File No. 70-8825
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION/DECLARATION WITH RESPECT TO DIVERSIFICATION ACTIVITIES
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES PUBLIC SERVICE COMPANY OF
WESTERN MASSACHUSETTS ELECTRIC COMPANY NEW HAMPSHIRE
THE QUINNEHTUK COMPANY NORTH ATLANTIC ENERGY
174 Brush Hill Avenue CORPORATION
West Springfield, MA 08109 100 Elm Street
Manchester, NH 03105
NORTHEAST UTILITIES SERVICE COMPANY NORTH ATLANTIC ENERGY
THE CONNECTICUT LIGHT AND POWER COMPANY SERVICE CORPORATION
NORTHEAST NUCLEAR ENERGY COMPANY Route 1, Lafayette Road
THE ROCKY RIVER REALTY COMPANY Seabrook, NH 03874
107 Selden Street
Berlin, CT 06037
(Name of company or companies filing this statement
and addresses of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company parent of each applicant or
declarant)
Robert P. Wax, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities
P. O. Box 270
Hartford, CT 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to:
Jeffrey C. Miller, Esq. John T. Muro
Assistant General Counsel Vice President - Retail Marketing
Northeast Utilities Service Company Northeast Utilities Service Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
The Application/Declaration in File No. 70-8825 is hereby amended as
follows:
The first paragraph of Item 1. Description of Proposed Transactions is
hereby amended as follows:
"1. Authorization to Engage in Diversification Activities
Northeast Utilities, a registered electric utility holding company
("NU"), Northeast Utilities Service Company ("NUSCO"), North Atlantic Energy
Corporation ("NAEC"), North Atlantic Energy Service Corporation ("NAESCO"),
Northeast Nuclear Energy Company ("NNECO"), The Rocky River Realty Company
("RRR"), The Quinnehtuk Company ("QC") and the principal operating
utility subsidiaries of NU, The Connecticut Light and Power Company, Public
Service Company of New Hampshire, and Western Massachusetts Electric Company
(the "Operating Companies") (NU, NUSCO, NAEC, NAESCO, NNECO, RRR, QC and the
Operating Companies are hereinafter collectively called "Applicants") hereby
request authority to engage in the following diversification activities, to
the extent the following activities are deemed jurisdictional and not
regulated by the applicable state commissions as electric utility services,
either directly or through one or more special purpose direct or indirect
subsidiaries of any Applicant or joint ventures/alliances with other
unregulated companies, for nonassociates, including customers of the
Operating Companies, and associate companies, or through investments in
existing companies engaged in these activities (collectively, "NEWCOs"):
(A) develop and commercialize electrotechnologies related to energy
conservation, storage, conditioning and conversion, energy efficiency,
heating/cooling/climate conditioning, waste treatment, greenhouse gas
reduction, safety/security systems and similar innovations; <F1>
(B) engage in the sale, leasing or renting, installation, operation and
servicing of electric appliances, devices or systems for residential,
commercial, governmental and industrial use, to customers of associated
and nonassociated utility companies; for example lighting systems, home
security or fire alarm systems, power quality devices, energy monitoring
systems and other energy conversion, control or storage systems; <F2>
(C) engage in the sale, leasing, installation, operation, financing and
servicing of electric utility equipment such as power generating
equipment, back-up generators, fuel cells, solar and photovoltaic
systems, energy storage systems, motors, engines, drives and controls,
windturbines, environmental equipment and other similar equipment,
including the ownership and operation of "qualifying facilities" within
the meaning of the Public Utility Regulatory Policies Act of 1978 as
amended; <F3>
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<F1> The Commission has previously authorized various investments related to
the manufacturing, development and marketing of electrotechnologies. See
e.g. Southern Co., Release No. 35-23888 (1985); Entergy Corp., Release No.
35-25718 (1992); Allegheny Power System Inc., Release No. 35-26225 (1995) and
General Public Utilities Corp., Release No. 35- 26230 (1995).
<F2> The Commission has allowed registered holding companies to engage in the
sale and marketing of appliances or other energy-utilizing devices directly
or through affiliated companies. See e.g. Engineers Public Service Co.,
Release No. 35-3796 (1942); CNG Energy Company, Release No. 35-23734 (1985);
Consolidated Natural Gas Co., Release No. 35-26234 (1995); and PSI Energy,
Inc., Release No. 35-26412 (1995).
<F3> These activities are functionally related to the Applicant's core
utility operations.
(D) engage in the production, sale, conversion, and distribution of thermal
energy products, such as process steam, heat, hot water, chilled water,
ice/"snow", air conditioning, compressed air and similar products;
alternative fuels; and renewable energy resources; <F4>
(E) engage in the sale of services (e.g. construction, consulting,
maintenance/repair, diagnostics/preventative care, sales/representation
services, marketing/distribution services, contract operation,
facilities licensing/permitting assistance, safety inspection) or
intellectual property (e.g. software, training, data, patents) related
to technical, operational, management, administrative, financial,
marketing and/or other expertise, developed in the course of utility
operations in such areas as power plant, transmission and distribution
system engineering, development, design and rehabilitation;
construction, maintenance, installation and operation of all types of
energy and heating, ventilating and air conditioning equipment;
specification, installation and operation of high voltage equipment;
fuel procurement, delivery, management and sale; transportation and
fleet vehicle management; environmental licensing, testing and
remediation; credit and collections management (including billing
services); personnel training and development programs and other similar
areas; <F5>
(F) own, operate, install or manage fuel procurement, transportation,
handling and storage facilities, scrubbers, and resource recovery and
waste treatment facilities; <F6>
(G) develop and commercialize technologies or processes which utilize
by-products or waste from basic utility operations as an integral
component of such technologies or processes; <F7>
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<F4> The Commission has permitted the acquisition of steam production
facilities inside an industrial site and the development of, and limited
investments in, facilities for producing or recovering alternative fuels and
energy resources. See e.g. Southern Co., Release No. 35-26185 (1994);
Southern Co., Release No. 35-26221 (1982); New England Electric System,
Release No. 35-22719 (1995) and Cinergy Corp., Release No. 35-26474 (1996).
<F5> The Commission has authorized a number of registered holding companies
to engage in the sale of various services. See e.g., Southern Co., Release
No. 35-22132 (1981); American Electric Power Co., 35-22468 (1982); Middle
South Utilities Inc., Release No. 35-22818 (1983); Cedar Coal Company,
Release No. 35-23973 (1985); Entergy Corp., Release No. 35-26322 (1995) and
Consolidated Natural Gas Co., Release No. 35-26363 (1995).
<F6> The Commission has authorized various investments related to such
activities. See e.g., Ohio Power Co., Release No. 35-19594 (1976) (rail-to-
barge coal handling facility); Middle South Utilities, Inc., Release No. 35-
18221 (1973) (bulk oil storage facilities); Jersey Central Power & Light Co.,
Release No. 35-24664 (1988) (reservoir, dam and related facilities for
storage and discharge of water); and New England Electric System, Release No.
35-26277 (1995) (installation of equipment at power stations owned by
nonaffiliates to separate unburned carbon from coal ash).
<F7> New England Electric System, Release No. 35-2627 (1995).
(H) to the extent not provided by "exempt telecommunications companies"
associated with the Applicants under the Telecommunications Act of 1996,
provide telecommunications service, data acquisition/control systems or
distribution/courier services supported primarily by facilities
utilizing existing utility structures, equipment and/or rights-of-way,
or using excess capacity of systems, property or services originally
installed or used primarily for the utility's own use; <F8>
(I) to the extent not otherwise permitted under Rule 40, lend money to,
guarantee obligations of, and arrange for financing or finance leases
for, customers or potential customers of the Applicants and joint
venture partners or allied parties of the Applicants <F9> primarily to
facilitate investments in programs and/or equipment which will encourage
utility load growth through process improvement, increased
cost-effectiveness of electric power or any other application of
electrotechnologies which provides production efficiencies or other
benefits to the customer;
(J) purchase accounts receivable of associate companies and of nonassociate
companies whose primary revenues are derived from the sale of
electricity, and of other nonassociate companies, including utility
companies, that generate receivables from large numbers of customers,
subject to the 50 percent test found in the CSW series of orders; <F10>
(K) engage in sales/representation and marketing/distribution services for
insurance programs provided by non-associate companies related to
electrical service to customers of the Applicants, including but not
limited to utility bill payment protection in the event of unemployment,
disability or death; also (provided entirely or in part by associate
companies) service contracts for maintenance of electrical appliances or
equipment; water heater life insurance and appliance/equipment extended
service warranty agreements;
(L) engage in the development and sale of any product or service directly
related to the electric vehicle, hybrid vehicle or transportation
market, including infrastructure support, energy storage devices and
sales or maintenance of vehicles or their motive power components. <F11>
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<F8> The Commission has previously approved activities related to
communication services. See e.g., Southern Co., Release No. 35-23440 (1984)
and Release No. 35-26211 (1994).
<F9> The Commission has approved customer and non-customer financing
programs. See e.g., Consolidated Natural Gas Co., Release No. 35-26234
(1995); and American Electric Power Company, Release No. 35-26473 (1996).
<F10> See e.g. CSW Credit, Inc., Release No. 35-24157 (1986), authorizing
financing of subsidiary to provide funds to factor accounts receivable of
nonassociate electric utility companies.
<F11> The Commission has approved activities related to the development of
electric and gas vehicles. See e.g., Consolidated Natural Gas Co., Release
No. 35-25615 (1992); Central Power and Light Co., Release No. 35-26160
(1994) and Columbia Gas System, Inc., Release No. 35-26295 (1995).
(M) engage in the brokering, marketing, generation, production,
transportation, transmission, distribution, storage and sale of energy
(including but not limited to electricity or natural or manufactured
gas) and "paper products" such as futures, hedges, load aggregations,
fuel tolling, fuel conversions and other instruments expected to be
required in a competitive energy marketplace (it being understood that
at the present time the Applicants will not, without subsequent approval
of the Commission, create any new subsidiary or engage in any such
activity, except as necessary to meet the requirements of the New
Hampshire Public Utilities Commission's 'Pilot Program', as
described in Exhibits D.1 and D.2.); and
(N) sell, rent, lease or operate for the benefit of a third party any
surplus physical asset (land, mineral rights, timber, buildings, air
rights, equipment, material) originally acquired in good faith for the
operation of the utility business, including the right to make any
improvements necessary to make such assets marketable in a free-market
environment."
Item 6. Exhibits and Financial Statements is hereby amended to add the
following exhibits to Item 6(a):
D.1 Order No. 22,033 dated February 28, 1996 of the New Hampshire
Public Utilities Commission in DR 95-250.
D.2 Order No. 22,081 dated March 29, 1996 of the New Hampshire Public
Utilities Commission in DR 95-250.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this statement to be
signed on their behalf by the undersigned thereunto duly authorized.
NORTHEAST UTILITIES
NORTHEAST UTILITIES SERVICE COMPANY
NORTHEAST NUCLEAR ENERGY COMPANY
THE ROCKY RIVER REALTY COMPANY
THE QUINNEHTUK COMPANY
NORTH ATLANTIC ENERGY SERVICE CORPORATION
NORTH ATLANTIC ENERGY CORPORATION
THE CONNECTICUT LIGHT AND POWER COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By: /s/Jeffrey C. Miller
Their Attorney
Dated: April 4, 1996
Exhibit D.1
NEW HAMPSHIRE PUBLIC UTILITIES COMMISSION
DR 95-250
Retail Competition Pilot Program
Order Establishing Final Guidelines
and Requiring Compliance Filings
O R D E R N O. 22,033
February 28, 1996
TABLE OF CONTENTS Page
I. Introduction . . . . . . . . . . . . . . . . . . . 1
II. Pilot Objectives . . . . . . . . . . . . . . . . . 3
III. Legal Issues . . . . . . . . . . . . . . . . . . . 5
IV. Jurisdiction Over Unbundled Transmission . . . . . 7
V. Stranded Cost Recovery . . . . . . . . . . . . . . 11
VI. Rates for Unbundled Services . . . . . . . . . . 13
VII. Responsibilities of Pilot Customers . . . . . . . . 15
VIII. Pilot Design . . . . . . . . . . . . . . . . . . 17
IX. Monitoring and Evaluation . . . . . . . . . . . . . 30
X. Compliance Tariff Filings . . . . . . . . . . . . . 32
APPENDICES
A. New Hampshire RSA 374:26-a
B. Pilot Program Procedural Schedule
C. Interested Organizations
D. New Load Criteria
E. Determination of Hourly Loads for NEPOOL Billing
EXECUTIVE SUMMARY
The New Hampshire Public Utilities Commission (NHPUC)
issues the following Final Guidelines (Guidelines) on the Retail
Competition Pilot Program (Pilot) mandated by NH RSA 374:26-a which
was enacted by the New Hampshire Legislature on June 19, 1995. The
full text of the authorizing legislation is attached as Appendix A.
This Report is the fourth in a series of reports beginning with
Preliminary Guidelines issued October 9, 1995, followed by First
Revised Guidelines issued November 20, 1995 and Second Revised
Guidelines issued January 23, 1996.
As stated in the Preliminary Guidelines, the purpose of
the Pilot is to create a limited experimental program to examine
the implications of retail competition in the electric utility
industry. The Pilot will be limited in size and duration in order
to achieve the objectives of the Pilot while minimizing the
potential financial impact on New Hampshire's electric utilities.
All classes of customers in all areas of the state will
be eligible to be selected to participate in the Pilot, although
only a small percentage of customers will actually be selected.
Competitive suppliers will have access to a minimum of 3% of each
electric utility's peak load, for a state-wide total of
approximately 50 MW, which will be allocated proportionately among
residential, commercial and industrial classes, based on the
relative loads of those classes for each utility. The Pilot will
commence May 28, 1996 and extend for a period of two years.
Residential and small commercial customers may
participate in the Pilot either individually or as part of a
"Geographic Area of Choice" (GAC). Individual customers and GACs
participating in the Pilot will be selected randomly by their
franchised utilities under the oversight of the NHPUC. After
customers are selected, the aggregation of customer loads will be
permitted to lower entry barriers for small customers.
In order to effectuate retail competition, franchised
utilities will be required to file by March 15, 1996 unbundled
transmission and distribution tariffs in compliance with these
Guidelines as well as charges to recover reasonable incremental
administrative costs and recoverable stranded costs. Franchised
utilities will not be permitted to impose exit or re-entry fees on
participants.
In these Guidelines the NHPUC maintains its position that
it has the legal authority under state and federal law to set the
rates, terms and conditions for the provision of intrastate
transmission and distribution services. The rates for intrastate
transmission and distribution services will be based upon the costs
currently embedded in each utility's retail rates.
Participating Pilot customers will be responsible for
negotiating the purchase of power from competing suppliers. Unless
the Commission orders otherwise, franchised utilities which choose
to compete in the Pilot may do so by establishing affiliated power
marketing companies.
The NHPUC recognizes that stranded cost recovery is the
most important and complex issue facing regulators and other
policymakers as they seek to introduce competition into retail
electric markets. While recognizing that issues related to
stranded costs dominate the debate over retail electric
competition, there are many other technical and policy issues which
warrant examination prior to a transition to full retail
competition. We have determined that in the absence of a
negotiated resolution which sets the level of recovery for each
utility, a fifty-fifty division of stranded costs between
participating customers and investors is an equitable starting
point. The NHPUC will initiate a separate proceeding in order to
examine the stranded cost issue fully as it relates both to the
Pilot and to restructuring generally.
The NHPUC will hold hearings on the compliance tariffs
April 1-5, 1996. The Pilot will commence on May 28, 1996. The
full schedule for the remainder of the proceeding is attached to
these Guidelines as Appendix B.
I. INTRODUCTION
In June 1995, the New Hampshire Legislature directed the
NHPUC to establish a pilot program (Pilot) to examine the
implications of retail competition in the electric industry,
provided that it is found to be "fair, lawful, constitutional,
consistent with RSA 378:37 and in the public good". NH RSA 374:26-
a, Laws of 1995, Chapter 272, effective January 1, 1996, previously
referred to as Senate Bill 168-FN-A, Section 12. See Appendix A.
In response to this mandate, the NHPUC issued Preliminary
Guidelines on October 9, 1995, followed by First Revised Guidelines
on November 20, 1995 (Note 1). On January 23, 1996, the NHPUC issued
Second Revised Guidelines which addressed additional comments
submitted by interested parties and the recommendations which
emerged from an intensive series of collaborative meetings (the
Collaborative) during late December 1995 and early January 1996.
Hearings were held on the Second Revised Guidelines January 29,
1996. After considering all of the written comments and those
offered at the recent hearings, we issue the following Final
Guidelines (Guidelines) for the Pilot.
The purpose of these Guidelines is to prescribe how the
Pilot will be implemented in order to accomplish the objectives set
forth below. Nonetheless, the revised procedural schedule
contained in Appendix B provides for a number of joint working
meetings with representatives from Staff, franchised utilities and
other Pilot participants to discuss technical questions raised by
these Guidelines. Franchised utilities will be required to make
compliance filings on or before March 15, 1996 and we will conduct
hearings on those filings April 1-5, 1996. We anticipate issuing
a final order on the compliance filings on April 15, 1996 and
direct utilities to commence the Pilot on May 28, 1996.
As stated in our Preliminary Guidelines and reaffirmed in
the Revised Guidelines, the Pilot is not necessarily a blueprint
for industry restructuring; rather, it should be viewed as an
opportunity to examine the implications of and obstacles to
competition in retail electric markets. Accordingly, the Pilot is
limited in scope, size and duration. For instance, although
performance based regulation may be an effective means to regulate
certain segments of the industry which remain naturally
monopolistic, it is unnecessary to initiate such regulatory reforms
in order to implement the Pilot.
We issue these Guidelines with the expectation that
stakeholders will take advantage of the opportunity to gain first-
hand knowledge of the problems associated with introducing
competition into what has previously been a thoroughly regulated
industry. We continue to believe that the Pilot should be
implemented in a manner which enables policymakers to gather
meaningful data without causing an unreasonable financial impact on
the state's electric utilities. It is not our intent or purpose to
have the Pilot be the battleground for recovery of stranded costs
or the future shape of the electric utility industry.
(Note 1) Appendix C lists the organizations which submitted
comments on the Preliminary and Revised Guidelines.
For the above reason, the Pilot can not be expected to
yield empirical data which will provide easy answers to all of the
complex issues associated with the establishment of full retail
competition in the electric industry. While some of the
information which the Pilot will generate may be anecdotal in
nature, the Pilot will provide an opportunity to encounter first-
hand many of the realities competitive markets. As with all NHPUC
orders or directives, we reserve the right to revisit the issues
discussed herein and to make modifications as appropriate during
the term of the Pilot.
Finally, we affirm our belief that consensus-building and
cooperative approaches should play an important role in any future
restructuring of New Hampshire's electric utility industry. Based
upon the success of the Pilot collaborative, we believe that such
an approach should play a part in resolving the many difficult and
challenging issues which could delay the introduction of meaningful
competition and lower rates for New Hampshire's citizens and
businesses.
II. PILOT OBJECTIVES
The Pilot's primary objective is to determine whether
retail competition in the electric utility industry can promote
lower retail rates for all customers without compromising the
reliability and safety of the power supply system. Consistent with
this view, we have developed these Guidelines in order to test
certain fundamental assumptions which underlie the case for retail
competition. For instance, the Pilot should provide information
regarding the level of demand among different customer classes for
competitively supplied electric services and the corresponding
level of interest among competitive generators to supply those
services. The Pilot should also test whether customers of all
classes have sufficient bargaining power to significantly benefit
from a deregulated power market. Such information potentially has
great value since it may enable a competitor to determine which
markets are the most profitable to serve.
Likewise, we view the Pilot as an opportunity to test
certain arguments advanced by those who oppose retail competition
or question whether the benefits of competition will be shared by
all customer classes. Additionally, the Pilot should provide
information relative to the potential financial impact of retail
competition on New Hampshire's electric utilities.
Finally, the Pilot will allow the parties to gain
experience in a broad range of technical and administrative matters
relating to competitive markets including the design and costing of
unbundled electric services.
As we stated in our last Report, we have decided that the
Pilot is not the appropriate forum to resolve all of the complex
economic and legal issues associated with the restructuring of the
electric utility industry. Nonetheless, a meaningful Pilot can not
be implemented without specifying the initial level of stranded
cost recovery. In Section V we define stranded costs and establish
a preliminary level of recovery in order to move the Pilot forward.
We will address the broad legal and policy arguments associated
with the issue of stranded cost recovery for the Pilot and the
transition to full competition in a separate proceeding.
III. LEGAL ISSUES
A. Authority to Order Retail Wheeling
In our previous Reports in this proceeding, we set forth
the statutory basis for the establishment of a retail electric
competition pilot program. The authorizing legislation requires us
to establish a pilot program provided that it is found to be "fair,
lawful, constitutional, consistent with RSA 378:37 and in the
public good". NH RSA 374:26-a. We believe that, if properly
implemented by the state's franchised utilities, these Guidelines
are consistent with these conditions.
In addition to the express statutory authority to
establish the Pilot, we believe that the NHPUC has the existing
legal authority to introduce competition into the retail electric
markets within this state if we find it to be in the public good.
See, NHPUC Order No. 21,683, Re Freedom Electric Company, DE 94-163
(June 6, 1995). Moreover, unlike issues related to retail
transmission services, it is undisputed that the FERC has no legal
authority to prevent states from ordering retail wheeling. Any
disagreement with our position on this issue of state law will be
resolved when the New Hampshire Supreme Court issues its decision
in the Freedom Electric appeal.
B. Stranded Cost Recovery
In our previous Reports relative to the Pilot, we
discussed the legal and policy considerations which led to our
preliminary conclusion that utilities should not be entitled to
100% recovery of their stranded costs in a transition to retail
competition. We continue to hold this view and believe that it is
legally justified and premised upon sound public policy.
Nevertheless, for the reasons set forth below, our discussions in
previous Reports do not represent a final determination of this
important and contentious issue.
Not surprisingly, in response to our Preliminary
Guidelines relative to this issue, we received comments from
stakeholders which reflected either strong opposition or abundant
support for our position. Clearly, the issue of stranded cost
recovery in a full transition will present significant and complex
challenges for policy-makers. In light of the important interests
involved in such a debate, the Pilot could be delayed indefinitely
if any of the many stakeholders in this proceeding attempted to use
it as the forum to set precedent for the eventual restructuring of
the industry. After carefully considering our statutory mandate to
establish a Pilot which examines the "implications" of retail
wheeling, we have elected to reserve our final determinations
relative to stranded cost recovery until the conclusion of a
separate, generic restructuring proceeding. In that proceeding, we
intend to fully explore the legal and policy considerations
relative to stranded cost recovery and develop principles which
will guide our decisions concerning industry restructuring. For
those utilities that participate in the Pilot under the fifty-fifty
mechanism, that proceeding will provide an opportunity for the
reconciliation of stranded costs and revenues.
C. Jurisdiction over Intrastate Transmission
In order for Pilot customers to benefit from competition,
it is necessary for competing suppliers to have equal access to
transmission services in order to deliver power supplies to the
distribution systems of franchised utilities. While it is clear
that states have the requisite jurisdiction to regulate the rates,
terms and conditions of distribution services, the jurisdictional
boundaries are less clear relative to the transmission component.
As noted in our previous Reports, we continue to believe that
states maintain exclusive jurisdiction over the rates, terms and
conditions of the intrastate transmission, distribution and sale of
electric power to retail customers - whether those services are
provided in bundled or unbundled form. See, NHPUC Order No.
21,850, Cabletron Systems Inc., and Johnson Controls Inc., DE 95-95
(October 3, 1995).
Although we maintain our position that we have exclusive
jurisdiction over intrastate transmission facilities used to
provide electric service to retail customers, it is not our intent
to allow participants to convert this proceeding into the forum for
resolving the national debate over the respective roles of state
and federal regulatory agencies. It is unclear at this time how
that debate will proceed and the forum in which it will ultimately
be decided, but we do not believe that it is either necessary or in
the public interest to delay the Pilot until the jurisdictional
lines between state and federal regulators are more clearly
delineated. This approach is consistent with the one which we have
adopted for stranded costs. We intend to explore alternative
solutions to this problem with the FERC in order to implement the
Pilot without compelling us to assert our authority in this area.
We have established voluntary filing guidelines which are designed
to encourage such cooperation.
D. Filed Rate Doctrine
Several commenters suggest that the NHPUC lacks the
authority to deny utilities with FERC-approved purchase power
contracts the right to full recovery of power costs shifted to non-
participating customers through the application of fuel and
purchase power adjustment mechanisms. According to this argument,
the "filed rate doctrine" precludes the NHPUC from interfering with
the application of adjustment mechanisms. We disagree.
As we stated in the First Revised Guidelines, fuel and
purchased power adjustment mechanisms are designed to track
variations in power costs, not to insulate utilities from the risk
of financial loss resulting an inability to compete. This position
is consistent with the original NHPUC policy considerations which
approved fuel adjustment mechanisms. See, In re Public Service
Company of New Hampshire, 31 N.H.P.U.C. Rep. 83 (1949). Similarly,
the New Hampshire Supreme Court has observed that the "adjustment
clause is a recognized device, most commonly applied to fuel costs,
which shortcuts the time lag between changes in cost and the
collection of compensation during periods of rapidly changing
costs." Public Service Company of New Hampshire v State of New
Hampshire, 113 N.H. 497, 502 (1973). Thus, it is clear that fuel
and purchased power adjustment clauses are intended to provide
utilities with an opportunity to adjust rates for fluctuations in
power and not as a means to recover revenues lost as a result of
fluctuations in demand. While it has been the NHPUC's practice to
adjust rates for variations in supply costs and demand, we will not
permit costs to be shifted from Pilot participants to non-
participants.
We are setting forth our position relative to this issue
for purposes of the Pilot. It should not be viewed as our final
determination as to how we will treat the uneconomic costs
associated with wholesale power contracts in any transition to full
competition. As with other issues related to stranded costs, we
will investigate this issue fully in the context of a separate
restructuring proceeding.
E. PSNH Rate Agreement
We reiterate the our belief that the Rate Agreement
entered into between PSNH and the State of New Hampshire offers
PSNH no greater protection from competition than exists for the
state's other electric utilities. The basis for our position is
set forth in the First Revised Guidelines which we incorporate
herein by reference.
F. APRA
Similarly, we continue to maintain our belief that NHEC's
members may participate in the Pilot without causing NHEC to
violate the APRA. As we stated in the First Revised Guidelines,
nothing in the APRA prohibits NHEC's members from procuring power
supplies from alternative competitive sources in order to
participate in the Pilot.
IV. UNBUNDLED TRANSMISSION SERVICE
In order to introduce the beneficial forces of
competitive markets into the electric utility industry, it is
essential to "unbundle" retail electric services. These services
consist of three main components: generation, transmission and
distribution which have traditionally been provided in bundled form
by one service provider. Generation service provides customers
with reliable capacity and energy from a utility's own power plants
or from generating facilities owned by other utilities.
Transmission is the backbone for the delivery of capacity and
energy from generation sources to main load centers and most large
customers. Distribution involves the delivery of capacity and
energy from the transmission network to most small and medium sized
customers.
By unbundling the three components of electric service,
customers gain access to alternative sources of generation at
market prices. Under this scenario, competing suppliers who are
located in or outside of the state must utilize the networks of
transmission-owning utilities in order to deliver power to the main
load centers where transmission interconnects with distribution.
Accordingly, the market price of power delivered to main load
centers will probably include the costs of such transmission
service.
A necessary condition for fair competition in electric
generation markets is non-discriminatory transmission access and
pricing. In simple terms, this means that all suppliers must have
an equal right and opportunity to utilize the transmission network
and pay the same rate to wheel power across it. In the absence of
such a policy, or a failure by regulators to implement it,
transmission-owning utilities would adopt restrictive transmission
practices which would distort the workings of the bulk power market
and unfairly increase the value of their excess generation
resources.
In light of our intention to resolve the jurisdictional
problem cooperatively, we request that our jurisdictional utilities
voluntarily file retail transmission tariffs both at the FERC and
the NHPUC. Such tariffs shall be non-discriminatory and shall be
available to competing suppliers on the same terms and conditions
which the utility extends to itself. To the extent that the FERC
requires approval of those tariffs before they are made available
to competing suppliers, we ask that the utilities seek the FERC's
expedited approval.
V. STRANDED COST RECOVERY
As we stated above, we intend to investigate the issue of
stranded cost recovery generically and within a separate proceeding
which relates to industry restructuring. Nevertheless, as a
practical matter utilities will need some guidance on this issue in
order to develop unbundled rates which provide customers the
necessary incentives to participate in the Pilot. Such guidance
must begin with a definition of stranded costs.
A. Definition of Stranded Costs
Stranded costs can be calculated in several ways, some of
which are more complex than others. For the purposes of the Pilot,
stranded costs will be defined and calculated by projecting the
difference between the revenue which a utility would have had an
opportunity to collect at current rates, in the absence of the
Pilot, and the revenue which the utility expects to collect during
the term of the Pilot, including projected revenue from power sales
at market prices and from transmission and distribution services.
The assumed market prices to be used in these calculations will be
issued following our consideration of the recently filed Joint
Recommendation between PSNH and the Staff. This definition means
that a cost already on the books but not approved for ratemaking
purposes during the term of the Pilot will not qualify as a
stranded cost. In this calculation, no adjustment is made for
variable cost savings associated with lost load since we assume
that a franchised utility or its power marketing affiliate will
continue to sell to its Pilot customers at prevailing market rates.
B. Stranded Cost Recovery
After estimating the magnitude of stranded costs, the
next step is to set the level of recovery for the purposes of
developing unbundled rates. We have determined that in the absence
of a negotiated resolution which sets the level of recovery for
each utility, a fifty-fifty division of stranded costs between
participating customers and investors is an equitable starting
point. The participating customers' share of these costs shall be
recovered via a usage-based surcharge on distribution service
during the term of the Pilot.
C. Separate Stranded Cost Docket
As stated in the First Revised Guidelines, we expressed
our intent to open a separate docket to determine on a utility-
specific basis the appropriate level of stranded cost recovery.
As set forth above, utilities which fail to submit or receive
approval of an alternative stranded cost recovery mechanism are
required to develop unbundled rates which recover 50% of their
stranded costs. In order to minimize price uncertainty for
participating customers, the difference, if any, between the
initial 50% recovery level and the level ultimately found to be
appropriate shall be shared among all customers.
D. Mitigation Issues
We expect significant and aggressive efforts to mitigate
above market costs during the Pilot and in any transition to full
competition. We recognize, however, that costs incurred by a
utility in the process of mitigating strandable costs must receive
different treatment. We believe the appropriate way to address
such costs is on a project specific basis. Along these lines, full
recovery of power costs associated with any small power producer
agreements which are subject to RSA 362-A:4-b shall be contingent
upon the outcome of our ongoing inquiry into those arrangements.
VI. RATES FOR UNBUNDLED SERVICES
As noted above, in order to allow customers to benefit
from the forces of competitive markets, franchised utilities must
unbundle retail electric services. While some argue that
unbundling should simply be the functional separation of generation
from the remaining industry functions, we believe that approach
would result in the loss of valuable information regarding the cost
structures of jurisdictional utilities. We will require utilities
to disaggregate their bundled retail services into the following
minimum functions: customer service, transmission, distribution,
C&LM and power supply. The power supply function should be further
disaggregated into a market price component and a stranded cost
component that reflects the extent to which a utility's generation
resources are uneconomic. The overriding policy objectives
governing this unbundling are: (i) the provision of accurate market
price signals for power supply services; (ii) nondiscriminatory
transmission and distribution access and pricing; and (iii) the
avoidance of cost shifting among classes or among customers within
a class.
Because transmission and distribution, and to a lesser
degree customer service, continue to exhibit natural monopoly
characteristics, these rates should be based on cost rather than
the value of those services in the open market. We will require an
embedded cost approach to pricing customer service, transmission,
distribution and C&LM. Rather than update embedded costs to a
recent test year, the rates for such services shall reflect the
embedded costs in existing bundled retail rates. While this
approach results in embedded costs of different vintages, it levels
the playing field by ensuring that unbundled and bundled service
customers in the same franchised area and class pay the same rates
for equivalent services. Finally, while the costs embedded in
existing bundled rates will be used as the basis of unbundled rates
for the Pilot, utilities will be permitted to revise those rates
during the life of the Pilot provided they are successful in
gaining rate relief in a general base rate case.
Because the purpose of the Pilot program is to obtain
information to help determine whether retail competition is in the
public interest, we will require that reasonable incremental costs
incurred as a result of the Pilot be recovered from all customers
rather than participating customers alone.
VII. RESPONSIBILITIES OF PILOT CUSTOMERS
Under retail competition, customers will have increased
opportunities to lower their power costs by selecting among
competing power suppliers. However, commensurate with the
opportunity for lower costs, customers also will assume full
responsibility and risk for the consequences of their choices. For
example, power may be offered as a discrete commodity without
transmission and distribution deliverability, at an apparent low
cost. However, under this option, customers must also secure and
pay additional amounts for the delivery of that commodity over
transmission and distribution systems. The aggregate cost and
reliability of the delivered commodity will be the customers'
responsibility.
To avoid some of the decisions and risks involved in
acquiring unbundled generation, transmission, and distribution
services, customers may opt to purchase generation, transmission,
and distribution services as a package from a single broker,
marketer or aggregator.
Under either approach, it is essential to recognize that
the customer bears all financial and reliability risk. As each
customer addresses the decision to secure resources from alternate
suppliers, the customer must develop a strong understanding of his
economic decision-making function, including an understanding of
all needs, costs and risks.
Based upon these considerations, any customer selected to
participate in the Pilot will be responsible for the following:
A. Negotiation for Supply of Electric Power
The negotiation of a competitive supply of electric power
may be done directly by the customer or through an energy broker,
marketer or other agent. Electricity may also be purchased from a
power marketer affiliated with a franchised utility. The customer
will pay for electric power at the negotiated price. The NHPUC
will not set or approve that price.
B. Back-Up and Emergency Service
Because of the requirement that competitive suppliers
either be NEPOOL members or contract with members for back-up bulk
power service, there is no need for Pilot customers to purchase,
and utilities to offer, back-up and emergency services. Those
services will be bundled in firm power supplies purchased from
competitive suppliers.
C. Negotiation and Payment for Delivery of Power
Pilot customers their representatives must negotiate with
competitive suppliers for the delivery of electric power. Out-of-
state power supplies will be transmitted to the New Hampshire
border under FERC-approved transmission rates. Transmission and
distribution within New Hampshire will conducted under tariffs
approved by both the FERC and the NHPUC.
VIII. PILOT DESIGN
A. Size and Duration
1. Franchised utilities under our jurisdiction shall
permit competitive suppliers non-discriminatory access to 3% of
their 1994 peak retail load for purposes of the Pilot. This load
shall be distributed among the classes in approximate proportion to
the estimated peak load for each class including load served under
approved special contracts.
2. Any franchised utility seeking to designate a larger
percentage of load for the Pilot may make such a request in its
March, 15, 1996 compliance filing.
3. In addition to the 3% of existing load, competitive
suppliers will also be permitted to access the loads of new large
commercial and industrial customers. New large commercial and
industrial customers are customers who locate in a franchised
utility's service territory on or after March 1, 1996 and who would
otherwise be served under the applicable rate schedules listed in
Appendix D. Large commercial and industrial customers switching
from one New Hampshire service territory to another are not
eligible to participate in the Pilot under the new load category.
4. The approximate existing or old load to be allocated
to the Pilot for each franchised utility is as follows:
Concord Electric Company 2.75 MW
Connecticut Valley Electric Company 0.86 MW
Exeter and Hampton Electric Company 3.00 MW
Granite State Electric Company 3.75 MW
New Hampshire Electric Cooperative 5.25 MW
Public Service Company of New Hampshire 35.13 MW
Total 50.74 MW
5. The Pilot shall be implemented on May 28, 1996 and
shall extend for a period of two years from the date of
implementation, unless further ordered by the NHPUC.
6. At the conclusion of the Pilot, all negotiated terms
and rates with competitive suppliers shall terminate.
B. Customer Selection
The following guidelines shall control how customers will
be selected to participate in the Pilot.
Individual Selection
1. Consistent with RSA 374:26-a, customers in all
electric utility franchised areas and in all classes shall be
eligible to be considered for participation in the Pilot, unless
they are contractually prohibited from doing so as explained below.
2. Customers with existing contractual obligations to
franchised utilities may participate in the Pilot only if by doing
so they will not violate their obligations under such contracts, or
if they are able to renegotiate the terms of those contracts.
Those contracts fall into the category of "special contracts" and
contracts associated with approved C&LM programs.
3. Individual customers who wish to participate in the
Pilot must first express this interest to their franchised utility.
All eligible customers should be afforded an opportunity to express
such an interest before the actual participants are selected.
Although we are inclined to require interested customers to submit
some form of written expression of interest to their franchised
utility, we are cognizant of the potentially high administrative
costs associated with such a process. Accordingly, we will
entertain specific proposals from each utility relative to this
aspect of the selection process. We strongly encourage utilities
to expeditiously submit their preferred methods for customers to
apply for participation in the Pilot.
4. The selection of individual participating customers
shall be conducted by each utility under the oversight of the NHPUC
Staff. We will not specify how customers should be selected,
although we have stated in previous Reports that the process must
be fair and random. Once a sufficient number of customers has been
selected to fill the requisite 3% load requirement, utilities shall
be under no further obligation to select additional customers in
the event that customers who are initially selected continue to
take bundled service.
5. The customers of municipal electric utilities may
participate in the Pilot provided that their utility provides
access by developing unbundled rates. A participating municipal
electric utility means a non-jurisdictional New Hampshire utility
which currently provides bundled retail electric service and which
voluntarily allows its customers to participate in the Pilot. If
any such municipal utility elects to facilitate the participation
of its customers in the Pilot, it must agree to develop non-
discriminatory transmission and distribution services.
Group Selection
6. Approximately one half of the existing residential
and small commercial customer load earmarked for the Pilot shall be
eligible to participate in the Pilot through Geographic Areas of
Choice (GACs). GACs are defined as groups of residential and small
commercial customers within a defined geographic area.
7. GACs should be nominated by an appropriate government
authority.
8. In order for a GAC to be considered for selection,
there must be a written expression of interest submitted to the
franchised utility which currently serves the geographic area by a
date to be determined by the NHPUC. The written expression of
interest must include the following information:
- location and geographic boundaries of proposed GAC
- estimated aggregate load of the GAC, broken down by
customer class;
- demographic profile of the GAC;
- number of potential participating customers by class
9. The selection of GACs shall be conducted in a random
and fair manner from a pool of volunteer GACs. As with individual
selection, utilities should expeditiously submit their preferred
methods for GACs to apply for participation in the Pilot. The
minimum number of GACs per franchised utility are as follows:
Connecticut Valley Electric - 1
Concord & Exeter Electric - 1
Granite State Electric - 1
New Hampshire Electric Coop - 2
Public Service of New Hampshire - 4
C. Supplier Eligibility
1. The potential array of suppliers who are eligible to
participate in the Pilot include generators, aggregators, marketers
and brokers who seek to supply electricity directly or indirectly
to participating customers. Such suppliers may include exempt
wholesale generators, qualifying facilities, non-jurisdictional
utilities, jurisdictional utility marketing affiliates and non-
affiliated power marketers, all located both within and outside the
State of New Hampshire.
2. Competitive suppliers must obtain NEPOOL membership
or contract with a NEPOOL member in order to participate in the
Pilot. This requirement will ensure that competitive suppliers
with firm load obligations have adequate power supply resources to
meet both their firm load and their apportioned share of the NEPOOL
required reserves. This requirement will also ensure that
competitive suppliers will gain access to NEPOOL scheduled and
unscheduled outage service.
3. Competitive suppliers are eligible to participate in
the Pilot only after registering with the NHPUC. Such suppliers
must include the following information in their registration:
(a) Name, business organization, principle place of
business, and registered New Hampshire agent;
(b) Evidence of eligibility to conduct business in
New Hampshire;
(c) Evidence that supplier has obtained NEPOOL
membership or has contracted with a NEPOOL member
for back-up power supply service.
Only after receiving confirmation of the receipt of such
information from the NHPUC may competing suppliers transact to sell
power to participating customers.
D. Load Aggregation
1. Pilot participants shall be allowed to aggregate
their loads only for the purpose of negotiating the purchase of
power from competitive suppliers.
2. Given its unique circumstances, we will allow NHEC's
management to perform the role of a load aggregator/supply
negotiator on behalf of member participants who request this
service.
E. Usage and Other Customer Data
To develop winning marketing strategies, competing
suppliers must obtain good information about the needs and usage
patterns of customers. The following guidelines will govern the
release by franchised utilities of customer-specific load and usage
data to competitive suppliers.
1. Authorization must be obtained before customer-
specific load and usage data is made available to competitors. The
nature of the required authorization will differ depending upon the
selection process used.
- Random individual selection - Authorization to
release load and usage data is assumed to be given
when a customer is selected to participate in the
Pilot unless the customer indicates otherwise in
writing to its franchised utility. In that
instance, the customer's name and address will be
released to competitive suppliers but only the
participant will receive his or her usage data.
- GAC selection - Authorization is automatically
given to release the names and addresses of
customers located within the boundaries of a chosen
GAC. The availability of all other information
shall be subject to customer explicit
authorization.
2. Customer-specific load and usage data released by a
franchised utility shall include:
(i) Customer's name, billing address, and location
(if different).
(ii) The customer's kWh and kW (if applicable)
consumption history which is readily available on
the franchised utility's computer system.
(iii) Load management or other equipment (if any)
installed at customer's location.
3. Data for a prescribed area may be obtained from the
franchised utility upon request. Such data may include:
(i) Number of customers by class.
(ii) Typical load shapes.
(iii) Approximate kWh sales and kW load.
4. The incremental cost of producing and communicating
customer specific or area specific data may be recovered from
competitive suppliers through NHPUC approved charges.
F. Metering
1. In order to avoid the expense of installing hourly
recording meters for the Pilot we will allow participating
customers to utilize currently installed equipment. Bills for
transmission, distribution and power supply services should be
calculated based on monthly metering data.
2. Franchised utilities will be required to estimate the
hourly loads of Pilot customers using load profiles for the
relevant customer class, and shall make this information available
to competing suppliers. A description of how one utility currently
proposes to use load profiles to estimate hourly loads is contained
for informational purposes in Appendix E.
3. Franchised utilities will be responsible for meter
reading and transferring data expeditiously to competitive power
suppliers.
4. Franchised utilities may levy separate NHPUC
approved charges to recover reasonable incremental metering and
data transfer costs not provided for in unbundled rates.
5. Franchised utilities may separately bill a
competitive supplier for additional metering and communications
expenses associated with the use of more sophisticated metering
equipment requested by supplier.
6. Although we are not requiring the installation of
hourly metering as a condition for participation in the Pilot, in
order to assess the accuracy of load estimates, we direct the
franchised utilities to cooperate in a collective effort to install
the necessary metering and communications equipment to provide
statistically valid hourly load data.
G. Billing
1. Competitive suppliers have the option to bill
separately for power supply services.
2. Franchised utilities may provide billing services to
competitive suppliers if they so desire. If a franchised utility
provides billing services to an affiliate power marketer, it must
also offer the same or comparable services to non-affiliated
competitive suppliers.
3. If a franchised utility provides billing services,
the charge for such services shall not exceed the incremental costs
incurred.
4. Any bill submitted to a Pilot participant shall
include the supplier's name, phone number, and business address.
H. Ancillary Services
Ancillary services are services which may or may not be
necessary for the reliable and safe delivery of power from
competing suppliers, including but not limited to, voltage control,
operating reserves, and power factor adjustment.
1. Because of the requirement that competitive
suppliers must be members of or contract with members of NEPOOL,
generation-related ancillary services such as voltage and frequency
control and operating reserves will be supplied at the bulk power
level and the costs recovered through power supply prices.
Consequently, we will not require franchised utilities to offer
unbundled generation-related ancillary services.
2. To the extent that there are ancillary services
related to the transmission and distribution functions, these
services will continue to be provided in a bundled form by the
operators of the transmission and distribution systems.
3. Unbundled charges for generation, transmission or
distribution related ancillary charges will not be permitted during
the term of the Pilot unless already provided under generally
available tariffs.
I. Responsibilities of Pilot Customers and Franchised
Utilities
1. It shall be the responsibility of Pilot customers to
negotiate with competing suppliers and other service providers. A
franchised utility shall not interfere with the negotiations
between Pilot customers and competing suppliers, but it shall be
permitted to compete in the Pilot on the condition that it
establish an affiliate company for that purpose. Although this
requirement will ensure that appropriate inter-affiliate pricing
arrangements are instituted for the sale of goods and services by
jurisdictional utilities, we recognize that it does nothing to curb
possible anti-competitive abuses by non-jurisdictional utilities.
We anticipate that other regulators, both state and federal, will
exercise their authority to prevent market abuses. That limitation
notwithstanding, the requirement is consistent with our position
that franchised utilities must aggressively mitigate their stranded
costs since revenues received from the sale of utility goods and
services can be applied against such costs. The guidelines
governing the pricing of inter-affiliate transactions are detailed
in Section VIII(L) of these Guidelines.
J. Rates and Charges
1. A utility shall not impose an exit fee on Pilot
customers and shall not impose a re-entry fee when those customers
return either during or at the termination of the Pilot.
Reasonable incremental costs, approved by the NHPUC, which are
directly related to serving Pilot customers may be recovered from
participants.
2. Rates for unbundled services, calculated in
accordance with Section VI of these Guidelines, shall be submitted
for NHPUC approval. Workpapers shall be presented identifying by
account number the embedded costs allocated to each service for
each customer class and the corresponding billing determinants used
in the development of rates.
3. While transmission and distribution charges shall be
based on individual rather than aggregated customer loads, such
charges may be collectively billed to an agent authorized to act on
behalf of an aggregated group of customers.
4. A utility shall be entitled to levy a surcharge on
all customers to recover reasonable administrative costs, approved
by the NHPUC, associated with the establishment and implementation
of the Pilot.
5. To the extent that a utility believes that it will
incur stranded costs as a result of the Pilot, it may seek recovery
of those costs consistent with Section V of these Guidelines. That
is, prior to the implementation of the Pilot, the utility shall
estimate for each rate class its projected stranded costs and,
based on those estimates, develop usage-based, stranded cost
charges that recover from participating customers 50% of those
costs. The assumed market prices to be used in the calculation of
stranded costs will be issued following our consideration of the
recently filed Joint Recommendation and Staff.
6. Franchised utilities offering billing services in
accordance with Section VIII(G) of these Guidelines shall submit
for approval applicable rates and terms and conditions.
K. Customer Protection
1. Existing rules designed to protect customers who
receive bundled electric services shall continue to apply, where
appropriate, to unbundled transmission and distribution services
offered by franchised utilities.
2. Existing rules relating to the winter termination of
certain residential customers shall be applied to all competitive
suppliers in the Pilot.
3. The resources of the NHPUC will be available to
resolve disputes between customers, utilities and competitive
suppliers.
L. Pricing of Inter-affiliate Transactions
We are indifferent as to the effect affiliated agreements
have on utility affiliates. Our interest and concern extends only
to the effect these agreements have on franchised utilities and
their customers. The most common approaches to pricing affiliate
transactions are: (a) transfer at cost where cost is defined to
include an allowance for a return on capital; (b) transfer at the
market rate; and (c) a multiple of cost. All these approaches
recognize that affiliates, whether regulated or non-regulated, must
conduct their affairs in a businesslike manner and should have an
opportunity to earn a fair profit for services provided.
This basic business principle must be reflected in the
pricing of any inter-affiliate transaction. Transactions which
take place at out of pocket cost violate this principle.
Transactions at out-of-pocket cost may be adequate for transactions
between divisions or cost centers of the same company but not
between independent companies supposedly engaged in arms length
negotiations.
We will require that the pricing of inter-affiliate
transactions be free of all subsidies. Goods and services traded
in competitive markets, such as power supply, will be priced at
fair market value. For goods and services purchased from the
franchised utility or an affiliated service company, such as
internal accounting, preparation of records, financial services,
data processing, legal advice, and wages and salaries of employees
assigned to Pilot activities, prices shall be set on a cost plus
basis including administrative and general overhead.
In order to verify compliance with this guideline,
franchised utilities shall file pursuant to RSA 366:3 affiliate
agreements which specify in detail the goods and services to be
provided and the related pricing provisions. Such agreements shall
be submitted no later than March 15, 1996.
IX. MONITORING AND EVALUATION
1. The NHPUC will monitor the progress of the Pilot and
evaluate the development of competitive retail electric markets.
2. In connection with this monitoring process,
franchised utilities, competing suppliers and Pilot customers shall
make certain information available to the NHPUC. Such information,
which we detail below, shall be accorded confidential treatment as
appropriate under RSA 91-A, New Hampshire's Right to Know Law.
3. Franchised utilities shall report by class the
number of customers and customer groups that request to participate
in the Pilot. The names and addresses of customers actually
selected, including those within participating GACs, shall be
provided to the NHPUC no later than May 1, 1996.
4. Franchised utilities shall record all expenses which
relate to the Pilot in separate accounts and shall submit monthly
reports to the NHPUC which itemize these expenses. These reports
shall also include by class the number of participating customers,
monthly kWh and kW sales and associated unbundled revenue based on
approved tariffs. Additional revenue related to the provision of
metering, billing or data processing services, to recover approved
administrative costs, or for goods and services sold to power
marketing affiliates shall be separately identified.
5. Franchised utilities subject to the NHPUC's fifty-
fifty stranded cost sharing mechanism shall calculate actual net
lost revenues by class and submit monthly reports summarizing that
information.
6. Competitive power suppliers, including power
marketing affiliates, shall file quarterly reports detailing by
customer account number the prices and quantities associated with
each transaction. To the extent that a customer makes more than
one power purchase during a reporting period, the price and
quantity data for that customer shall be provided on an average or
aggregate basis. In addition, in order to verify the
reasonableness of inter-affiliate power supply transactions,
franchised utilities shall file each month a quantity-weighted
average wholesale price for short-term sales and purchases. Short-
term transactions are defined as a month or less in duration.
7. We will also require franchised utilities to analyze
the customer load data from the sample of participants fitted with
hourly recording meters and report their findings in semi-annual
reports.
8. Information about competitive power suppliers will
be publicly available through the Pilot registration process.
X. COMPLIANCE FILINGS
1. Pursuant to these Guidelines, franchised utilities
shall file compliance tariffs incorporating unbundled rates and
general terms and conditions for customer, distribution and
transmission services. The compliance filings must also specify or
contain the following:
(a) workpapers supporting 3% retail load requirement;
(b) breakdown of 3% retail load requirement by rate class
and by individual/GAC participation;
(c) adjustments to fuel and purchase power adjustment
mechanisms to ensure non-participating customers are not
burdened with un-recovered power costs;
(d) workpapers supporting unbundled rates;
(e) method of estimating hourly loads for NEPOOL billing
purposes;
(f) time period to transfer metering data to competitive
suppliers;
(g) miscellaneous charges and associated workpapers
relating to billing, data processing and transfer, and
administrative services;
(h) pricing arrangements for power and non-power related
goods and services transacted between franchised
utilities and affiliated companies;
(i) plans to install hourly load meters for state-wide
sample.
Based upon the foregoing, it is hereby
ORDERED, that the foregoing Final Guidelines are APPROVED;
FURTHER ORDERED, that all New Hampshire electric
utilities shall implement a retail electric pilot program
consistent with these Final Guidelines unless alternative proposals
are approved by this Commission; and it is
FURTHER ORDERED, that all New Hampshire electric
utilities shall file compliance tariffs and all other information
described in Section X on or before March 15, 1996; and it is
FURTHER ORDERED, that for the purposes of making the
above-described compliance filings, Granite State, CVEC and PSNH
shall file tariffs consistent with their recommended unbundled
rates pending our consideration of the Joint Recommendation filed
by PSNH.
By order of the Public Utilities Commission of New Hampshire
this twenty-eighth day of February, 1996.
/s/Douglas L. Patch /s/Bruce B. Ellsworth /s/Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
/s/Claire D. DiCicco
Assistant Secretary
APPENDIX A
New Hampshire Revised Statutes Annotated (RSA) 374:26-a, mandating
creation of a pilot program, provides as follows:
374:26-a Retail Competition Pilot Program. The commission
shall establish a pilot program, under such terms and
conditions as the commission shall deem appropriate, for the
purpose of determining the implications of retail competition
in the electric industry, provided that the commission
determines that such program is fair, lawful, constitutional,
consistent with RSA 378:37 and in the public good. This pilot
program shall be open to all franchised areas and to all
classes of customers.
APPENDIX B
Procedural Schedule for
Implementing Final Guidelines
Final Guidelines February 28, 1996
Compliance Filings March 15, 1996
Technical Sessions March 18-29, 1996
Hearings on Pilot Implementation April 1-5, 1996
Final Commission Report April 15, 1996
Pilot Commencement May 28, 1996
APPENDIX C
The following organizations submitted written comments on the
Preliminary and Revised Guidelines:
Associated Power Services Inc., Business and Industry Association of
New Hampshire, Cabletron Systems Inc., Central Illinois Light Company,
Connecticut Valley Electric Company, Conservation Law Foundation, Office
of Consumer Advocate, City of Dover, EnerDev, Inc., The Flatley Company,
Freedom Energy Company, Funspot, Granite State Electric Company, Granite
State Hydropower Association, Great Bay Power Corporation, KCS Power
Marketing, Inc., Rep. Jeffrey C. MacGillivray, City of Manchester, New
England Cogeneration Association, New Hampshire Charitable Foundation,
New Hampshire Community Action Program, New Hampshire Department of
Environmental Services, New Hampshire Electric Cooperative, Inc., New
Hampshire Energy Management, Public Service Company of New Hampshire,
George E. Sansoucy, Save Our Homes Organization, Suncook Energy
Corporation, Sweetheart Cup Company Inc., UNITIL System Companies,
UtiliCorp United Inc., Wheeled Electric Power Company, and Certain Wood-
Fired Qfs. In addition, several residential customers filed comments.
APPENDIX D
New Load Criteria
Large commercial and industrial customers who locate in a
franchised utility's service territory on or after March 1, 1996 and who
would otherwise be served under the following rate schedules may
participate in the Pilot.
Concord Electric Company - G1, G2, G4, QRWH and Off-Peak WH
Connecticut Valley Electric - GV, and G-T
Exeter & Hampton Electric - G1, G2, G4, QRWH and Off-Peak WH
Granite State Electric - G1, T and V
New Hampshire Electric Coop - G, PG, PGI
Public Service of New Hampshire - GV, LG
APPENDIX E
Determination Of Hourly Loads For
NEPOOL Billing
In the event that hourly recording meters are uneconomic or cannot
be installed prior to the initiation of the Pilot, existing meters may be
utilized and the hourly loads calculated in the following manner:
Supplier shall be required to include the load at each account it
serves, including losses, in its own-load dispatch at NEPOOL. The
reporting of loads for own-load dispatch purposes will be accomplished by
the following:
1) Each account will be assigned to a customer class. A customer
class would consist of a group of customers with similar load shape
characteristics.
2) Each customer class will have an assigned load profile which is
based on historical load profile data for customers in the class. For
the Pilot, this load profile will be approved for its accuracy by the
NHPUC.
The load profile for each class shall consist of 24 separate
profiles which represent average hourly load profiles for typical day
types of the week for each month of the year (e.g, average weekdays in
March).
3) Each account will be assigned a Usage Factor which represents the
relative usage of the account versus the customer class. The Usage
Factor would equal the quotient of (i) the actual total energy
consumption of the account for the previous twelve months, expressed in
kilowatt-hours divided by (ii) the total energy from the load profile for
the customer class for a twelve month period, expressed in kilowatt-
hours. For example, if a Non-Electric Heat Residential account had
actual usage of 5,986 kWh for the past twelve months and the load profile
for the class shows an average twelve month usage of 6,000 kWh, then the
Usage Factor for this account would equal 0.998.
4) Each day the distribution utility (Disco) shall read the meter at
the Transmission Delivery Point to obtain the hourly loads (TDPL). These
loads will then be divided between each supplier based on the customers
they serve to determine own-load responsibilities at NEPOOL.
5) For customers with direct access metering equipment, Disco shall
remotely access the meter for each account once per day and read the
hourly load data for the previous day (Monday's load will be accessed on
Tuesday, Tuesday's load will be accessed on Wednesday, Wednesday's load
will be accessed on Thursday, Thursday's load will be accessed on Friday,
and loads for Friday, Saturday and Sunday will be accessed on Monday);
The adjusted load value at the Transmission Delivery Point shall
equal the product of: (i) the demand at the meter as measured in
kilowatts; and (ii) the Metering Voltage Adjustment Factor expressed as
a decimal; and (iii) the Distribution Loss Factor expressed as a decimal.
The Metering Voltage Adjustment Factor shall equal 1.00 if meter is
located on the secondary side of customer's transformer and shall equal
0.99 if meter is located on the primary side of the Customer's
transformer.
6) Disco shall determine the total load allocated to each supplier
at the Transmission Delivery Point from direct access meters.
m
DAML(s)=Summation DAMR(s,c)*(1+Distr. Loss Factor)*(1+Meter Adj. Factor)
c=1
Where DAML means Direct Access Meter Load and DAMR means Direct
Access Meter Reading.
7) Disco shall determine the total load at the Transmission Delivery
Point from all suppliers from direct access meters.
n
DAML = Summation DAML(s)
s=1
8) Disco shall determine the total load at the Transmission
Deliver Point which is to be allocated to non-direct metered loads
(NDAML).
NDAML = TDPL - DAML
9) Disco shall determine the initial total load at the
Transmission Delivery Point which is allocated to each supplier from non-
direct access meter loads.
p
INDAML(s) = Summation N(s,k) * LP(k) * (1 + Distr. Loss Factor)
k=1
where INDAML means initial non-direct access meter load, N
number of customers per supplier per customer class and LP the load
profile for the customer class.
10) Disco shall determine the initial total load which is
allocated to all suppliers.
n
INDAML = Summation INDAML
s=1
11) Disco shall adjust the total initial total loads to get the
final loads allocated to each supplier at the Transmission Delivery Point
from non-direct access metered loads.
NDAML(s) = INDAML(s) * (NDAML/INDAML)
12) Disco shall determine the total allocated to each supplier
at the Transmission Delivery Point.
LOAD(s) = DAML(s) + NDAML(s)
13) As a check:
n
TDPL = Summation LOAD(s)
s=1
The loads assigned to each supplier shall be adjusted for
actual sales as determined by the meter readings. Forty five (45) days
after the end of each month, Disco shall calculate a total adjustment for
each calendar month. This will be done by scaling the estimated hourly
loads to the metered usage and allocating any difference from the NDAML
prorata and multiplying by the Metering Adjustment Factor and
Distribution Loss Factor. The total adjusted load will be determined for
each supplier and compared to the total load assigned to each supplier
for the month. Any differences will be reconciled amongst suppliers at
the average NEPOOL cost of supply for the month. A supplier who had more
sales than was assessed would pay the difference at the average lambda
rate whereas a supplier that was assessed more than the recorded sales
would be credited the difference at the average lambda rate.
Exhibit D.2
DR 95-250
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Retail Competition Pilot Program
Order Partially Approving Joint Recommendation
and Addressing Outstanding Issues
O R D E R N O. 22,081
March 29, 1996
I. INTRODUCTION
This order addresses the Joint Recommendation (Recommendation) entered
into by Public Service Company of New Hampshire (PSNH), Northeast Utilities
Service Company (NUSCO) and the Staff of the New Hampshire Public Utilities
Commission (Staff) relative to several aspects of PSNH's participation in the
retail electric Pilot Program (Pilot). The Commission has been directed by
the Legislature to establish the Pilot pursuant to NH RSA 374:26-a. This
order also resolves one outstanding issue which was raised earlier in this
proceeding relative to a similar Joint Recommendation entered into by Staff
and Granite State Electric Company. That issue involves a determination of
the appropriate market price assumptions which utilities will be required to
utilize in calculating their projected stranded costs during the Pilot.
II. Procedural History
On February 22, 1996, PSNH filed with the Commission a Joint Recommen-
dation entered into by PSNH, NUSCO and Staff. On March 6, 1996, PSNH filed
Explanatory Testimony of Gary A. Long.
Freedom Energy Company (Freedom) filed a Motion to Join NUSCO as a Party
on February 27, 1996. PSNH filed a written objection to such motion on March
5, 1996. On March 12, 1996 we issued Order No. 22,055 in which we denied
Freedom's Motion to Join NUSCO as a party.
Hearings were held relative to the Recommendation and other outstanding
issues on March 11, 12, 13 and 15. We deliberated the issues addressed in
this Order at our March 25, 1996 public hearing.
III. POSITIONS OF THE PARTIES AND STAFF
A. The Recommendation
The Recommendation is similar in format to the one entered into by Staff
and Granite State, which we conditionally approved in Order No. 22,029
(February 28, 1996) and one submitted by Connecticut Valley Electric Company
(CVEC) which we conditionally approved in Order No. 22,037 (March 4, 1996).
As with the Granite State filing, PSNH and Staff recommend that the Commis-
sion "disengage" from the Pilot certain contentious issues which must be
addressed in a transition to retail competition. Specifically, the Recommen-
dation proposes a non-precidential and negotiated resolution of stranded cost
recovery and federal/state jurisdiction over retail electric transmission
services. PSNH Exhibit 4 p. 1. The Recommendation includes proposed
unbundled rates, "access charges" and "incentive credits" for each rate
class. The stated objectives of the Recommendation are to (a) provide [the
Commission] a "reasonable compromise which eliminates the issues of stranded
costs and jurisdiction from this proceeding insofar as they relate to the
Pilot," and (b) "...provide incentives for PSNH's customers to participate in
the Pilot." PSNH Exhibit 4, P 5. We will allow PSNH to recover most of the
revenues which it otherwise would not have earned as a result of the antici-
pated loss of retail customers in the Pilot.
The Recommendation includes a commitment by both NUSCO and PSNH to file
non-discriminatory retail transmission tariffs with the Commission and FERC
in order to provide retail transmission service to Pilot customers inside and
outside of PSNH's service territory.
The Recommendation acknowledges disagreement between Staff and PSNH
relative to two issues. First, Staff and PSNH disagree on the amount that
needs to be "backed out" of bundled rates. Staff contends that it should be
the anticipated market price for retail transactions during the Pilot. PSNH
contends that the appropriate amount should be based upon its short-term
avoided costs. The Recommendation includes a range of amounts which should
be deducted from the bundled rates for each rate class. PSNH and Staff agree
to be bound by the Commission's decision relative to this issue.
The second area of disagreement recognized in the Recommendation relates
to the conditions under which PSNH should be permitted to participate in the
Pilot as a competitive supplier. The Recommendation provides that PSNH is
permitted to withdraw the Recommendation if it is not allowed to participate
in the Pilot as a competitive supplier.
1. PSNH
According to PSNH, the Recommendation provides a negotiated resolution
of certain issues raised by Granite State relative to its participation in
the Pilot. Specifically, the Recommendation claims not to create a precedent
with respect to the appropriate level of stranded cost recovery or the
Commission's jurisdiction over transmission and distribution services.
PSNH presented the testimony of Frank P. Sabatino, PSNH's Vice President
of Wholesale Power Marketing, relative the estimated wholesale market prices
which form the basis for the assumed retail market prices for the Pilot. Mr.
Sabatino testified that in his opinion there would not be a significant
increase in wholesale power prices during the next few years, and therefore,
actual prices in recent wholesale transactions provide a reasonable basis
from which estimate retail prices during the Pilot. Based upon Mr.
Sabatino's estimates, PSNH projects average wholesale prices of 2.72
cents/KWh for 1996 and 2.92 cents/KWh for 1997. According to PSNH, broken
down by customer class and averaged for the two year period of the Pilot,
these wholesale projections are as follows:
LG rate class - 2.62 cents/KWh
GV rate class - 2.71 cents/KWh
G rate class - 2.74 cents/KWh
D rate class - 2.93 cents/KWh
Mr. Sabatino acknowledged that there would be transmission and distri-
bution losses associated with delivering power at retail. Mr. Long also
testified that the PSNH's losses for serving Rate LG customers is 4.3% and
6.7% for all other classes.
PSNH contends that it should be allowed to compete for retail load
directly through it. At the hearing Staff supported the Commission's ruling
in its Final Guidelines which requires franchised utilities to compete for
retail customers in the Pilot through an affiliate.
2. Staff
Staff indicated that it believed the Recommendation represented a
reasonable compromise of the contested issues in this proceeding despite the
concerns expressed by other witnesses: Mr. McCluskey acknowledged on cross-
examination that Staff did not have all of the information available to it
which was presented at the hearing when it entered into the Recommendation.
He further agreed that the market price assumptions were critical aspect of
the Recommendation and that if those assumptions were too low, that partici-
pating customers would not be able to achieve the savings necessary to
encourage customer participation. Nevertheless, Mr. McCluskey testified that
the record in this proceeding supports the market price assumptions at the
high end of the range presented in the Recommendation.
Staff stood by contention that PSNH should be required to form an
affiliate through which it would compete for Pilot customers. Mr. McCluskey
testified that if an affiliate was not required, then PSNH could sell at
incremental cost and thus have the ability to use its core customers to
subsidize its participation in the Pilot.
B. Freedom
Freedom opposes the Recommendation and contends that the Commission
should maintain the approach expressed in the Final Guidelines. Alternative-
ly, Freedom urges the Commission to increase the market price assumption to 4
cents/KWh and increase the stranded cost recovery to yield an anticipated 20%
discount off current bundled rates.
Freedom also contends that the Commission should not permit PSNH to
participate in the Pilot as a competitive supplier unless it does so through
an affiliate. According to Freedom, this requirement is "essential to the
credibility and success of the Pilot Program." Post-Hearing Argument of
Freedom Energy Company, p. 1.
C. NHEC
NHEC argues that the Commission should reject the Recommendation because
it does not provide the benefits for which Staff bargained. Specifically,
NHEC contends that the Recommendation does not prevent PSNH from appealing
the Final Guidelines and it contains no "real" commitment by PSNH regarding
transmission access. NHEC asserts that the Recommendation should be rejected
because PSNH has refused to provide retail transmission services in order to
permit its wholesale customers, including NHEC, to participate in the Pilot.
D. Granite State
Granite State contends that the Commission should adopt the market price
assumptions which were proposed in its Joint Recommendation with Staff, which
range from 2.5 to 2.9cents/KWh. Granite State maintains that "the Commission
should be careful not to err on the high side of market price assumptions as
some have argued because it could impact market pricing to the detriment of
pilot customers and utilities participating in the pilot..." Comments of
Granite State Electric Company and New England Power Company on Joint
Recommendation Market Pricing, p. 1-2. Alternatively, Granite State
indicates that if the Commission adopts it would be willing to proceed with
the Pilot with higher market price assumptions if it was authorized to defer
the recovery of the additional lost revenues for recovery in rates at the end
of the Pilot. Id. at 4-5.
E. Unitil
During the hearing, Unitil offered testimony relative to the assumed
retail market prices which it urged the Commission to adopt. Specially,
Unitil contends that the projected wholesale prices during the Pilot, on
which retail prices must be based, are considerably high than those testified
to by witnesses for PSNH and Granite State. Unitil also agreed that such
wholesale prices must be adjusted for losses and for transaction costs
incurred in selling at retail. Unitil estimated that such transaction costs
would be $60 per customer or an average of .37 cents/KWh.
F. Cabletron
Cabletron opposes the Recommendation and argues that the Commission
should apply the approach adopted in the Final Guidelines. Cabletron shares
the concerns of other groups relative to the market price assumptions and
level of stranded cost recovery contained in the Recommendation. During the
hearing, Cabletron Chairman, Craig Benson, stated that the Pilot can do more
than insure lower cost electricity, it can push the state's electric utili-
ties to become more competitive in a number of different areas. Mr. Benson
expressed concern about the level of stranded cost recovery called for in the
Recommendation, noting that stranded costs in general are based upon many
assumptions that should not be accepted at face value. He stated that the
Commission should move forward with the Pilot under the terms originally
established in the preliminary guidelines. Mr. Benson also encouraged the
Commission to proceed to deregulate the electric utility industry as soon as
possible.
G. PUPI
PUPI contends that it would be "inappropriate to use the wholesale
market price of power to set the power cost to be removed from embedded
rates..." Comments on PSNH & Staff Joint Recommendation, p. 1. According to
PUPI, wholesale rates do not reflect the cost of bringing that power to
market which would create a barrier to meaningful supplier competition.
During the hearing PUPI offered the testimony of Richard LaCapra who testi-
fied that the proper retail market price assumptions should be 2.6-
3.8cents/KWh, plus transaction costs. According to Mr. LaCapra, it is more
important for the Commission to establish appropriate market price assump-
tions than to increase the stranded cost discount because the assumed market
price will determine whether competitors have meaningful access the retail
market during the Pilot.
G. CRR
CRR submitted written comments which offered conditional support for the
Recommendation. CRR urged the Commission to adopt market price assumptions
which are at the high end of the proposed range.
H. OCA
OCA contends that the testimony relative to assumed retail market prices
by Mssrs. Gantz, LaCapra and Rosen are more credible than the testimony of
witnesses for PSNH, Granite State and Staff. OCA suggests that the testimony
of utility witnesses is unreliable because it is questionable whether the
utilities truly want a successful Pilot. Office of Consumer Advocate Summary
of Argument, p. 2-3. OCA believes that it is better for the Commission to
err on the side of caution and adopt higher market prices which provide a
greater guarantee that there will be adequate incentives to encourage
customer participation in the Pilot.
I. Other Participants
A number of other participants offered written comments regarding the
Recommendation. The following participants expressed support for the
Recommendation: Greater Portsmouth chamber of Commerce, the New Hampshire
Business and Industry Association, Greater Manchester Chamber of Commerce and
the Home Builders Association of New Hampshire. Opposition to the Recommen-
dation was expressed in a Recommendation of Customer & Supplier Organiza-
tions. The following organizations are signatories to that document: John
Ryan, Energy Advocate for the C.A.P. Agencies, Cabletron, Enerdev, Inc.,
Enron Capital and Trade Resources, Freedom, Granite State Taxpayers, Inc.,
KCS Power Marketing, Inc., Retail Merchants Association of New Hampshire and
Wheeled Electric Power Company.
III. COMMISSION ANALYSIS
When we established the Preliminary Guidelines for the Pilot, we also
took the opportunity to express our initial views regarding many of the
complex issues which must be resolved in order to move toward an expeditious
and orderly transition to retail electric competition in New Hampshire. Not
surprisingly, our views relative to state/federal jurisdiction and stranded
cost recovery generated considerable contention. In the case of PSNH, we
also held that the Rate Agreement did not prohibit the implementation of the
Pilot.
In the Final Guidelines we reiterated these initial views, but expressly
stated that they do not constitute final legal rulings on these matters.
This approach reflects our belief that the Pilot is not the appropriate forum
for stakeholders and other parties to deliberate, debate and ultimately
litigate the merits of our views relative to such contentious issues. In our
view, these issues are more appropriately resolved in the context of restruc-
turing proceedings. The purpose of the Pilot is to explore the implications
of retail competition through an experiment which is limited in size and
duration; it should not be used as a vehicle to attempt to resolve all of the
complex and contentions issues associated with a transition to retail
competition for all customers. Likewise, the Pilot is not intended to
guarantee immediate or substantial near-term rate relief for New Hampshire
ratepayers. The limited size and duration of the Pilot means that only a
small percentage of New Hampshire customers will be able to participate in
the Pilot. Meaningful rate relief, through the introduction of retail
competition, can only be achieved in the context of industry restructuring
efforts which we anticipate initiating in the near future.
Based on the foregoing considerations, we believe that it is appropriate
and in the public interest to consider alternatives to the Final guidelines
which defer a thorough consideration of the most contentious issues in order
to implement the Pilot expeditiously. Nonetheless, any such alternative must
provide customers with a meaningful opportunity to participate in a
competitive market. It is with these considerations in mind that we evaluate
the PSNH Recommendation.
A. Avoided Costs vs. Market Price Assumptions
We first consider the disagreement over whether the amount that should
be "backed out" out of bundled rates should be PSNH's avoided costs or an
assumed retail market price. In our view, this issue is easily resolved
because it has already been addressed in the Guidelines which require
utilities to take reasonable actions during the Pilot to mitigate stranded
costs. The first and obvious mitigation strategy is to sell the output of
resources that otherwise would have been used to supply bundled service to
retail customers. The use of a utility's incremental cost would not recog-
nize the margin which could be earned on those sales.
We turn next to the determination of the appropriate level of the
assumed retail market prices which should be used by all utilities in the
development of unbundled rates. At the outset, we agree with the view that
the starting point for this determination should be the projected wholesale
market price of power for short-term transactions. The record reflects
wholesale power price projections which range from just under 2.5 cents/KWh
to approximately 3.8 cents/KWh. After reviewing the record and considering
all of the testimony presented on this issue, we believe that the weight of
the evidence supports the wholesale market price assumptions attributed to
PSNH's affiliate, Western Massachusetts Electric, which were provided by
PSNH's witness, Frank P. Sabatino. Mr. Sabatino projected that the average
wholesale price during the Pilot will be 2.82 cents/KWh. PSNH's breakdown by
customer class is set forth above in the description of its position. The
projected wholesale prices provided by PSNH are also supported by previous
testimony of witnesses in the hearings which addressed the Recommendations of
Granite State and CVEC. Based upon our determination that these projections
are supported by the weight of the evidence, we direct each utility to use
these class-specific wholesale prices as the basis for the assumed retail
market prices to be used in the Pilot.
Because the foregoing price assumptions reflect wholesale price
assumptions, it is appropriate to make several adjustments in order to
calculate projected retail prices. We agree with the opinion that the
wholesale price assumptions should be adjusted for losses associated with the
delivery of power over each utility's transmission and distribution system.
In addition, we will require the loss adjusted wholesale to be increased to
recognize that competitive suppliers will incur real transaction costs in
order to make a retail sale to customers in the Pilot. We find that the
transaction cost estimate of 0.37 cents/KWh presented by George Gantz of
Unitil is a reasonable forecast of those costs.
These considerations result in assumed market prices which exceed those
presented in the Recommendation. The table below sets forth our calculation
of the appropriate assumed retail prices for PSNH. Thus, our approval of the
PSNH, Granite State and CVEC Recommendations is contingent upon the use of
these assumed market prices adjusted for losses on a utility-specific basis.
In the event that a utility is ordered to implement the Pilot based on the
Final Guidelines, the same market price assumptions should be used to
calculate the stranded cost component of the unbundled rates.
As several witnesses pointed out during the hearing, if the assumed
retail market prices established by the Commission turn out to be higher than
the actual market prices at which power is sold in the Pilot, the result
would be to increase customer savings but also increase the financial impact
on the state's franchised utilities. As we stated above, we have undertaken
an evaluation to establish market price assumptions which have the most
support in the record. In the event that these retail price assumptions turn
out to be incorrect, we believe it is reasonable to allow utilities to seek
recovery of revenues which it otherwise would have earned during the Pilot.
Accordingly, to the extent that actual market prices are lower than those
established herein, we will allow PSNH, Granite State and CVEC to seek
recovery of revenues which represent the difference between such actual
market prices and those proposed in their Recommendations. Any such recovery
must be sought at the conclusion of the Pilot after the Commission has the
opportunity to evaluate data from which the calculation of actual market
prices must be made.
B. Affiliate Requirement
We next consider the issue of whether PSNH should be permitted to
participate directly in the Pilot as a competitive supplier, through its
current corporate entity, or whether it should be required to participate
through a subsidiary or affiliate. After considering the extensive testimony
on this subject, we must initially express our strong preference that PSNH
and its parent company move expeditiously to form an appropriate subsidiary
or affiliate to participate in the Pilot. We expect that PSNH will undertake
efforts to create such an entity, if it has not already done so. Neverthe-
less, we are cognizant of the testimony of Mr. Keane, PSNH's Treasurer, that
there may be insufficient time for PSNH to receive all the necessary regula-
tory approvals before the Pilot implementation date. It is for this reason
alone that we will permit PSNH to participate in the Pilot, through its
current corporate entity, but upon the conditions set forth below.
We will permit PSNH to participate in the Pilot through the establish-
ment of a division which will offer the functional equivalent of a separate
legal entity. In the event that PSNH elects this alternative, we direct it
to file with the Commission by April 2, 1996 a description of the mechanisms
and safeguards which will achieve the functional equivalent of a separate
legal entity. This proposal must include (a) the establishment of proper
accounting mechanisms, (b) proposed budgets for such a division and (c) a
commitment to sell wholesale power to its competitors under rates, terms and
conditions that are comparable to those which are available to its division.
PSNH is required to specify the pricing methodology which it proposes to
employ for wholesale power sales and the mechanism to ensure comparability.
The latter requirement reflects the concern which we share with several
witnesses, particularly Mr. LaCapra, that unless certain safeguards are
implemented, PSNH's market power could be exercised in a manner which would
unfairly hinder the ability of competitive suppliers to participate in the
Pilot. Due to the fact that PSNH's uneconomic power costs will be recovered
through an unavoidable stranded cost charge, it could effectively thwart
market entry by pricing power at its marginal cost while competitors must
purchase at the prevailing wholesale market rate. This would result in
captive customers subsidizing the competitive activities of PSNH and would
not "foster competition" as PSNH alleged. Accordingly, we will require PSNH
to offer to any competitive supplier capacity/power at the same rates and
under the same terms and conditions which it makes available to its division
for retail sale.
C. Wholesale FPPAC
Although the Recommendation does not address the impact of the Pilot on
the wholesale FPPAC rate, it is an issue that was raised at the hearings. We
believe that it would be unfair to wholesale customers to allow wholesale
FPPAC charges to increase as a result of implementing the Pilot. Therefore,
in addition to the retail FPPAC modifications proposed by PSNH, we direct it
to propose a modification to the wholesale FPPAC formula in order to ensure
that wholesale customers incur no greater power costs than they would in the
absence of the Pilot.
D. Eligibility for Transmission Services
We believe that transmission services should be extended to potential
Pilot customers of NHEC and municipal electric utilities irrespective of
potential legal disputes over wholesale contracts. As a further condition of
our approval of the Recommendation, we will require PSNH and NUSCO to make
available to NHEC and to all municipal electric utilities transmission
tariffs on the same rates, terms and conditions which apply to other non-PSNH
Pilot participants.
The Recommendation appropriately acknowledges that the proposed retail
transmission tariffs are subject to review and approval by this Commission
and the FERC which will take place after such tariffs are filed. According-
ly, our conditional approval of the Recommendation is contingent upon the
approval of those tariffs.
E. Miscellaneous Issues
1. Acquisition Premium
We will allow PSNH to unbundle the costs associated with the acquisition
premium which are currently recovered in bundled rates. Nevertheless, this
decision should not be interpreted as an indication that such unbundling
would be appropriate in any future proceedings related to restructuring.
Rather, we accept this approach only for the purposes avoided a dispute over
the proper treatment and recovery of such costs.
2. Participation Incentive Credit
The participation incentive credit approach proposed in the Recommenda-
tion is a reasonable one and we will approve it. We also believe that the
record supports the conclusion that a 10% discount will generate sufficient
participation in order to meet the objectives of the Pilot.
Based upon the foregoing, it is hereby
ORDERED, that the Joint Recommendation of PSNH, NUSCO and Staff is
approved under the foregoing terms and conditions; and it is
FURTHER ORDERED, that the assumed retail market prices assumptions for
the Pilot shall be those which we have adopted in this order; and it is
FURTHER ORDERED, that PSNH shall file with the Commission its proposed
procedures for establishing a retail sales division prior to the close of
business on April 2, 1996.
By order of the Public Utilities Commission of New Hampshire this
twenty-ninth day of March, 1996.
/s/Douglas L. Patch /s/Bruce B. Ellsworth /s/Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
/s/Kimberly Nolin Smith
Assistant Secretary
