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Fortnightly Magazine - June 15 1998

"whether it is appropriate to extend, through new legislation, a comparability credit for non-standard offer customers."

In effect, the state has served Enron and other competitors with its own brand of standard offer: "If you don't like it, get your own law."

Two Billion and Change

On May 26, the New Hampshire Supreme Court heard oral argument on the same type of question that Massachusetts might face later on. In Docket 98-114, the court will decide if a state PUC policy to limit recovery of stranded costs will violate NU's rate agreement. NU says the agreement promised almost a billion dollars in deferred costs.

As explained by Devonrue consultant Stephen Maloney, who watched the attorneys argue the case, the implications are broad. "This is the best-documented compact between utility generators and state government for any sort of implied promise to recover stranded costs. If this one is up for grabs, then all the other compacts that are less well-documented will face trouble as well."

Ian Wilson, a spokesperson for PSNH, explains what's at stake: "The rate agreement was the foundation for NU to acquire PSNH for $2.4 billion. The assets - the bricks and motor - were assessed at about $800 million. Seabrook was pegged at about $700 million (PSNH owned a 36-percent share). The rest was a regulatory asset.

"We recovered about half that through periodic rate increases approved by the PUC during the first seven years, ending in June 1997, as provided for by the rate agreement. The other half [of the acquisition premium] was to be amortized over 20 years, from 1990 to 2010.

"We've got a lot of stranded costs hanging out there, frankly, because of this rate agreement. Most of them deferred. But we're saying that the state went into this with their eyes open. The bankruptcy court put a plan together and sold it to creditors. The financing, which was extraordinarily complex, would not have been possible had the state not been behind it."

So why was the attorney general arguing against PSNH?

"It's politics," suggested Wilson. "Electric have been hot politics in New Hampshire for years, ever since Seabrook was built."

New Hampshire PUC attorney Bob Frank also viewed the argument. I asked him why the attorney general didn't defend PSNH and the rate agreement, if it embodied a promise by the state.

"The attorney general was in fact representing the governor and the state," said Frank, even while taking a position on the agreement contrary to PSNH. "In New Hampshire, we have a separate consumer advocate. The AG represents the governor, not consumers."

The case would seem to turn on language in the rate agreement saying that the PUC's "traditional ratemaking authority resumes at the end of the seven-year rate plan, at which point it can adjust rates as it deems appropriate." PSNH contends that language assures recovery of all remaining deferrals. Opponents say the clause reinstates PUC police power and discretion to disallow costs - which the PUC always had. (For appellate briefs, relevant agreements, PUC decisions and the pending suit in federal