ML20070U420
| ML20070U420 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 04/01/1991 |
| From: | Bardin D ARENT, FOX, KINTNER, PLOTKIN & KAHN, NORTHEAST UTILITIES, PUBLIC SERVICE CO. OF NEW HAMPSHIRE |
| To: | Gody A Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML20070U421 | List: |
| References | |
| NUDOCS 9104090045 | |
| Download: ML20070U420 (193) | |
Text
{{#Wiki_filter:- __ _ -_- - - - - - ._
..- Arent Fox Kintner Plotkin &Kahn David J. Badm April 1,1991
- voysst.ouse VIA }IAND DEIJVERY Anthony T. Gody, Chief Policy Development and Technical Support Branch Office of Nuclear Reactor Hegulation
.U.S. Nuclear Regulatory Commission Washington, D.C. 20555 Het Public Service Company of New llamr?' tre, Docket No. 50 443 COMMEN1B OF CTPY OF HOINOKE GAS & ELECTRIC DEPARTMENT ON AN1TPRUSTEEUES
Dear -Mr. Gody:
- The City of 11olyoke Gas & Electric Department (*llG&E"),1/ in accordance with the request of the Nuclear Regulatory Commission
'("Commission *); for 'public comments on antitrust issues in the above. !
referenced proceeding. 56 Fed. Reg 8378 (Feb. 28,1991), hereby submits its comments on the antitrust issues raised by the proposed merger between Public Service Company of New Hampshire (*PSNH' ) and Northeast Utilities '("NU") (collectively " Applicants").El An
- integral part" of the proposed merger is Applicants' request that the Commission omend the !
Seabrook Station Unit No.1 ("Seabrook") operating license to allow PSNil tos0 connekut Anne.W to transfer its ownership interest in Seabrook to North Atlantic Energy vmhincon Dc200364339 Corporation ("NAEC"),' a newly created entity wholly owned by NU. Telephone:202/857 6000
> cable ARFor ._
w s'u sn672 1/ _ HG&E hereby supports and incorporY.+a herein the Comments being
; rrr 440266 ' filed with the _ Commission today by the Massachusetts Municipal Wholesale re m 202/as7 63 % . Electric Cooperative,Lof which IIG&E is a member, gl HO&E requests that it be served with copics cf filings by other-
- parties 'in this proceeding, and that it be added to the Commission's (8j, ]"'gg,3y3 o official service. list.
. DoD Towm Crescent Drin ,
V6enna.Ykpnia22182 2733
. " " [91Oh090045 910401 /
. DR- ADOCK0500gg3 _(- } j K
/ kit!Il/b)lX l* 2-1
!!G A E is a municipally. owned electric utility in western Massachuset ts encompassed entirely within territory served by the NU system.El llG&E competes on a direct, head to head basis with an unregulated NU subsidiary, llolyoke Water Power Company (*llWP"), fer retail industrial
- r. ales within the City of Ilolyoke. NU has, therefore, an extra competitive interest to disadvantage llG&E, increase its costs, and weaken its retail competitive posture an interest not shared by an independent PSNil.
Ilowever, ilGiE, which generates virtually no power of its own, depends on PSNil for transmission of economical nuclear power from Point 1,epreau, in New Ilrunswick, Canada. The Point lepreau nuclear power transmitted by PSNil is llG&E's largest resource, accounting for over MW of IIG&E's total energy suppbv. IIG&E's transmission contract with PSNil expires in 1994, and NU has indicated that it plans to reallocate such PSNil capacity at that time, cutting off !!G&E's " grandfather
- rights as to that vital import. ilG&E is now negotiating for an extension of itt, Point Lepreau power supply slightly over 12 megawatts, NU's plans would virtually eliminate llG&E's present access to ita largest source of power, relegating IlG&E to a fractional share of that essential transmission capacity under the New llampshire Corridor Plan and, at best, the hope of new transmission construction at far more onerous terms (when, as and if it is really constructed .. hardly a basis on which IIG&E can rely for 36 37% of its energy needs.
An independent PSNil would have no incentive to use its Point Lepreau transmission to advance NU's retail competition with IIG&E. 3/ IIG&E lies within the service territory of Western Massachusetts Electric Company ("WMECO"), a wholly owned subsidirey af NU.
-- ..e *- 4 -_4e- J+ "
Mw- 4--4.- ~+>-:-a-+ - - - - - - - --J E --1Ah- # --Aa- - [ 9 Al'ellI / lHX
. 3 Ilowever, a PSNil controlled by NU would have that incentive and the merger would give NU a new menna to advance its retail competitive positiun to the injury of IIG&E. As explained below, the proposed acouisition of PSNil would give NU control over surplus generation and transtnission capacity in New England, thereby combining Ntre present incentive to disadvantage llG&E with the increased power to do so.
The increase in control that the merged entity will exercise over generation (including power from Senbrook) an i t.'ansmission capacity in New England represents a significant change" fretn the activities of the current licensco .. an independent PSNil. With the addit.on of NU's retail opc;ations and the incentive to disadvantage llG&I the changes become even more significant. In accordance with Section 1N e of the Atomic Energy Act of 1954 (the "Act"),42 U.S.C. 6 2135(c), the C)mmission should initiate a full review of the antitrust impacts of the proposed cuerger and, following such review, deny the proposed transfer or, 6t a minimum, condition the proposed transfer as recommended below.4/ To assist the Commibslon in examining the antitrust issuas caised by the proposed merger, ilG&E is lodging herewith copics of tie iollowing documents: l 1. Direct testimony of Robert J. Reynolds, former M.er ei:onomist l with the Department of Justice's ('DGJ") Antitrust Division; i George E, Leary; and Roger C. Allen, each flied by llG&E with the Federal Energy Regulatory Commission ("FERC")in Dkt. No. EC9010, the proceedir.,; to review the proposed NU/PSNil merger. Applicants waived their right to cross examine these witnesses in that proceeding. 4/ Such review would include an analysis by the Attorney General of the antitrust impact of the proposed license transfer. 42 U.S.C. 6 2135.
4 oo Arent / Fox .
+ . . .
i
- 2. Brief of the City of Holyoke Gas & Electric Department on Exceptions to the initial Decision of the FERC administrative law judge ("A14") in Dkt. No. EC9010.El
- 8. Brief of the City of Holyoke Gas & Electric Department Opposing Exceptions to the initial Decision of the FERC A1J in Dkt. No. EC9010. +
-4. Motion Requesting Limited Oral Argument before the Commission of City of Ilotyoke Gas & Electric Department, New Hampshire Electric Cooperative and MACT Towns, filed with 5'ERC in Dkt. ,
n No. EC9010.
- 5. Supplernental Memorandum Opinion and Order Authorizing Acquisition of Public Service Company of New !!ampalire and Related Financings, Granting Requests for Reconsidtration; Denying Requests for an Evidentiary Hearing (" Reconsideration Order"), issued by- the Securities and Exchange Commission 4 (*SEC') on March 15, 1991 in Docket No. 707695.El
- I. SIGNIFICANT CilANGifi IN IJCENSEEE ACTIVITIPfi Applicants argue that the Commiksion need not examine the antitrust impacts of NU's acquisition of PSNH because the merger would result in
*no significant change" in entitlemente to power from Seabrook Station.2/
On this basis, NU provides neither the data identified in Part 50 Appendix L nor the data identified in the Commission's Regulatory Guide 9.3.
.I DI A copy of the FERC Alai's Initial Decision was filed with this
= Commission as part of NU's Application Supplement filed January 14,1991, S/ A copy of the SEC's Memorandum Opinion and Order Authorizing Acquisition of Public Service Company of New Hampshire and Related Financings; Exception from Competitive Bidding; Reserving Jurisdiction; Denying Requests for !! caring, issued December 21,1990 in Dkt. No. 70 7695,- was filed with the Commission as part. of hVs Application
~
Supplement on January 14, 1991.- 2/ Application to Amend Facility Operating License No. NPF.86 to Authorize North-Atlantic Energy Corporation as a Licensee to Acquire and Possess the Public Service Company of New Hampshire Ownership Interest in Seabrook (" Application'T at 8 9 (Nov.13,1990). i
~ . . , - -- + i M.c. 6,,.n.%4-r--,,..+, ,, 1.n.e.n,--w-nn,,,,.ec,,,ms ,- m n m ,,, , m.we r, + ,- c. w ,~ ,,,.,,,-v,,,,rvw--r- , ,w,,,--,,,-r
l Arciit / gi<ox ! 5-Applicant's attempt to brush aside any antitrust review by the Commission ignores the very significant changes in the New England power market that would be caused by NtTs acquisition of PSNil.8/ Control over surplus generation and transmission resources by a single utility system is a serious real world problern 6.: HG&E and other utilities that rely on purchased power to meet their load demands. The evidence submitted on the record before FERC demonstrates that approval of the merger would give NU/PSNil control over both generation and transmission in New England, with serious anticompetitive consequences for the entire region. Dr. Reynolds, in unimpeached testimony before FERC, warned that:
. . . NU's acquisition of PSNil will give the merged firm ari overwhelming share of the forecast surplus capacity held by NEPOOL member utilities during the 1990s; and it climinates, as an independent source of bulk power one of a small number of firms that can be relied on to supply short run wholesale generating capacit ' to other New England utilities over much of the next decade. l The Presiding AIJ in the FERC proceeding found that the proposed merger would "combinlel into one entity control over the single largest source of surplus capacity in New England with control over key
$/ Applicants' claim that there would be 'no significant change of entitlement
- as a result of the license transfer ignores the obvious fact that NU will obtain control over PSNH's entitlement to Seabrook power.
Indeed, applicants admit that the licorre transfer is an
- integral part" of NU's acquisition of PSNil. Letter of Ted C. Felgenbaum, President and i
Chief Executive Officer, New Ilampshire Yankee Division of PSNil, to the Commission, re: Docket No. 50 443 (transmittal letter accompanying Application) at 1 (Nov.13,1990). See also Alabamn Power v. NRC, 692 F.2d 1862,1867 68 (1982), reh. denied 698 F.2d 1238 (1983), cert. denied ! 464 U.S. 816 (Section 105c of the Act does not limit Commission antitrust ! review to the narrow activity for which the applicant seeks a license; "The statuto clearly calls for a broad inquiry and common sense does not allow interpretations to the contrary."). 9/ Prepared Direct Testimony of Robert J. Reynolds, Dkt. EC9010 at 6(a copy of which is supplied herewith).
O Aiciit / Fox 6 l transmission facilities necessary to provide access to alternative sources of bulk power in the region *:lS/ Because PSNil ' controls the only transmission lines linking Maine and New Brunswick to the rest of New England, leertain) utilities will necessarily have to deal with the merged company in order to get power from those areas. The merged company's control would also extend to access from New York.... When this capacity is taken together with the New Hampshire lines, the merced company will er ntrol some 92% of the capacity avnllable for transmission to New England.... This control would give the merged company the power to demand excessive charges for transmission, or to deny it altogether, while favoring its own excess generation at high prices. That the merged company could use its power to force its own extra goods on buyers elsewhere is gn especially significant concern because b'U/PSNH will have the largest block of surplus capacityln New England.
....INlorthern sellers will need to braak through the NU PSNil stronghold in order to get their power to southern New England buyers. The merger, with its resultin the regions off from each other.ll/ g transmission
- curtain," cuts The Alal's findings, together with the testimony of Dr. Reynolds and others, climinates any question as to the " significance" of the increased control.that would result from transfer of control of PSNil's Seabrook license to NU. Control over generation capacity greatly rednces the opportunities available to purchase power from other utilities in the region; control over transmission capacity climinates or reduces the ability of I!G&E and others to purchase power from utilities outside of New England. Taken together, the result is a "take it or leave it* situation in which a merged NU/PSNH can force others to purchase excess capacity JJo/ Initial Decision, FERC Dkt. No. EC9010, at 15 (Dec. 20,1990).
1, Id. at 1517 (citations omitted; emphasis supplied).
y- - - - . -- _ _ _ _ _ _ _ __ _ _ _ _ _ _ - . _ _ _ _ i Airiit liu 7 from Seabrook and other NU/PSNil sources at prices above those charged by a competitive market. The anticompetitive danger caused by ;he amalgamation of so much market power by itself warrants Commission review. liowever, the danger of anticompetitive conduct by a mergei NU/PSNil is greatly exacerbated by NU's existing incentive to disadvantage 11G&E.M/ The incentive to competitively injure 11G&E to the benefit of NU's own subsidinry IIWP, together with NU's increased ability to do so by gaining control over PSNil's transmission lines and its interest in Seabrook, creates more than a *reasonablo probability" that the merged company can and will engage in anticompetitive actions against 11G&E and others in New Enghnd.M/ The Commission should therefore review the antitrust implit .tions of the proposed merger and thereafter either deny the requested license transfer or, at a minimum, condition the transfer as set forth below.M/ M/ NU has repeatedly used its existing market power to impair llG&E's ability to compete with IIWP, and there is every reason to believe that NU will exercise the increased market power that it will gain from the merger to th . same effect. The testimony of Messrs. Leary and Allen, copies of which are supplied herewith, detail NU's past and ongoing efforts to block HG&E's access to reliable, economic sources of power. M/ Alabama Power Co., 692 F.2d at 1868 69. M/ In certain prior antitrust reviews involving licenses for nuclear facilitieb in New England, the Attorney General has opined that no antitrust honring was required on the grounds that there was " dramatic improvement in the relations among the various segments of the electric power industry in New England following the formation of NEPOOL and the associated settlement agreement " Northeast Nuclear Energy Co., et 6 Notice of Finding of No Significant Antitrust Changes and Time for Filing Requests for Reevaluation, Dkt. No. 50 423A, Rel. 7590 01 (Aug. 30, 1985) at 4. The proposed NU/PSNil trerger would greatly undercut the ability of NEPOOL to improve relations among utilities, however, by giving the merged company sufficient voting power to veto any action of the NEPOOL Managerr.cnt Committee, Thus the merger, if approved, would (continued...)
s e 4 Arent / Rw 8 1 i
- 11. _ RELATIONSHIP '!O PROCFEDINGH_ HEPORE PERO ,
AND O'!UER FEDERAI, AGENOMI It is not sufficient for the Commission to assume that FERC will adequately condition the proposed mergcr to remedy the serious competitive issues that the merger would create. The FERC AIJs initial 4 Decision, although it correctly found that the merger would give the merged company cot, trol over 'the larg7st source of surplus capacl6y" (la, Seabrook) and '92% of the capacity avaliable for tranamission to New England,*M/ ailed f to address adequately the impact on llG&E that would result from combining such control with NU's existing incentive to block llG&E's access to reliable, economic power sources. The Commission i cannot assume that FERC will correct this deficiency, Moreover, unlike FERC, which is given a 'public interest
- standard to r
apply, the Commission was expressly directed by Congress to ensure ] compliance by nuclear licensees with antitrust laws, and to condition licenses as necessary to achieve that objective. Congress' mandate that the Commission find that a licensee's activities would not
- create or maintain a situation inconsistent with the antitrust laws" requires that the Commission . deny or condition a license if there is a mere " reasonable t
probability" of a violation of the antitrust laws: This command may result in the conditioning of licenses in anticipation of situations which would not, if left to fruition, in fact violate any antitrust law. But Congress intended this broad inquiry _ M/(... continued) actually eliminate many of the benefits that the Attorney General found improved the competitive environment in New England. M/ Initial Decision at 1516. -
- n. . __ _a . _ _ . . . ~ _ _ _ - - , _. . _ _ _ = . ___-____a
/k l'OlI t Fox 9
using all available information to prevent infringement on the antitrust inws in the nuclear power field. Alabamn Power Co.,692 F.2d at 1366. The Commission cannot abdicate its responsibility by deferring entirely to the FEHC It may use the PERC record, but it must take its own fresh look at the facts and apply the statutory standard prescribed by the Act.d/ Applicants attempt to prove too much by claitning that their proposed merger has *been reviewed" by the DOJ and the Federal Trade Commission (*lTC') "without any objections being raised.*M/ A IInrt Scott Hodino filing of a proposed merger is an informational filing only. Imek of n response or objection by DOJ or the 170 does not imply any approval of the proposed rnerger whatsoever, particularly where, as here, other agencies will be responsible for review of anticompetitive impacts. Ill. APPROPRIATE ILEMEDJ llG&E urges tha Commission to deny the proposed merger. In the alternative, the Commission should condition approval of the proposed license trarafer upon NU and PSNH obtaining prior approval of the M/ In its Reconsideration Order, a copy of which is supplied herewith, the SEC defers to the pending FERC decision on competition issuca. The SEC's decision is currently the tubject of an appeal before the U.S. Court of Appeals for the District of Columula Circuit. (See Nos. 91 1001 and 91 1132, filed, respectively, January 4 and March 189, 1991.) Even assuming that the SEC properly deferred to FERC, it must be observed that the Public Utility Holding Company Act of 1935,15 U.S.C. 6 79,e3 gtg., which governs the SEC's review in this matter, does not include the express requirement that the SEC ensure that the merger would not ' create or maintain a situation inconsistent with the antitrust laws" a burden that is uniquely imposed by Congress on this Commission (which is to be resolved with the assistance of the Attorney General), 42 U.S.C. 6 2135(c)(5). U/ Application at 9.
lklTill . !,d OX 10 - propot.ed merger by I'ERC and the SEC, satisfying all conditions imposed by those commissions, and fulfilling the following additionni conditions:
- 1. The merged PSNil/NU thall continue to transmit Pt. Lepreau power to ilG&E for so long as llG&E may extend its contract with New Brunswick to purchar4 Pt. Lepreou power, out of NU/PSNil's share of the New llampshi e Corridor Plan
- grandfather" capacity, and it shall provide transtnission capacity on terms equivalent to those in llG&E's current contract with PSNil.
- 2. Because structural change is necesnary in order to climinate NU's incentive to impose anticompetitive injury on llG&E, approval of the license trnnsfer should be conditioned on AU divesting itself of 1lWP's retail business. At a minimum, NU should be compelled to consolidate llWP into WMECO, NU's other operating company in Massachusetts. This would subject
- - ---- -- -_ J
/kl'Ollt / Fox
. 11 4
HWP to state regulation as a public utility, thereby offering - IIG&E some protection against NU's abusive and anticompetitive J practices involving IIWP. Hespectfully submitted,
' A e ' David J. rdin Steven R. Miles Arent, Fox, Kintner, Plotkin & Kahn 1050 Connecticut Ave., N.W.
Washington, D.C. 20036 5339 (202) 857 6089 Attorneys for the City of Holyoke Oas & Electric Department Enclosures , cci Gordon Edison, Senior Project Manager, Project Directorate 13, Division of Reactor Projects.1/II, NRC Office of Nuclear Reactor ; Regulation
. Joseph .Rutberg, NRC Deputy Assistant General Counsel Ted C. Felgenbaum, President and Chief Executive Officer, New llampshire Yankee Division of PSNil ,
John A. Ritscher, Esq. _ NRC Document' Control Desk k
- , - ,2 e y o.-yew,.----%e.+.-, vy g,--,-,- --79 ,,,#,,,,...,...w,,,,.c,m,,.,,,.,,w-,,,w,,,,,,,,.,-.w., .,cm- --,7-,w-+#-u, - - - , , , , - - - , , y + .v7.+- +-r,
o INDEX OF DOCUMENTS BEING LODGED WITH NRC
- 1. Direct Testimony of Robert J. Reynolds, FERC Docket No.
EC90-10-000, et al, submitted on behalf of the City of Holyoke Gas & Electric Department.
- 2. Direct Testimony of George E. Leary, FERC Doc' et No.
EC90-10-000, et al, submitted on behalf of the City of Holyoke Gas & Electric Department.
- 3. Direct Testimony of Roger C. Allen, FERC Docket No.
EC90-10-000, et al, submitted on behalf of the City of Holyoke Gas & Electric Department.
- 4. Brief of the City of Holyoke Gas & Electric Department on Exceptions, FERC Docket No. EC90-10-000, et al.
- 5. Brief of the City of Holyoke Gas & Electric Department Opposing Exceptions, PERC Docket No. EC90-10-000, et al.
- 6. Motion Requesting Limited Oral Argument before the Commission of City of Holyoke Gas & Electric Department, New Hampshiro Electric Cooperative and MACT Towns, FERC Docket No. EC90-10-000, et al.
- 7. Supplemental Memorandum Opinion and Order Authorizino Acquisition of Public Service Company of New Hamp g-and helated Financings, Granting Requests for Reconsideration; Denying Requests for an Evidentia.
Hearing, SEC File No. 70-7695 (March 15, 1993). 9 ue b
\ '.
r
.- Attachment 1 -
e UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERCY REGULATORY COMMISSION Northeast Utilities Service ) 1 Company ) Docket No. EC90 10 000, et. al. 2 (Re Public Service Co. ) 3 of New Hampshire ) 4 5 PREPARED DIRECT TESTIh0NY OF 6 ROBERT J. REYNOLDS 7 8 I. 1]G10 DUCTION AND
SUMMARY
9 Q. Please state your name, business address and qualifications. ) 10 'A. My name is Robert J. Reynolds and my business addra*s is 1850 K Street, 11 N.W., Washington, D.C. 20006. I am a senior vice president of ICF 12 Consulting Associates, Inc. I received my Ph.D. in economics from 13 Northwestern University, My primary area of specialization has been in 14 microeconomics, particularly as applied to industrial organization,
- 15. antitrust and regulation. In addition to my teaching and research in 16 these fields (at the Universities of Idaho, California, and Cornell),
17 these were my principal areas of focus both at the Anti rust Division of the U.S. Department of Justice and at ICF, Wr :*, the Antitrust 18 19 Division, I was extensively involved in exami, ' sf antitrust and 20 regulatory problems, including substantial work in energy related 21 industries. Similarly, the preponderance of the economic consulting work 22 Il have done since leaving DOJ has been related to antitrust and regulatory 23 problems for both private and government agencies. A more detailed 1
i o INDEX OF DOCUMENTS BEING LODGED WITH NRC
- 1. Direct Testimony of Robert J. Reynolds, FERC Docket No.
EC90-10-000, et al, submitted on behalf of the City of Holyoke Gas & Electric Department.
~
- 2. Direct Testimony of George E. Leary, FERC Docket No.
EC90-10-000, et al, submitted on behalf of the City of Holyoke Gas & Electric Department.
- 3. Direct Testimony of Roger C. Allen, FERC Docket No.
EC90-10-000, et al, submitted on behalf of the City of Holyoke Gas & Electric Department.
- 4. Brief of the City of Holyoke Gas & Electric Department on Exceptions, FERC Docket No. EC90-10-000, et al.
- 5. Brief of the City of Holyoke Gas & Electric Department Opposing Exceptions, FERC Docket No. EC90-10-000, et al.
- 6. Motion Requesting Limited Oral Argument before the Commission of City of Holyoke Gas & Electric Department, New Hampshire Electric Cooperative and KACT Towns, PERC Docket No. EC90-10-000, et al.
- 7. Supplemental Memorandum Opinion and Order Authorizing Acquisition of Public Service Company of New Hampshire and Related Financings, Granting Requests for Reconsideration; Denying Requests for an Evidentiary Hearing, SEC File No. 70-7695 (March 15, 1991).
1 presentation of my experience appears in Exhibit No. .r1 (hJR 4). 2 Q. What is the purpose of your testimony? a 3 A. I havt been retained by intervenors boston Edison Company ("bEco ), 4 Commonwealth Electric Company, Cambridge Electric Light Company, and Canal 5 Electric Company (collectively, *Com/ Electric *). Montaup Electric company 6 ("Montaup"), the City of Holyoke Cas And Electric Department (" HOSE *), and 7 tne New England Cogeneration Association (*NECA*) to asses-', the ' 8 competitive ef f ects of Northeast Utilities (A,("NU) acquisition of Public 9 Service of New Hampshire ("PSNH"). I 10 Q. Would you plesse summarito your conclusions? 11 A. Py analysis of the proposed merger indicates that it increases the ability 12 and incentive of the merged firm (NU/pSNH) to raise significantly the 13 price of delivered bulk power or generating capacity in much of New 14 England, and especially in Rhode Island and Eastern Massachusetts 15 (hereafter, Eastern REMVEC). , 16 First, in the likely event that Seabrook enters service, the 17 consolidation will eliminate PSNH as an important independent seller of 18 bulk power and will increase substantially the concentration of expected surplus generating capacity in New England over the next five years. The 19 20 proposed mer6er also consolidates control over transmission between parts 21 of New England and generating resources both inside and outside of New 22 England, This Sives the merged firm a greater incentive to restrict
- 23. imports of bulk power to the extent that those imports would constrain the 24 delivered price that NU/PSNH would receive for its surplus generatin6 25 capacity. Therefore, the merger creates a real risk that the price of 26 short term contracts for delivered bulk power will be higher than they 2
l
. I 1 otherwise would be. This risk is greatest before 1996, or during the 2 period when the merging companies would otherwise each have held 3 significant expected surplus generating capacity. However, continuing )
1 4 into the late 1990s, NV by itself is expected to hold surplus generating ) 5 capacity. Hence, the consolidation of transmission capacity creates a 6 continuing risk that the merged company will restrict transmission j 7 capacity to raise the delivered price of short term bulk power. 8 Second, the proposed merger also creates a risk that the price of long l 9 term bulk power to utilities in Eastern REMVEC will rise, As explained in 10 the testimony, under certain conditions a firm with contra 7 over 11 transmission has incentives to restrict transmission capacity or access 12 either to sell its own generating capacity or to profit by brokering power 13 sales. 14 Apart from NU/PSRH's ability to raise bulk power prices, the 15 consolidation also will cause a large transfer of income from other New 16 England utilities and their ratepayers to the merged firms and their 17 ratepayers. This transfer occurs because, under NEPOOL rules for 18 determining capability responsibility and "ovn load" dispatch, the merged 19 firm can capture for itself pooling benefits that NEPOOL currently 20 realizes and distributes more broadly across New England ratepayers. By 21 transferring income in this manner, the acquisition may create conflict 22 among NEPOOL participants and may increase the risk of NEP00L's 23 dissolution. 24 Finally, it is my opinion that efficiencies relevant to an analysis of 25 the competiti"e consequences of the acquisition, if present at all, are 26 substantially smaller than those claimed by the applicants: the l 3 l L
1 applicants attribute to the consolidation many savings that could be 2 achieved without the proposed acquisition and therefore, are not relevant 3 to the acquisition. Other savings either are not real or lack adequate 4 empirical support. 5 Q. k' hat frame'tork have you used to analyze the acquisition? 6 A. In analyzing the effects of this acquisition, I have begun by assuming 7 that the choice is between no merger and the merger without any conditions 8 or remedies. I realize, of course, that NU has offered several 9 tri.nsmission agreements and obligations as part of its proposal, and I 10 evaluate the effects of those temedies later. However, there are at least 11 two reasons for initially considering the effects of the merger with no 12 conditions. First, the relative attractiveness of various proposals for 13 remedy cannot be assessed until there is a clear understanding of the
-14 nature of the competitive concerns the merger raises. Second, the 15 applicants' economic witness, Dr. Joseph Kalt, has testified that in his 16 opinion the transmission conditions are not needed because an 17 unconditioned merger raises no competitive concerns (Deposition of Joseph 18 P. Kalt, vol. 1, p. 188). Af ter explaining the anticompetitive potential 19 inherent in this acquisition, I explain why the merger conditions proposed 20 by NU are inadequate to restore competitive conditions to pre merger 21- levels.
22 Q. How is your testimony organized? 23 A .- 'The remainder of my testimony is organized as follows. In the r.sxt 24 section, I discuss the reasons why the merger raises serious antitrust 25' concerns over the approximately four to five year period during which 26 neither New England utilities nor non utility generators ("NUGs") can 4 s
- . . - .. . - - _ - - _ _ - . ~ - . -.
I 1 expand their generating capacity tuch beyond the levels already planned. 2 In my opinion, the merged firm will have the ability to significantly 3 raise the price of delivered wholesale bulk power ar.d to restrict 4 transmission access to New England utilities over this short run tin <e 5* frame. Section 11 also explains why NEP00L's operating rules and 6 procedures cannot prevent these anticompetitive effects. 7 In section III, I question the applicants' assertion that the threat I 8 of long run market power can be dismissed. In section IV, I explain why 9 the merger conditions proposed by the applicants do not adequately address 10 the competitive risks created by the proposed acquisition. Section V 11 contains my analysis of the applicants' efficiencies defense of the 12 consolidation. 13 II. THE ACOUISITION INCREASES THE MERCED FIRM'S ABILITY TO RAISE THE TRICES OF 14 DELIVERED BULK POVER - THE SHORT-RUN 15 Q. Will the proposed acquisition give NU/FSRH the ability to raise the
'16 delivered price of bulk power 7 17 A. My analysis shows that through its effect on both generating and 18 transmission capacity, the proposed acquisition si6 nificantly increases ,
19 the risk that market power will be exercised in pricing short term 20 delivered bulk power to many New England utilities. 21 Utilities in New England frequently purchase short term generating 22 capacity.(see, for axample, Direct Testimony of Walter Schultheis, p. 77
-23 and Initial Testimony of Hilary G. Sayer, Jr.) . There are.several reasons
. 24 why utilities engage in these short term transactions. For example, since 25 utilities cannot forecast load growth perfectly, the demand for
~26. electricity typically will deviate from a utility's planned level of l 27 capacicy. When demand exceeds capacity, the utility will need to buy j $
1 short term bulk power; when den,and is sufficiently below capacity, it will 2 be in the utility's interest to sell bulk power. As another example, a 3 utility may experience a (planned or unplanned) outage at one of its I 6 generating facilities, which leads it to purchsse capacity. 5 Q. What do you mean by short term transactions? I 6 A. Short term transactions are those that extend from a few days to several 7 years. More generally, when economists refer to the short run, they have B in mind a veriod of time that is not sufficiently long to expand espacity. 9 In the elect:1. utility industry, capacity expansions can take up to five 10 years or even longer, 11- Q, What is the principal basis for your concern that the price of short term 12 delivered bulk power will increase? 13 A. NU will have a large share of the surplus generating capacity in New 16 England over most of the next decade even if it does not acquire PSHH. 15 PSNH also will have a large share of surplus generating capacity during 16 the first part of this period, except in the unlikely event that Seabrook 17 does not coms on line, As a result, NU's acquisition of PSNH will give 18 the merged firm an overwhelming share of the forecast surplus capacity 19 1 ild by NEPOOL member utilities during thw 1990s; and it eliminates, as an , 20 independent source of bulk power one of s small number of firms that can 21 be relied on to supply short run wholesale generating capacity to other 2? New England utilities over much of the next decade, 23 An estimate of the merged firm's share of expected surplus capacity
-24 within NEPOOL is presented in Exhibit No.k33. (RJR- ), This exhibit shows the shares derived from Mr. Schultheis' testimony. Based on the merged 25 26 firm's shara alone, the Herfindahl Hirschman Index (RHI) of concentration 6
- 1 of surplus espacity will be well in excess of 5000 from 1994 through 1996.
2 This level of concentration normally raises serious concerns about the . 3 exercise of market power (see, for example, Departnent of Justice, loli 4 Merrer cuidelines). In my opinion, the merger.related increase in 5 concentration increases the risk that the prive of short term bulk power 6 to utilities in New England vill rise. This risk is greatest over 7 approximately the next five years, during which those utilities cannot 8 generally bring on line new, unplanned generating capacity (see Sayer,
-9 Initial Testimony) or transmission capacity (see Schultheis, Direct 10 Testimony, p. 171).
11 Q. Is it your opinion that the merger can not affect the prices for short. 12 tera delivered bulk power for a period longer than five years? 13 A. No. The merger related risk of higher short term capacity prices will is remain even after five years. Utilities continually make decisions to buy 15 or sell short term capacity .. that is, they are always operatint in the 16 short run. Hence, af ter 1995 NEPOOL nienbers still vill engage in short. I 17 term capacity transactions. Further _there may be many occasions when 18 utilities inside Eastern REMVEC will want either to purchase such capacity' 19 _from or sell it to entities located outside that territory. On nnese 20 occasions when NU/pSK11 also has surplus capacity to sell, itr merger. 21 related increase in control over transmission access to Eastern REMVEC 22 vill increase the risk of antico:tpetitive behavior. The current 23 projections are that NU. by itself, vill be in a substantial surplus 24 position through 1998 99, 25 Q, Hight the high levels of _ concentration of surplus generating capacity 26 somehow overstato the risk that the merger vill increase delivered bulk 7
i 1 power prices in New England? There are two reasons why it might be argued that the levels of g 2 A. 3 concentration shown in Exhibit No. fa[$ (RJR. .) overstate the risk that 4 NU/PSNH will be able to increase the price of short term capacity in New
$ England after the merger. First, it might be contended that NEP00L's 6 rules and procedures could prevent the exercise of market power.
7 Specifically, NEP00L members who want to avoid purchasing capacity can B
" lean on the pool" and pay only the capacity adjustment and deficiency 9 charges that are set by NEPOOL.
1C Second, utilities outside of New England may have surplus capacity or 11 inergy to sell to utilities inside New England. I' power from outside New 12 England could be delivered at prices very similar to the prices that would 13 prevail inside New England but for the mer6er, such capacity could 14 constrain the exercise of market power by NU/PSNH. 15 However, neither of these postulated restraints can prevent NU/PSNH 16 from exercising market power. 17 Q. Please explain why, in your opinion, NEP00L's rules and procedures will 18 not prevent an increase in the price of short term capacity. 19 A. To answer this question it is useful first to describe NEP00L's 20 procedures. NEPDOL members are assigned " capability responsibilities" 21 which require each utility to maintain a specified amount of generating 22 capacity for NEPOOL to dispatch. Capacity requirements are roughly 23 proportional to the relative peak loads of the members (Schultheis, Direct 24 Testimony, p. 52). A member who is in deficit is expected to add capacity to meet its capability responsibility. (See Testimony of Jerrilynne Purdy 25 26 and Hilary Sayer.) This can be accomplished in the short term by 8
1 acquiring ovnership in or rights to capacity ovned by other NEPOOL meebers 3 or to capacity owned by generators who are not NEPOOL menuers (Schultheis, 3 Direr . Testimony, p. 51) . The prices for these capacity rights are the i 4 result of " market" negotiations between independent parties, rather than i
$ being determined by NEPOOL.
I 6 A NEPOOL member that does not meet its capability responsibility by 7 either constructing its own capacity or negotiating contracts for the ) l capacity belonging to other generators " leans on the pool." When this 8 l 9 happens, NEPOOL assesses the capacity short utility adjustment and l 10 deficiency chartes that are directly crc.ated to the number of HW that it 11 is deficient (S('aultheis, Direct Teetisuny, p. 53), In recent years, 12 thest charges, which are determined by NEP00L, have been approximately 13 equal to the annual capital charge for turbine or peaking units, which are 14 a relatively inexpensive source of capacity (Schultheis, Direct Testimony, , 15 pp. 54 55). 16 Q. Please explain why " leaning on the pool" cannot be expected to prevent 17 !!U/PSNH from exercising market power over short term capacity 18 transactions. 19 A. There are three reasons why "leanin6 on the pool" will tend to be an
-20 ineffective constraint on the market power of NU/PShm. First, when the 21 market prien falls significantly below the pool's deficiency charge, it is 22 logically impossible for F.aning a the pool to prevent the' exercise of 23 market power since price increases up to approximately the level of the 14' deficiency charge would not induce leaning. In recent years, buyers have 85 frequently purchased capacity rights at effective prices that are less than the cost of capacity associated with leaning on the pool. For 26 9
1
1 1 exanple, based on BSco's recent buying experience, the current capacity 2 price is substantially below NEP00L's adjustment and deficiency charges. 3 (See Purdy Testimony.) 4 Second, there is substantial reason to believe that NEPOOL members 5 will not be allowed continua 11*, to lean on the pool . Such behavior would 6 violett- the spirit, if not the letter, of the NEPOOL agreement, under 7 which each member is expectcd to maintain adequate capacity, except in B extenuating circumstances. (See, for exanple, Purdy Testimony, Schultheis 9 Deposition, pp. 160 161, Com/ Electric, Response to FERC Staff's First Set 10 of Data kequests, OEP/ INT 1 33, and NU Response to FERC Staff Request, . 11 March 26, 1990, Q.0EP/ APP 033.) If some of its members began relying on 12 deficiency paymente as their means of staying in compliance, substantial 13 strains will be created within NEPOOL (Schultheis Deposition, pp, 169-14 175). 15 Support for this belief is provided by the fact that NEP00L members 16 have been willing at times to pay negotiated prices for capacity which 17 have been considerably higher than the price, calculated on an " apples to-18 apples basis, associated with meeting their capability responsibility by 19 leaning on the pool. (See Testimony of Jeri Purdy.) 20 Third, NU/PSNH ran put pressure on NEP00L to raise adjustment and
- 21 deficiency charges by threatening to retire generating units. That is, it 22 could make higher charges the guid RI2 gun for not retiring some surplus 23 capacity. Further, if NU/PSN11 retires some of its high cost surplus 24 capacity, it vill reduce the NEPDOL capacity available for members, who 25 are in deficit, to lean on.
26 Q. Can regulation eliminate any risk that the merged firm can raise the 10
I delivered price of short term bulk power? 2 A. Although regulation may circumscribe the exercise of market power by 3 electric utilities, 1 do not believe that, as a practi:a1 matter, it will 4 prevent prices for surplus capacity from increasing significantly abcee
$ the expected prices absent this merger. The behavior of prices ptid by 6 Eastern REMVEC utilities for short term generating capacity provides 7 support for the conclu ion that regulation does not tightly constrain such 8 prices. por example, over the past several years the price that BEco has 9 paid for generating capacity to meet its capability responsibilities has 10 fluctuated dramatically (see Testimony of Jeri Perdy). This wide range of 11 _ prices indicates that utilities have substantial latitude in what they 12 charge for capacity. Indeed, Walter Schultheis even describes the means 13 by which utilities are able to exercise discretion over the prices
< 14 charged. Specifically, he expla.ns (Direct Testimony, pp. 90 91) how NU d 15 varies its capacity prices to meet the competition by offering prospective 16 buyers different slices of the NU system. This pricing flexibility 17 indicates that regulation will not prevent the merged firm from selling generating capacity at higher prices in the less competitive post merger 16 19 environment. 20 Q. Can utilities inside Eastern REMVEC, and other utilities dependent on the 21 merged firm's transmission facilities, turn to alternative suppliers 22 located outside of New England to prevent the merged firm from raising the , 23 delivered price of short term bulk power? 34 A. In my opinion, the merger substantially increases the likelihood that 25 utilities inside Eastern REMVEC will not be able to obtain reliable short-26 term transmission service to generation sources outside New England 11
I 4 1 without paying higher prices for delivered bulk power, My concerns f j 2 regarding the availability of trant.ission capseity stem from the ; 3 following factors. 4 First, the quantity of uncommitted transmission capacity into New
$ England south of Maine that is, capacity available to meet demands for i
6 short term generating capacity from these suppliers vill be largely 7 controlled by just two utilities, RU/FSNH and NEES. Much of the liaine/New 8 Hampshire interface is currently committed, and NU control.s almost all of 9 the New York /New England interface which is uncommitted. ($6a Schultheis. 10 Direct Testimony, p. 133 137 and Booz, Allen 6 Hamilton, The Impact on l 11 Connecticut of Northeast Utilities proposed Acquisition of Public Service 12 of New Hampshire, April 20, 1990, p. IV 2T). In addition, the merger 13 substantially increases the control of one firm. NU/PSNH, over the 14 uncommitted capacity linking Eastern REMVEC with the rest of New T,ngland 15 by combinin6 NU's uncommitted capacity to New York, with PSNH's 16 uncommitted capacity across the North /Sout.h interface, 17 Various transmission sha:e measures related to this transaction have , 18 been put forward by other witnesses, For example, according to Mr.
- 19 Schultheis, there is.approximately 1400 KW of transfer capability between 20 New York and New England, of which KU currently dans appr<' imately 72 21 percent (Direct Testimony at __ and Exhibit No. __. (WTS 19). When 22 completed, Hydro Quebec vill provide approximately 2000 :V ' transfor 23 capability between Canada and New England (Direct Testimony sc ) and 24 together, NU and PSNH will control approximately 33 percent of this 25- capacity. Finally, PSNH owns 100 percent of the 1200 MV interface between 26 Maine and New Hampshire. These figures indicate that, absent any mer6'ar 12
. . ._ _ . . . - _ _ . m . .- _ .~
1 conditions involving transmirsion, the roerged firm would control on the 2 orderof2,865Md(orover60 percent)oftheapproximately6.603AVof 3 istport capability f rom New York and Canada IK+ 1 iver New England (L1, 4 New England excluding Maine). 5 Ownership shares of the transmissior, (nterfe es between Eastern 6 REMVEC and the rest of New England are eveh more concentrated. !@'s own 7- witnesses have indicated that, absent any nerger conditions, IN/PSNR will 8 own caproximately 60 percent of the transmission capacity into Eastern 0 REMVEC see Table A 5, " Tie Line 06metship Into Eastern REMVEC " .Exhihit 10 No. (JPK 36)), U Second, for generating capacity outside of a utility's territory to be 12 counted toward the utility's capability responsioility, the transmission 13 for delivering the energy must (in practice, if not in name) be 14 "reaoonably" firm. Given the past availability of transmission capacity 15- in New England, this has meant that NEPOCL members have not actually had 16 to contract for firm transmission service, because there was a lov 17 probability that non firm service will be interrupted. However, if 18 reliable transmission capacity becomes difficult to obtain without 19 actually contracting for firm service, NEPOOL may no longer permit 20 capacity to be counted toward a utility's capability responsibility when a
- 21. utility does not have firm transmissiori service. (See tW Response to TERC 22- Staff Request, March 26, 1990, Q 0EP/ APP 035, a,(1)) Thus, even absent 23 opportunistic behavior by the prAncipal post merger provider of 24 uncommitted short term transmit:aion capacity, the capacity available may 25 not be firm enough for the ' import" to count for purposes of capability 26 responsibility. If it does not count, the purchaser will also have to pay 13
_ _ _ _ g
1 a deficiency charge. 2 Q How would the mer'ger affect utilities located inside NU's se rvice 3 territory? } 4 A. These utilities might also have to pay higher prices for short term bulk 5 power contracts. Absent the merger, they too could have benefitted from l' 6 competition between PSNil and NU for generation. The merger will m t
'7 change their transmission dependency on NU, but, given regulation of 6 transmission, it is possible that delivered prices will rise after the 9 acquisition.
10 _Q. How would an_ exercise of market power by NU/PSNil affect economic 11 _ e f fie.iency? ; 12 5. The exercise of short-run market power by NU/PSNil can reduce economic 13 efficiency in several ways, First, by preventing NEP00L members from w 14 contracting for less expensive sources of delivered bulk power outside of 15 New England, the merged firm can reduce the efficiency of NEP00L's ( 16 operations. Specifically, the average cost of energy consumed inside New 17 England will rise if NEPOOL cannot dispatch low cost sources of energy 18 that, absent the merger, would be available. As 1 explained above, 19 NU/PSFM will have incentives to withhold transmission capacity or to offer , 20 it on less competitive terms, so that it can improve the terms under uhich 21 its own surplus generating capacity is soid, lience, the mer6er creates a 22 significant risk tbst NEP00L will be dispatching units that, on average, 23 have higher operating costs. 24 A merger.related increase in the price of short. tern delivered bulk power also will induce certain capacity related inefficiencies. For 25 26- examplo, higher bulk power prices will induce Eastern REMVEC utilities to 14 's
?
I bueld generating capacity inside their territory sooner than they
-2 otherwise would and to invest in DSM programs at an earl.er date. There 3 are at least two inefficiencies associated with this. In general, firms 4 that expand capacity or develop programs more rapidly than they would if 5 input prices were competitive will incur costs that could be avoided 6 following a slower development path. Thus, for example, a DSM program 7 ;at would coat ?10 million to develop over 3 years may cost $12 million 8 to develop over just 2 years.
9 In addition, a merger induced increase in the price of short term i 10 delivered bulk power may encourage Eastern REMVLC utilit 's to invest in 11 more total capacity, to avoid dependency on the merged NU/PSNH, than they 12 would otherwise. As a result, the total stock of generating capacity will 13 be larger than necessary to achieve desired levels of reliability. 14 III. ADVERSE EFFECTS OF THE MERGER IN THE LONG RUN 15 16 Q. Will the NU/PSNH merger have effects beyond the continued problemo you 17 described that occur when utilities engage in short. tun bulk power 18 trs:.;; tions to compensate for d " etions in demand from their projected 19 levels? 20 A. Yes. In addition to the contJ-"ing "short-run" effects, there is a 21 likelihood that the merger will increase NU's ability to control the price 22 of delivered bulk power, even after utilities buying delivered bulk power 23 or transmission have had time to bring their capacity in line with their 24 projected demand. To analyze this situation, I will abstract from the 25 normal short-run deviations that can be expected to occur between load and 26 capacity, I then ask to what extent the proposed merger, by increasing 27 control over transmiss'en, woul; allow NU/PSNH to profitably raise the 15 s
L . i ., A price fer its generating capacity or to profitably breker pewer? Vhether 2- NU can profitably restrict transmission access depends on two separate 3 issues: can NU restrict iccess and will it be profitable to do so? 4 Q. How can NU restrict access to transmission? 1 5 A. As noted above, the proposed merger will significant1, consolidate control 6 of transmission access. This will give NU/PSNH the ability to restrict 7 transmis= ion access un'.'ess other utilities can economically build 8 tr.nsnfssion fac'11 ties across NU/PSNH's service territory. However, as a
.9 general mat:er, NU/PSNH will possess a significant cost and time advantage 10 over other utilities in c structing incremental transmission capacity 11 across its territory. Thus another New England utility could not 12 reasonably expect to bypass NU/PSNH by constructing a new transmission 13- rib ht-of way across its territory at costs comparable to those incurred by
- 14. the merged firm.
15 In addition, a utility that trys to bypass NU/PSNH by building across 16 its service teer '. tory could expect substantial and effective opposition by FU/PSNH at lccal tegulatory and siting agencies. (See Deposition of 17 18 Robert O. Bigelow, May 18, 1990, p. 91. Mr. Bigelow opined it would be 19 " impossible" to build across another utility's service territory in the 20 face of that utility's opposition. See also Proiect Hercules Uodate, 21 presented to NU's Board of Directors on June 28, 1989, in which NU management indicated that "the right of eminent domain" was among the h 22 23 assets NU would be acquiring.)
'24 The merger also will give NU/PSNH a veto within NEP00L. NEPOOL rules 25 allow it to direct a member to construct needed transmission facilities 26 for the benefit of the pool. Although it is open to question whether 16 i
1 NEPOOL would ever compel a member to construct facilities against the 2 member's will, the merger gives NU/PSNH the right to block such action. 3 Indeed, one of the merger related benefits mentioned in NU's ' Hart Scott-4 Rodino" 4C documents is a stronger position in NEP00L (See " Attachment 6, 5 Management Presentation to Bill Ellis," p. 9, and " Attachment 11, 6 Potential Affiliations,' p.9) . 7 Q. Will NU/PSNH find restricting transmission access to be profitable? 8 A. To answer this question, I must first provide some simplified, analytical 9 tsekground. In general, one would expect long run equilibrium flows of 1s power between two regions unless the supply curves for power were 11 perfectly clastic and identical. (I am abstracting here from short term 12 economy a:;;hanges and focusing on the long run plans utilities in each 13 region would make to serve their loads.) If both supply curves are 14 pet factly clastic and transmission is supplied at constant cost, then 15 there are two possible outcomes. One is autarky, in which case each 16 region supplies all of its own needs. The other is specialization, in 17 which case one reBion generates the power for both regions. In fact, 18 however, we observe in Eastern REMVEC that utilities plan on a mix of
'19 generation located in Eastern REMVEC and long term imports of bulk power 20- from NUCs and other utilities to meet their loads. This implies that the 21 supply cutve for power in at least one of the regions, or in both regions, 22 is upward sloping (not perfectly clastic) .
23- Q. What is the relevance of observed long term power flows? 24- A. This implies that an entity controlling transmission between the regions-25 - may find a restriction on transmission to be profitable, either to 26 increase the' price of surplus generation it has to sell, or to profit from 17
6 9 1- opportunities for brokering, 2 Witness Kalt recognizes this possibility, but argues that because the 3 supply of generation (especially NUCs) and DSM was highly or perfectly 4 elat tic within Eas tern REMVEC, that the rertriction of transmission access 5 would not be profitable, 6 Q. Do you agree with Dr. Kalt that the evidence put forth by him compels the 7 conclusion that NU/PSKH could not profitably restrict transmission access? 8 A. No. Dr. Kalt's arguments concerning the supply elasticity of generation 9 are not specific to Eastern REMVEC, If he is correct, the long run supply 10 of generation would be highly elastic in all regions. However, in this 11 case one should not observe Eastern REMVEC utilities choosing a mixture of 12 own generation and long term imports to meet their loads. Civer this 13 mixture, as noted above, at least one supply curve must be upward sloping. 14 15 Further, there is substantial reason to believe that the supply curve 16 for generation within Eastern REMVEC is less clastic (more upward sloping) 17 than the supply, curve for imports to Eastern REMVEC. This is so for two 18 re e.s ons . First, it is generally acknowledged that siting'is considerably 19 more difficult to arrange within Eastern REMVEC than outside (See 20 Testimony of Richard L. Levitan). Second, Eastern REMVEC's imports will 21 be small relative to the total generation of regions which export to 21 Eastern REMVEC. This implica that changes in imports to Eastern REMVEC 23 will have a very small effect on the delivered price of such imports. 24 With Eastern REMVEC utilities relying on a mixture of generation located 25' in and outside of Eastern REMVEC and with the Eastern REMVEC supply curve 26' less elastic (more upward sloping) than the supply curve for imports, it 18
-A must be the case that the Eastern REMVEC supply curve intersects the 3- import supply curve from below, Under these circumstances, the merger can 3 increase incentives to restrict transmission.
-4 Q. -Please explain why N'J/PSNH might possess an incentive to restrict 5 transmission access.
6 A. As I noted, there are two possible sources for the incentive; to increase 7 the price of its own surplus generating capacity or to profit from buying 8 and selling powe: which I will call brokering. I first explain the 9 incentive related to its own surplus generation. As an exporter to 1 110 Eastern REMVEC, NU/PSNH can, under certain circumstances, benefit from 11 restricting the imports.of others by ~1imiting the availability of 18 transmission, Imports are the. marginal source of supply (because the 13 supply curve for generation within Eastern REMVEC intersects tne import 14- supply curve from below), so restricting imports will increase the price 15 of delivered bulk power in Eastern REMVEC, When KU/PSNH controls 16 transmission, it can reduce imports without reducing its own sales to 17 Eastern REKVEC; that is, other exporters can be made to bear the output 18 reduction thrcugh transmission restrictions. NU/PSNH's profits increase 19 on sales of surplus generating capacity to Eastern REMVEC, since its price 20 increases but.its volume does not fall, Hence, by concentrating control 21- over long term transmission access to Eastern REMVEC in the hands of a 22 utility that has ~ surplus generating capacity, the merger affects the 23 likelihood of anticompetitive behavior. 24 Even if NU/PSNH did not export its own . generation to Eastern REMVEC, 25 it might profit by brokering the exports of others. Specifically, it can 12 6 require other exporters to sell their power to NU/PSRH at a low price and 19 l l l
9 then resell the power to Eastern REMVEC at higher prices. Further, unless 1" 2 NU/PSNH could perfectly price discriminate, which is highly unlikely, the 3 exercise of market power through brokering would reduce economic 4 efficiency. 5 Q. Would restriction of transmission affect the cost of capacity built in 6 Eastern REMVEC? 7 A. Yes, transmission restrictions also would increase the cost of new 8 generation capacity built inside Eastern REMVEC. The economic viability 9 of generation projects inside Eastern REMVEC . affected by the
. 10 availability of transmission out of Eastern REMVEC, since owners of those 11 generating facilities will sometimes have short term bulk power they would 12 like to export. If transmission out of Eastern REKVEC is relatively open, 13 then generation projects there will be more viable. In particular, the ._14 net price an-Eastetr REKVEC utility's customers must pay over the life 15 cycle of a project is reduced by the amount of the export revenue.
15 'Q . Is there documentary evidence that more restrictive transmission 17 conditions could increase the price of delivered bulk power? 18- A. Yes. First, NU apparently considered the anticompetitive effect as part 19 of its planning for the transaction. NU recognized that the merger could 20 affect the likelihc - that state regulators would exclude some of its 21 generation capacit; *irom the rate base. The 4C documents contain several
'22 references to the acquisition solving NU's excess capacity problem and 231 . reducing the risk of excess capacity disa11:wances. This ic consistent 24 with the acquisition making it easier for-NU to dispose of its excess 25 capacity at prices high enough so that Connecticut regulators would not 26 assess penalties on the sales or exclude the generating units from the 20
1 I A rate base. In addition, the 40 documents clearly indicate that the merger i 2- will create increased opportunities for NU to engage in brokering between 3 low cost bulk power sources such as New York and Canada, and high cost 4 regions suen as Eastern REMVEt 5 Q. Dr. Kalt also argued that DSM is in highly elastic supply, and that this 6 would make it unprofitable te increase bulk power prices to consuming 7 utilities. Do you agree with n'.s conclusion? 8 A DSM consists of a wide range of utility funded programs that encourage 9- customers to reduce their demand for electricity, particularly their 10 demand during peak load periods, If peak load demand is reduced by, say, 11 100 MW, a utility can meet its load and related reserve responsibility 12 with about 120 fewer MWs of generating capacity, thereby saving the costs J13 - associated with investments in that capacity. DSM programs include 11 4 expenditures to encourage customers to purchase ener5y efficient 15 appliances and lighting, to install energy storage systems which are ,
=16' capable of shifting energy demands to off peak periods, and to increase 17 the energy efficiency of their homes or businesses. (See , for example ,
18 Bo ton Edison, "Long Range Integrated Resource Plan 1990 2014," May 1, 19 ,so, B 32), 20 The cost of a DSM program can be calculated in a number of ways, 21 including dollars per MW of capacity saved. A utility faces an clastic 22 supply of DSM programs if it can reduce the amount of capacity 'needed to 23 meet its peak loau at a relatively constant cost per MW saved. For 24' example,-suppose that a utility can reduce the capacity needed to meet its load by 10 MW by spending $10.million. If it can reduce capacity by 25L 26 another 10 MW by spending an additional $10.2 million, then the supply of 21
l' DSM will be relatively elastic. Howevir, if another 10 MV reduction in 2 the utility's needed capacity will cost $20 or $30 million, then the 1 3 supply of DSM will be relatively inelastic. 4 Although Dr Kalt argues that there is a highly elastic supply of DSM 5 at the margin, studies by Boston Edison, EUA (Montaup), tiU, and UI(United 6 Illuminating) lead me to reach a different conclusion. For example, these 7 studies-indicate that the benefit / cost ration of DSM projects already 8 adopted vary widely and are not concentrated near the value 1.0. (See 9 Boston Edison, "Long Range Integrated Resource Plan, 1990 2014," Volume I, 10 May 1,1990, p. B 25; EUA Service Corporatien, "A Screening and Evaluation 11 of Demand Side Management Opportunities," March 1989, p. 29; Western 12 Massachusetts Electric Co., " Conservation and Load Management Program Plan 13 for the 1990's , Executive Summary," September 1989, p. $; and " . . .Section 14 -Three: Lost Effectiveness Testing," March 1990, p. 36; and United 15 Illuminating Co., " Energy Action '90," p. IV-6). If the DSM projects are 16 ranked, starting with the ones with the highest benefit / cost ratios, the 17 differences in the ratios indicates that additional increments of demand reduction are successively more expensive. This implies that the supply-18 19 e lasticity os DSM programs already adopted has not been high. 20 The lack of concentration of past projects near the value 1.0 also 21 suggests that there were not in the past a large number of DSM programs 22 that were just barely worth adopting. Nor do the utilities' studies 23 provide any indication that thera is a substantial reservoir of unadopted 24 DSM projects, with benefit / cost ratios only slightly less than 1.0 at 25 current power prices. From these considerations, I infer that there is 26 not a highly elastic supply of DSM programs that could be adopted if 22
1 prices for bulk power were to rise. 2 Q. Has Dr, Kalt prop'erly applied the principles outlined in the Department of 3= Justice 1984 Merrer Guidelines to justify his inclusion of DSM in the same 4 product narket as generating capacity? 5 A. No. According to the Mercer Guidelines, generating capacity would be in a 6 separate product market from DSM if a hypothetical monopolist of such 7 capacity could profitably increase wholesale bulk power prices by a small 8 but significant amount for a non transitory period of time. However, in 9 his deposition (pp. 105 109), Dr. Kalt clearly indicated that he did not 10 analyze the product raarket in this way. 11 Q. What is the basis for your conclusion that the supply of NUCs is not 12 highly elastic? 13 -A. The flow of power into Eastern REMVEC suggests increasing supply costs for 14 the reasons discussed above. In addition, there are at least two reasons
- 15 why expansion of generation within Eastern REKVEC likely would entail 16 increasing costs, and that would suggest, therefore, that NUG supply is 17 not highly elastic. .First, potential generation sites are unlikely to be 18 equally attractive or available at similar costs. As the better sites are 19 used, the cost of additional supply will increase, recond, natural gas 12 0 may not be available at constat.t cost for all new NUCs. Sig Prepared 21 Direct Testimony of Richard L. Levitan, Carlos A. Riva and Joseph P.
22 Kearney. l l-I. 23 i
-. .- ~ . ~. ..
1 IV, REMEDIES: THE NATURE OF ADEOUATE REMEDIES AND THE REASONS VHY NU's 2 ' FROPOSED TRANSMISSION CONDITIONS ARE INADEOUATE 3 -Q. Have you reviewed the transmission conditions proposed by NU? 4 A. Yes, NU har proposed transmission conditions which, according to Mr. 5 Schultheis, provide " assurance that the PSNH acquisition will improve the 6 competitive situation in New England" (Direct Testimony, p. 156). In my 7 opinion, however, the conditions are inadequate as remedies to the 8 anticompetitive effects I have -identified. 9 Q. Before discussing what you believe are appropriate conditions for 10 remedying the problems created by this merger, could you briefly summarize 11 the NU propocal. 12 A. The Corridor Proposal cts acide 400 MV of transmission across New 13 Hampshire and Massachusetts, Under the terms of the NEES settlement, NEES 14 acquires rights to 200 MV of this capacity, and the rest is available to 15 customers in Eastern REMVEC, Existing obligations count against the 400
.16 MW, Thus, only a portion of the 400 MW represents incremental 17 transmission capacity, 1B This capacity will be priced initially according to an embedded cost 19 formula that has not yet been filed at the FERC. When NU constructs new 20 f acilities, a party that has taken corridor service is obli ated 6 to pay a 21 portion of the charges for new facilities, whether it requested additional -22 ' capacity-or not. In addition, utilities must sign long term cormaitments 23 to obtain a share of this capacity.
24 Under its transmission commitments, NU/PSNH will file tariffs for firm 25 and non firm ' transmission for transactions of less than five years. If
.26 adequate capacity is not available, NU promises to build new transmission 27 facilities if it is assured that it will recover the (incremental) costs 24
. . __ . _ ~ _ __ _ _ ___
1 of the new facility through' customer commitments for long term support.
~
2- " Firm" transmission customers will be obligated to pay for a share of new 4 I 3 construction, although again no details have-been provided. NU retains 4 ultimate authority to decide what new facilities are needed to continue to 1 5 provide the service and what the cost of those facilities is. An 6 a&6rieved party can appeal to the FERC if it disagreed with UU/PSNH's 7 . decisions. NU proposes specific priorities for allocating capacity during 8 periods of shortage. For example, during the first ten years, 9 transminsion in support of NU/PSNH's bulk power sales receives higher 10 priority than transmission to support the power sales of third parties. 11 Q. In your opinion, do the NU proposals eliminate the competitive risks that, 12 according to your testimony, the proposed merger would create? 13 A. No, they do not.
'14 Q. Please explain what conditions would be needed to eliminate the risks to 15_ which the proposed merger gives rise. - 16 A. I have identified competitive concerns with respect to the delivered 17 prices of both short- and long term bulk power. - Therefore, it is useful 18 to discuss separately the principles that would underlie effective 19 remedies to the short run and long run issues.
20 In my opinion, there are two possible approaches to solving the short-21 .run problem. The first approach involves divesting sufficient 22 entitlements to short run generation and transmission capacity to restore the competitive conditions that would have obtained in the supply of 23 L24 short term' delivered bulk power absent the proposed merger. Of course, 25 generating capacity can be used only by a NEP00L member to meet its 26 capability responsibility if it is bundled with sufficiently firm 25
? I transmission services. Therefore, the entitlaments to the divested 2 generation capacity also must include entitlements to transmission 3 facilities that can be used to deliver the capacity to the border of 4 NU/PSNH's service territory. Moreover, the entitlements to transmission 5 would have to be of sufficiently high priority at appropriately related 6 prices that NU could not frustrate the relief by claiming that the 7 necessary transmission was not available or by overpricing what is 8 available, 9 The second possible approach to solving the short term probles 10_ involves providing short term transmission service to existing gene 1 stion
-11 supplies outside New England and outside of Eastern REKVEC. The principle 12 behind a transmission only solution is to enable sellers and buyers 13 outside and within New England to create the same competitive environment .
L4 for short term generating capacity sales that competition in a no merger 15 world would have provided. This means that UU/PSNH must make enough 16 short run transmission capacity available to import the short term generating capacity that PSNH could have provided. Further, the prices or 17 18 tariffs for this transmission capacity must be both low enough and firm 19 enough to make it economic for buyers to import delivered bulk power if
-20 generating capacity prices in New England rise above the level that would l 21' have existed absent the. merger.. j 22 Of course, a transmission solution to the short run (or for that j
23 matter in the long run) problem will be ineffective if there are tactics l
.that the merged company can use to deny transmission access. For example, 24 l '25 suppose that, despite its commitments, RU/PSNH is able to prevent short-term generating capacity from being imported. For example, the company 26 26
-1 could falsely claim that transmission capacity is not available, or alter 3 its operating practices to reduce the transfer capacity of an interface.
3 . Clearly,-under these circumstances a transmission solution will not be 4 effective.
$. Q, In.what respects do NU's proposed conditions fall short of the principles 6 you just outlined for restoring the pre merger competitive conditions in 7 the supply of short run bulk power?
8 A. First, NU certainly has not proposed any divestitures; its proposals fall 9 in the transmission only category. Under NU's Corridor Proposal, 10 utilities must commit to purchase long term capacity, and they cannot know 11 in advance just how much that capacity will cost them. Therefore, the 12 Corridor Proposal does not really provide access to short term 13 generation / transmission capacity under the same terms that an independent 14 PSNH could provide such capacity.
.15 Under its proposed transmission commitments, NU has offered to provide 16 firm short term capacity. - itcwever, because there is very little 17 uncommitted transmission capacity available to utilities outside New-18 . England and there are indications of increasing " tightness" of .
19 transmission capacity, there is no reason to eMpect that prospective
-20 buyers would receive transmicsion access sufficient to rv, lace the short-21 -term competitive influence of an independant PSNH. In particular, the 22 potential'ly limited availability.o; unaommitted transmission capacity 23 raises a serious question in my mind whether in the future capacity 24 purchesed outside of New England could be counted on to meet a NEPOOL 25 member's capability responsibility.
26 In summary, I believe that NU's proposals for restoring short term 27 I l l
In my
-1 competitive conditions to the status que ex ante are inadequate.
a
-2 judgment, substantially stronger conditions or safeguards" would be 3 necessary.
4 Q. Please explain what conditions will be necessary to eliminate the risk 5 that the merger will increase delivered prices of planned or long term 6 bulk power. 7 A. The risk that eelivered prices for long term bulk _ power will increase can 8 be eliminated by creating for NU/PSNH the same incentives that an 9 independent PSNH_would have had to build additional transmission capacity. 10 There are essentially three ways to achieve this goal. The first approach 11 is to make NU divest surplus generating capacity it is expected to have 12 af ter the mid 1990s - that is, af ter the date by which an independent 13 PSNH would have little or no surplus generating capacity. If NU/PSNH has 14 no surplus generating capacity after that date, then an important merger-15 related incentive not to expand transmission capacity will be eliminated. 16 A second approach to remedying the long term problem involves 17 creating. appropriate incentives carrots and/or sticks -- for the 18 merged-firm to expand transmission capacity as freely as an 191 independent PSNH would have done. In periods wnen PSNH by itself 20 would not have possessed significant surplus generation, it would have 21 had no significant incentives-(related to such surplus) for refusing 22 to construct new transmission facilities. Of course, very careful . J23 consideration would have to be given to designing the incentives.
' A third approach would be to give an entity other than NU control over 24 25 decisions to expand transmission capacity. This entity would also have to 26' function usins an appropriate set of rules. In particular, it should 28
-.(
1- order the construction of new facilities only if the present value of the 2 expected stream of revenues from the facilities equals or exceeds the 3 present value of the expected stream of costs. 4 Q. In what respects do NU's proposed conditions fall short of the principles 5 you just outlined for restoring the pre merger competitive conditions in 6 the supply of long run transmission capacity? 7 A. NU's proposal fits none of the three alternatives, and is therefore
-8 inadequate. It does not propese divestiture, NU/PSNH will possess 9 incentives to restrict ce struction of new transmission during periods 10 when an independent PSNy would not, since the merged company will still 11 possess significant surplus generation in the late 1990s. Finally.
- 12' NU/PSNH retains the ultimate authority to decide whether to construct new 13 transmission facilities; control of those decisions is not ceded to an 14 entity which has no financial incentive to refuse or delay construction 15 either to improve sales of its own surplus generating capacity or gain 16 from brokering.
17 V. EFFICIENCIES FROM THE ACOUISITION 18 Q. Have you reviewed the " synergies" claimed by NU's witnesses? 19 A. -Yes. NU's witnesser discuss several " synergies" associated with the 20 proposed merger. These relate to the operation and maintenance of the 21 Seabrook nuclear power plant, improved availability of PSNH's fossil steam 22 generating units, energy expense savings achie'ved by the more efficient 23- own load dispatch of the generation resources of NU/PSNH, reduction in the 24 combined systems' NEPOOL capability responsibility resulting from the 25 diversity of peak loads between PSNH and the NY system, savings in 26 administrative and general expenses, and savings in coal purchasing costs 29 s
11 for PSNH.
.2_ Q, What standards would you apply in evaluating these synergies?
~3 A. For any cost savings to be viewed as an offset against the competitive 4 risks posed by a merger, it is necessary for two standards to be met.
5 First, the cost savings must be achievable only through the merger. ,e 6 In other words, if the cost savings can be achieved through alternative 7 means which do not pose the same ecmpetitive risk (such as may be possible 0- through contracts or joint ventures in some circumstances), then the cost 9 savings are clearly not relevant to offsetting the harm to competition. 10 Second, the cost savings cust be "real" (e.g., not at the expense of 11 other parties or overstated due to inappropriate calculations). Real, 12 merger related cost savings will occur when there is an underlying economy 13 of scale or economy of scope that is realized only as a result of a 14 merger. However, in evaluating these potential economies, it is necessary 15 -to examine the total costs of the firm, because economies of scale in one 16 . area may be offset by diseconomics of scale in another area. (See, for 17 example, the discussion of efficiencies in the paper by Frederick R, 18 Warren Boulton, formerly Deputy Assistant Attorney General for Economic 19 Analysis - Antitrust Division,- U.S. Department of Justice, entitled 20 " Implications of U.S. Experience with Horizontal Mergers and Takeovers for
-21 Canadian Competition Policy," in The Law and Economics of competition 22 Poliev, forthcoming).
23- Q. How do the energy expense savings achieved under NEP00L's calculations 'of 24 "own load" dispatch of the Beneration resources of KU/PSNH and the 25- reduction in the combined systems' NEPOOL capability responsibility 26 resulting from the diversity of peak load between PSNH and the NU system 30 l l
-- . ~ ~ - . - . . . - . - . . . - - . . -- ~ .- - - - . . . ~. . ~ ~ . - . - - -
x -- L1 fare when evaluated using these-standards? f3: A. -These alleged " synergies" fare the_ones that are most clearly achievable 3 only through:the proposed merger. However, as recognized by the in)-
-a witnesses, these savings represent a. benefit only to NU/PSNH, and are
,5l completely offset by increased costs to the rest of NEP00L (see, for 6 example, Mr. Sabatino's testimony at pp.13 and 17, and Mr. Noyes' Exhibit
= 7J LJWN 2). _Thus_these " synergies" represent a_ purely __ private gain, and not a 8 real social benefit' .'As a result, these " synergies" should not be viewed 9~- as an offset to'the reduction as competition associated with the merger,
~
10 In addition, the loss to other members would place added stress on NEP00L 11 and increase the risk of its dissolution. 112 Q. Please elaborate on the risk to NEP00L created by the merger. J 13; _ A.- - This acquisition increases the risk of NEPOOL becoming unviable. As just il4 explained', under NEP00L's rules the merger will create a substantial shif t > 15 -intthe' net benefits (benefits less costs) of NEPOOL to NU/PSNH and1 f rom 116 the rest of'NEP00L's members. Further, because the merger would provide-17- =NU'with:a veto within=NEP00L, NU can prevent: efforts by the other members 118; of NEPOOL to mitigate _these: financial effects of'the merger. 119 - Further, NU's .40. documents note that NEPOOL relationships already are . 20- under increading stress. (See " Attachment 7,-SpecialLTrustee Briefing,- NU 21 Ac.quisition of PSNH," p.16) . ' NU'siown calculation ' regarding whether it - L22 should remair. within.NEPOOL may be.affected by the merger, -On the~one 23- hand, while NU/PSNH can capture =more of.the benefits of NEPOOL, as 24_ Eexplained above, it can also achieve-advantages of system diversity on its 25: sown. :(The same 4C documents-mention that the-. merge related increase in-126 = size provides an advantage in- surviUing _ a_ breakup of NEPOOL) . On the. 31 h
- 4',.,- '
, ,0-, rm - , , . . - - ~ , -- -- -
4
-1 other hand, as suggested by Dr. Kalt, insofar as the rules and procedures -2 of NEPOOL limit the ability of a member to exercise market power, 3 defection becomes more attractive because it increases freedom to exercise 4 market power.
5 Q. What are the results of your analysis with regard to the remaining 6 synergies? 7 A. The remaining synergies described by NU's witnesses, insofar as they are B real, could generally be achieved without the merger. Moreover, the 9 magnitude of savings for many of the synergies may be overstated, and NU 10 has failed to provide sufficient evidence of their existence and 11 magnitude, 12 Q. How do these conclusions apply to NU's claimed savings from operation and 13- maintenance of the Seabrook nuclear power plant? 14 A. Mr. Opeka / Direct Testimony, pp. 31 33) estimates that NU would save 15 approximately $62.5 million on the operation and maintenance (06M) of 16 Seabrook in 1991, "primarily by reducing NHY's dependence on outside 17 contractors." Mr. Noyes (Direct Testimony, pp 1516 and Exhibit JWN 2) 18 presents a net present value figure of $780 million for the Seabrook O&M 19 savings, based on Mr. Sabatino's escalation of the 1991 estimate through 20 the year 2002 (Direct Testimony, pp. 7 10), and assuming that the savings 21 continue in perpetuity at a constant nominal dollar ' level beyond that 22 year. (Mr. Noyes applies the same approach to calculate the net present 23 value for the other synergy categories discussed below). 24 The principal economic defect in the Seabrook O&M synergy claim is 25 that, if the potential savings were really as great as stated by NU's g 26 witnesses, there would be a strong incentive without the mercer for UU and 32 I
M 1 PSNH to reach a contractual agreement providing for NU's operation of the 2 facility. NU has failed to-show that the claimed Seabrook cost savingt 3 could not be achieved through contracting. Further, it is likely that any 4 real cost savings that exist could be achieved through contracting, 5 because the function involved is simply facilities management. As a 6 result of the potential to achieve the Seabrook cost savings through 7 contracting, the claimed cost savings should not be counted as a synergy 8 resulting from the merger. In effect, NU has failed to show the " nexus" s 9 between the merger and the claimed economy. 10 In addition, it appears that any Seabrook cost savings would be 11 considerably smaller than claimed by the NU witnesses. The $62.5 million 12 cost scTing in 1991 is based on comparing a cost projection of 13 approximately $95 million, based on NU's Millstone 3 plant, versus a 14 figure of $157.5 million derived from the O&M budget presented by New 15 Hampshire Yankee (NHY) in December 1989. Howrver, Edward Brown, the 16 president and chief executive officer of New Hampshire Yankee, testified 17 that the major differences between the NHY and NU figures are explained 18 by: (1) expenses that are unique to Seabrook, such as extraordinary 19 er3rgency plan requirements; (2) the spreading of common costs, such as 20 for. security, over three units at Hillstone versus one unit at Seabrook; 21 and (3) the fact that 1991 is a refueling year for Seabrook, whereas the 22 Millstone figure is based on an average of 3 or 4 years, of which one was 23 a refueling year and the others involved lower cost normal operations.
' 24 Mr. Brown estimated that, at most, annual savings of $5 to $10 million i
25 might be achieved as a restit of consolidation of- staff in A6G and l 26 en61 neering. (See testimony of Edward A. Brown before the State of New - l-33 l> 1
l 4 1 Hampshire Public Utilities Commission, April 25, 1990 RE: DR 89 244 2-Northeast Utilities /Public Service Company of New Hampshire 3 Reorganization.) o Q. How do your conclusions apply to NU's claimed savinBs from improved
.5 . availability of PSNH's fossil steam generating units?
6 A. Mr. Opeka (Direct Testimony, p. 40) notes that NU's fossil steam plants 7 achieved a -capacity weighted average availability far.cor of 86.8 percent 6 for the 1985 1988 period, while PSNH'r. units achie,$d a factor of 74.8 9 percent during the same period. He states that, to be conservative, NU 10 projects that they could improve PSNH's fossil steam unit availability by 11 five percent by 1995, in one percent annual increments (Direct Testimony,
-- 12 p. 42). The net present value of these estimates presented by Mr. Noyes 13 in Exhibit JWN-2 is approximately $73 million.
14' Mr. Opeka (Direct Testimony, pp. 44 52) describes several NU 15 management practices and systems. However, Hr, Opeka has not demonstrated 16 that the lower availability factors for PSNH are due to items that NU can 17 remedy: he has not shown how PSNH's current operations are different from 18 NU's, nor has he demonstrated that the NU practices and systems would 19 raise PSNE's availability factor. Further, even if the NU practices and 20 systems could increase PSNH's availability factors, the same issue as 21 discussed regarding Seabrook applies NU could sell its management 22 services independently of the merger. Hence, NU has again failed to show 23 the " nexus" between the merger and the alleged efficiency which is 24 necessary for the synergy to weigh against competitive harms resulting 25 from the merger. 26 Q, How do your conclusions apply to NU's claimed cost savings with respect to L 34 i l
i a 1 administrative and general expenses (A60)? 2 A. Mr. Noyes (Direct Testimony, pp. 7 11) estimates that these savings will 3 -result from sharing of administrative costs, reduction in staff by 4 approximately 100 positions, and increased ability to obtain volume 5 discounts in purchasing. He estimateA that the not present value of these 6 savings is approximately $124 million (Exhibit JVN 2) . However, 7 demonstrating these A&G economies requires more evidence than the NU 8 witnesses have presented. In particular, they would have to provide 9 evidence ,f scale economies with respect to A6G expense. An example of 10 this type of analysis would be a cross section comparison of different
- 11. sized utilities, showing that A&G expense as a percentage of total revenue 12 fell as firm size increased. Further, it would be necessary to show that 13 NU and PSNH are in the size range where further reductions in A&C expense 14 are possible. Analyses such as these would also require, inter alia, that 15 both A&G expense and total revenue be consistently defined across firms.
16 Q. How d your conclusions apply to NU's claimed savings in coal carenasing 17 costs for PSNH7 18 A. NU bases this " synergy" on its recent experience in purchasit g coal at 19- approximately $2 per ton less than PSNH, and calculates a pressnt value 20 for the coal purchasing savings of approximately $39 million (D; rect Testimony of John W. -Noyes, pp.1415 and Exhibits JWN 2 and JWN 4) . 21 22 However, NU has not demonstrated that its calculations provide a 23 consistent, " apples to apples" comparison of coal contract costs. For 24 example, there are indications that NU bases its savings on use of spot 25 market purchases instead of long term fixed price contracts. (See
~26 " Attachment 12," Prepared by F.P. Sabatino, 11/29/89, at p. 12). A 35 o
q4 . 3
.y I _ '_
-- l i consistent comparison of' coal: costs would require adjustment for contract
- 31- features (eig. . length of contract,- year in which signed) as well as the 3: various characteristics of the coal purchased. Further, even if it could be shown, after making an apples to apples comparison, that NU's
$1 organization could achieve: lower coal costs,-that ability would be a 6 marketable service which could be provided to PSNH throu6h contracting.
Thus, the coal purchasing " savings" should not be counted as a benefit of-
~
the proposed merger, since NU has not shown that those are real, merger-
;9l '
- dependent, savings 10' Q .- Could you summarize your evaluation of the NU synergy claims?
g :11) _A. The synergies claimed by NV's witnesses should r.ot te counted as offsets L12 a gainst' the competitive -risks posed by the merger, First, the energy expense savings achieved through NEP00L's calculations of "own load
- 14 - dispatch" and the ^ reduction in NEPOOL capability responsibility resulting
- 15 from peak load' diversity are-benefits only to NU/PSNH, with offsetting 11 6 increases in cost to the rest of-NEP00L, 417- NU has not_provided persuasive evidence that'the claimed cost savings
-:18 from operation and maintenance of the Seabrook nuclear power plant, from 19 improved availability of PSNH's fossil: steam generating units, or from 20 (reduced' coal purchasing costs for PSNH would really occur. Further; if
;21 any of- those savings are real, they could likely.be achieved without the
- 22 - ' merger,
,- M23 Nor has NU provided evidence that the claimed savings in
!24 administrative and general-expenses are real. - Further, if some economies
$25 : of'scalej canLbe demonstratednin this area, it would be necessary to-
'26D -examineaosts in other areas of the merged firms' operations; since a=
36 i
.- . ~ . . . - - -
J
'l merger can creat diseconomies of scain, as sell as economics, it is.
~
- 2. necessary to verify that it is not simply the favorable (i.e., areas of
.3 economies) which are being presented.
4 VII. CONCLUSION 5' Q. k' hat is your conclusion? 6 A. This acquisition should not be approved without appropriate conditions to 7 eliminate .the potential for the exercise of market power,
-8 4
37
p, CF N n;; O sv
- ::M; . . .
v
^
l m% 4 k.. 'n - i
. 4 ct
'b l {. ?'3 1 NIY t V i y . - w -
{ -n . ^ bd
.=).,' . ' r ; Q j > ~.
(r
. 1Q- 'f . ' ' - - -
( 1
$ ,t -;
I? '. r M n Exhibit Nos.34(GEL-1) h@C"'7 ]i
, through Mo_ _(GEL s) wt a 1, w
t v , ,
~f ^
k y j d. i m '> e-- m . s :f M_'i:tb UNITED STATES OF AMER!cA j , J$ p{ , w e , [ , ,#: y BEI) ORE THE- 4 m.w m, $ 2 9, m -. , 7@6Tihh
$ d9, . JEDERAb EN.ERGY REGULATORY COMMISSION -
. , s n
,t ,wr . ,
I '[ I .;
' i t t
[{. y, ,
,_: - 7:'
c
-M 3 t at ._ l -
lN 1 S.N %a i O.1 1 L
>>1 g . , A -". 1 :;t y
_a 4 3 'j' , .-}#,5- 1
] {c i g q(
' H : ' .;-i
=m '
}A
, , e,- o ; ,
;.t ..
i ' (' (
- y. .
m t. 3 w , r n. x : ); .
, 3 ,
ON 4Nortlienst(Utilities Servise Compan)T 1 l Docket Nos.iEC9010 000. . . , Ogg W (.R. iPutslie Service Compan.y. ofNew
- )-
HER90-143v000(ER90,144-000h -- Mm W, ' NHa,inpshire)3? W~ W ' ' a
' '" mM 7
i.- x s 54,7 .p
, .- )s - .
q
?ER. 90;145 000iEL90 9 f0001 - .
, m e.
3 +- c = , J.. ~W 9- g; ' g,t i s ;
'
- s
~ '. .. ' .i 5 I !
- iR A ' h
- 2>4l [
t.., j . . a W..s, Q'd ' , cp,, ,,ic,. ;& - g".- s ,' , 9 ! ,.4~ ..'. .m -. q qc "a, .' ,r's 2 y+ - ' a :9
^t 3,-2 u.- ,v> -
a.
; p.,.. ,
,y fuj Sf. ; 3s 2 1 - s -
y 4 ; .c r._ 1 t i.. k' ( h ' '
,gi ')N b-
.tu A 1 i e s i ,
s ,L !,3 n0 N, s%. .
'c. <
d ff MC- '_ ^ _. < , f" .'[{ y t \= '
- 3;7 fji i'
, i1 ..
, 3 MQ.E.; I ' .a 1! TIlEPkRED DIRicWTESTIMONW ,
, ? -f a
- , ~ w w'g.'
nip r . .. . ; .n' p.- p. ., s ,e .'3
;c q 4
4 s . c .o 3.13 t.- i i ,4 3
/
7,4 . . ; -
..[.
.;;s - N- ..-.g = ,', '.g, .
. . e ;;j $ ; n _.
l' ? 3,W i . 3 . 3' J)' j s yb Q..qy3 4 h' 4 ' ','.)., yh -j .', f h-w ..,".y y , i\;e 5.s.. -s- s 4 ,
\,3 ;i
, ., a ,
r 1 ' 1.: j#p
'r.' ; u' 1 t " - -
, ' ,,9 s qy( , g' y _g; t
{ .j ym' g'aj +t s' 10.t.zu- , , < , 1 W W' c , , U- V. , sh. .u. ,
, e r:
' ' s 4 .
s
.j
~ , .
m
,o - i i
r
; A D
* ' QE
} 'l ' -S ' s t ,rt_ _, i g .
o: + r .'.. s m 1 % , ., < n i 6 s i 4
! 'i 3 .
F ' '1 w y,y ( e:, n , s .. ~. = , , p@:., . . ,K]m M@qg x' .r
*1
?L we, ,
jG$0,RGEtE3EhR,
.i ,
M .~ . -h j , ' ,
, h hi [ b ,
, IN u uy.f_ m t ., n : 'M ;, ,? w- . .
~
r
^
5 W O' t +
.,.,,-d a
..,me .,
i
-g 1
' f3 mc r .
f
- n. 1
; h
.h i ' : i M, } , y F.f b t 'g -'.'[
W( * . ,, , ;
'9,'*
l&yl %m.M/hQ& , Q D. j .< a g "p di' 1\(
; r
- r
.._k.-a.,
1
,_ 3
$)' .'gg.}, p.ins' 4,_-
-3
' 7nib ., f ' A
[ ii ~ + . e ys L;f 'r; ; ,; '
,1
;. f
?.b m><[M .
'f -
- q ,
-.i-..- ,,- .-$.[. ) 4 ,
i s 7
, r b,i,
! k'!) (
s 'I 3 t - + A
. ;,,,y{, ,y i
i , L
\'.'
2 - .= ~ .h .
'i,
' (1 y t g e
,1 Exhibit $ (GEL-1) l DIRECT TESTIMONY OF GEORGE E. LEARY
,_. 1 Identification and Qualifict:tionc -{
2- Q PIEASE STATE YOUR NAME, POSITION AND ADDRPSS. 3 Al I am George E. Leary, Manager of the City of 'iolyoke Gas & Electric. 4 Departrnent (HG&E). My business address is 70 Suffolk Street, Holyoke, MA F -01040. E 6- Q PLEASE STATE YOUR PROFESSIONAL Q~UAllFICATIONS. 7 .A I have held my present position with HG&E since 1978. My formal education _1 is in electrical engineering (B.S.1965) and business administration (M.B.A. i 2 ~1976). Exhibit N .(GEL 2) summarizes - my professional training and 8 experience. 4 Conclusions -
'5 Q- PLEASE SET FORnl YOUR CONCLUSIONS.
C A The NU application'should be-disanproved. The past behavior of NU and its - 7- - subsidiaries indicates that they are likely to act anticompetitively, to evsde
'81 Federal Energy Regulatory Commission. (FERC) regulation, to frustrate-
- 9. HG&E's enjoyment of its statutory rights under the Federal Power Act, and 10 to elirninate HGkE as a competitor to Holyoke Water Power Company (HWP),
11 NU's wholly owned subsidiary. If the merger is consummated, and if the 12 FERC approves other aspects of NU's proposal, NU will have both the 13 incentive and the increased- ability to injure HG&E. 14 .Q WHAT 'IS THE BASIS FOR YOUR CONCLUSIONS? 15L A My conclusions are based on my own testimony and that of Roger C. Allen 16 presented on behalf-of HG&E, concerning competitive issues of HG&E, My 17 conclusions als6 accord with testimony of several other witnesses.
._. _. . . _ . _ _ . _ . ~ . . _ _ _._ . _ _ . _ .._ _ . _ _ _ . _ ~ _ - - . , _ _ . . y 2
- t. 1 Q DO YOU ADVOCATE CONDITIONAL APPROVAL BY Tile 1%tC?
2 A- No, I urge outright disapproval. _ However, if the FERC approves any of NU's
- proposals it should, at a minimum, impose the following conditions:
4 1. NU.may not consummate the merger until it has filed and secured - 5 FERC final approval (including denial of rehearing) for (a) an appropriate
-6 just and reasonable regional transmission arrangement which provides for 7 transmission access, joint, rates, and timely construction .of additional 8 transmission capacity, (b) both chort term and long-term NU $ransmisstan 9 tariffs, including -joint rates on all the NU affiliates as well as local 10 transmission among the small utilities that are Tra tsmiselon Dependent 11 Utilities (TDUs) within NU's service area, including munit.ipal utilities ,
12' adjacent to HG&E. 13- 2. - NU may not consummate the merger until!t divests itself of HWP. 114 Such 'a divestiture would remove a strong incentive to discriminate against L HG&E at the expense of our customers. A divesti*nre remedy would 16- eliminate the need for cumbersome, protracted regulatory supervision, It 17- appears that the FERC did not approve NU's acquisition of HWP in the first
'18 place. Moreover the representations, or circumstances,which led the SEC to l 19- . approve that NU--acquisition in 1967 are not operative. j 1
20 = 8. NU may not consummate the merger until it establishes a separate 1 l
~
~21: subsidiary to own and operate its transmission facilities and appoints an -
22 '.- ombudsman for: customer interests. An expanded NU would dominate -]
.) *: 23 transmission _ service in -its _ region. There is a need to streamline NU's 24 responsiveness to regional needs, including negotiation and compliance with <
1 25 the Federal Power Act. Accountability should be clearly established within 1 1
-26 the NU structure. The transmission function should be accorded enhanced 1
i
. ., , - . , _ .l
i 3- . 1- status and visibility. Regulation normally assumes that the regulated utilities ; 2 will comply with fundamental requirements and that the FERC will not have 3 to police e,ery action and detect every evasion. NU's behavior as scofflaw 4 and predator. negates the normal presumptions. Appointment of an 5 ombudsman would help correct past 1) adequacies and assure better future 6: performance.
-7 Aiticompetitivo Behavipe s 8 Q= PLEASE ILLUbTRA'IE THE Ah"I'ICOMPf71TIYVE BEHAVIOR 'IO WHICII YOU 9 REFER.
10 A To illustrate these problems, I will refer to a history of anticompetitive tie-11- in sales with regard to NU subsidiary HWP in its competition with HG&E for 12 industrial loads, to the current effort by NU to tie continued provision to
-13 - HG&E of Northfield Mountain pumped storagc capacity to Lase load capacity 14- which HG&E does not want, and to NU's attempted price squeezing of HG&E
'15 by unilaterally quadrupling NU's transmission rates for Point Lepreau power.
16 1, . H v P tie-ins, HWP was historically a land owning company which 17 constructed a system of canals, tapping the Connecticut River, and which
~18 planned the City of Holyoke's industrial development. HWP continues to own 19 most of the land suitable for development in Holyoke. HWP has been, and 20- . continues to be uniquely situated and the preponderant supplier of land in'-
21 Holyoke for industrial' purposes. Holyoke continues to be an attractive and 22 hospitable, site for: industry. Under Massachusetts law, most indus". rial L l-
-.- 23 customers in Holyoke are free to choose between HWP and HG&E as their 24 electricity supplier and are statutorily free to switch supplier. The two E 25 systems own and construct duplicate distribution lines, down the saine 26 streets, rarely sharing poles. Despite the inefficiency of duplicative o
[ . 4 1 facilities, such competition, if honestly conducted, could offer benefits to the 2 industrial customer and quite possibly to the industrial development of Holyoke. HG&E competes honestly for such loads. By honestly, I mean 3 4 competition as to electric service, including price, adequacy and reliability of 5 service, and conditions for initiation of service. HG&E does riot attempt to 6 take advantage of the City of Holyoke's other municipal services (e.g., J 7 natural gas, sewage, water) which industrial customers need and t!c any 8 aspect of their provision to that industry's selection of HG&E in preference 9 to mVP as supplier of electricity. HWP, in contrast, has made it a practice 10 to tie the sale of land to an agreement to buy electricity from mVP rather 11 than HG&E. mVP de~ls include a restriction against taking the land out of 12 industrial use (which would eliminate MVP's right to sell electricity to the 13 land user). HWP has also leased land to industries (with nominal mortgages) 14 and sold them electricty. 1$ It is striking that the selection of an electricity supplier by new 1 16 industries or by industries expanding their facilities in Holyoke generally l'7 correlates with whether mVP land is involved: 18 --- Where MVP land is no,t, involved, the industrial customer takes 19 advantage of competition (as one would expect) to negotiate back and forth > I- 20 with both utilities for the best deal possible; and, I might add, HG&E tends 21 to win out. 22 --- Where HWP innd is involved, mVP always wins out. Indeed, the
, 23 industrial customer does not even approach HG&E, much less negotiate with 24 us, as to terms and conditions of electricity purchases.
25 2. Northfield Mountain pumped storage. NU " bundles" electricity f 26 services together analogously to the way it ties electricity sales to sales of ; l l 1
_ _ m . - _ _-_ _ _ _ __ . _ . . _ . _ . _ _ _ _ _ . . _ _ _ _ _ _ _ _ _ _ _ _ _ - t i 1 land. As with the land tie ins, services are not priced and sold on their 2 h.dividual merits, rxd customera are deprived of choosing the services that 3 they want. For about twenty years, llG&E has been buying a distinct 4 ("unbundled') peaking service from NU. IIG&E's 3 megawatt (mW) unit 5 purchase of capacity from the Northfield Mountain pumped storage facility, a liccused by the FERC, complements HG&E's base load power supplies. HGkE 7 has purchased Nuthfield Mountain capacity pursuant to short term, firm 8 contracts, which NU has periodically extended. Two years ago, HG&E 9 requested another extension, starting November 1,1990. NU refused. 10 instead, it offered HG&E a " bundled
- sersico that Nb enlis
- Slice of the 11 System,* which includes $rthfield Mountait peaking capacity, Millstone HI 12 nucicht base load capacity and other base land and intermediate capntity.
13 HG&E already has enough nuclear capacity under contract, the combined 14 price of which HG&E secured at lower costs than the costs of NU'a nuclear in offerings cr of NU'o Glice of the System. We want to continue to buy the 3 16 inW of peaking capacity from NU separntely ("unbundled") from any other 17 power supplies. NU has thus far refused, thereby tr34 ng to ram se mn 18 throats its high cost Millstone III nuclear power (over and ab , ew own 19 share of Millstone III, which is 3.6 mW). We has ' rent.on to expect that, if 20 the FERC approves NU's current proposals, NU will amend its " Slice of 21 System" offering to also try to ram down our throats the high cost Seabrook 22 Luclear power NU proposes to acquire from PSNH (over and above our own
. 23 share of Seabrook).
24 3. Point Lepreau transmission r-ice squeeze; HGkE's principal source 25 of energy today is a purchac from the New Brunswick (Canada) Hydro. 26 Electric Commission (NBHC) at its Point Lepreau power plant. Mr. Allen's
3 P 6 I testimony sets ft G llG&E's experience with NU's abrupt attempt tv more
- 2 thnn quadruple the price it charges for its small part of the transmission of i
3 this electricity bought by llGkE. Under the circumstances, the prico { i 4 increase bears no relationship to any cost increases, is blatantly 5 discriminatory, and is designed to impose costs that will injure llG&E's 6 competitive strength. It was a predatory move. 7 NU installed its price increase ur. der circumstances that effectively , 8 undermined 'tCAE's ability to seek regulatory relief. NU cmployed the 9 expedient of not filin,' tb increased rate contract. That left ilG&E no 10 satisfactory option. We could have complained under section 206 of the 11 Federal Power Act, in which case the burden of proof would have been on 12 IlG&E, and waited, perhaps indefinitely, for the FEllC to schedule a hearing. la That option would not have been effective. So llGkE at first resisted 14 paying the higher me because it had not been filed, had not been examined 15 by the FERC or its staff, and had not been nubject to suspension for the 16 statutory period. When NU threatened IIG&E's continued enjoyment of that li service to bring in its economical Point Lepreau supply, llG&E had no choice 18 but to sign a document dated on its cover 1 November 1988. Thereafter, 19 with NU's merger proposal and Seabreak contracts pending before the FERC, 20 NU has taken a more concillatory stand, tendering (on February 26,1990) a 21 substituto contract, also dated on its cover 1 November 1988, which *merely" 22 doubles the pre November 1988 rate.
- 23 I find it disturbing that HWP's Form 1 Annual Renort to the FERC for 24 1988 did not dir,close as an important Change During the Year (Form 1, 4
25 pages 108109) that HWP had m >re than quadrupled a transmission rate to l
7
.. IIG&E, one of only two non affiliated wheeling customers from which that 2 Form 1 reports transmission revenues.
3 Q WOULD I!WP AND NU ILAVE AN INCENTIVE 'IO MAXIMIZE IIWP'S 4 INDUSTRIAL RA.LES IN TIIE IVrURE7 5 A Yes. Most of IIWP's revenues come from its industrial sales. My Exhibit 6 3D (GEL 3) provides details based on ITWP's 1988 FEIIC Form 1 Annual
? Report which is supported by the related Massachusetts Supplement.
8 Although the Massachusetts Department of Public Utilities (DPU) roccives 9 information reports from IIWP, the DPU does not have regulatory jurisdiction 10 over any of IIWP's electric rates or practices. When the Securities A 11 Exchange Commission (SEC) approved NU's acquisition of IIWP in 1967, it 12 relied in part on its finding that IIWP and its subsidiar3, llolyoke Power & 13 Electric Company (IIP &E), 'will ... continue to be subject to regulation by 14 the Massachusetts Department of Public Utilities (Maes.DPUI and the Federal 15 Power Commission. ISee my Exhibit 3d(GEL 4),1 11owever, the Supreme 16 Judicial Court of Massachusetts indicated in 1969 that ilWP is deemed a 17 manufacturing company, rather than a public utility, both for purposes of 18 DPU regulatory jurisdiction and for purposes of locni real property taxation. 19 It appears that the Mass.DPU has never regulated IIWP's electricity business. 20 See Exhibit,333 (GEL-4). The Federal Power Commission (FPC) did not 21 approve NU's acquisition of 11%P. 22 Given the unregulated nature of HWP's business and the opportunities 23 for cross subsidization, NU and IlWP have every incentive to maximize their 24 profit takirc in IIWP. They may even have a chance to evade DPU 25 regulation of the retail rates of the other NU subsidiaries and, possibly, of 26 FERC regulation of wholesale rates, by shifting HWP costs to those 1
e 8
. I customers, including HO&E, Documents produced during the course af 2 discovery demonstrate the sensitivity and attention of liWP and NU 3 management to their competition with IIG&E for retallindustrialloads. (See 4 m) Exhibit 3%D(GEL.5).1 IIG&E's published industrial rates result in almost 5 Adentical bills with the published industrial rates of NU's regulated 6 subsidiary, WMECO, which sells at retail in nearby Springfield. As best we 7 can determine, IIWP's unregulated and unpublished rates yield slightly lower 8 bills and llG&E is conducting a cost of service study which will help 9 determine how we may compete most effectively for IIWP's retail load.
10 Escalating NU transmission rates could thwart ilG&E competitive efforts. 11 Q 11AS '!1tEftE EVElt llEEN AN ACTUAL EFFOltT '30 TAKE OVElt IIG&EE 12 ELECTIUCITY BUSINFRS7 IS A Yes. HWP unsuccessfully tried, in 1966, to lease all of IIG&E's facilities and 14 to take over and profit from the administration of HG&E's business. 15 Q IS TilEllE ANY REASON 'IO EXPECT 'IllAT APPitOVAL OF NU'S 16 PITOPOSAIR WOIJLD M AKE MATIVJtS YOU !! AVE SET FOtt'111 ANY WORSE? 17 A Definitely yes. I have already mentioned my anticipation that NU will 18 attempt to,ndd high cost Seabrcok power acquired from PSMI to itt
- Slice 19 of the System" alternative, to the detriment of HG&E and eM ather potential
'A0 wholesale customers. Moreover, acquisition of PSNH's transmission system 21 (on which HG&E also depends for delivery of Point Lepreau power) will give 22 NU more power and opportunities to squeeze HGkE by raising transmission 23 rates, it will have a chance to impose higher PSN*1 rates on transmission 24 on behalf of HG&E just as it has imposed higher rates for the present NU 25 transmission. When the rates finally receive FEitC review, NU may well 26 have a greater likelihood of success to the extent it divides up the s
i l
- . 9 I burdensome rate increases. At the least, it will be able to tuck them away 2 in more proceedings, dividing the resources of those who oppose the 3 increase. In addition, the substantive impact may seem smaller to the FERC, 4 reducing the chances of exercise of the full, statutory suspension power.
1
-5 Since FERC resolution of rate increases filed under Section 205 of the 6 Federal Power Act (as well as Section 206 complaint proceedings) is time.
7 consuming, to say the least, every opportunity NU has to take advantage or 8 delay will severely diminish liG&E's competitive posture. As NU's economic 9- and political power multiplies, it will become ever harder to protect the , 10 interests of HG&E's customers. 11 - Q- WIIAT IIARM WOULD BE CAUSED TO IIG&E IF TIIE PERC DEIAYS 12 BOLVING TIIE TRANSMISSION ACCESS, AVAIIAROJTY, PRICING, la DISCRIMINA'nON, AND PRICE SQUFEZE PROllLEMS UNTIL AF'!T.R NU l'4 CONSUMMA'ITE TtIE MERGER? 15 A HG&E might have to wait forever for relief, while suffering consequences of 16 the merger in fact. In our experience, the FERC's impetus for early 17 decision on these NU appifcations is extraordinary. Other cases, where 18 relief is sought by customers of p211e utilities (who, one would think, 19 should be the beneficiaries of regulation) FERC procedures seem well nigh 20 interminabic, so that the v caker party must settle for the best it can get, 21 without the berafit of the FERC acting as tribune for the weak or
- 22 oppreswi. NU is already a very powerful company, economically and.
. ' 23 politically. .NU is already the largest electric utility in New England, serving 24- in our region's two most populous states. Add New Hampshire to the service 25 territory, with two additional U.S. Senators to be cultivated, with the early 26 -attention of every Presidential candidate and, at times, with the White House
,.m., , .. ,-,..,-w-.,.-%- v-- ,e,. ... -,-+.,,,.,---r,-.we- , ... , _.,,,v.m.,-wm ,=v-- --- , -.-..-----.-,.---.-.,#----v,-e-.,,. .. - - - - = - - -,..w. . . + , -
i l 10 4 1 Chief of Staff interested in its affairs, and NU will add to its power. IIG&E 2 can only expect to find itself weaker and weaker against a swollen Goliath. 3- In my judgment, the FERC should be mindful of the admonition of the U.S. 4 Supreme Court in Brown Shoe Company v. United States regarding the 5 " desirability of retaining ' local control' over industry" and that laws to 6 control mergers are nimed not only against " accelerated concentraton of 7 cconomic power on economic grounds, but also of the threat to other values 8 a trend toward concentration was thought to pose." Volume 370 United 9 States Supreme Court Reports 294, at pages 315 316 (1961). 10 Q WOULD 'ITIE PROPOSED MEROFR fil'IMULA'IE INEFFICIENCIES? 11 A Yes. As Mr. Allen's testimony indicates, NU's attempts to impose excessive 12 transmission rates may force llG&E into inefficient decisions. I 13 Q -IIAS _ IIG&E SOUGifT FROM NU A IDCAL TRANSMISSION TARIFF 14 ARRANGEMENT 'IO FACILITATE TRANSACT 10NS %TIll O'!1IFR TDUs OF 15 NU? 16 A Yes. NU would not cooperate. NU's policy of negotiating every 17 transmission arrangement contract by contract facilitates their resistance. 18 The contrary example of NEPCO, which offers transmission, long term as 19 well short term, under tariffs filed with and approved by the FERC, after 20 negotiation with the affected municipal utilities, highlights the unsatisfactory 21 behavior of NU.
- 22 Q WifY DO -YOU SAY--NU EVADES FERC RFX1ULA'I10N?
, 23 A As Mr. Allen shows, for example, NU does not comply with the FERC's -
24 mandatory filing requirements and deadlines for new rates and changes in 25 rates. By scoffing at these requirements, NU effectively takes away 26 protections to which its customers are entitled. It would not be consistent r r
I l
. \
l l 11 I with the public interest to approve NU's proposals so long as the FERC has 2 no ironclad guarantee that the scoffisw has permanently cleaned up its act, 3 Q DOES TIIIS CONCLUDE YOUIL TtWrIMONY? 4 A It does. 9
%w
- , e .-
..n --- - . - , ,, -.
UNITED STATE $ OF AMERICA l BEFORE THE FEDERAL ENERGY REGULATORY , t- , NORTHEAST UTILITIES SERVICE COMPANY Docket Nos. EC90 10,000 l i (Re Public Service Company of New ER90 143 000, ER90 144-000, Hampshire) ER90 145 000, and EL90 9 000 - i AFFIDAVIT OF WITNESS I the undersigned, being duly sworn, deposes and says that the Prepared Direct Testimony of' GEORGE E. LEARY served on behalf of the City of Holyoke Gas & Electric- Department in--this- proceeding is..the testimony of the-undersigned, and that the exhibits sponsored by me to the best of my . , knowledge, information and belief, are true, correct, accurate and complete, and 1 hereby. adopt said testimony as if given by me in formal hearing, under j I oath. ji , y'.-( f\(.A u k'oREft. LEKkY j
. \.'
SUBSCRIBED AND SWORN to before me, a Notary Public in the County of A Hampdon, Commonwealth of Massachusetts, on this 18th day of May,1990. P
,f .
-i n A , . . .e / /i- , < v: , c ,
Catherine M. Gauthitr Notary Public-My commission expires: - : s ."'y 4> i
.,e ...,-,*h=-4w6,4.i -gde> .*,-,-ren- e-e-am e ar m.r--.,w-----,- e,-e. rw e em,.w-y m r,,,,.,-,e -y,,,,e ..w..-,ww ,, m rg,c ,,v -e-ag w w- o -nm-*-,wvww -
.--w+ma-w*r7'r
Exhibit 3MGEL 2) Page 1 of 2 , QUAIFICA'HONS OF GEOltGE E. IEAHY Mhnager City of Ilolyoke, Maasachuactts Gas & Electric Department Education 1976 Masters Degree in Business Administration from Western New England College. 1965 Graduate of University of Massachusetts with B.S. Degree in Electrical Engineering. 1965 90 Attended vnrious seminars and workshops in the fields of personnel administration, management and engineering. Experience 1978- Manager, llolyoke Gas & Electric Department l Under three member governing board has charge of operation of municipal gas and electric department with 140 employees, $35 million of gross revenues. 1974 77 Assistant Manager, llolyoke Gas & Electric Department Acted for Manager in his absence and assisted in directing operations. 1969 74 Anistant Supedatendent, Holyoke Gas & Electric Department Responsible for supervision of electric generation and distribution. 1967 69 Electric Distribution Engineer. Holyoke Gas & Electric Department 1965 67 Electrical Engineer, Holyoke Gas & Electric Depnrtment 1960 65 Cadet Engineer, Holyoke Gas & Electric Department 1987 Chairman of Massachusetts Municipal Wholesale Electric Company 1986 87 President of Massachusette Municipal Wholesale Electric Company 1984 Director of Massachusetts Municipal Wholesale Electric Company 1979 Director of Northeast Public Power Association 1976 86 Treasurer of Massachusetts Municipal Wholesale Electric Company > 1976 77 Treasurer of Massachusetts Municipal Power Development Corporation 1974-76 Director and Member of Executive Committee of Massachusetts Municipal Wholesale Electric Company . 1975 82 Represented publicly owned systems in New England on New England Power Pool (NEPOOL) Operations Committee 197175 Represented Holyoke Gas & Electric Department on Connecticut Valley Electric Exchange Operating Committee Professional Society Memberships Institute of Electrical & Electronic Engineers,1965 date. Chairman, Springfield Section, 1971 _....__________-____.m_ _ _ _
. .. _~ _ . _ _ _ ._ _ .... _ _ _ _ _ . _ _ _ _ _ _. _ . _ .
9 Exhibit 3thGEL 2) L Page 2 of 2 i
- j. . Massachusetts Municipal Electric Association (Engineering Group)
American Public Power Association (Committees: Transportation & Distribution;
, Rates; Safety; Accounting & Finance)
American Wind Energy Association p New England Gas Association American Public Gas Association l.lunicipal Finance Officers Association Representrative Community Service Organization Offices IIcid f
-1968 .
President. Greater llolyoke Jaycees 1968, 1976.date Board of Directors Greater Holyoke Chamber of Commerce 1969.date Corporator, Greater Holyoke United Way 1980 date Board of Directors, Holyoke Inc. Private Development Group 1974 date Corporator and Director Holyoke Hospital 1975 date Corporator and Director, Peoples Saving Bank 1975.date Corporator and Director, Holyoke Chapter of American Red Cross i 1980 date- Director, and 1985 date Chairman, Holyoke Industrial Development Finance Authority. Industrial Development Bonding Authority P b I
~ >
-('
1 f e l ( a,. .--. . - . - . .. .. .-._,-....-....._.:.. . . . - -
. -. - . - - ... - - - . . . . . - w -- . - - . - ... . _ - .
I l l Exhibit 3M(GEL 3) Page 1 of 1
SUMMARY
OF HWP'S BUSINESS HASED ON 1988 FERC FORM 1 Energy Revenue ($) ~ Sales mwh customers WP itself Sales of electricity targe/or industrial retail $8,350,891 117,806 45
%1es for resale 2.746.602 41,860 2 Total 11,097,493 159,666 47 Other operat be revenues Sales of wa d,' and water power 473,451 n/a kent from electr:c property 3,280 ,
Other electric re'enues 290,900 .. Total 767,631 s
- TOTAL E15ctric Opera'.ing Revenues $11,865,124 NP&E subsidiary of WP Sales of electricity targe/or industrial retail 0 0 Sales for resale 1,003,15j 8,227 ,1 Total 1,003,155 8,227 1 Other operating revenues Rent from electric proper'/ _2,250 n/a Total 2,250 TOTAL Electric Operating Revenues 1,005,405 HWP 1988 Form 1. Dage 123A Public Utility Regulationi NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act of 1935 (the 1985 Act), and it and its subsidiaries, including the Company (HWPl.
are subject to the provisions of the 1935 Act. Arrangements among the system companies, outside agencies and other utilittee covering intercommtions, interchaNre of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC. The Company is
. subject to further regulation for rates and other matters by the FERC and follows the accounting policies prescribed by the FERC and the Massachusetts Department of Public Utilities.
l
* *- *ee'ew.. w-smmv--wfeMr-yr ee---eewir+-p m.wN't=wwue--*-W=**-"'r "T'm*-' # "Y ""
"t'*T'*'"T'N 4' "* **' '" Y
Exhibit D(GEL 4) Page 1 of 4 SEC'S REVIEW OF NU ACQULTI'!ON OF IIWP When the Securities & Exchange Commission (SEC) approved NU's acquisition of liWP e
^
in 1967, it relied in part on itu finding that IIWP and its subsidiary, liolyoke Power
& Electric Company (IIP &E):
will ... continue to be subject to regulation by the Massachusetts Department of Public Utilities (Mass.DPU) and the rederal Power Commission. See Northenst Utilities, HCA Release No. 15825, 43 SEC 462, __; 1966 67 Fed.Sec.L. Hep. (CCli) T 77,467 at 82,919 (1967).* / , The SEC acted on the FORM U 1 APPLICATION OR DECLARATION dated November 10,1966 (the Application). The Application described HWP as follows:
- 3. Holyoke is a Massachusetts corporation and an exempt holding company (1 S.E.C. 384) engaged principally in the production, purchase, transmission, distribution and sale of electricity to industrial customers and to utilities in western Massachusetts, more than 93% of its gross operating revenues for the 12 months ended September 30, 1965, being derived from such activities. Part of liolyoke's electric operations are conducted through a wholly owned subsidiary, llolyoke Power and Electric Company. The business and properties of Ilolyoke and its subsidiary are more fully described in Exhibit 01.
Exhibit G 1 to the Application includes the following statements:
- 2. Regulntion Holyoke and HP&E are subject to regulation by the Department of Public Utilities of Massachussetts (DPU).
- 3. Rates All of Holyoke's and HP&E's industrial contracts are filed with the DPU, and the rates provided for theirin are subject ta regulation by the DPU. Holyoke's and HP&E's contracts for sules of electricity at wholesale for resale also require approval by the DPU and are filed with and subject to regulation by the FPC with respect to rates and other terms and conditions.
However, the Supreme Judicial Court of Massachusetts indicated in 1969 that HWP in deemed a manufacturing company, rather than a public utility, both for purposes of
*/
FOR END NOTES, SEE PAGE 3 OF 3.
.]
. 10
, Exhibit @(GEL 4)
Page 2 of 4 DPU regulatory jurisdiction and for purposes of local real property taxation. Board of Assessore of Holyoke v. State Tax Commisalon, 355 Mass. 223, _; 244 N.E. 2d 287. 293 (1989). = 1n fact, the Mass.DPU has never regulated HWP's retail electncity business.",* / Exhibit 'G 1 to the Application also stated: E. Real Estate Department
- 1. - - General .
In 1859 Holyoke acquired ..1100 acres of land in the City of
- Holyoke which - had been designed - for - a planned industrial -
' development. * *-*
Holyoke also ... has purchased land ... primarily in connection with the operation of its electric business. -Land sold in recent years has been sold in connection with industris velopment and
. for the construction of all. electric homes. Certai , -operties owned by Holyoke are also leased to industrial custoiners. .
2.- Revenue Holyoke derived about 2% of its consolidated gross operating revenues from real estate activities ...."/ The Application also aswrted:
- 17. - ' No federal commission (other than the. Securities and
-Exchange Commission) and no state commission have jurisdiction '
. over the proposed transaction.
~
It is unclear why Section 203 of the Federal Power Act would not have applied to ; NU's proposed acquisition of HWP in the 1960s just an it applies to NU's proposed acquistion of PSNH in the 1990s.
**/- FOR END NOTES, SEE PAGE 8 OF 8,
..1
-I
___..__.um_ _._______i=_m_ _ _ . _ . _ _ _ _ _ . _ _ _ _ _ _ _ , , , _ _ _ _ _ _ _ _ _ _ _ _ , , _ _ , . _ _ _ , , _ , _ , _ _ , _ _ _ . _ m_
l Exhibit d(GEL 4) l Page 3 of 4 END NOTES: q
*/ The SEC made the affirmative finding required by Section 10(c)(2) of the Public Utility llolding Company Act of 1935 (PUHCA) that such acquisition will serve the public interest by tending towards the economical and efficient development of an integrated public. utility system." 43 SEC 462,464 65; 1966 67 Fed.Sec.L. Hep. (CCli)
T 77,46'.' at 82,918. However, the SEC expressly noted there that, "Such finding ... does not extend to [HWP's) non utility businesses. Whether such businesses may remain within the Northeast holding company system is subject to determination in future proceedings before us." In making the Section 10(c)(2) finding, the SEC noted expressly that the *cffectiveness of regulation" was an element of the definition of
" integrated public. utility system" in Section 2(a)(29)(A) of the PUllCA.
'/ The SEC found:
The franchise rights and service areas of both the Department and HWP have been granted and fixed pursuant to State law. HWP has been granted only limited rights to serve a restricted category of industrial customers,1.1/ and under this statutory restriction !!WP would be eligible to serve only 17 of the Department's present customers, who account for only about 5% of the Department's electric revenues. There is no indication that any of these 17 will be likely to transfer their business from the Department to Northeast following Northeast's acquisition of HWP. On the contrary, the president of HWP, who Northeast states will continue in that post following affiliation, testified that his company, which as.noted will continue as a separate operating company within the Northeast system with authority over local operations, has not tried in the past to obtain the business of any of the Department's industrial customers and, as far a he was responsible, would continue _ that policy after Northeast's acquisition of HWP. 11/ In the City of Holyoke, ifWP to restricted to selling electricity (a) to customers under written contract and in quantitles of not less than 'one hundred horsepower at any one time" and (b) to customers who occupy property which is either owned by or mortgaged to HWP.
"*/ See DPU letter dated May 21, 1990, reproduced next page. .m -- _ , - - . - , - - - -
i Exn101 t. .>y lGla-*1 Page 4 of 4
, 67N7M6WNWlY Je/ adJarb/Jc.VJ' haWm<vrif.$$$clbt$kk Ytr//Yt$ettJ/n$e$titWkj, htemmm/ hm/M
/tY'bmhW * ,$lwn <$M/wr l'24?
f May 21, 1990 Noreen M. Lavan Arent, Fox, Kintner, Plothin 6 Kahn Washington Square 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5339 Dear Ms. Levant In response to your letter of May 15, 1990 regarding the ilolyoke Water Power Company ("HWP"), I am abic to offer a somewhat more complete picture
- of its statu;; In relation to our Department. ilWP is an industrial development corporation incorporated in 1859. Its revenues are derived from specini contracts with indurtrial customers. None of these contracts arc, or have ever been, reviewed or approved by this Department.
IlWP files the Massachusetts Supplement to the FERC Form No. I with us, but it does not file rate schedules. HWP is not regulated in any way by the
- Massachusetts Department of Public Utilities. The wholesale electricity sales made by llWP are regulated by the FERC. IlWP is not required to file copies of wholesale contracts nor rates with this Department.
I hope this explanation has been helpful. If you have any further questions regarding this matter, feci free to call me at (617) 727-9740. Very truly yours. [ l m , n y-Theo MacGreg#r Rate Specialist Electric Power Division
.-...--.c ,c,- - . m . - ,.c.~ -e.-,-,_...,.v. , -_.--m-- . , , , , - , - , , , - . .
- - , , , . - .--,#, --e-- , , -- ,
1 Exhibit 3S_SGEL fd > Page 1 of 23 4 DOCUMEN'IB REVEALING NU HWP MANAGr. MENT SENSr!TV!1"/ 'K) 00MPir!T!10N RETWEEN IfWP AND HGAE--
\
- This exhibit comprises all attachments to the NU response to HGkE's Data Request No. 1 14- dated March 26.-1990. -NU has designate' that response as 'Q NUSCO 014, ATTACHMENT REVISED.*
In this exhibit, a table of contents precedes these responsive documents, lHG&E previously served a redacted version of this Exhibit. By letter dated June 29, 1990, counsel for NU has lifted the claim of confidentiality for this unredacted version of the exhibit, effective as of July 20,1990. However, until the commencement of hearing, now scheduled for August 6,1990, those documents are to be used for purposes of the. FEHC proceeding only, and not to become generally available.) 1 4 1 3 e
Exhibit $ (GEL 5) Page 2 of 23 T_able of Contents
- 1. Memorandum dated June 18, 1987 TO: J. P. Cagnetta, J. T. Itickey, F. R. Locke CC: J. W. Noyes, C. J. Roncaloti ,
FROM: H. E. Overcast SUBJECTtHolyoke Water Power Industrial Rates ,
- 2. Memorandum dated June 9,1987
'IO: J. T. Hickey CC: F. R. locke, J. P. Cagnetta, J. J. Lepore FROM: H. E. Overcast SUBJECT HWP Industrial Rates
- 3. Memorandum dated April 27, 1987
'IO: R. E. Barrett, F. R.14cke FROM: J. P. Cagnetta SUBJECT HWP Analysis
- 4. Memorandum dated April 5,1987 4
'!O: B. M. Fox, J. P. Cagnetta FROM: W. A. Hunt SUBJECT HWP Analysis (EMF.336)
- 5. Memorandum dated April 2,1987 _
'IO: J. P. Cagnetta CC: L. Mahler. D. R. McHale. H. E. Overcast FROM: C.J. Roncaloll-
SUBJECT:
Impact of Reducing the Rate of Return for HWP's Industrial Customers
- 6. Memorthdutn dated May 25, 1984
'!O: J. P. Cagnetta CC: W. A. Hunt, F. R. Locke, H. E. Overcast, R. P. Wax FROM: R. H. Brown
SUBJECT:
Holyoke Water Power (HWP) Industrial Rates 6A. Attachment' l- to # 6: ; Memorandum dated January 26, 1984 TO: W. A. Hunt FROM: H. E. Overcast ; SUBJECT Holyoke Water Power Retail Rates , 6B. Attachment I?] to # 6: Memorandum dated May 21, 1984 TO: R. E. Barrett, R. H. Brown, J. F. .Deegan, E. J. Ferland, B. M. Fox, M. P. Oregg, J. T. Hickey. F. R. Locke, L. E. Maglathlin, J. W. Noyes. H. E. Overcast, R. O. Powell, J. J. Roman, J. D. Stenger, A. S. Sweeney, W. F. Torrance, R. P. War - FROM. W. A. Hunt GUBJECTHWP Industrial Oustomers Notice of Rate increase.
"<. Letter . dated April 9,1964
'IO: Iredacted)
FROM: John T. Hickey ATI'ACHMENT: tredacted]
- 8. Undated, handwritten document FILE: HWP Rates s
__ -_. -= _ _ - _ _ - - - _ - _ - - . _ _ - - _ _ _ _ - - _ - - _ - _ _ _ - _ - - _ _ _ _ - . . _ _ _ . _ . _ - _ _ . _ _ _ _ . _ . _ _
l' Data Request FilG & E02 Dated March 20, 1990 0-NUSCO-014, Attachment REVISED June 18, 1987 70: J. P. Cagnetta J. T. Ilickey P. R.14cke , FTOtt 11. E. O/ercast D:t. 3407 SUMIrT: !!OLYOKE ETER POU:R I!OUSTRIAL RATES I understand that the decision relative to the fom of 11olyoke Water Pcuer's industrial rate increase has been mde.- I understanding that colicetively you have agreed that the rate increase will be across-the-b:>ard to all ciertents of the rata schadule resulting in approxistely the satto increases for each industrial custmer served by Holyoke Water Pcwcr. It is fair to say that I am in to position to judge the political realities of the operation of 11olyoke Water Pcwer and I. understand that this decision was
-b June 18,1967.
L i- Messrs. Cagnetta,. Hickoy, Io:ke nede to refleet the politics of operating within He. 7 yoke. Certainly, it is ycur preregative to ;nake such political decisions. Nevertheless, I feel obligated to indicate that I do not support the decision. My reasons are based on considerations of the empetitive enviroment in which i we operate and on the need for consistency between the rate philosophy we propose-in a regulated enviroment and what we implement unfettered by regu-lation. As a result, I do not believe that the rates which are being inple-mented for 1987 and 1988 are in the best econ:rnic interest of Holyoke Water
-Pcwcr or of Northeast Utilities system. I base that judgement on analysis of a number of factors relating to the empetitiveness of Holyoke Water Twer. :
.in fact, I see many similarities between the steps that de being taken to ,
inplemant this rate increase and the kind of events which led to the ultimate demise of Holyoke Water Pcwer's steam business. Specifically the across-the-- board nature of the increase raises rates for those custaints whose empetitive
. alternative is a icwer cost than the proposed July 1,1987 average rate.
In evaluating the empetitive alternative for two of the three largest custmers j on the Holyoke syste, it is my belief that we will have priced cur service out of the narket and that the econande incentives for self generation by Sunoco and Linweave are so favorable as to make them prime candidates for cogeneration narketing. less one believes that the inactivity of Holyoke Gas - l T Electric relative to prmoting gas ccgeneration is reflective of the current market'that I should indicate to you that Holyoke Gas & Electrie is served by Mnnessee Gas Pipeline. I am informed that Tennessee is actively marketing I both gas and oogeneration to CL&P's customers. In fact, the Pfizer. proposal . o for cogeneration in the Groton service territcry is being ~ driven by Tenneco, L 1
f Messrs. Cagnetta, Hickey, locka June 16, 1907 l l
}
4
' the parent errTany of Tennessee Gas Pipeline. h addition,1 am aware that Tennessee is taking an ag;rressive stance to mrket gas largely tecause of their o.'n pmbicms in the ocnpetitive distribution rarket. Tunnessee has approached a rnr ber of custcrers of other gas pipelines and of Iccal dit-tribation cxrpsny's in an attc:qpt to sell gas. In reviwing the rate for gar, kttich Tennessee is carrently offering, cogeneration facilities could secure a fim gas cost today which is equivalent to the gas cost astwed in the Mc);ensey analysis for nonfim gas with oil backup. Obviously the advantages of gas-fired cogeneration withoat oil backup are substantially higher than those calculated by McKensey since the absence of oil-firing will reduce the annual O&M costs associated with a ecgeneration facility.
As you are aware, Suncco Prcducts was the largest steam user for the !!clyoke Water Pcwor steam system. Because of their cwn steam use, which was high on an annual basis as well as seasonally, the advantages of cogeneration to Sunoco are large. Under the prctosed rates, which have been approved, the average rate for Sunoco is approxistely 6.1c/khh in 1987 and 6.5c/kkh in 1988. It is our estimate, using the McKensey mdel, that Sunoco could cogenerate for a cost of 5.80/kkh given the carrent cost of gas. The pmblem is obviously worse in 1988. As you kncu, Suncco accounts for over 23 percent of Holyoke Water Pcuer's . industrial custcmcr revenue. The loss of that custcx:cr would represent a loss of $1.2 million of fixed cost recovery asscciated with Holyoke's chligation l under the 17J G&T during the first 18 rronths and a subsequent loss of the Ccr:pany's ability to ecrqpete, not only with cogeneration for Lirwaave, bat with Holyoke Gas & Electric as well. l
_ _ _ ...._._._--l l hissrs. Ccgnetta, Mickey, locke June 16,1967 1 t I re:o;nire that there is no practical way to detem.ine if this econmue t.nalysis will, in fact, cause us to lose Suno:o to self-generation. li:vever, it is ny opir. ion that the risk of ca h loss is tco significant for liclyoke Water Pcwer to bear and nay ultinately create a situation where we can no 4 longer sene any industrial custtrers in flolyoke. The unfertunate pa.rt of this is that in order to naintain good high load factor custeners on the systen, it rey even be necessary to lose sme call lw load factor castmcrs to ll3&E. While I kn:w that is politica12y distasteful, it does enhance oar position relative to the custmers we woald like to keep on 11olyoke Water Pcwor's system. The basis for this conclusion is that Icw iced factor casteners create higher oosts, thus, adversely impacting the revenue reg 11rments of car ompetitor alicwing us to be tore empetitive for high load factor custmors. Alttoagh I do not expect yea to change your decision regarding the rate design, since that decision has been nede, I am providing this infornation because I feel tha decision was incorrect. Furthernere, I cannot be in the position of having supported a rate design for llolyoke water Iwer which is significantly different fram any of the proposals that we are likely to nake in either CL&P or W:Co for similarly situated custcrcrs. Such an inconsistency would danage the creditability of rate departnent witnesses as they nake preposals in regulated jurisdictions which are substantially dufferent frun the way that we behave in an unregulated jurisdiction where we have emplete freedom to deplement prcper rate design. If we had nade a nove in the direction of ompetitive rate design at this opportunity, we would have been :;) the
5- Jun2 18,1987 Hescrs. Cagnetta, Rickty, Irc)w - position in retail jurisif etions to justify car behavior on the basis of i continuity considerations which we also raise in the retail jurisdictions. s. f
}IDD/11/hl.12 i et J. W. Noyes 4
C. J. Ron0aioli t \ e a e a
5
.s b~
nonmaast urnmes 2
' g
< <l= > ==='E9EdE:= .
i June 9, 1987 m J. T. Rickey Y ITCH: H. E. Cvercast 7
.(Ext. 3407) k SUBJIrt: Irn'P IlOUSTRU4 FATES Currently, the HWP industrial custmcrs are scheduled to get a rate increase on July 1. The ancunt of this increase was determined last year. .,
Pursuant to ymr request, we have developed alternate rates which provide for @ phasing in, over two years, th3 proper increase in revenue requirwents. We first determined the revenue i.. crease required by cenputing the inpae* of the federal tax law change as well as the inpact of the NU Gr.T revenue allocation reflecting !!WP's lor? of wholesale sales. These two inpacts were virtually equal and offsetting so we used as our revenue target, the increase originally scheduled for July 1. The revenue increases in the first year of the phase-in is one-half of the total. 'Ihe increase in the secord year equals the som of the deferred revenue plus the Capany's carrying cost on this unrecovered revenue. The carryig cost was cu:poted using the capany's marginal cost of capital. I understand that the basis for our rate design, the rates thanselves and individual custmer bill txmparisons were provided to you at your June 3 meeting with Messrs. Poncaioli and lepore. At your suggestion, we have since made noiifications to Rate 4B in order to narrw the range of percent 4 increases anong all Rate 4B custmers due to the new phase-in rates. If a otmparison is made between the meilfied Rate 4B and the Rate 4B of June 3, nodified Rate 4B produces increases in the range of 4.0 percent - 13.0 percent ca pared to 3.0 percent - 14.2 percent. Modified Rate AB also produces less custmer and demand revenue, and yields more energy revenue. tM er the nodification c,f Rate 4B, Rate 4B revenue, Rate 4A, and total revenue all rernain unchanged. Provided with this mmo are the WiHad Rate 4B design ard individual bill conparisons.
- Individual bill canparisons shw that only Wang labs receives core of a rate increase on July 1 under nodified ." ate 4B than under the current contract.
Wang Labs receives a larger increase because its ratcheted demands are nuch
- larger than its unratcheted demands over the test period (year ending March 1987) and noiified Rate 4B uses ratcheted demands while the current rate uses unratcheted. In reviewing the data, we rote that Wang substantially increased its demard midway through the test period. Were its demand to remain fairly consistent at the new level, nodified Rate 4B wxid produce less of an osp p.sv # n
- s. T. Hickey June 9,19B*/
increase than the current contract. Given the asar:ption that Wang's nonthly dmand stays consistent, o.ir analysis indicates that all custmers.on Rate u and 4B will be better off starting July 1, on the proposed phase-in rates.
'ne custmers, tecause w have contracts in place with eli of that, need to chose the rate under wttich they shall take service. If custm ers do rc ,
select the proposed phase-in rates by July 1, they nust continue to abide by ca existing contracts. Oar proposed phase-in rates are structurally consistent with those being pm;osed in IN's Connecticut and Massachusetts retail jurir. dictions, consis-tent with the rate structures transition we began last year, are less expen-sive than the rates of Holyoke Gas 1. Electric and are consistent with saind ratemaking principles. If these alternate rates are satisfactory, w will preparc new contracts for
. those custmers who select the phase-in rates. Please advise re of yo.ir decision.
CJR/11/ml.17 c T. R. LD::he J. P. Cagnetta J. J. Impore l 1
~.
g*_ NORTHEAST UTILITIES e 1 .....w g;
. . .. .. ... .. . .i.i....e w s- .
g ' J
. . . u. . . . n .. g' g' .
m l l April 27, 1987 ' I JPC-67+111
}
TO: R. E. Barrett, F. R. Locke PROM: J. P. Cagnetta Ext. 3511 ) SUBJECTS HWP Analysis , Enclosed is a summary of our thoughts on HWP. WeWe believe in are making time-the HWP's financial-condition will improve.the loss of industrial and wholesale every effort to prevent customers as noted by Hunt in his 4/15/87 memo. - JPC:kbr I CS70 Ah 343
I --- r, - -- NCRTHEAST...... UTILITIES g
' E
= ==::= --
n-A L '9- . . . ,....
..m.... .
p g ,,,,,,, Apro 15, :9r 70: E. M. Tex J. P. Cagnetta TP.0M : W. A. Hunt ddd' 53JE CT t K.T Anal vs i s ( EMT-336) RVP is unique among NU Companies in that sales to two of the three major custemer groups it serves are under the control of the castomers, and are subject. to competition. The largest customer group, the tunicipals, can s!ste, as of November 1 of each year, the load they vill take f rom HWP beginning 12 conths later. The second major group, the industrial custcects , have the right to switch their supplier f rom HVP to tne City of Holyoke Ces and Electric Department. A major change f or these customers took place when Millstone 3 began commercial operation. Each municipal ovns entitlements in Killstone 3. Chicopec has 15.5 MV of Millstone 3 and South ludley 6.6 MV. They reduced In their purchases f rom HVP by these amounts when Millstone 3 enteredofservice. power sold to
, addition to their direct ownership of Millstone 3, tre cost The TERC them by HVP includes the cost of NU's ownership of K111 stone 3. The municipal application for Millstone 3 costs did not include a phase-in. Table I provides the customers reacted by reducing their takings f rom K.'P.
changes taking place largely due to Millstone 3 entering service in April 1986. Table 1 K.'P Cacacity Sales Julv IffB6 Deeeeber 1986 November 1987 20 MV 1 MV Chicopee 37 MV 1 South Radley 5.7 1
,2f.3 24.3 2L (Estimate)
Industrial 45.3 HV 26 MV Total 6? MV South Radley gave appropriate notice and reduced its purchases as of November 1. 1966 f rom $.7 megawatts to ! megawatt. 4 1 t l esto arv >4) sMi
l 4 L l To replace 'he reduction of its purchases f ree HWP, South Hadley is l purchasing 10 Secawc'ts of oil-fired generation free. Middletown and Montville. ! and 3 segawatts of gas turbines froc HU~under a unit contract type of purchase.
- Chicopee reduced its load purchased free HVP from 37 segawatts to 20 megawatts l
on November 1, 19f6, and has given notice that it vill reduce its load free 20 megawatts to 1 negawatt on November 1, 1967. Chicopee is currently purchasing 20 segawatts of unit centract power fro: NU to cover the 17 esgavatts of reduced purchases from HVP, and 3 megawatts of growth. - L To ease the iepact of the increase in NU oever costs due to Millstone 3 on HVP industrial customers, Hi?? provided a two-jear phase-in. because these l_ custe=ers are not regulated, (1ferred accounting could not be used for a
- . phase-in. Therefore, an arranger.ent was provided whereby he industrial
- custecers pay 60 percent of the cost increase primarily re.ated to Millstone 3
) in the first year, and an additional 50 percent in the second y*ar. The extra 10 percent provided in the .ttst year represents the cost of the two-year , phase-in borne by HVP. These industrial customers have expressed dissatis-fac',1on with th3 increated cost of power, but power costs f rom the alternative source, the City of Holyoke Cas and Electric Department are higher than HWP's power with the f ull cost of Millstone 3 included. HWP has a third customer, the New England Power Company (NEPCO), which has a lif e-of-unit contract f or $6 megawatts f rom the Mt. Tom unit. HWP filed with TERC to amend the contract with HEPCO, but it was a 206 proceeding, with HWP obtaining rate relief only prospectively f rom the Commission approval of a final order in the case. The 206 proceeding has resulted in approximately a 2-1/2 year period between-the filing for relief by HWP and final approval of the ! decision by'PERC. Nav rates were placed in effect on March 4, 1987. As a
- result of the Order, RJP expects an increase in revenuec.of approximately .
$300,000 annually. novever, as a result of the findings by the ALJ, which were upheld by_ the Coesicsion, HWP is required to refund over the remaining 3 years of the contract life, approximately $5 million representing a replacement e resetwe maintained as a_part of HWP's common equity account + This $5 million l
vasLvritten off in Septesber 1985 so that it does not impact HWP's earnings after August 1987. NWP also sells 33 segavatts under a lif e-of-unit contract to , l VMECO, but this sale has no ef fect because WMICO and HWP are both parties to the ' NUC&T Agreement, which effectively reduces the impact of the sale to seto, i HWP does make another " sale *. This sale is to.the other NU operating , subsidiaries through-the NUGAT. As HWP's load shrinks, the proportion of NU system costs that it supports through the NUG6T also shrinks. HVP's generation is lower than the NU system everage cost. As a result, the power it produces j and does not utilize f or its own load is sold through the HUG &T, and has a-return under the RUG &T formula of 16 percent on common equity. NVP!s ROE fluctuated significantly_over the past two years. Table 11 providus NWP's ROIs f rom July 1985 -through February .1987. i i l' l
L 3 Table Q
' Month R0t* ,,
Month Rot
- 4 July 1985 14.17 May 6.61 4 ,, August 12 66 June 1966 7.23 ,
September 6.80 July 2.60 October 7.13 August L.23 November 8.04 September 7.44 December 7.90 October 8.93 January 1986 B.74 Novettbe r 10.53 February 9.06 Derceber 7.60 harch 8.62 January 1987 5.73 April B.11 Tebruary $.3B
- Cost of Capitti Hethod - 13 month average period.
During'this period, there were several events that created this fluctua-tion. In September 1985,.the repiscentut reserve was written off and was the primary reason for-the September 1985 ROE to drop by 3.86 percent from the
. August level.- The-ROE' reached a lov point of 2.6 percent in July 1986 as a t- -result of the-correction of an error related to ta*4 expense and a metering problem. Since that point, the ROE has had fluctuotions which have not been analyzed due to pressures of other workload. Two events that will tend to improve HVP's earnings ares
,, -.1...The second st,ep of the Millstone 3 phase-in in industrial **
customers' ; rates, scheduled to take place in May 196'/1'and i 2.- The change in the-Mt. Tom contract charges to NEPCO in March of 1987.
'ihe outlook for HWP's financial picture ie for a reasonable level of return Lover the next few years. There appears to be no need for radical changes in HWP at this point. There is the' potential that arrangements can be worked out with Chicopee and South Hadley under which newly . proposed interruptible service rates will enable HVP to retain a significant portion of the load of these mimicipais.
n-. -Both of. these customers have expressed an interest' in maintaining's relationship i with HVP that vill enable =them to have their' power supply planning done by NU. l
.+
WAH/21/eb
. l
_ - - , . _ _ . - - ,a,.. a_.. - _m-.-.. - - . _ . - _ _ ___.-.m____.-_m_.:_--____--_ _ _ _ - - _ _ _ -
}
NORTHEAST UTILfTIES n :. : %M.": S p [ib'] t L=_=__=._=__ mm
-9 April 2, 1986 tot - J. P. Cagnetta b-PROM: C. J. Roncaioli
SUBJECT:
Impact.of Reducing the Rate of Return for HWP's Industrial Customers The Cost-of-Service Section has rerun the Holyoke Water Power cost study to ref]ect a reduction in the proposed rate of return. The analysis indicates that a reduction in the currently proposed rate of return of 16.5% to 15.5% would reduce the proposed two-year phase-in increase of $2,316,000 to S2,187,900. Because the relationship between the proposed }; and the proposed increase is linear, it can be expected that a one percentage point reduction in the rate of return will offset the proposed increase by increments of approximately S128,000, or 5.5 percent of the total increase. Therefor (, a one. percentage point reduction in the rate of returti for HWP's industrial customers would have a inimal tffect on HWP's rate structure or rate level. The overall impact on HWP's bills due to a one' percent reducticn would contribute only slightly to eliminating the problem of remaining competitive with Holyoke Gas and Electric. DRM/dm c: L. Ma.[er D. R licHale H. . Overcast / 4 l 0 5'* REV 3 83 PM'
,. . m._ , _. _. _ - _ . _ _ - . _ _
i
< g .**
NORTHEAST , _ _ .UTILIT'._E5 [g
.._..,. _._ g
< < > ==== @-
May 25, 1984 TO: J. P. Cagnetta FROM: -R. H. Brown f
SUBJECT:
Holyoke Water Power (HVP) Industrial Rates On January 26, 1984, the Rates and Load Research Department recommended that HWP's industrial rate contracts be increased by approximately
$1,500,000 annually (see Attachment 1). I have recently learned that the required six-month notice was provided on April 9, 1984 to the customers that their rates would be increased in October and that the new rates would be discussed with the customers "in early June" (sr.e Attachment 2).
Given the June commitment, it is important that a prompt decision be reached regarding the amount of the increase in order that rates can be designed and indir'. dual customer bill comparisons prepared. However, there presently is a elear agreement among those concerned as to the appropriate level of increase, HWP's industrial contract arrangements are unique in two respects: first, the contract sales are subject to neither FERC nor Hasssachusetts DPU jurisdiction (albeit the contracts are provided to the DPU); second, the Holyoke Gas and Electric Department (HG&E) has a legal right to sell to HNP's customers. Under these circumstances, there are no regulatory l bounds on rate levels; instead HWP's marginal costs provide a lower bound on rate levels, and value-of-service considerations establish an upper bound. There h:ve been times when HWP has had to limit its rates to
. levels below those which would produce a " fair rate of return," if I measured on a conventional cost-of-service basis. At other times, HWP
;may have the opportunity to charge at levels in excess of cost of service, i thereby offsetting lean earnings years. !
Our recommended $1,500,000 increase has been computed on a value-of-service basis, principally taking into consideration the likelihood that i HWP's customers will cease taking service from HWP, which we believe to ! I be unlikely at-the proposed revenue levels. In addition, I believe it is relevant to consider whether establishing HWP's rates on a value-of- l 2ervice basis would result in levels materially in excess of WMECO's j retail industrial Rate 35 levels. Although customer-specific bill I comparisons are impractical because of differences in HWP's and WHECO's i rate design and, hence, available billing statistics, average revenue per kilowatt-hour statistics provide a measure of comparability. Based on ! HUP's preliminary FERC filing data, HWP average '.edustrial revenues are about 4.8C.MTh and 5.30/kWh for Period 1 (12 mo?.ths ending 6/83) and Period II (1984 budget), respectively. The proposed increase would add oS7c Rty,3 a3
.) .
about 1.4C to these values. k?ECO's DPU rate case data indicate that k?ECO's test year Rate 35 average revenues per kWh are about 60/kkh at , present rates and 7C/kWh at the proposed rates. Another comparisen of 57 and ktECO corroborates that k?ECO's present Rates 20 and 35 are substantially higher than }NP's rates. Clearly, then, the propo=ed
$1,500,000 increase would r.-t c ceed value of service measured against either HGGI's or kMECO's rate leve2s.
The 57 preliminary cost-of-service studies prepared for Hk?'s planned TERC filing indicate an industrial ra'e revenue deficiency of only about
$430,000 and $700,000 for Periods 1 ano II, respectively. These defi-ciencies reflect the fact that WT has been and is expected to earn less than f air rate of return, tven for the 1984 Period II test year inasmuch as the new rates will not become effective until October. Consequently, basing the increase on value of service as proposed, rather than cost of service, provides an opportunity to offset some of the present inadequate earnings while not exceeding the most relevant measures of competitive
-rate levels.
RHB/kss45242 Attachments c; V. A. Hunt F. R. Locke H. E. Overcast R. P. Wax E e , . em a < g 4 g
G\f= l'
. ST UTILITIES xetaewment i g TMAfZ".*Pu.17~
W ::: M .T. L " ~ ~ ' Ub] L. = ==::=: r.=
~
c January 26, 1964 TO: V. A. Hunt Z - TROM B. E. Overcast
SUBJECT:
Bolyoke Water Power Retail Rates c
-The Rates and Load Research Department has completed an analysis of HVP's industrial rates which indicates that revenues can be increased by
$1,500,000 while still remaining competitive vith the rates of Holyoke
- Gas & Electric. The rate of return at this level has not been y
determined as we are avatting a year-end 1984 capital structure to complete the cost of service study. Since the last industrial rate increase became effective July 15, 1982 and since six months notice is necessary to implement new rates, it would be prudent to announce new rates soon to obtain significant increased revenues in 1984. Flesse advise ne of the increase desired so that rate design may be completed. DF0/ae/214 4 10 3-et
),
[f(- .
- r '"l,,s "*
NORTHEAST UTILf71ES #Kc <-v"WM' Y $
% avam Wit t.*s"e % '"
3 :, C.' L % ," ':~:'
.o% .. .. o a .,,.
G s' M c + ., e < .1 *MU Gn o Pc ;< na e n y =~ se wu u a s r us 7 H w/Jm$(-*?*v c. /3 n
,aG g}} y $fVf .'i'V $A C s'! A f f' . JWL' *~' f' fr ./s* w <+ D W<v s , ~~> c w' :f<*;t f c e J C.<.1 r cic J Ft,,r. cat,qtiz t 5 (-st vi c c. 'p.< 4 o d_ Q W /W ~ & W'W tsn!cewCm'Or'11 ra.v rx,:; t....
.r t.<t sis.o UF b'F" n'
TO: * //**%'r' Ami ss.+r<.1o a k v c // e7+r- m t. c < p r. p, g g a 6 'e +/M
<f i ff'
TROM: W. A. Hunt Q Cy Mg g, gjf g,,, g g
.e SUBJ ECT: }NP . industrial Customers 4,92 rr-r ,4 4. .L o tv n t <a c 2 e c ~ r Notice of Rate Increase egj on April C, .1984, the INP industrial custooers were sent written notice (copy attachec) of an anticipated rate increase to become effective on October 9,1984.
The six-month notification of the rato increase is a requirement of the contracts w o other regulatory commission approval
- with INP and _its industrial customer or notification is required.
As has been the Company's past practiv.. the customers will be givenAadvance meeting notice of the Icvel of rate increase prior to the effective date.
-with the customers will be scheduled in June,1984 to discuss the rate change and_ answer any questions.
*R. E. Barrett WJ. 7.ww.i .yv < < f, DeePan r.
" 'W . < c, E. J. Ferland (/
g ~ J < ( , , , B. M.-Tox ,. M. P. Cregg (., ,,,S ny(_. ' '* rw ,/4 **' " J.-T. Hickey F. R. Lockt Q s. /
,/
4,, g#' v r- J' i q ^ dt e s-4 L. E. Maglathlin J. W. Noyes s4'A ;,
- N-H. E. Overcast g R. O. Powell L
J. J. Roman J. D. Stenger - A. S.>Sweeney g l'. W. F. Torrance, Jr. ,
}
R. P . _ Wax , A
.e oS70 REV.3 83
., t -
OK)ltl'HliA!!T UTILITl!!!!
**"N'"***"*""*"" ONE C ANAL, STREET l
j 3
'EY2MYYM HOLYOK E. u ASS AoHUSETT S,01040
<< m 536 ssro
=iff;;=
- r. _-
April 9, 1984 Mr. Dale F. Bojanowski, Purchasing Manager Atlas Copco Holyoke, Inc. 161 Lower Westfleid Road Holyoke, Massachusetts 01040 D+1r Mr. Boj anowski t An evaluation of the rate levels currently in ef f ect f or our customers is underway. As a result of this evaluation, it is anticipated that a rate increase will be required. In accordance with' the terms of our contract, a six-months' notice is required prior to a change in rate level. Therefore, in ac c or danc e with that contract this is to notl4r you that, as of Lt cober 9,1984, new rates will become eff ective. The last rate-Increase' occurred in July of 1962, and the need for adjusted rates now is attributable to increased costs of doing business over the two year period. Because the amount of the increase and the rate structure are still'being determined.and are not yet fully developed, we etnnot provide informatich on the details of the ar.t i c i p a t e d change. Howe v e r , information will be provided to you well in advance of the changes in the contract; and a meeting will be set up with you- in early June to explain the changes in rates and answer any questions you may have. , i Sincerely, HOLYOKE WATER POWER COMPf(N
' chn T. Hickey Manapte
'JTH dmh p f"
D:rald J. Cdrtis, Pres, & Treas. I HOLYO'E WA'ITR POCR CC27AW Cartis Busbess Fo=:s f I1ECTFJCAL CJS;OSS '115 miting Par:s Boad April 1964 Holycke, m 01040 Richard R. Idekersen, T:vis. R:ger Pennycook," President Eastern Spenalties Co. , Inc. A=m Chain of In crn Int'l P.O. Icx 350 821 Mein Street Holycke, m 01041
-* Holyoke ,' m -01040 Rcnald Feinstein, Preside.nt Al Mar:ec, Plant Manager Dernisen Naticnal Ccrpeny Ada:ts, Plastics 'Co. , Inc. Water Street P.O. Box 831 Holyoke, m 01040 Holycki, m 01041 Scrras Rade, Vice' President Janes P 'Sullivan,'Prisident Graph Coat Inc.
Advance Offsit Plate, Inc. P.O. Bc:x 348 P.O. Bcx 1427 Holycke, m 01041 Eclyckei m 01041' Eckard L. Senecal, Pzusident R*ert M. Stelrdr, President Gravure Engraving Corp. Adw.rtising Corp. of A*: erica 709 Main StIcet P.O. _ Box 790 Bolyoke., m 01040 Holyoke, m 01041 Arvin Nidler, Thie.f Dec. Officer Prancis Guiliano, Bal:rar Distributors, Inc. Apad Corpord.cn 49 Ga.dield Street 75 Appleten Street Bolycke, m 01040 Holyoke, m 01040 Frank N. Ftvler, President Richad Tru ley, Ccript. roller Ha::pden Papexs, Inc. A':herst Cen=ete Co. , Inc. 100 Water Street 2420 Besten Boad Holycke, m 01040 Kilbraham, MA 01095 R:bert D. Sadler, President
~
' Dale F. Bojancwski,' PLWing itjr. Hart Wool C. t r:bing, Inc.
Atlas Ccpco Holyoke Inc. -216 Appleten Street 1161 Iser Westfield Boad Holycke, MA 01040 EEclycke, MA 01040 Scr:as N.~ Ealen, Treasurar William E. Aubin Haren Paper Ctripany W.E. Aubin, Inc. mird level Canal-
- P 0; Box 1033 Holyoke, MA 01040 -
,A::herst, MA 01002 Craig Inlan,(SWatenht Pichard Nickersen, Treart=er City of Holyoke .
<, .Autren Inc. Dept. of Publ.ic Nc:ks P.O.- Box 911 - 24 Ccrmcreial Street Holyoke, MA 01041 Holyoke, m 01040 Irwin Sagalyn, President James Curran l
' Curran Constructicn Co. Holyoke Machine Cb.
- 109 Lyman Street P.O. Pd 988 4
Holycke, MA 01040 Holyd.e, m 01041
e-- w,aan .,_na u.w s ,. a n e_ l
. l c Hem IIICZTJCAL CUSZOOS - Page &. I s1
. Peter Davis, Plant Manager Dcnald J. Curran, General Hgr. .
Holycke Transcript Telegram Publishing Cb. , Inc.383 New Balance Dwight Street Athletic Shoe Inc.- 120 Whiting Parns ! cad' Holycke, m 01040
. Holycke , MA 01040
... }bbert Pue'.chel, Plant Manager l'Ihomas. Kecugh, Manager Nmotuck Yanufacturing Orpany
-Holyoke Wire Cloth ompany Canal S'reet-w 650 Face: Street Holydn, m 01040
- Holyoke, m 01040-.
Frederick J. Ha5psen, President "ihred W. Scott, President Northeast Wire Cb., Inc. Industrial cumitra 0:cp. 60 Jackscn Street 109 Dyman Street Holycke, m.01040 Holycke, MA 01040 . D. Ucim Crutu,' General Manager Evan Sinpsen,'Mgr. Envirt:rrnental Affairs Parscns Paper Divisian JanesEver Graphics, Inc. 28 Gaylord Stzeet Naticnal vulcanized Fibre So#J1 Hadley, m 0107S Sargeant Street Holycke, MA 01040 Irwin Sagalyn, President Harold Beek, Plant Spertiser
- JARI- Associates = Radco Industries, Inc. ..*
pli c/o Holycke Machine co. ' 104 Nhiting Far:s Ibad
- P.O. Box 988 Holycke, m 01040 Holycke, MA 01041 H. IcIne Posebrugh, Plant Manager
. A21an R. McKinnen, Pzusidento Senoco Pzodacts Capany
.J.&W. Jolly, Inc..
'lh!rd Isvel Canal -
529 Scuth East Street Holycke, MA 01041 - 4 - Holyoke, AM 01040 Richard G. Cuinpar, Vice President
-Pobert Belsky, President' Springfield Photo M:mnt Co.
,Linweave Inc.
475 North Canal- Street Linweave Way Holycke, MA 01040 iHolycke, MA 01040 IMichael Paulsen, Plant Manager Irving A. Quinby, Vice President Texon,-Inc. Indicw (brpi .. Canal' Street Iaminat.ing &-Coating Divisien South Hadley, MA 01075-
> 111 Maslar Street -
Shefford Goldband, h ident
'Abtsy Manufacturing Cb. , Inc.
'Manfred Posenkranz P.O. Box 509 -
Marex Ompany. Holycke, MA 01041-
-- P.O. -Box 225 37 Applatcn Street.
David Magoon, President
- - Holyoke, m 01040 University Products, Inc.
Elihu M. Schepps, Vice President South Canal Street 1 Holycke, MA 01040.
.Mastax In&astries , Inc.
,".' Cabot & Bigelcw Street Imrence Hudock Holyoke, MA 01040 Xidex Corporaticn . 195 Appleten Street R. J. Iange, Plant -Manager Holyoke, MA 01040 p~ i
- M ill' Chemical'Orpany .
l
;3 Hanover Street
. Holyoke,1 MA 01040 l
[
ce
<[ l*
r . >[ )MPcobl12ICTFJCA1, CUS7CMD6 - Pcge - 3. - i
, ;, - - Kathleen A. : Cote , Plant' Mrector -
. . - < Wang laboratories, Inc.
361 mitney Awanue: Holyoke, )% 01040_ -;
'*- - Michael Welch, Mrector of Mfg.--
- WitwMehardsen Grap.ics Mvisicn 717 1ain' Street
- Holycke, >A 01040--
- t .:
[ -- g
- x
.h;'
e P P
f1A] Y (ikW-Mnf & >A u w d / H rYo 07 6 6 a fe aun fa%n, An A Mar yd' TT daher guy fn~ 4.2 s 64 4 / A~& c67
. Aap w % n I $
1 1
m s w" g ,
~'
, ~ .
pNg[y%m [d%f ' NR,.z,V,ff - 1., 5 j N1 "D
. m@!m#" N W%fyy .. < qu y s~
y p mr em-
,- jJe j- h;[
w v". s ; s MMay . : ' Ay
+
~
4c @g;:6:w 3m n 7 s s s %jds Y. ; 4 e s t r n a :- - s > y#pqNEW+T se - a Exhibit Nos. Ml(RCA 1) . >P.i JNMW through - 315 (RCA 5) .
.I 4i.
.,,f.< -w .[Q S.g
.l. t +, ,
i= [ w -g %
;);g
- em, . .
1 .
& .n:s;p d
,' , . . 'b
' <tqw, q + ..
i
, :r.
te h '
?UNrrED. STATES lOF ! AMIgucA d
~59. s . [ww[w , w.g o- . #- a m
< e
.- x, ,
e y
, BEFORE IllE e ^. ,m@m <
O , w" , pu . p:. A w- -
.t I
.t. .
u ....,.t g%g w,, w-.L
$e: t $EliERAI ENERGrREGOl3TORYCOMMISSlON; aN
.ns i ,
y ,.
- i.) . ' -
q ' Q"d.. . ' vR- M "' .,
@.OkMD UlQ. &j, y'.-,
1 1 ,,
' t lI?
b~L ,fC f w:: usn m,
+
ps .
x '
s a t h; y m..tw m-, y u ~m
? -
m . ." , m . e y> 2 g +.4 fz a- ' e,1' _3 :- i g .h )
$ f ;.- g g
.o - i
'b';
<-10 ,
s
- . ;%. ,,- c 4 g,
, - m y 3, . , . .
,.W L
, .< .. ' , . .Y- +- -
4
\-
4 ', R- r. -y~ ei,oitheast Utliltles Service,Conipan'y! , T ' (Docket Nos[EC90-10 000f 2 , p Ql:WRepublipService Omnpanyl6f News < -
"ER90143 000iER90144 000N . g M V, a .m,Alamp,shife)] # ^ ' 3 - D V : c,, ,/n .
oc -- MV c - 5))N.lER90445p000cEL9049 v i 3 2 w - - y-000?;' # ' ~, m';'s a-w ..o i A.r
- - f j "b. ~h
s
,.m i* -\ 'z ', : I *
'M f. b i -. Ii h. 'U T 1 'I k b
; c 3 .i , l' - ~
.. \
y# w
-t
; s w, s.
M.q s . !, > q:' ,
.. i _4
, s Q. , , M yp*. g* y yy / Wet,{sh[Qf, ' K. ,g . Q,, ;g ,, J r
; ' < ; c z
<v-8 r . 1i '-
( #( ' .% l' ( .,s .. tis
, +
$@ " 6 (^i , MC ' ( ) [.'[.
- t ,
'.s,^, s Q;yi;;d;g : o i i.
's C E.
, , . /i 9
' .~.; b
, .x WL *
'f S , !*
'34; 1.@c ? # 5 36' - 0 i#', c
, !-hs i L. g: i:fi @t,',
s r-2 $g; t@. u . $. V6 y ,n ' n ~ p' g ' - s
'y ot y . . .,;
3 f a g g,e%, m7 3 , , y.[ y. . h'1
~
.i .
I - i. b ; 'k j[<[ ' i ; )' 'I.,
/~f ' 9 .
- lp .,
y .t h' , 4 h, ukykbh_VI jbEPn. RED.,r--DiAEcETESY Md.NYL 4 i ~ 'I
, , .., m, = 1 - .*- i s
i.,amz a . [' \ r
'~
AN (4 ! $ [ , , %[ 10 -3; , Q3 ' (; * # j
. fd[ +$r y Ob ._ s[ i
[(i< >
.,g ytfy m /v : .t. , u. e, r "l[9: g , - 1 ,
o , e 'c] -' ,. q Y,
;+f'e
' i y _ii^
'$ , . j *d ;\ '
j f m ,' ; ' ':u3x- en{
' i 8 k 5 ,
nw e ,+ , W?- : w ;- >, ; w y; a > aggs. , n : t; > we . . , . m;v m, w; a ar u
~ ' .
'x*
>wim , ,
( 4,4 w O f ,en@Mn
~
u y.7 g .q e t.p :' . - ;;1 1 cQv,g; 3 4, ; i
.1 ;,7 j- r tg r / n e'4i%<...c.cc vuy .
a y y e((.;l' '
'. :S b i \ '? -h f
\ , .Q . 5.,
g i 1 u~ w O Mbek: G F,,i= m 3 iROGE m N.$LLENl . 4
~
"j nw. . ,cu n ; '
' * ' p' #
n d' iNf6 th : k C h. .'s .w.i: ' ~@ dl (j, r~ . , , w;q v '-
, r 1's c s. ; t ,: g' e . . , +
+
i l 'j i ., sg dr ^ ,. eg ,, ' yb. -p; _ t,a.. '
- M
's -M L L ^ : s: ,
,\ .r '{
p _. .f,
'.t F
> t b j." 'k h la #
sj1!. h
')
< i,0 .
? 6 Qt !
, ', 3 '
h w mg a'*
,,'~ . . .
a
%q
+ 7c ,, c A-t <
e.-t r,- ;; q..:gW s, h .r p , , 1 3 g-_2 a: y m ,m1 q..n , . m 4
+
a in Q& v4 ^y . .. , . . M %"i i ' M,
- s. .
+ ?ONEEHALF 06 ,'
"m-qw .q i
,% q 3M y 9
, yt
@ sp i t , Crry by_ HOLYOKE Gks & EuscTruc DEPAlfrMENT' - w . ~; 9
&:? i
- t L:
r) {- L
- l- i b
'f I
(y ' n
.t * '
h
,r ,
q
- j
- ~
lg e 1
. .d ,,', ' ;
I .g'c: n 4 g' l i ,'. ~ ~
> i s' V Q,5' / . .. .j ik
~ -3 e
/ 6 ei% $e. - p' i -; 's w{ : .
9i . [ i ._ . Oe .
l -. Exhibit .3U (RCA 1)
--. DIRECT TESTIMONY OF ROGER C. ALIEN 1 Identification and Qualifications 2 Q PIEASE STA'IE YOUR NAME, POSITION AND ADDRESS.
3 A I_ am Roger C. Allen, Assistant Manager of the City of Holyoke Gas & Electric 4 Department (HG&E), My business address is 70 Suffolk Street, Holyoke, MA 5' 01040. 6 Q PLEASE STATE YOUR PROFESSIONAL QUALIFICATIONS.
? A I have been employed by the HG&E since 1955 and as Assistant Manager since 1- 1978. I have served on several industry committees. ExhibitM (RCA 2) 2 further summarizes my professional qualifications.
3- Q PLEASE SUMMAPdZE YOUR RESPONSIBILITIES AT IIG&E.
-4 A. My responsibilities include the operation, maintenance and planning for steam, 5 electric and hydro generatica, transmission and distribution, including 6, negotiations with NU. '
'7 Description of HG&E and Dependence on NU 8 Q PLEASE DESCIMBE HG&E AND ITS IN'IERCONNECTIONS.
9- _A HG&E's electric utility operations serve over 20,000 meters with a peak load of 10 in excess of 57 megawatts (mW) or 57,000 kilowatts '(kW). 11 ' HG&E has two 115 kilovolt-(kV) interconnections with NU subsidiaries
. - 12 through which it receives 95% of its power supply. The most recent 115 kV 13 interconnecuon is directly with Western Massachsetts Electric Company.
14 - (WMECO). The, earlier 115 kV intuconnection is with WMECO and Holyoke
- 15 Water Power Company (HWP), another NU subsidiary which owns a short w
16- transmission line (about 200 feet) between HG&E's 115 kV system and , 17' WMECO's. . l
- q. . . . . . . . . , . . . . . . . . . . .. . .
ll -
. 1- My Exhibit D (RCA 3) describes HC&E and its relation to NU in 2 greater detail.
3- Q DOES IIG&E DEPEND ON ITS INTERCONNEC'ITONS WrIII NU"
~4 A -Yes. HO&E is a transmission dependant utility (TDU) of NU IIG&E has no 5 other tice to the outside world. HG&E depends on thes,3 interconnections and ,
6 on transmission . services by NU subsidiaries to secure economical power 7 supplies for its customers. HG&E thereby brings in economical and reliable
-8 power from the New York State Power Authority (NYPA) and from New 9 Brunswick (Canada), as well as from New England nuclear and non nuclear 10 power plants in which HG&E has acquired entitlements. IIG&E engages in 11 NEPOOL exchange transactions via these interconnections. IIG&E also '
12 purchases some power from NU via these interconnections and may purchase - 13 more in the future. Transmission service is vital to HG&E which generates 14 less than - 5 percent of .the electricity that its customers buy. 15 Q DOES HG&,E DEPEND ON TRANSMISSION SERVICES BY UTILITIES O'111ER
'THAN'NU?
16 17 - - A - Yes. HG&E's most economical sources of power supply are commonly beyond-18- the reach of.NU's transmission system. Accordingly, HG&E needs transmission 19 services by other utilities as well. For example, in 1989 HG&E secured 36 20 percent of its energy supply from the Point Lepreau nuclear plant in New 21 Brunswick, Canada. NU is one of five intervening utlities -supplying
'22 transmission service to bridge the gap of several hundred :. a between HG&E
-23 and its supplier, the New Brunswick Hydro Electric Commissien (NBHC). HG&E 24- needs service from the New England Power Company (NEPCO), Public Service 25 Compans of New Hampshire (PSNH), Central Malne Power Company (CMPC) and -
-26 Maine Electric Power Company (MEPCO), in addition to NU's rather limited
. - - . . . . - - . . - - ~ - - - - . - . - - -. - - - - - -
-.3 L 1 part of the pathway. (Mr. Schultheis' Exhibit IUOVTS 5) shows by cc...,r 2 coding each utility's ownership of the total transmission path from Canada to
-3 HG&E, which is located at the square marked " Mount Tom," an NU power plant 4 within Holyoke's city limits, in the network of light blue NU 115 kV lines.) '
5 HG&E's current contract with NDHC extends into 1994. Negotiations are in 6- progress with NBHC for an extension. Obviously, transmission service by NU 7- and other intervening utilities would continue to be indispensible. 8 Q WIIAT IS TIIE CURRENT EXTENT OF HG&E'S PURCIIASES FRCM NU? 19 .A HO&E buys up . to 3 mW of peaking power from NU's Northfield Mountain 10 pumped storaga plant. Otherwise, HG&E relies on power purchases from other 11- _ utilities and on its own generation, as summarized in my ExhibitM(RCA 3).
-12 Q COULD HG&E BUILD AN INTERCONNECTION WITEI ANOTIIER MAJOR
'13 UTILITY'S TRANSMISSION LINES?
14 A The- nearest existing transmission grid of another major utility belongs to 1
-15 NEPCO, which owns both 115 kV and 345 kV facilities within a few miles of
- 16 - Holyoke. However, even if HG&E could secure the right of way and regulatory 17; permission to build such a project, the cost (which would run into millions of 18 dollars) would be duplicative and wasteful. There is plenty of capacity in the
-19 NU facilities to meet all of HC&E's transmission needs. Accordingly,it would 20- be grossly inefficient to have to build yet another line and HG&E should not
( 21l have to build such facilities.
-22 Summary of 4 wtimony-
_23 -Q. PLEASE SUMMARIZE YOUR REMAINIhO TESTIMONY / ND CONCLUSIONS. i L24 A I will describe the history of NU's discriminatory transmission rates to HG&E, 4
'25 including its abrupt increase in r ste for the Point Lepreau transmission 26 service, completely out of line with transmission rates of other utilities. I will
4
.- l' describe how NU's delays in complying with FERC filing requirements and NU's
'2 insistence on contract by contract dealings with each utility separately deprive 3 HG&E of importrnt rights and benefits.
4- Point lepreau Tranamlaston Rate Increano
--5 -Q PLEASM EXPLAIN NU'S INCREASE OF THE TRANSMISSION RA'ITE FOR 6- POINT LEPREAU POWER FROM CANADA.
7 'A In November 1982, HG&E signed a transmission agreement with the NU 8 Companies concerning power which HG&E purchases from the New Brunswick 9 Hydro Electric Commission (NBHC). IIG&E has this economicalpowerdelivered
.10 via utilities in Maine and New Hampshire (PSNH, CMPC and MEPCO) and via
-11 NEPCO transmission facilities to. NU which completes the transmission to i 12 HG&E. NU submitted the agreement to the FERC for filing in Mey 1983 and
' 13 - it is on file now as HWP FER'C Rate Schedule No. 37. That agreement was 14 amended from time to time as'the quantitics supplied by NBHC to-IIG&E 15 ' increased. Under HWP Rate Schedule No. 37, prices paid to NU are adjusted
-16 automatically from year to year to reflect NU's costs.
-r
~
17- That agreement expired October 31, 1988. HG&E sought an extension. 18 NU demanded a price increase which more than quadrupled the total price-- .l J19 that is, an increase of over 300%! - raising its annual rate from about $5 to
.20 - over $24 per kW. New England utilities other than NU own and maintain the
'21 lion's share of the transmission path from the New Brunswick - Maine border 22 to'HG&E. Yet NU charged HG&E over 50% of the total transmission payments
- 25 to the five utilities providing transmission service - even though NU's 24 transmission mileage is roughly 5% of the total. Previously, NU collected 25 about' 20% of the total. My Exhibit 3?i(RCA' 4) shows HG&E's payments for.
26 those transmission services and my Exhibit 3d(RCA-5) shows NU's rates, I + I
f
. 5 --
- 1- before -and after, for Point Lepreau transmission. Mr. Schulthels' Exhibit 2 Q},(%"I'S.5) shows the transmission lines involved, their voltage rating, and 3 their ownersip ) The mechanisms by which NU sought to achieve its price -
4 increase included imposition of a hefty " tie-line" adjustment charge and 5 elimination of the traditional 50% discount which reflects the fact that utilities
.6: other than~ NU provide part of the service. On addition, NU added a " lost 17 opportunity" charge to the contract, but did not actually implement that 8 provision.)
9: NU in- offect forced HG&E to sign a new contract effective from 10_' -November 1,1988 through October 31, 994. Otherwise HG&E would have lost 11- its economical Point Lepreau power supply benefit. We told NU that we would 12- object to the FERC when they filed the contract, HG&E returned the signed 13- contract under protest on November 3,1988, and, expecting a FERC filing at
~ 14 - _ any time, HG&E instructed its counsel to make ready to object. But NU did 15 not file. So NU unilaterally imposed a harsh increase on us. When we phoned
- 26~ . and asked from time to time why NU hadn't filed, we were told, "Oh, it's on
.17 = - Walter's - desk,"
18 .Q WHO WAS .'IYIIS -WAL'IER7
- 19' 'A' Walter Schulthels -
.' 20 Lack of Tariff and Delayed FERC ' Filings i
21L.Q- : DOE 8_ NU COMMONLY PROCRAS'I1NATE IN ITS FERC FILINGS? E +
'22 ;A ~Yes. As.you can see from my Exhl! 't 35(RCA 5), NU-may take months or years before it gets_ around to submitting its transmission contracts to the 23 -
r
;24 FERC.
9 25 - Q DOES NU HAVE FERC TARIFFS FOR TRANSMISSION OR SALE? L-- ry--' * ---ey -s----- y
6 1 A No. NU deals only contract by contract. It does not provide a tariff which 2 offers any qualifying customer the right to service at pre defined, publicly-3 posted terms and conditions. 4 Q DOES NU '11IEREBY DISADVANTAGE IIG&E7 5 A Yes. Failure to offer tariff transmission service injures HG&E and other small 6 utilities in several ways. 7 NU makes it difficult to plan for short or long-term needs, impairing the 8 efficiency of utility planning to meet consumer needs at the least cost. 9 NU enhances its power by dividing its customers and exposes us to the 10 risks of undue discrimination. As my Exhibit .385 (RCA 5) shows, NU's 11 transmission rates vary radically among customers. As of February 1990, for 12 example, NU responses to HG&E data requests indicate a variance of over 3 to 13 1. There are no cost or other legitimate business justifications for such 14 differences in NU's meth'ods of rate making. HG&E's Point Lepreau 15 transmission experience shows how NU can pick a victim for rate changes. If 16 NU had a tariff, its rate changes would have to be filed at the FERC, 17 uniformly and visibly affecting all of its customers. Customers would then 18 have all the opportunity and incentive to try to match NU with their strongest 19 countervailing efforts. When NU picks us off one by one, and then delays 20 compliance with FERC filing requirements, it truly abuses the smaller municipal 21 utilities. 22 If NU had a transmission tariff, HG&E and other municipal utilities. 23 notably including its immediate neighbors, could exchange power and engage in 24 other mutually beneficial planning and operations. Instead, our requests for 25 such service have been disregarded or rebuffed.
7
.: 1. - My answer regarding the value of a transmission tariff would also apply 2' to a wholesale sales tariff.
?.
3: 'Q- WOULD YOU BE SATISFIED WITII A COMMITMENT 'IO FILE A PROPOSED 4 1 TARIFF FOR "SHORT.'IERM' SERVICE, OF FIVE YEARS OR LFES, Wr111'IYIE 5 FERC SHORTLY AFTER NU'S PROPOSED MERGER WAS CONSUMMA'IED7 6- A'- _ No. Apart from our need for longer. term service as well, NU's skill at delay 1 7__ is just too great.- It might be years, if ever, before we really had an approved 8 . tariff in place. The time schedule of this merger proceeding is severely
- 9' - accelerated in comparison with ordinary rate filing matters. If NU could get I
10 _ lts proposal approved first and submit relief measures only later, for additional-11- ' FERC proceedings, we might never get relief. _Our Point Lepreau experience
-12; Lahows both _ how arbitrary NU can be and 'its willingness to be more 13: conciliatory > while this _ merger proceeding is pending.
-14 -Q: -1S COMPETITION IN THE SUPPLY OF BULK POWER AND_ TRANSMISSION 15 ; SERVICE IMPORTANT TO HG&E?.
161 .A. !Yes. . HG&E depends on itstinterconnections with and through NU to utilities
'17 ' ;in.New England such as PSNH and NEPCO and their transmission facilities, as .
218. well 'as to utilities in New York, New Brunswick and Quebec, and New ; 19;- '_ Hampshire, Connecticut and Vermont. HG&E's ability to provide economical-20 -- electricity supplies to its- customers 'is' enhanced- by competition amoung - ! 21 suppliers of electricity and transmission services.- Competition between NU and - 22- l PSNH would be beneficial to us. - Both are expected to have capacity to market - t! 23 =over 'the next several years. Their combination under one management will
'24 impair our negotiating position on- behalf of our : customers, 25 .Qc HOW IMPORTANT ARE Tile RA'IES CIIARGED FOR TRANSMISSION?
8
. 1 A Extremely important. Transmission access can be denied or constrained by 2 excessive transmission rates. Excessive transmission rates can burden and 3 impair HG&E's ability to compete with NU at the retail level, as discussed in 4 Mr. Leary's testimony.
5 Q DO EXCESSIVE TRANSMISSION RNIES LEAD 'IO INEFFICIENCIES? 6 A Yes. Efficient planning should be based on reasonable and predictable 7 transmission rates. Power planning will be distorted, and inefficient choices 8 will be forced on planners, if they have to anticipate excessive transmission 9 rates as eroding the value of least. cost options. 10 Q ARE NU'S TRANSMISSION RA'IES EXCESSIVE 7 11 A Yes. One example is the NU share of the Point Lepreau transmission. 12 Compared to NEPCO's rates, for example, NU's rates are plainly too high, 13 One does not have to do a detailed study to see that NU is charging too much 14 for its Point Lepreau transmission, has charged much too much, and has 15 changed its rates arbitrarily and unpredictably. Detailed studies could fine 16 tune my conclusions, but the fact is readily apparent that NU's rates are out 17 of line. As - to the NYPA transmission, .NU is charging HG&E higher 18 - transinission rates to bring NYPA power from the New York border to Holyoke 19 than it charges two nearby Connecticut utilities. ' 20 Q WHAT EFFECT WOULD THE MERGER HAVE ON TRANSMISSION RA'ITE FOR 21 ANY OF THE PATHS ON WHICH HG&E DEPENDS? 22 -A If NU controls more companies involved in any given transmission path it will
.23 directly control their transmission rates. If merger makes NU larger and more
-24 powerful, that will enhance- NU's leadership position to influence our other 25 travmission prc;iders, even if NU does not conspire with or coerce them, in 26 regard to transmission rates.
l
9
- .1 -Q IXME TIIAT CONCLUDE YOUR TISHMONY?
2 A Yes, it does. _I t }.
UNITED STATES OF AMERICA BEFORE Tile FEDERAL ENERGY REGULATORY
~
NORTilEAST UTILITII;S SERVI 6E COMPANY ) Docket Nos. EC90-10,000 (Re Public Service Company of New ) ER90-143 000, ER90 144 000, Hampshire) ) ER90 145 000, and EL90 9-000
-)
AFFIDAVIT OF WITNESS 1 the undersigned. being duly sworn, deposca and says that the Prepared Direct Testimony of ROGER C. ALLEN served o,' behalf of the Cit y of llolyoke Gas 6 Electric Department in this proceeding is the testimony of the undersigned, and that the exhibits sponsored by me to the best of my knowledge, information and belief, are true, correct, accurato and complete, and I hereby adopt said Lostimony as if given by me in formal hearing, under oath.
! #GM K0 DER /d.' ALLEN SUBSCRIBED AND SWORN to before me, a Notary,Public in the County of
'Hampdon, Commonwealth of Massachusetts, on this /C' day of May,1990.
s e ,, ^t. ., <
'~ Notary Public My Commission expires: , , ) .,
I i
s Exhibit MRCA 2)- Page 1 of 1 QUALIFICATIONS- OF ROGER C. ALIEN
- Assistant Manager
... City of Holyoke, Massachusetta Gas & Electric Department 1 My responsibilities include the operation, maintenance and planning for steam, electric
,ci and hydro generation, transmission and distribution, including negotiations with other utilities.-
- 1955 . Employed .as a: licensed Stationary Engbs.er with th'e HG&E, 1962- - Made Assistant . Superintendent of the : Electric- Division. ,
1965 - Appointed Superintendent of the Electric Division. 1978: - Appointed- Assistant- Manager of HG&E, ) In addition to my duties at the HG&E, I have served on various committees related to
. utility- planning .and -operations as follows: - .
- NEPPA Power- planning committee TAPPA' Generation- and transmission committee MMWEC: Planning and Operations Committee NEPOOI) Planning Committee NEPEX - - Operations Committee NEPLAN -Generation Task Force MMWEC JEnergy Committee a
. I have also submitted te.atimony on behalf of HG&E in several regulatory proceedings -
a-s s
;5 -
- r. . .
= _ - - - - _ - -_ -_ - - _ -_ - - - - - - -
L i< Exhibit @(RCA 3) Page 1 of 2' HG&E AND ITS INTERCONNECTIONS. HG&E has two 116 kilovolt (kV) interconnections with NE eubsidiaries through which it
'- receives most of its power supply. The most recent interconnection is directly with 3
. Western Massachusetts Electric Company (WMECO). The other, installed and first energized in 1968, is with WMECO and Holyoke Water Power Company (HWP), which
. owns a short transmission line (about 200 feet) between HG&E's 116 kV system and WMEC's.- HG&E also has a 13.8 kV standby interconnection with HWP. However this interconnection is normally opan.
HG&E's resource mix in 1989, compared to New England as a whole, was as follows: Generation byt New Eno. % HG&E % Nuclear & Pui.iped Storage- 29 73 Fossil Fuel 66 16 Hydro 5 11 HG&E's sources of supply included the 'following in 1989: Capacity .M Own generation: Hydroelectric 2,250 kW 9,748 MWh Steam 18,000 kW 6,708 MWh Unitcontracts,-Joint ownership, eth Nuclear Vemont- Yankee 5,410 kW 17,523 HWh Maine Yankee 3,808 kW 30,297 MWh Pilgrim #1- -5,942 kW 15,293 MWh Pt.'Lepreau 12,220 kW 101,079 MWh Millstone #3 3,691 kW 22,715 MWh
-Other-New Haven Harbor #1 -5,006 kW 32,316 MWh Wyman f4 4,261 kW 14,407 MWh.
MMWEC GT 4.818 kW - 2,005 MWh-Northfield Mt. 3,000 kW- (1,218)MWh PASNY-(NYPA)- 3,764 kW 21,686 MWh Canal #2 4,525 kW 23,786 MWh North Attleboro 3,000 kW :22,176 MWh
.1nterchange, .non. firm, etc.
NEPEX (net). n/a- L(44,377)MWh
.MMWEC exchanges (6,000) kW- (3,857)MWh.
-Transmission losses- n/a (8,167)MWh
- , TOTAL 73,695 kW 282,120 MWh
-9, i
w i Exhibit b (RCA.3) Page 2 of 2
. HG&E's electric utility ' operations serve over 20,000 meters, in 1988, peak load exceeded 57 megawatts (mW) and sales exceeded 262,000 MWh. Electric Division
-i ' operating revenues were $24,750,216 and operating expensee $22,783,263.
3 HG&E maintains over 1100 miles of above ground and underground power lines. HG&E provides natural gas service independently of its. electric service. Neither i subsidima the other. : Competitive advantages of each prevail. For example, HG&E will pro 4'de nature) gas for cogeneration by an electricity' customer. HG&E is dependent on its interconnections with and through NU to other utilities in New England such as PSNH and NEPCO and their transmission facilities, as well as to utilities in New York, New Brunswick and Quebec. HG&E's ability to provide economical electricity supplies to its customers depends on competition amoung suppliers of electricity and transmission services. i
- 3. :.
r
)
I
.i l
-l l
I
i Exhibit-ffh(RCA.4) Page 1 of 1 TRANSMISSION OF POINT LEPREAU (NEW BRUNSWICK) -POWER TO HG&E AMOUNTS BILLED BY NEPCO, NU, AND PSNH+ MAINE UTILITIES C MMWEC: P5NH
' Year /'
Month NEPC0 NU + CMP +MEPC0 TOTAL 198] .9.175 61,164 167,043 277,382 1988 Oct" -3,827.45 4,655 13,071 21,553 Nov 4,190.24 12,434 14,311 30,935 s Dec 4,190,24 12,434 36,154 52,778 True.up n/a 3,490 3,490 2 . M O .' TOTAL 8,380 28,358 50,465 87,203 1989 Jan- 4,190.24 52,711* 25,232 82.133 Feb 4,-190.24 26,649 -25,232 56,071 Mar. 4,190.24 28,149 25,232 5 7,~ 5 71 Apr 4,190.24 27.336 25,232 56,759 May .4.190.24. 29,774 25,232 59,196 Jun 4,190.24 27,086 31,205 62,481
.YR..
TOTAL 25,141- 191,705 '157,365 374.211
--J u l 4,190.24 29,711. 31,205. 65,106 Aug 4,190.24- ( 6 3,'8 4 9 ) *
- 31,205 (28,454)
-Sep _ -4.190.21 18,836 7,999 -31,025 Oct 4,190.24 18,898: 25,403 48,491 Nov '4,190.24 17,962 -25,782- 47.,934 True.up- . n/a (8,366)- ( B", 3 6 6 ) .
'Dec. 4,190.24 17,844 25,-466. 47,500-
' %.Y R. - .
ETOTAL' 25,141 31,036 '147,060 -203,237-
' GRAND :
-i T0 T A LS t .
1989 50,283- 222,741 304.425 577,449
.. 14 MOS.
88/89- 58,663 251,099 359,890 664,652
~~~
- e ~~~E~b'Ifi~~Io~r~~~[a~n~u~a~r~y'~T9 8 9 In~c 1 u d e d $11,781 ,for reguIar
-transmission charge-+ $42,000 adjustment ~ charge for three months,-
November and'Oecember-1988 +-January 1989.
'** NU August 1989 bill reduces the adjustment charges for all the previou's months, November 1988 through July 1989.
.. . _ _ _ _ _ _ _ - _ _ _ _ _ _ - - _ _ _ - _ _ _ - _ _ -_ - - - _ = _ _ - _ - _ _ - _ _ _ _ - _ _ _
-Exhibit [bkRCA5)
Page 1 of 2 ; NU/HWP TRANSMISSION AGREEMENTS 1 FERC FEkt Dates Ratesf/ Agreementiand Date R.S. # SLbmit'd Accepled Effective _$(_kW tear and Comments A. ' Point Lepreau transeission contracts for NU' fraction of__Caiada-HG&F path
' HG&E 11 1 82 HWP 37 5 11 83 6 21 83 2-1 83 $ 5.38 as of 10 31 88 HG&E 11 1 88 =====Not filed with the FERC===== $24.27 as of 1 1 89 HG&E' 42590 =====Not filed with'the EERC===== $11.06 term:10 31 94 8, NYPA transsission contracts for NU fraction of path; starting M.Y. border Vallingford 7 1-85 HWP 38 9 30 85 12 -85. 7 1 85 $ 9 83 12/
Norwalk 3rd 7-1 85 HWP 39 9-30 85 12- 85 7 1 85 $ 3.67 a/ S. Norwalk 7 1-85 HWP 40 9 30 85 12 , 85 7-1 85 $ 3.67 a/ 7-1-85 $ 9.83 ff/ Westfield 7-1 85 HWP 41 11 17 86 1 9 87 Chicopee- 7 1 85 HWP 42 11 17 86 1 9 87 7-1 85 $ 9.83 22/ HG&E; 7 1 85 HWP 43 11 17 86- 1 9 87 7-1-85 $ 9.83 jf/ UICO 7 1 85 HWP 44 11 17 86 1 9 87 7-1 85 $ 9.83 If/
- 5. Hadley 7 1 85 HWP 45 11 17 86 1 9 87 4-23-86 $ 9.83 22/.
C. Other transmission agreements Mt. Tom 10-14 57 HWP 2 & 2*f / HP&E 1 NU G&T 6 1-70 HWP 22 & HP&E 13
-NEP00L 9 1 HWP 24 & LV/PTF: $ 5.70; 7 HP&E 15- EHV/PTF1 $ 2.75 CMEEC Trans 9 25-80 HWP 31, 10 31-80 3-13 80 10-1 80 A:$3.67;
&HP&E 21 8:$3.62; Ca$1.56;
.Di$3.62; E 53.67 HG&Eb/E 5 15-80 HWP 32 6.?4 82; 8-9-82 c/ d/
Chicopee -11 1-88 =====Not-filed with theLFERC===== $11.06
' S o'u r c e s : NUSCO reiponses to HG&E Cata. requests numbers Q-NUSCO-5, 6 & 7-and to HG&E follow up data requests HG&E-F 1, F 2 and F-4, and a documents crossDreferenced-in those: responses.
Abbreviations: See next~page. f/ Unless otherwise' indicated, rates shown are as of 2-1-90 per NU: response.
's. _-12/ Contract termination date 6 30 95.
222/ Contract termination date 6 30 90.
= a /- CMEEC Rate.. Contract reassigned to CMEEC as of 1-8 90.
, b/' Interconnection agreement, with about 200 ft of HWP " transmission" to WMECO.. c/' Supersedes earlier agreement effective 1 1-73. ed/. WMECO: $23,900/ year; HP&E $500/ year + $110/ month.
. . . a- _ .- __ u. .
_m-_. . m ._ . m _ _ _ _ . _ _ - _ _ _ . . - . . _ _ _ _ . . ~ . _ _ . _ ExhibitJjd[(RCA5) Pagr 2 of 2 4 FERC Transmitting Type of R a t e s_* / Agreement and Date R.S. i Utilities Service $/kW Year - D. Point Lepreau transmission contracts for NU fraction of Canada Hs&E path HG&E 11 1 82 HWP 37 CL&P/WMEC0/HWP NON FIRM $ 5.38 as of 10 31 88 HG&E 11 1-88 anone= CL&P/WMEC0/HWP NON FIRM $24.27 as of 1 1 89 HG&E 4 25-90 =none= CL&P/WMEC0/HWP NON FIRM $11.06 term:10 31 94 l E. NYPA tr.ansnistion contracts for NU fraction of path; starting N.Y. border j l Wallingford_ 7-1 85 HWP 38 CL&P/WMEC0/HWP FIRM .$ 9.83 j Norwalk 3rd l o'; b HWP 39 CL&P/WHEC0/HWP. FIRM $ 3.67 l S. Worwdi i 1-85 HWP 40 CL&P/VMEC0/HWP FIRM $ 3.67 1 de:irteld 7 1 85 HWP 41 CL&P/WMEC0/HWP FIRM $ 9.83 Chicopee 7-)-85 HWP 42 CL&P/WHEC0/WWP FIRM $ 9.83 HG&E 7-1 HWP 43 CL&P/WHEC0/HWP FIRM $ 9.83 U!CO' . 7 1-85 HWP 44 CL&P/WMEC0/HWP- FIRM $ 9.83 l S. Hadley 7 1 85 HWP 45 CL&P/WMEC0/HWP FIRM $ 9.83 : l F. Other transsission agreements Mt . Tom 3/ 10 14-57 HWP 2.& HP&E N/A HP&E 1 i NU G&T 1-70 HWP 228 CL&P/HELC/HP&E/ i H"&E 13 HWP/WHECO N/A NEPSOL 911-71 HWP 24& NEP00L SIGNA- LV/PTF: $ 5.70; HP&E 15 ' TORIES EHV/PTF1 $ 2.75 i CMEEC Trans-9-25-80 HWP 31 .CL&P/HELC/HP&E/ FlWM A:$3.67;
&HP&E 21 HWP/WMEC0 8:$3.62; ,
C:$1.56; i D:$3.62; 1 E:$3.67 HG&E' 5-15-80 HWP JE WHEC0/HWP Chicopee 11-1 88 anone. CL&P/NU $11.06 , _/ Rates from previous page, b x/ Buyers are NEPCO, WMECO and HWP. Abbreviations: CL&D + Connecticut Light & Power Company (NU.sub.)
, CHEEC~ = Connecticut Municipal Electric Cooperative-HELC- = Hartford Electric Light Company (absorbed by CL&P]
HG&E!
- Holyoke. Gas & Electric Department .
j , -PP&E = Holyoke Power & Electric Company (NU 8 HWP sub.) ! HWP = 'Holyoke-Vater Power Company (NU sub.) NYPA. = New York Pvwer-Authority a PASNY = l
= Power Authority of the State of New York
! U'C0 = United !!luminating Company WMEC0 = Western Massachusetts Electric Company (NU sub.] l s c- - . . . . - , . - . . . _ . _ - _ _ _ _ _ _ _ _ _ _ - . _ - _ _ _}}