EXHIBIT D-2
DG 99-193
ENERGYNORTH NATURAL GAS, INC.
Petition for Approval of the Acquisition of
EnergyNorth Natural Gas, Inc.
by Eastern Enterprises and KeySpan Corporation
Order Approving Settlement Agreement
O R D E R N O. 23,470
- - - - - - - ------
May 8, 2000
APPEARANCES: Keegan, Werlin & Pabian, LLP by Robert J. Keegan, Esq.,
and Cheryl M. Kimball, Esq. on behalf of Eastern Enterprises; Nixon, Peabody by
Robert L. DeWees, Jr. Esq. and KeySpan Senior Attorney Richard A. Visconti on
behalf of KeySpan Corporation; McLane, Graf, Raulerson, and Middleton by Steven
V. Camerino, Esq., on behalf of EnergyNorth Natural Gas, Inc. and EnergyNorth
Inc.; Cook & Molan by Shawn J. Sullivan, Esq. on behalf of the United
Steelworkers Local 12012; Office of the Attorney General by Senior Assistant
Attorney General Wynn E. Arnold, Esq. on behalf of the Governor's Office of
Energy and Community Services; the Office of Consumer Advocate by Kenneth E.
Traum on behalf of residential utility consumers; and Larry S. Eckhaus, Esq.,
for the Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On December 3, 1999, EnergyNorth Natural Gas, Inc. (ENGI),
EnergyNorth, Inc. (EnergyNorth), Eastern Enterprises (Eastern) and KeySpan
Corporation (KeySpan) (together the Joint Petitioners) jointly filed, pursuant
to RSA 369:8, II and RSA 374:33, with the New Hampshire Public Utilities
Commission (Commission) a Petition for Approval of the Acquisition of ENGI by
Eastern and KeySpan. According to the petition, ENGI will be acquired indirectly
by KeySpan: Eastern will acquire EnergyNorth, the parent of ENGI, and Eastern
will be acquired by KeySpan.
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Eastern must also obtain the approval of the Securities and Exchange Commission
(SEC) for the acquisition of EnergyNorth pursuant to the Public Utility Holding
Company Act of 1935 (PUHCA). In addition, KeySpan must obtain SEC approval of
its application to become a registered holding company under the PUHCA and for
its acquisition of Eastern.
ENGI is a New Hampshire corporation and public utility as defined in
RSA 362:2. It is the largest natural gas utility in New Hampshire serving
approximately 72,000 customers in 28 cities and towns in southern and central
New Hampshire and the City of Berlin in northern New Hampshire.
Eastern is a Massachusetts business trust and holding company that
owns Boston Gas Company, Colonial Gas Company and Essex Gas Company which
together serve 735,000 natural gas customers in Massachusetts. Eastern also owns
and operates several unregulated business enterprises.
KeySpan is a New York corporation that owns Brooklyn Union Gas Company
and KeySpan Gas East which together serve 1.6 million natural gas customers in
New York City and on Long Island. KeySpan also owns and operates other regulated
electric generation companies in the State of New York, as well as several
unregulated business enterprises.
The Joint Petitioners aver that the acquisition of ENGI will result in
numerous benefits including: an immediate reduction in gas costs resulting in a
2.2% burner tip price reduction to ENGI customers; cost savings due in part to
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the elimination of 62 positions (47 management and 15 non-management); increased
supply options, purchasing power and the ability to dispatch across Eastern's
combined distribution system; integration of corporate and administrative
functions; sharing of information technology; and customer service enhancements.
The EnergyNorth Merger Agreement further provides as a condition of
the merger, with regard to rates and recovery of costs associated with the
merger (including the acquisition premium and transaction and integration
costs), that the Commission's approval shall be upon terms and conditions that
are not less favorable than those set forth in Order No. 22,983, Northern
Utilities, Inc. 83 NH PUC 401 (1998). The Joint Petitioners propose to work with
the Commission to develop a mechanism for identifying and quantifying cost
savings that are achievable only as a direct result of the merger, and to have
the opportunity to request in a future proceeding the recovery of merger related
costs required to accomplish the transaction if such costs are demonstrated to
be offset by merger related savings.
The Joint Petitioners request approval of the transactions as filed in
accordance with RSA 369:8,II(b)(2), or, alternatively, RSA 374:33. Pursuant to
RSA 374:33, the acquisition by a utility or public holding company of more than
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ten percent (10%) of the stocks or bonds of a public utility or public utility
holding company incorporated in or doing business in this state requires
Commission approval. RSA 369:8, II provides, however, that where the parent
company of a utility regulated by the Commission seeks to merge or be acquired
by another utility, the approval of the Commission is not required if there will
be no adverse effect on rates, terms, service or operations of the New Hampshire
utility, and a detailed written representation to that effect is made to the
Commission.
By Order No. 23,367 (December 13, 1999), the Commission scheduled a
Prehearing Conference and first technical session for December 23, 1999, set
deadlines for intervention requests and objections thereto, and required the
parties and Staff to propose a procedural schedule. The Commission also
addressed the applicability of RSA 369:8, II and RSA 374:33 to the proposed
acquisition of ENGI.
On December 20, 1999, the Governor's Office of Energy and Community
Services (GOECS) filed a Motion to Intervene. On December 21, 1999, GOECS filed
a corrected Motion to Intervene. On December 23, 1999, Steven V. Camerino,
counsel for ENGI and EnergyNorth, filed a Motion to Admit Robert J. Keegan Pro
Hac Vice and a Motion to Admit Cheryl M. Kimball Pro Hac Vice to appear and
practice at the Commission in this proceeding on behalf of the Joint Petitioners
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(Motions to Admit). Also on December 23, 1999, the prehearing conference was
held.
By Order No. 23,382 (January 6, 2000), the Commission approved the
interventions of GOECS and the Office of the Consumer Advocate (OCA), the
Motions to Admit, and the procedural schedule.
On January 18, 2000, the Joint Petitioners filed a Motion for
Protective Order and Confidential Treatment with respect to information provided
in response to Staff Data Request No. 1-17, regarding minutes of board of
directors meetings of EnergyNorth, Eastern and KeySpan.
On February 11, 2000, the United Steelworkers - Local 12012 (the
Union), the duly authorized bargaining representative for certain employees of
ENGI, filed a Petition to Intervene. As there was no opposition to the Petition,
the Commission approved the Union's intervention at the hearing on April 4,
2000.
On February 16, 2000, EnergyNorth filed a Motion for Protective Order
and Confidential Treatment with respect to information provided in response to
Staff Data Request Nos. 4-1, 4-26 and 4-27 regarding Management Continuity
Agreements, retention agreements, and ENGI and EnergyNorth future strategic
plans. On February 22, 2000, EnergyNorth filed a Motion for Protective Order and
Confidential Treatment with respect to additional information provided in
response to Staff Data Request No. 4-1 concerning the amount of payments under
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certain Management Continuity Agreements for certain individuals.
On February 23, 2000, the Joint Petitioners informed the Commission
they had no objection to the Union's Petition to Intervene.
On February 23, 2000, in accordance with the procedural schedule, the
Union filed testimony submitted by Walter Poisson, Jr. and Shawn Sullivan; the
OCA filed the Direct Testimony of Kenneth E. Traum, OCA Finance Director; and
the Commission Staff (Staff) filed the testimonies of Stephen P. Frink,
Assistant Finance Director, Andrew Kosnaski, Economist II, Richard G. Marini,
P.E. Administrator, Safety Division, and Amanda O. Noonan, Director of Consumer
Affairs.
On March 22, 2000, the Joint Petitioners filed a Motion for Protective
Order and Confidential Treatment with respect to information provided in
response to Staff Data Request Nos. 4-34, 4-35, 4-38 and 4-39, regarding
Management Continuity Agreements.
On March 28, 2000, a Settlement Agreement (Agreement) was filed with
the Commission by EnergyNorth, ENGI, Eastern, KeySpan, OCA and the Staff of the
Commission (the Settling Parties and Staff). The Agreement is a result of the
review of all the testimony, the Joint Petitioners' responses to more than 170
data requests, and the technical/settlement conferences which were held on
January 7, 2000, February 15, 2000, February 29, 2000, March 2, 2000 and March
6, 2000 (a teleconference).
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On March 31, 2000, the Union filed comments in opposition to the
Settlement Agreement. On April 3, 2000, GOECS filed Brief Comments indicating
that it did not contest the resolution of the issues specified in the Settlement
Agreement along with other comments.
On April 4, 2000, ENGI and EnergyNorth filed a Motion for Protective
Order and Confidential Treatment with respect to information provided in
response to Staff Data Request No. 4-2 regarding hypothetical severance
payments.
A hearing was held on April 4, 2000 at which the Settling Parties and
Staff presented Michelle L. Chicoine, Executive Vice of EnergyNorth and
President and Chief Operating Officer of ENGI, Walter J. Flaherty, Executive
Vice President and Chief Financial Officer of Eastern, Joseph F. Bodanza, Senior
Vice President and Treasurer of Eastern, and Craig G. Matthews, President and
Chief Operating Officer of KeySpan as witnesses in support of the Settlement
Agreement. No other witnesses testified, however, statements were presented
orally or in writing by all of the parties.
II. SETTLEMENT AGREEMENT
The Settlement Agreement, dated March 28, 2000, is entered into by the
Settling Parties and Staff, representing all of the full participants in this
docket with the exception of the Union and GOECS, with regard to the acquisition
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of EnergyNorth and ENGI by Eastern, and by virtue of its merger with Eastern,
the indirect acquisition of ENGI by KeySpan.
The Agreement is summarized as follows:
1. Acquisition Premium
The Settling Parties and Staff agree that the Joint Petitioners may,
in a future proceeding, request the amortization of the acquisition
premium in rates, and that the Commission may consider allowing such
recovery only to the extent that the Joint Petitioners can meet the
evidentiary burden of demonstrating that the benefits of the merger to
customers equal or exceed the amount of the acquisition premium and
transaction and integration costs proposed for amortization. With
regard to any such ratemaking request, the Joint Petitioners will be
required to substantiate that savings have resulted from the merger
before any part of the acquisition premium is included for ratemaking
purposes. In order to facilitate the measurement of such savings, the
Settling Parties and Staff agree to discuss the establishment of a
mechanism to determine Merger Related Savings. None of the Parties nor
Staff shall be precluded from taking any position with regard to such
a request for ratemaking treatment in a future proceeding. Until such
time that the Commission determines otherwise, the acquisition premium
shall be recorded and amortized "below the line" and shall not be
included in the determination of rates.
2. Transaction and Integration Costs
The Settling Parties and Staff agree that the Joint Petitioners may,
in a future proceeding, request the amortization of transaction and
integration costs in rates and that the Commission may consider
allowing such recovery only to the extent that the Joint Petitioners
can meet the evidentiary burden of demonstrating that the benefits of
the merger to customers equal or exceed the amount of the acquisition
premium and transaction and integration costs proposed for
amortization. With regard to any such ratemaking request, the Joint
Petitioners will be required to substantiate that savings have
resulted from the merger before any part of the transaction and
integration costs are included for ratemaking purposes. In order to
facilitate the measurement of such savings, the Settling Parties and
Staff agree to discuss the establishment of a mechanism to determine
Merger Related Savings. None of the Parties nor Staff shall be
precluded from taking any position with regard to such a request for
ratemaking treatment in a future proceeding. Until such time that the
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Commission determines otherwise, any transaction and integration costs
shall be recorded and amortized "below the line" and shall not be
included in the determination of rates.
3. Capital Structure
The Settling Parties and Staff agree that no Party nor Staff shall be
bound in any future proceedings to utilize for ratemaking purposes the
capital structure of ENGI that results from entries necessary to
account for the merger.
4. Commission Jurisdiction
The Settling Parties and Staff agree that the jurisdiction of the
Commission over the operations of ENGI will not be changed by approval
of the merger.
5. Monthly Reports
The Joint Petitioners agree to continue to provide Commission Staff
and OCA with monthly reports regarding ENGI in accordance with the
provisions of RSA 374:4 and Puc 509.01 and 509.06, as well as a copy
of all Forms 10- Q, which are filed quarterly with the Securities and
Exchange Commission.
6. Public Interest Standard
a. The Settling Parties and Staff agree that the proposed
acquisition of EnergyNorth and ENGI by Eastern, which will be
accomplished through the merger of EnergyNorth and Merger Sub (EE
Acquisition Company created by Eastern for the purpose of
effectuating the acquisition), is in the public interest in
accordance with RSA 369:8(II) and RSA 374:33, and will have no
adverse effect on the rates, terms, service or operation of ENGI
within the State provided all of the terms and conditions of this
Agreement are met.
b. The Settling Parties and Staff agree that the proposed indirect
acquisition of EnergyNorth and ENGI by KeySpan through its
acquisition of Eastern, which will be accomplished through the
merger of Eastern and ACJ (ACJ Acquisition Company LLC a
subsidiary of KeySpan created to effectuate the merger), is in
the public interest in accordance with RSA 369:8(II) and RSA
374:33, and will have no adverse effect on the rates, terms,
service or operation of ENGI within the State provided all of the
terms and conditions of this Agreement are met.
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7. Customer-Service Issues
The Settling Parties and Staff agree that the provisions of the
Agreement regarding Customer-Service issues ensure that there will be
no degradation in the current level of customer service provided to
ENGI customers as a result of the merger. In the future, any specific
performance targets provided for by statute or by Commission
regulation shall apply and take precedence to the provisions of the
Agreement.
8. Gas-Safety Issues
The Settling Parties and Staff agree that the provisions of the
Agreement regarding Gas Safety issues ensure that there will be no
degradation in the safety or reliability of gas service currently
provided to ENGI customers, and the general public, as a result of the
merger. In the future, any specific performance targets provided for
by statute or by Commission regulation shall apply and take precedence
to the provisions of the Agreement.
9. Accounting for the Merger
Within thirty (30) days following the closing of the merger, the Joint
Petitioners agree to file with the Finance Director of the Commission
and OCA, entries necessary to account for the merger, which shall be
made in accordance with the Commission's Uniform System of Accounts
for Gas Utilities, set forth at PUC 507.07, and generally accepted
accounting principles.
10. Gas-Cost Savings
All savings achieved as a result of the merger relating to commodity,
transportation and storage contracts and other gas costs, which are
recovered by ENGI through the Cost of Gas factor, shall be passed on
to ENGI customers and shall not be included in the calculation of
Merger Related Savings for the purposes of Section V(1) and V(2) of
the Agreement.
11. Acquisition Premium Allocation
The Settling Parties and Staff agree not to assert that any
determination by the SEC, the Federal Energy Regulatory Commission or
any other regulatory agency relating to the allocation of
Merger-Related Costs is binding on, or has precedential effect before
the Commission for ratemaking purposes.
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In addition to the specific provisions of the Settlement Agreement,
during the hearing, witnesses for the Joint Petitioners agreed, among other
things: that all records, including cost allocation and affiliate transactions,
and the relevant supporting records, will be available for review by the
Commission; that the Commission is not bound to reach any particular result with
regard to the "Merger Related Costs" as a result of its approval of the
Settlement Agreement and the acquisition; that all savings achieved as a result
of the acquisition relating to commodity, transportation and storage contracts
will be passed directly back to ENGI customers and will not be utilized to
support recovery of the "Merger Related Costs"; that avoided costs, e.g. ENGI
technology investments, will not be utilized to support recovery of the "Merger
Related Costs"; that the Joint Petitioners will notify the Commission's Gas
Safety Division in advance of any changes in ENGI's operations with regard to
gas safety whether included in the Settlement Agreement, in representations made
in testimony or provided in responses included in Exhibit 13; and that no bill
payment locations would be closed without prior Commission notification.
III. POSITIONS OF NON-SETTLING PARTIES
1. Governor's Office of Energy and Community Service
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While not a signatory to the Settlement Agreement, GOECS did not
contest the resolution of the issues specified in the Settlement Agreement.
GOECS did not file testimony but rather intervened to monitor the proceeding due
to its interest in mergers and the treatment of merger-related costs, potential
precedential import pertaining to other utility mergers and acquisitions, as
well as the potential implications for natural gas rates and economic
development in New Hampshire. GOECS agreed that the public interest standard
governing the proposed merger was appropriately applied by the Settling Parties.
GOECS also agreed with the OCA's testimony that the public interest test is
broad and includes such concerns as safety, consumer affairs, impacts on the
State's economy, employment issues, rate impacts and quality of service.
GOECS also suggested that the Joint Petitioners allow the Commission
the same access to books and records that is accorded to the Federal Energy
Regulatory Commission. GOECS further suggested that the merger presents the
opportunity to reintroduce gas utility sponsored energy efficiency programs,
e.g. regionally coordinated programs with other New England utilities.
2. United Steelworkers - Local 12012
The Union indicated that it did not support the Settlement Agreement.
The Union maintained there was insufficient documentation of the proposed
organizational structure, job descriptions, and proposed job sites. In prefiled
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testimony, the Union proposed that ENGI should maintain its three (3) operating
locations in Nashua, Manchester and Tilton and staff a fourth location at Broken
Bridge Road in Concord, New Hampshire. The Union urged retention of a residency
clause providing for employees with emergency response requirements to live
within 20 minutes of their reporting locations. The Union expressed concern that
access to services was becoming infrequent due to remote meter reading. The
Union proposed adding personnel to the Distribution/Production function, due to
the heavy volume of construction activity in New Hampshire. The Union expressed
concerns related to the proposed use of Emergency Response Units, alleged
"system holes" for telecommunications purposes and additional inspection of
construction projects.
IV. COMMISSION ANALYSIS
1. Settlement Agreement
In our recent Order No. 23,308, in Docket DE 99-035, approving the
proposed merger of New England Electric System and National Grid Group plc, New
England Electric System, (October 4, 1999), we discussed at some length the
statutory framework within which the Commission must act in considering
acquisitions of New Hampshire public utilities and/or their parent companies.
The Commission determined that mere representations are not sufficient to
satisfy the statutory requirement of RSA 369:8, II; the Commission must
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independently verify that no adverse effect on the rates, terms, service or
operation of the utility to be acquired will occur.
Subsequent to the proceeding in Docket DE 99-035, RSA 369:8,II was
substantially amended. Nevertheless our Order No. 23,367 in this proceeding
clearly indicated that the Commission's independent verification that the
proposed acquisition would have no adverse effect on the rates, terms, service
or operation of the utility to be acquired remains a statutory requirement.
Under the public interest standard of RSA 374:33 and the "no adverse
effect" standard of RSA 369:8 to be applied by the Commission where a utility or
public utility holding company seeks to acquire, directly or indirectly, a
jurisdictional utility, the Commission must determine that the proposed
transaction will not harm ratepayers. After careful review of the Settlement
Agreement and the testimony, exhibits and comments offered at the April 4, 2000
hearing, and given the additional representations of the Joint Petitioners noted
herein, we find that the Agreement is reasonable and that the proposed
acquisition is lawful, proper and in the public interest.
We believe the Settlement Agreement, which is very comprehensive,
provides an appropriate regulatory framework within which ENGI operations may be
integrated with the operations of Eastern and KeySpan. While EnergyNorth will
remain a separate legal entity with its own records, accounts, rates and
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debt, the Joint Petitioners will operate as a single company in order to
maximize operating efficiency and improve customer service. It is the
responsibility of this Commission to ensure that the public safety is secure,
that service requirements are met, and that the standards set by this Commission
are adhered to. The conditions set forth in the Settlement Agreement provide
appropriate performance targets in order to achieve these goals and ensure no
degradation in customer service or gas safety.
The proposed acquisition appears to offer much in the way of synergies
that are expected to benefit both ENGI customers and the Joint Petitioners. ENGI
and its customers are expected to realize initial savings in gas costs; avoid
the costs associated with required technology improvements; and enjoy the
benefits of an automated dispatch function, completion and implementation of the
automated meter reading system resulting in fewer estimated bills and customer
interruptions, and the potential use of the Internet for customer account
access, bill payment, turn on and turn off. The larger company is expected to
have the ability to add customers and invest in infrastructure, spreading fixed
costs over a larger base of customers.
While it may be true that the Joint Petitioners have not provided
final details with regard to organizational structure, positions and names of
individuals who will occupy those positions, at this point in a merger process,
that is not surprising. The Joint Petitioners have committed to keeping the
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Commission Staff informed of their ongoing activities in this regard. The Joint
Petitioners have further agreed that there will be no changes in the way ENGI
operates, without prior Commission notification.
Under the terms of the Settlement Agreement, we are not required, at
this time, to decide whether so-called "Merger Related Costs," defined in the
Agreement as the acquisition premium and transaction and integration costs,
should be recovered from ratepayers. In Northern Utilities, Inc. 83 NH PUC 401
(1998), we noted that the inclusion of an acquisition premium in the revenue
requirement calculation, and the effect of the acquisition premium on capital
structure, would in all likelihood lead us to the conclusion that customers
would be harmed by the acquisition without the conditions contained in the
settlement agreement there. Those conditions required Northern to substantiate
any savings to ratepayers that result from the merger before it may include any
part of the acquisition premium in ratebase for ratemaking purposes. The same
condition applied to the effect of the acquisition premium on the capital
structure of the resultant entity. Id at 404. In any event, the Northern
decision makes clear that recovery of the acquisition premium is not guaranteed,
but rather, Northern is merely permitted to request recovery under certain
conditions without precluding any party from taking any position with regard to
such request. In New England Electric System, Order No. 23,308 in Docket No. 99-
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035 (October 4, 1999), we reached a similar conclusion in the context of a fully
litigated proceeding.
In this proceeding, the Joint Petitioners have agreed with GOECS'
statement that provisions V 1 and 2 of the Settlement Agreement
...preserve the rights of the Parties and Staff to argue, and the
Commission, if it deems appropriate, to decide in a subsequent
proceeding that no part of the acquisition premium and/or the
transaction and integration costs be included for ratemaking purposes
under any circumstances, or, if allowed, subject to what criteria.
(Tr. pp. 102-103)
The provisions of the Settlement Agreement here which defer
consideration of the capital structure and ratemaking issues with regard to
"Merger Related Costs" for a subsequent proceeding are appropriate. The Joint
Petitioners may, in a future proceeding, request the amortization of the
acquisition premium in rates, and the Commission may consider allowing such
recovery, but is not bound by the Settlement Agreement to rule in any particular
way. Further, the Settlement Agreement provides that the Joint Petitioners must
meet the evidentiary burden of demonstrating that the Merger Related Savings
equal or exceed the amount of the acquisition premium and transaction and
integration costs proposed for amortization. If the Commission were to allow
Recovery of "Merger Related Costs", the level of Merger Related Savings would
provide an upper limit as to the amount of those costs the Joint Petitioners may
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seek, but no more than the "Merger Related Costs." None of the Parties nor Staff
shall be precluded from taking any position with regard to such a request for
ratemaking treatment in a future proceeding. Until such time that the Commission
determines otherwise, the "Merger Related Costs" shall be recorded and amortized
"below the line" and shall not be included in the determination of rates.
As noted, with regard to any such ratemaking request, the Joint
Petitioners will be required to substantiate that savings have resulted from the
acquisition before any part of the "Merger Related Costs" may be requested for
ratemaking purposes. In order to facilitate the measurement of such savings, the
Settling Parties and Staff have agreed to discuss the establishment of a
mechanism to determine Merger Related Savings.
As noted above, the Joint Petitioners have agreed that the Commission
is not bound to reach any particular result with regard to the "Merger Related
Costs" as a result of its approval of the Settlement Agreement and the
acquisition. This would include an investigation, at any time, upon the
Commission's own motion or upon complaint, pursuant to RSA 378:7, as to the
appropriateness of ENGI's rates, including, but not limited to, the reflection
of Merger Related Savings in rates. The Joint Petitioners will not be precluded
from requesting in such a proceeding the amortization of "Merger Related Costs"
in rates, in accordance with the provisions of the Settlement Agreement
described herein.
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Before and until a proceeding involving the recovery of "Merger
Related Costs" occurs, however, ENGI shall file its annual reports to the
Commission in a form that allows for an analysis of its earnings with and
without the effects of the "Merger Related Costs", from the perspective of
income and expenses, rate base and the weighted cost of capital.
2. Motions for Protective Order
The Joint Petitioners together, and ENGI and EnergyNorth separately,
filed Motions for Protective Order and Confidential Treatment with respect to
information provided in response to certain Staff Data Requests Nos. 1-17, 4-1,
4-2, 4- 26, 4-27, 4-34, 4-35, 4-38 and 4-39. For the purposes of this Order, we
will discuss these Motions together.
Protective treatment was sought for the response to Data Request No.
1-17 regarding minutes of Board of Directors meetings, and for the response to
Data Request No. 4-27 regarding EnergyNorth and ENGI's business strategy plans
for 1996-1999, pursuant to RSA 91-A:5, IV as records pertaining to
"confidential, commercial or financial information". The Joint Petitioners aver
that disclosure could cause financial harm or lost opportunities to them or
result in other obligations under applicable securities law disclosure
obligations
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Protective treatment was sought for the responses to Data Request Nos.
4-1, 4-2, 4-26, 4-34, 4-35, 4-38 and 4-39 regarding information pertaining to
EnergyNorth Management Continuity Agreements and retention payments to specific
employees, and hypothetical severance payments for seven (7) individuals
pursuant to RSA 91-A:5, IV as records pertaining to "internal personnel
practices; confidential, commercial or financial information". The Joint
Petitioners aver that the confidential material relates to personnel matters
which would cause them harm if available to other employees.
The Commission recognizes that the information contained in the
aforementioned data responses is confidential information pertaining to
"internal personnel practices; confidential, commercial or financial
information" which the Joint Petitioners do not disclose, which are subject in
some instances to confidentiality agreements and which could cause them harm if
made public. All of the information requested has been, or will be, made
available to the Commission and the Commission Staff, and responses to Data
Request Nos. 4-1, 4-2, 4- 26, 4-34, 4-35, 4-38 and 4-39 have been included in
Exhibit 13 and marked Confidential. Based on the Joint Petitioners'
representations, and there being no objection from any other party, under the
balancing test we have applied in prior cases, e.g., Re NET (Auditel), 80 NH PUC
437 (1995), Re Eastern
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Utilities Associates, 76 NH PUC 236 (1991), we find that the benefits to the
Joint Petitioners of non-disclosure in this case outweigh the benefits to the
public of disclosure. The information, therefore, is exempt from public
disclosure pursuant to RSA 91-A:5, IV and Puc 204.06.
Based upon the foregoing, it is hereby
ORDERED, that the Settlement Agreement is APPROVED consistent with the
terms and conditions of this Order; and it is
FURTHER ORDERED, that the proposed direct acquisition of EnergyNorth
and ENGI by Eastern and the proposed indirect acquisition of EnergyNorth and
ENGI by KeySpan, is in the public interest in accordance with RSA 369:8,II and
RSA 374:33, will have no adverse effect on the rates, terms, service or
operation of ENGI within the State provided all of the terms and conditions of
the Settlement Agreement and this Order are met, and is therefore APPROVED; and
it is
FURTHER ORDERED, that the Joint Petitioners' Motions for Protective
Order and Confidential Treatment with respect to information provided in
response to Staff Data Request Nos. 1-17, 4- 1, 4-2, 4-26, 4-27, 4-28, 4-34,
4-35, 4-38 and 4-39 are APPROVED; and it is
FURTHER ORDERED, that the determination as to protective treatment
made herein is subject to the ongoing rights of the Commission, on its own
motion or on the motion of Staff, any party or any other member of the public,
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to reconsider this Order in light of RSA 91-A, should circumstances so warrant.
By order of the Public Utilities Commission of New Hampshire this
eighth day of May, 2000.
---------------------------------- ----------------------------------
Douglas L. Patch Susan S. Geiger
Chairman Commissioner
Attested by:
--------------------------------
Thomas B. Getz
Executive Director and Secretary.
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Separate Opinion of Commissioner Brockway
Concurring in Part and Dissenting in Part
While I have only one point of disagreement with my colleagues in this
docket, it requires me to depart from the majority, at least to that extent. I
am unable to concur in approval of the Keyspan Settlement Agreement in its
present form.
The proposed merger is likely to be good for Energy North's customers,
and perhaps for New Hampshire as a whole. From all the prefiled evidentiary
materials, it appears that the acquisition of Energy North by Eastern
Enterprises (parent of Boston Gas) and indirectly by Keyspan Corporation, will
not harm the public interest, so long as proper staffing is maintained for
operations and maintenance, and customer service standards are maintained, and
the acquisition premium is not flowed through to consumers. I am prepared to
accept the commitments of Keyspan with respect to operations and maintenance,
and customer service. Further, the merging parties propose to provide immediate
and significant benefits to consumers in the form of lower gas purchase costs.
However, the Settlement Agreement recites that Keyspan may, in a
future proceeding, "request the amortization of the acquisition premium in
rates..." Consistent with my separate opinion in the National Grid Group/NEES
merger case, DE 99-035, I believe that there are no possible grounds for
flow-through to consumers of an acquisition premium created on the books of
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Keyspan or its affiliates as a result of this merger. The acquisition premium is
not a cost of providing utility service.
With regard to the so-called integration costs, by contrast, an
argument can be made that they are a cost of doing business, and necessary to
achieving the objective of a more efficient operation, with lower costs overall.
Thus, as a matter of policy, I believe Commissions should not reject recovery of
such costs out of hand. It may be that we should adopt a policy of denying such
recovery unless necessary to the completion of the merger, in which case any
claim for pass-through of such costs would fail in this case. The
"no-merger-but-for-pass-through" condition could not be met, since the Companies
are willing to defer the issue and proceed with the merger without assurance of
pass-through. We did not have argument on this question, however, and I can join
with my colleagues in deferring this issue as proposed in the Settlement
Agreement, content merely to alert the Companies to the risk that by agreeing to
deferral they may have undermined their case for recovery of integration costs.
I cannot, however, agree to deferral of the acquisition premium issue,
as proposed in the Settlement Agreement. The factors that might hypothetically
justify consideration of such extraordinary treatment are known today, and do
not apply to this merger. Utilities are not entitled to earn a return of (or on)
investments above the fair value (defined traditionally as net book value) of
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utility assets. The acquisition premium amounts to such an investment. Keyspan
may have perfectly good reasons for paying more than the net present value of
net income based on utility ratemaking, but consumers should not be required to
provide revenues based on any higher base than net book and cost of service.
Further, there is a moral hazard in not making it clear that, aside
from restructuring situations, rates for price-regulated companies in New
Hampshire are grounded on book value ratemaking; if potential utility buyers can
expect to recover some or all of their above-book payments from consumers, they
will be open to paying more for a utility than they otherwise would.
Correspondingly, a potential seller utility will be encouraged to seek out
merger partners, and force a bidding up of the premium above book, in order to
reap higher windfall profits from buyers who hope to place the burden of the
purchase on consumers. Seller utilities will also have an incentive to come in
for accelerated depreciation, and then turn around and sell their companies at a
profit, pocketing both the accelerated depreciation and the above-book price.
Such churning should not be encouraged, as it is both unfair and economically
inefficient.
With regard to offsetting merger savings, it should be noted that
consumers under traditional ratemaking bear the risk of operating losses (higher
operating costs) occasioned by the merger. Keyspan does not propose to shield
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consumers from this eventuality, and in recent history such events have been
known to happen. Allowing Keyspan to offset operating savings against an
acquisition premium and thereby recover the acquisition premium would deny to
consumers the symmetry of risk and reward.
The Legislature has given the Commission an extremely short period of
time within which to consider mergers that may have great consequences for the
state. I appreciate the willingness of the companies who have recently proposed
mergers to make it possible to proceed without the artificial internal deadlines
that the statute now prescribes, and instead to make the best use of the entire
time available.
However, I believe that notwithstanding the very short time frames, we
should not defer the issue of acquisition premium treatment to later dockets.
Both the logic of the claim for recovery, and the importance of joining issue on
mergers at the time the issue is ripe, counsel that we should resolve the
questions when the merger is before us, not later.
Accordingly, for us to approve a settlement today that would leave
open the door to potential future recovery of the acquisition premium would
constitute a departure from the underlying merger and ratemaking policies that
should guide our decisionmaking. I would reject the Settlement Agreement, unless
it is amended to delete the option for later request for an acquisition
premium.
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Nancy Brockway
Commissioner
May 8, 2000
Attested by:
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Thomas B. Getz
Executive Director and Secretary
