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New Hampshire Issues Final Plan for Electric Restructuring

Fortnightly Magazine - April 15 1997

achieve a competitive generation market using bilateral contracts along with pool-based or spot-market transactions, plus the creation of an independent system operator (ISO) to maintain reliability of the regional transmission system. The PUC cited a recently developed proposal by New England Power Pool (NEPOOL), an established regional power pool, to restructure the area's bulk power market as "an adequate framework from which to proceed" on the ISO issue. %n5%n

With the approval of the final plan by the commission, each utility must now submit a comprehensive compliance plan no later that June 30, 1997, with implementation of retail choice by Jan. 1, 1998, under the timetable contained in the state's new restructuring law.

Stranded Costs

The aspect of the restructuring plan that is currently receiving the most attention in the press is the decision by the commission to limit stranded cost recovery in cases where a utility's costs exceed the regional average. The plan is especially controversial as it relates to Public Service Company of New Hampshire, who emerged from bankruptcy nearly a decade ago due in part to a long-term rate agreement approved by the New Hampshire commission. The agreement addressed rate recovery of what has turned out to be PSNH's uneconomic investment in the Seabrook nuclear plant. PSNH now argues that the rate reductions implicit in the stranded cost ruling conflict with the earlier rate agreement.

According to PSNH, the combination of the bankruptcy rate agreement, the commission's 1990 order approving the agreement, and a special state law authorizing its implementation by the commission (R.S.A. sec. 362-C:6) "create an obligation in the Commission" to set rates in 1998 and beyond that to allow full recovery of Northeast Utilities' $2.3 billion investment in PSNH along with an unspecified return, and to ensure full recovery of all FPPAC (fuel and purchased power adjustment clause) costs. Specifically, the utility cites state law (R.S.A. 362-C:6) to argue that once the commission was powerless to revoke the bankruptcy plan, either directly or indirectly. %n6%n

PSNH also has challenged the commission's stranded cost decision on several other grounds: 1) In approving the plan the commission promised in a "contractual sense" to permit recovery of the Seabrook investment; 2) Failure to permit full recovery of the stranded costs is an unconstitutional taking of its property without just compensation; and 3) Passage of the rate plan through the federal bankruptcy process now disables the commission from setting rates or limiting its permissible franchise in any manner.

The 1990 Bankruptcy Agreement

The bankruptcy rate agreement cited by PSNH in support of its claim for full recovery of stranded costs established a series of seven average annual base rate increases of 5.5 percent, subject to certain adjustments, including a return-on-equity collar. The "fixed-rate" period ends on July 1, 1997. (There is no dispute that the commission should not disturb this section of the rate agreement. The issue is whether, after the fixed-rate period ends, the commission is constrained in setting rates for PSNH.)

The same agreement contemplates a rate base for the reorganized utility of $800 million for the book