or Quarterly Report on Form 10-Q, 5

filed with the Securities and Exchange commission, or any other applicable report (a copy of the lo-X, 10-Q j

or other applicable report shall be attached to such I

certificate), is equal to or greater than 30 percent, and 3li b) pFNH'c first mortgage bonds have been assigned investment grade ratings by' at least two nationally recognized statistical rating organizations.

For purposes of thin certificate, ratings chall be deemed to be investment grade if they meet the standards a

specified in Form S-5 under the Securities Act of 1933.

Further, these orders shall terminate thirty days after CLEP J

files such a certificate with the Department, provided that, if l

before that time the Dopartment notifies CL&p that its review of 1

the certificate indicates that the conditions to termination are

not, or may not be, fulfilled, the effectiveness of such termination shall be suspended for such time not more than 45 days, as the Department shall specify in its notification.

The Department may conduct tcchnical discussions or hearings, but chall rule whether or not to accept the certificate within 45 days from the notification of suspension.

The certificate is ineffective if the Department does not accept it.

v*

3"

+-

g. 3 f.'

Pcg3 29 Do;kot No3. 91-09-07 & 90-07-25 f

benefits of any allowances that vill be provided to The I

9.

Purther CL&P under the CAAA shall be allocated to CL&P.

CL&P shall provide for Department

review, prior to Eplementation, any plan or policy that Wou}d goygyn ggg j

sale or transfer of CL&P CAAA allowances to PSint.

In all subsequent rate proceedings, CL&P shall detail and l

10.

quantify the net cumulative cost to date and through the i

rato year of any changes or modifications to or adverse t

interpretations of FERC Opinion 364-A as they af f ect CL&P revenue requirements, and file this information With its application, Those costs shall be excluded from the calculation of CL&P revenue requiraments, except to the extent that CL&P can show that the merger with PSITH has provided not cumulative benefits to CL&P ratophyors.

No j

r.oro than half of these demonstrated cumulativo not c

bonorits will be used as an offset to the net cost of i

changes to FERC Opinion 364-A excluded from CL&P revenuo requircr.ents.

y I

k, il ti 1

5 4

o E

6

" T,.y v;. < " ",. j

,., y,

m,.. ms;-. - - - --

e

<,* o Pcgo 30

[

L Docket Ho3. 91-09-07 & 90-07-25 Wo hereby direct that notice of the foregoing be given by the Executivo Secretary of this Department by forwarding true and and correct copics of this document to parties in interest, due return take.

Dated at New Britain, Connecticut, this 31st day of March, 1993.

4 Clifton A. Leonhardt )

Evan W. Woollacott

}

DEPARTHENT OF PUBLIC UTILITY CoffrROL Richard G. Pattorcon }

Michael J. Kenney

)

Statn of Connecticut }

New Britain, March 31, 1992

)

so.

l County of Hartford

)

l I hereby certify that the foregoing is a true and correct copy of Decision, issued by the Department of Public Utility control, State of Connecticut.

CERTIFICATE OF SERVICE I

furthur cortify that where a date is inserted by tho Department in the "Date Mailed" box below, a

copy of the j

Decision vais forwarded by Certified mail to all parties of

~

record in this proccoding on the date indicated.

i Mte Mailed

..uu..-

i ME3 i

)

Attest:

f

[

J A/

i z

Robert J.

! ' rphy l Executive !

cretary Department f Publi tility control i

}

p t-a

- - - - - - _ - - _ _ _ _ _ _ __ _ _ _. _ _ _ _ _ _