SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 14 , 1999
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Commission File Number 1-5324
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NORTHEAST UTILITIES
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 1-5324 04-2147929
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(State or other jurisdiction of (Commission (I.R.S.
Employer incorporation or organization) File No.)
Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0010
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (413) 785-
5871
(Former name or former address, if changed since last report) Not
Applicable
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
1. Memorandum of Understanding
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
(registrant)
By: /S/ David R. McHale
David R. McHale
Vice President and Treasurer
EXHIBIT 2
MEMORANDUM OF UNDERSTANDING
6/14/99
By and Between the Governor of the State of New Hampshire
Acting Through Her Office of Energy and Community Services,
The Office of the Attorney General, Staff of the New Hampshire
Public Utilities Commission, Public Service Company of New
Hampshire and Northeast Utilities
INDEX
1. Purpose
2. Rates
3. Write Off
4. Securitization and Securitized Assets
5. Stranded Cost Recovery Charge
6. Exit Fees
7. Risk Sharing
8. Sale of PSNH or NU
9. Divestiture
a. Fossil/Hydro Asset Sale
b. Employee Protection
c. Seabrook Sale
d. Vermont Yankee Sale
e. Millstone
f. Hydro Quebec
g. White Lake Power Plant
h. IPPs
i. Wyman Unit 4
j. Other Potential Generation Sites
k. Market Based Wholesale Contracts
l. Prudent Operation
m. Final Sale
10. Energy Charge
a. Transition Service
b. Default Service
11. Auctions
12. Delivery Charge (T&D)
13. Public Policy Benefits
a. Low Income Protection
b. Energy Efficiency/Conservation
c. System Benefits Charge
14. Energy Consumption Tax
15. Rate Design
16. Special Contracts
17. Market Power
18. New Hampshire Electric Cooperative Issues
19. Dividends
20. Sharing Agreement
21. Bankrup0tcy of NU or Other Affiliates
22. Termination of Administrative and Court Proceedings
23. Conditions for Competition Day
24. Date for Customer Choice
MEMORANDUM OF UNDERSTANDING
6/14/99
By and Between the Governor of the State of New Hampshire
Acting Through Her Office of Energy and Community Services,
The Office of the Attorney General, Staff of the New Hampshire
Public Utilities Commission, Public Service Company of New
Hampshire and Northeast Utilities
1. Purpose
The purpose of this Memorandum of Understanding ("MOU") is to set forth the
understandings reached by the Governor of New Hampshire, acting through her
Office of Energy and Community Services, the Office of the Attorney General,
Staff of the Public Utilities Commission, Public Service Company of New
Hampshire (PSNH) and Northeast Utilities (NU) (collectively, the "parties")
about how to resolve their pending litigation and bring retail competition in
the electric industry to the customers of PSNH. As set forth herein, the
understandings between the parties will:
Provide an initial 18.2% rate reduction for PSNH customers.
Obtain substantial burden sharing by PSNH in the form of a $367 million
write-off ($225 million after tax) that will reduce stranded costs.
Share the risks of stranded cost recovery.
Implement retail choice for all PSNH customers.
Resolve all issues pertaining to the Rate Agreement.
Resolve the Fuel and Purchased Power Adjustment Clause (FPPAC) under-
recovery that exists as of Competition Day, and eliminate FPPAC in the
future.
Assure rate relief that is sustainable over the long-term.
Secure low-cost financing through the issuance of $725 million of Rate
Reduction Bonds (securitization).
Make provision for low income assistance and energy conservation
programs for PSNH customers.
Secure competitive Transition Service.
Require divestiture of PSNH generating assets.
If implemented, the agreements contained in this MOU will comply with
the requirements of RSA 374-F, will resolve the pending PSNH rate case,
settle all outstanding federal and state litigation with respect to PSNH
restructuring, and lay to rest various other areas of dispute between the
parties.
It is expressly understood that this MOU signifies the intention of the
parties to negotiate a definitive agreement to accomplish the foregoing,
which shall be filed with and subject to the approval of the New Hampshire
Public Utilities Commission (PUC). In addition to such approval, the parties
further agree that their understandings regarding securitization, as
expressed herein and in any definitive agreement, will require the enactment
of legislation by the New Hampshire Legislature. It is expressly understood
that the parties will negotiate in good faith to finalize their
understandings, in the form of a definitive agreement, and that they will
seek the support of various interested groups. The parties will seek
approval of the PUC and all necessary legislative action. This MOU, and any
resulting agreements, are to be governed by and construed and enforced in
accordance with the laws of the State of New Hampshire, provided further that
any disputes regarding the final agreement will be subject to the
jurisdiction of the PUC and the appellate jurisdiction of the New Hampshire
Supreme Court.
2. Rates
The average tariffed retail rate for customers taking Transition Service
on Competition Day will be 10.6 cents per kWh. This represents an
approximate 18.2% decrease from existing rate levels including the current
FPPAC component. Base rates for bundled service will be frozen at existing
temporary rate levels until Competition Day. The FPPAC rate will also be
frozen at the currently effective amount of .383 cents per kWh until
Competition Day. The overall rate level may be adjusted prior to Competition
Day for future changes to the Nuclear Decommissioning Charge or to any new
level of public policy expenditures. Retail rates on Competition Day will
consist of a T&D or Delivery Charge, a Stranded Cost Recovery Charge (SCRC),
an Energy Charge (for market energy, Transition Service or Default Service),
a System Benefits Charge, and a Consumption Tax. The average unbundled rate
for Transition Service customers will be:
3.70 cents Energy
2.80 Delivery
3.79 Stranded Costs Recovery Charge
.25 System Benefits
.06 Consumption Tax
10.60 cents per kWh
3. Write Off
PSNH will write off $367 million ($225 million after tax) on or before
Competition Day, in consideration of resolving all rate and restructuring
issues, including:
Stranded cost recovery issues,
Current base rate case issues,
Current and pending Fuel and Purchased Power Adjustment Clause (FPPAC)
issues,
Transfer of PSNH's share of Millstone 3 to an affiliate, and
Enactment of securitization legislation (Rate Reduction Bonds).
The write off will be taken against the following assets in a manner
which maximizes benefits for customers:
Seabrook deferred return
Acquisition premium.
In addition to the write off, PSNH will reduce stranded assets by $10
million upon the transfer of its market-based wholesale contracts to an
affiliate.
4. Securitization and Securitized Assets
The parties recognize that securitization is a useful tool for lowering
customers' bills. They agree to seek and support legislation authorizing
PSNH to securitize $725 million of stranded costs for the purpose of reducing
the Stranded Cost Recovery Charge. Such securitization shall require the
prior approval by the PUC of the items to be securitized and the use of
securitization proceeds. Securitized strandable assets will be recovered
over no more than 12 years and will consist of:
Seabrook over market value
Millstone 3 over market value
A portion of the Acquisition Premium
FAS 109 costs related to the securitized portion of the Acquisition
Premium
Financing costs
The cost of securitized funds shall be the average of the actual Rate
Reduction Bonds issued; provided, however, that if PSNH can obtain an AAA
rating for the bonds and close on the financing by December 31, 1999, it will
guarantee a 6.25% interest rate on the Rate Reduction Bonds; if the closing
occurs between January 1, 2000 and July 1, 2000, the guaranteed rate is
7.25%. If the closing occurs after June 30, 2000, or if an AAA rating is not
achieved, there shall be no guarantee of the interest rate.
5. Stranded Cost Recovery Charge
The Stranded Cost Recovery Charge (SCRC) is designed to be a
nonbypassable charge as provided in RSA 374:F that is designed to recover the
portion of PSNH's stranded costs that are allowed by this Agreement. The
SCRC will consist of a three-part charge. Part 1 relates to the portion of
stranded costs that are securitized. Parts 2 and 3 of the SCRC relate to
non-securitized stranded costs. Table 1 sets forth the parties' current
estimate of total stranded costs as of January 1, 2000. Table 2 contains an
amortization schedule for those costs. The estimated amount of PSNH's
stranded costs will be re-determined as of Competition Day, with actual
stranded costs to be determined based upon the value on PSNH's books as of
Competition Day, and subsequent adjustments set forth below.
Part 1 of the SCRC will recover over a 12 year period the cost of the
Rate Reduction Bonds referred to in Section 4, including amortization of the
Bonds plus carrying charges, net of related deferred income taxes. The
annual costs recoverable under Part 1 of the SCRC have first priority on
annual recoveries under the SCRC, over and above Part 2 and Part 3 costs.
Part 2 of the SCRC has second priority on annual SCRC collections, over
and above Part 3 costs. The costs recoverable under Part 2 include nuclear
decommissioning costs, and the net of IPP costs and revenues. Part 2 of the
SCRC will continue until the respective obligations terminate.
Part 3 of the SCRC has the lowest priority on annual recoveries under
the SCRC. Annual costs recoverable under Part 3 shall be paid from SCRC
collections that remain after the amounts required to amortize all annual
Part 1 and Part 2 costs. The costs recoverable under Part 3 include:
Remaining amount of the Acquisition Premium that is not securitized
FAS 109 costs related to the non-securitized portion of the Acquisition
Premium
Unrecovered obligations of YAEC, CY & MY
Deferred IPP costs
Deferred FPPAC costs
Hydro Quebec contract buy-out payments
Vermont Yankee contract buy-out payments
Unamortized loss on reacquired debt
Excess transition costs, if any, from Section 11 hereof
The net of revenues and costs of any generating facility, non-IPP
entitlement
or obligation retained by PSNH beyond Competition Day, until such time as the
facility, entitlement or obligation is divested, except as otherwise provided
in Section 9m.
As provided in this MOU, the stranded costs contained in Part 3 of the SCRC
will be adjusted for the following items, including, but not limited to: all
related deferred income taxes, $10 million upon the transfer of PSNH's market
based wholesale contracts to an affiliate, any net payments received by PSNH
or NU resulting from termination of any requirements contracts other than
NHEC under which PSNH provides wholesale services, the net proceeds from the
sale of PSNH's generating assets or obligations, and the net present value of
any excess over and above the interest rate guarantee contained in Section 4.
PSNH will be allowed a return on the unamortized balance of the stranded
costs contained in Part 3 of the SCRC based on an ROE of 8% after tax, an
equity ratio of 40%, and the cost of PSNH's non-securitized long-term debt.
Beginning on Competition Day, the average SCRC will be 3.79 cents per
kWh. That charge will continue in effect until the earlier of: (i) full
recovery of the stranded costs contained in Part 3 of the SCRC, or (ii) the
date on which PSNH assumes the risk for non-recovery of those costs pursuant
to the risk sharing mechanism contained in Section 7 hereof. At that time,
the SCRC will be reduced to the level necessary to recover the remaining
stranded costs; namely, the balances and ongoing expenses contained in Parts
1 and 2 of the SCRC. Part 1 of the SCRC will continue until 12 years from
Competition Day, and Part 2 of the SCRC will continue until the respective
obligations terminate.
Reconciliation of stranded costs will be accomplished in the following
manner. If the SCRC revenue attributable to Parts 1 and 2 costs in any given
year is less than the amount required to recover those costs in that year,
the difference will be deferred, with a return equal to the return on Part 3
of the SCRC. Once the Part 1 and Part 2 costs are recovered in any given
year prior to the Recovery End Date set forth in Section 7, any excess SCRC
revenue will be applied to Part 3 costs. After the Recovery End Date, there
will be an annual reconciliation of Part 1 and Part 2 costs in a manner to be
approved by the Commission.
In order to amortize non-securitized stranded costs as quickly as
possible, PSNH remains obligated to operate its system in a prudent manner
designed to optimize sales on its distribution system, including but not
limited to economic development efforts.
6. Exit Fees
The parties do not propose the imposition of an exit fee on a customer
who installs generation to serve its own load.
7. Risk Sharing
PSNH agrees to share in the risk of recovery of unsecuritized stranded
costs. Specifically, PSNH shall forego the right to recover all such costs
that remain unrecovered as of September 30, 2007 (the "Recovery End Date").
The Recovery End Date is based on the load growth and other data and
assumptions contained in the June 4, 1999 financial scenario that supports
this MOU including the assumed wholesale market prices for the sale of the
output of generating assets and entitlements prior to divestiture, Rate
Recovery Bonds costing 7.25%, an assumed $100 million price for Seabrook, an
assumed $360 million price for the fossil/hydro assets and the Transition
Service prices contained in Section 10. The only adjustments to the Recovery
End Date shall be made within 30 days following the sale of the fossil/hydro
assets, shall be for the period until September 30, 2007 and shall be for the
actual sales price for the fossil/hydro assets, the actual cost of Transition
Service, a price of less than 7.25% for the Rate Reduction Bonds, and the
difference between the assumed wholesale market prices and a proxy for the
wholesale price for the sale of the output of nuclear and IPP entitlements
and the actual revenue from the sale of the output for the fossil/hydro units
prior to divestiture. For nuclear and IPP entitlements, the proxy wholesale
price shall be determined based on the average price realized from the
auction of CL&P's and WMECO's shares of Millstone 2, Millstone 3 and
Seabrook, adjusted for differences in capacity factors. After the Transition
Period, the proxy prices will be escalated 3% per year. After the Recovery
End Date, all unrecovered stranded costs remaining in Part 3 of the SCRC
shall be borne by PSNH, and the SCRC shall be reduced accordingly. It is the
parties' best estimate that upon the Recovery End Date, the SCRC will drop
from 3.79 cents per kWh to under 2.0 cents, representing substantial
additional rate reductions.
8. Sale of PSNH or NU
If the remaining PSNH T&D assets are sold within five years of
Competition Day, and a premium above 1.5 times book value is obtained (Excess
Premium), 1/3 of the Excess Premium will be credited to non-securitized
stranded costs. If NU itself is merged, acquired or otherwise sold during
that same time period, it agrees that notwithstanding any contrary provision
of law, the merger, acquisition or sale shall be subject to the jurisdiction
of the PUC under RSA Chapters 369, 374, 378 or other relevant provisions, and
that the merger, acquisition or sale shall be approved only if it be shown to
be in the public interest.
9. Divestiture
As provided in this MOU, PSNH has the absolute obligation to sell its
generating assets, obligations and entitlements, with all net proceeds to be
applied to stranded costs.
a. Fossil/Hydro Asset Sale
PSNH will commence the auction of its fossil/hydro assets (except for
the White Lake plant and PSNH's entitlement in Wyman Unit 4) no later than 30
days after the date of the final order by the PUC approving the agreement.
The net proceeds from the fossil/hydro auction will be applied to stranded
costs.
The auction will be conducted with PUC oversight and the final sale will
be approved by the PUC. The bidding process will consist of an initial non-
binding phase, during which bidders may bid for the entire portfolio of
assets or on individual components, followed by the selection of finalists
who will be invited to submit binding bids. Any mandatory bundling will be
incorporated before binding bids are solicited. Final awards will be based
on real-time bidding, if appropriate.
Prior to the commencement of an auction, PSNH may enter into
arrangements for the sale of hydro-electric assets to any interested
municipality at a price subject to PUC approval. Any such assets sold in
this manner will be excluded from the auction. If no such arrangements are
reached, all interested municipalities will be invited to participate in the
auction process.
PSNH affiliates will be entitled to bid in the fossil/hydro auction
provided that any bid by an affiliate will be equal to or greater than the
sum of the book values for all assets on which the affiliate bids.
b. Employee Protection
As a condition of the fossil/hydro asset sale, PSNH will require the
purchaser of the generating assets to provide certain assurances to employees
at the time of sale closing. With respect to the fossil/hydro assets, the
buyer will be required to honor the currently effective Collective Bargaining
Agreement with Local 1837 of the International Brotherhood of Electrical
Workers, which includes, providing for a period of at least one year,
compensation rates in effect at the time of sale closing, employment
protection and pension benefits in conjunction with PSNH, so that employees
are assured of a pension that is at least equivalent to what they would be
entitled to under the PSNH plan in effect at the time of sale closing.
Furthermore, PSNH will honor all existing collective bargaining agreements
for non-fossil/hydro employees, including T&D employees.
c. Seabrook Sale
PSNH will restructure the Seabrook Power Contract with North Atlantic
Energy Corporation (NAEC) effective as of Competition Day, subject to
necessary regulatory approvals, to provide for the buydown of the value of
the Seabrook asset to $100 million, thereby reducing PSNH's monthly charges
under the contract.
NAEC will seek PUC approval to sell via public auction its share of
Seabrook (subject to a confidential minimum price condition, which will be
determined prior to the auction by the PUC based on comparable transactions)
no later than December 31, 2003. The public auction shall have PUC
oversight. NAEC will submit its plan for the sale to the PUC for its
approval and will seek PUC approval after completion of the auction. NAEC
shall make all reasonable efforts to include minority ownership shares
(including that of CL&P) in the sale of Seabrook, so that a controlling
interest may be offered. On Competition Day, NAEC will lower its overall
return to 7%, but in the event that the PUC rejects a proposed sale of
Seabrook, the ROE will be increased to 11% on a prospective basis. The
increase in ROE is only applicable if the failure of the sale is through no
fault of PSNH. Upon a successful sale, the Seabrook Power Contract between
PSNH and NAEC shall be terminated, but a new contract may be entered into to
the extent necessary, as approved by the PUC, to provide for the recovery of
nuclear decommissioning costs by NAEC.
Until such time as Seabrook is sold, its output will be sold into the
market and all net proceeds will be applied to stranded costs.
PSNH's continuing share of total decommissioning liability for Seabrook
will be calculated on the basis of being fully funded by December 31, 2015,
using an estimated decommissioning date of 2015, or as provided by the
Nuclear Decommissioning Finance Committee. PSNH shall continue to make the
periodic payments necessary to provide full funding by this date, after
closing of the sale of Seabrook. After closing, PSNH customers shall have no
further obligation with respect to funding future changes in Seabrook
decommissioning levels.
d. Vermont Yankee Sale
PSNH may seek to sell via private negotiations its ownership share in
the Vermont Yankee Nuclear Power Corporation no later than July 31, 2000.
If no private sale occurs by July 31, 2000, PSNH will offer its
ownership interest and obligations in Vermont Yankee for sale by December 31,
2000, including the associated power contract, through an open public
auction, subject to a confidential minimum price condition, which shall be
determined by the PUC prior to auction. The PUC will have oversight and
approval of the auction and sale. The sale shall account for the current
transmission agreement.
PSNH will continue to make periodic contributions to the nuclear
decommissioning fund. After sale closing, PSNH customers shall have no
further obligation with respect to funding future changes in Vermont Yankee
decommissioning levels.
PSNH decommissioning obligations shall be based upon the currently
estimated amounts at the sale closing. Future obligations, either higher or
lower, shall be the responsibility of the purchaser.
e. Millstone 3
PSNH will transfer its ownership share of Millstone 3 to an affiliate.
The purchase price for such transfer is included in the write-off taken by
PSNH. PSNH's continuing share of decommissioning obligations will be
calculated on the basis of being fully funded for dismantling in 2026. After
sale closing, PSNH's customers shall have no further obligation with respect
to funding future changes in Millstone 3 decommissioning levels.
f. Hydro Quebec
PSNH will dispose of its HQ power entitlement and the associated HQ DC
transmission rights required to deliver the HQ power entitlement as part of
the fossil/hydro auction.
As part of the fossil/hydro auction, PSNH will dispose of its HQ DC
transmission rights which exist subsequent to the term of PSNH's HQ power
entitlements.
g. White Lake Power Plant
The White Lake power plant will be retained by PSNH, and run as needed
to maintain reliability on PSNH's electrical system. Any energy produced by
this plant and the capacity represented by this plant will be sold on the
wholesale market or sold to the New England Independent System Operator (ISO)
at the ISO market clearing prices in a prudent manner designed to maximize
net revenues. The cost and revenue associated with this plant shall be
included in the Delivery Charge.
h. IPPs
PSNH will periodically auction its entitlements in IPP power or make
such power available through the ISO spot market or through such other sale
as authorized by the PUC, in a prudent manner designed to maximize net
revenues. Payments to the IPP's will continue in accordance with the
currently effective or future orders of the PUC. Any revenue from such
auction or sale will be used to reduce stranded costs.
i. Wyman Unit 4
PSNH will sell its entitlement in Wyman Unit 4 as soon as possible. Net
proceeds from the sale above the book value of the assets will be applied to
stranded costs.
j. Other Potential Generation Sites
PSNH will sell by March 31, 2000 any other property interests at sites
that have significant potential for use as generation sites. PSNH shall
apply 50% of the amount by which net proceeds exceed book cost as a credit
against stranded costs.
k. Market Based Wholesale Contracts
PSNH will transfer its market based wholesale contracts to an
affiliate. Upon such transfer, PSNH's stranded costs will be reduced by $10
million in addition to the write-off taken by PSNH.
l. Prudent Operation
After Competition Day, in order to amortize non-securitized stranded
costs as quickly as possible, PSNH retains the obligation of prudent
operation of its units and the prudent marketing of power from those units
and any other power obligations it still retains in a manner designed to
optimize net revenues. Said obligation remains until each asset or
obligation is sold, pursuant to the auctions or sale mechanisms described
above. Prudence is to be determined under the standards contained in New
Hampshire law pursuant to procedures that the parties will establish in the
definitive agreement.
m. Final Sale
If the auction or sale of any or all of the non-fossil/hydro assets or
obligations as described in this Section should fail, the PUC shall have the
authority to divest the asset or obligation. This may be accomplished by
awarding the asset or obligation to the highest bidder; requiring a NU
affiliate to purchase at the minimum bid price; conducting an absolute
auction; or by such other means as the PUC deems appropriate. If there is no
final sale, the net of the costs and revenues after the Recovery End Date
will be considered Part 2 costs.
10. Energy Charge
Once competition begins, customers may be able to obtain greater rate
reductions from the market than the 18.2% provided for in this agreement by
choosing a competitive supplier. Transition Service is being made available
so that customers also have the option of stable and predictable prices
during the transition to a fully competitive market. Default Service will
provide a temporary safety net and assure universal access.
a. Transition Service
Transition Service will be available for a three year period following
Competition Day (Transition Period) for those customers who have not chosen a
competitive supplier. PSNH will secure Transition Service power for the
entire three year period through a competitive bidding process with PUC
oversight.
All energy suppliers, including PSNH affiliates, will be permitted to
bid to
provide Transition Service.
Market division is not mandatory, but will be considered after bid
receipt
and analysis, in which case a subsequent round of bidding may be used to
assess its benefits.
Transition Service shall be procured in time blocks as shall prove
efficient
and effective after analysis of the bids is made.
PSNH will offer branding service to the successful bidder(s), including
the
use of name identification on bills or bill inserts.
The retail price of Transition Service will be 3.70 cents per kWh in the
first twelve months following Competition Day (year 1), 3.80 cents per kWh in
year 2 and 3.90 cents per kWh in year 3. If the weighted average price
obtained through successful competitive bids in any year is lower than the
Transition price, the difference will be used to defray stranded costs;
conversely, if the price obtained is higher than the Transition Service
price, the excess will be collected through Part 3 of the non-securitized
portion of the Stranded Cost Recovery Charge.
Customers will be free to terminate Transition Service at the end of any
billing cycle to purchase from an alternative supplier without cost or
penalty. A prominent message will appear on customers' bills informing them
of this right. Customers who terminate Transition Service will be allowed to
return under the following conditions:
During year 1, residential and small commercial customers will be
allowed to return to Transition Service.
Low income customers will be allowed to return to Transition Service at
any time.
There will be no market share limits on the amount of Transition Service
provided by a single supplier. At the end of the three year Transition
Period all customers who have not selected a competitive supplier will be
assigned to those entities providing transition power in accordance with the
ratio of transition power provided by each supplier during the three year
period. Any Transition Service customer subject to such assignment shall be
provided adequate notice by PSNH in advance of such assignment. The
administrative cost of acquiring, billing and managing Transition Service
will be recovered through the Delivery Charge for all customers.
b. Default Service
Default Service will be available for customers who are not eligible for
Transition Service and who are not receiving energy from a competitive
supplier. Default Service shall be acquired through a competitive bid for
the three year period following Competition Day, pursuant to terms and
conditions established by the PUC. An additional bidding process will be
conducted in the third year to procure Default Service for the subsequent
year, with annual bidding thereafter.
There will be no price limits established for Default Service. All
energy suppliers, including affiliates of PSNH, will be entitled to bid on
Default Service. The administrative cost to acquire, bill and manage Default
Service will be recovered as provided by statute. Default Service will be
procured in time blocks as shall prove efficient and effective after analysis
of the bids is made. The price of Default Service shall be the weighted
average of all successful bids.
11. Auctions
The auctions established in Sections 9 and 10 of this MOU envision
simultaneous auctions for the sale of PSNH's fossil/hydro assets, for
Transition Service and for Default Service. Bidders are entitled to bid in
all three of the auctions, but there is no requirement that they do so. The
bids from all three auctions may be evaluated together to optimize overall
economic benefits to customers. The parties recognize that there may be
delay in closing the sale of the fossil/hydro assets for a short period of
time after Competition Day. During that interim period, if any, PSNH will
commence offering Transition Service and Default Service, and sell the output
of its fossil/hydro assets into the market. All net proceeds from such sales
will be applied to stranded costs.
12. Delivery Charge (T&D)
The Delivery Charge will be set at an overall average level of 2.80
cents per kWh for the first thirty months following Competition Day (Delivery
Charge Transition Period). No later than twenty-nine months following
Competition Day, PSNH will file with the PUC a proposed Delivery Charge,
including supporting cost and rate information and pro-forma adjustments for
the four most recent calendar quarters for which data is available, for
effect after the end of the Delivery Charge Transition Period. Any final
Delivery Charge determined by the PUC will only be applied prospectively from
the end of the Delivery Charge Transition Period.
The establishment of rates for the Delivery Charge Transition Period
shall not be considered a precedent for the establishment of the level of
rates subsequent to the Delivery Charge Transition Period.
During the Delivery Charge Transition Period, a Major Storm Cost Reserve
(MSCR) shall be established by PSNH and shall be deemed to be funded under
the 2.8 cents per kWh Delivery Charge at a rate of $3 million per year. Major
storm costs shall be charged to the MSCR during that period. As part of the
filing for the post Delivery Charge Transition Period, PSNH will report the
difference between the actual costs charged to the MSCR and the funding of
the MSCR. PSNH will recover or refund (with a return or interest) during the
subsequent twelve months (or as ordered by the PUC) in which the charge for
the post Delivery Charge Transition Period is in effect any difference
between the reasonable and prudent costs charged to the MSCR and the amount
of funding of the MSCR (i.e., the balance of the reserve, subject to a
prudence finding for the costs charged thereto). PSNH will also propose the
level of funding to the MSCR which should be done on a prospective basis
which would be reconciled during a subsequent rate proceeding.
PSNH has established an Environmental Remediation Reserve (ERR) on its
books of account for potential application to large fixed site expenditures
which is expected to total $11.5 million by the Competition Day and which
shall be adjusted on a pro rata basis for any change in that date. During
the Delivery Charge Transition Period, no portion of the 2.8 cents per kWh
Delivery Charge will be deemed to be attributable to the ERR; therefore, PSNH
will be allowed to defer any new environmental clean-up expenses. PSNH will
charge its actual environmental remediation expenditures to the ERR for those
identified sites. PSNH will increase the ERR for cost estimates related to
any new sites or increases in estimated clean-up costs for sites already
identified. As part of the filing for the post Delivery Charge Transition
Period, PSNH will report the actual balance in the ERR (whether positive or
negative), and PSNH will recover or refund (with a return or interest) any
balance of the ERR during a period not to exceed three years or as ordered by
the PUC (subject to a prudence finding for the costs charged thereto)
subsequent to when the charge for the post Delivery Charge Transition Period
is in effect. PSNH will also propose a level of funding to the ERR which
should be done on a prospective basis and which would be reconciled during a
subsequent rate proceeding.
During the Delivery Charge Transition Period, the PUC shall, on request
of PSNH or on its own motion, adjust the charge to reflect any changes in
PSNH's costs resulting from the imposition or modification of any tax,
program, service, or accounting change resulting from an order by any
regulatory agency or by the enactment or revision of any law.
The Delivery Charge during the Delivery Charge Transition Period will
only apply to PSNH's meter, customer, demand and energy (kilowatt-hour)
charges and will not apply to other fees and service charges (e.g., late
payment charges, service connection charges, line extension charges, and fees
for services provided to suppliers). Changes to other fees and service
charges will continue to be subject to PUC approval.
In order to achieve the average Delivery Charge specified above, the
parties agree that a 10 year extension for depreciation lives is appropriate
for PSNH's transmission and distribution assets. The parties will support
PSNH's request to make such an adjustment to the book lives at the PUC. In
addition, PSNH will seek to classify its transmission and distribution assets
generally in the manner it proposed in Docket No. DR 97-059 at the PUC with
the support of the parties.
PSNH agrees to fund PUC expenses during the Transition Period which are
necessary to provide, among other things, assurance of agreement compliance,
assurance that T&D quality and reliability are maintained, assurance that
power sales are prudent, and that allocators utilized to levy charges from
other affiliates to PSNH are both proper and timely. If such funding exceeds
the historical special assessment of $350,000, PSNH may recover the
incremental amount through an increase to the Delivery Charge during the
Delivery Charge Transition Period, pursuant to the preceding provisions of
this Section which allows the Delivery Charge to be adjusted to reflect
changes in PSNH's costs resulting from the imposition or modification of any
tax, program, service or accounting change.
Revenue generated by the provision of wheeling service across PSNH's
transmission system or the transmission systems of its affiliates will
continue to be credited to the PSNH Delivery Charge revenue requirements on a
pro-rata basis. In addition, revenue generated from the provision of
wheeling service across PSNH's distribution facilities will be credited
against Delivery Charge revenue requirements.
13. Public Policy Benefits
a. Low Income Protection
PSNH agrees to implement a low income electric assistance program based
on an affordable percentage of income payment program, to be funded by a
charge spread among all classes of customers, consistent with the program
approved by the Commission in oral deliberations on May 10, 1999 in DR 96-
150. In the event that implementation of such a statewide percentage of
income payment program is delayed for any reason beyond Competition Day, PSNH
agrees to file and implement a plan for an interim low income assistance
program or discount rate, which should result in aggregate rate relief to low
income customers essentially equivalent to the above program.
b. Energy Efficiency/Conservation
The parties recognize that energy efficiency investments in homes and
businesses complement rate reductions as another way to meaningfully reduce
customers' electric bills. While the parties understand that the Commission
will decide the appropriate level of future energy efficiency funding,
informed by recommendations of the Energy Efficiency Working Group, PSNH
agrees to support increased DSM program budgets, consistent with the System
Benefits Charge figures set forth below.
c. System Benefits Charge
Prior to Competition Day, PSNH will spend amounts authorized by the
Commission for energy efficiency/DSM as established in Conservation and Load
Management proceedings. After Competition Day, the System Benefits Charge
will be a cents per kilowatt-hour charge applied equally to all classes of
customers and to all kilowatt-hours billed to Delivery Service customers.
The System Benefits Charge will consist of the following:
If the Commission has not rendered a decision on the recommendations of
the
Energy Efficiency Working Group as of Competition Day, the DSM/C&LM charge
will be 0.10 cents per kilowatt-hour for the first year following
Competition Day, 0.15 cents per kilowatt- hour for the second year following
Competition Day, and 0.25 cents per kilowatt-hour thereafter. If the
Commission has rendered such a decision, these charges shall be as required
to reflect the results thereof.
0.15 cents per kilowatt-hour for the duration of the low income program,
or
until ordered otherwise by the Commission.
Other charges as approved by the Commission.
14. Energy Consumption Tax
The Energy Consumption Tax shall be the amount specified by law.
15. Rate Design
All rate design changes require PUC approval.
All classes of customers will be charged an equal cents per kWh amount
for each of the System Benefits Charge, the Energy Consumption Tax (unless
modified by a revision to the legislation) and Transition Service (for those
customers taking such service). Other than the specific items referenced
above, PSNH will recover its costs through customer, demand, meter, and
energy (kWh) charges, subject to the constraint that any change to rate
design will not result in a shifting of costs between the residential class
and all other classes. All rate design changes will be performed on a
revenue neutral basis.
The average rate reduction for the residential class will be the same as
the average rate reduction for all other classes combined. The rate
reduction for individual customers or for different general service classes
may vary from the average overall rate reduction. Any changes to rate design
may not result in a higher bill for any customer.
PSNH may seek to adjust or eliminate the current humped design of the
standard residential rate. PSNH may redesign its general service rates
(Rates G, GV and LG) to provide for a smooth transition for customers who
switch from one rate class to another as a result of load changes. Rates
under Rate COPE and Rate LCS may receive a lower percentage discount than the
discount applied to rates for standard service under residential rates and
Rate G.
16. Special Contracts
Special contract customers who wish to retain the benefits of their
existing contracts should have the opportunity to do so after Competition
Day. All customers served under special contracts in existence as of
Competition Day may elect one of the following options on a one-time basis:
They may "opt out" of their contract as provided by their contract,
receive
market energy and take other services under tariffed rates.
They may retain their contract at Competition Day at prices dictated by
the
contract and receive Transition Service and, thereafter, Default Service for
the remainder of the contract term. No additional payments will be required
for Transition or Default Service energy.
They may have their contracts unbundled by subtracting 3.7 cents per kWh from
their contract rates and receive energy from a competitive supplier for the
remaining term of their contract. All other provisions of their contract
will remain in effect.
17. Market Power
PSNH will work with the Office of Consumer Advocate to establish
appropriate market power measurements and benchmarks which may be used to
monitor how the ISO-NE power marketplace is operating.
PSNH affiliates will be allowed to fully participate in the retail
energy market, subject to a Code of Conduct to be established by the PUC.
The parties will recommend that the Code of Conduct address issues such as,
but not limited to, physical separation, restrictions on common management or
directors, contractual or financial relationships and preferential treatment.
No generating or marketing affiliate may use the name Public Service Company
of New Hampshire or any similar name, nor may those affiliates otherwise
trade on the name or status of PSNH in their marketing efforts. The books
and accounts of the affiliates will be open to inspection by the PUC.
Resolution of disputes under any market power provisions will be performed in
a manner consistent with the arbitration procedures now in place pursuant to
the Telecommunications Act of 1996.
18. New Hampshire Electric Cooperative Issues
Final settlement and attendant securitization shall be conditioned on
PSNH's willingness to enter into an agreement that provides fair and
equitable rate reductions for the New Hampshire Electric Cooperative (NHEC)
members, that are comparable to the reductions for PSNH's retail customers,
adjusted for distribution cost differences. PSNH commits to include in a
settlement features that will add value to the NHEC. Such features include,
but are not limited to, the lumped bidding of Transition Service and/or
Default Service, the joint sale of Seabrook entitlements, performance of
services and mutual support for their respective agreements in all forums.
The June 4, 1999 financial scenario supporting the MOU is premised on
PSNH's ability to recover unrecovered wholesale stranded costs from retail
customers which may result from the FERC's February 24, 1999 decision in
Docket EL96-53-002. The treatment of any differences in costs or revenues
from the amounts modeled in the financial run for energy and for capacity
will depend on the outcome of PSNH/NHEC negotiations and will be resolved in
the final agreement.
19. Dividends
PSNH will be prohibited from making dividend payments to its parent, NU,
until the write-off associated with this agreement has been taken.
20. Sharing Agreement
The Sharing Agreement between PSNH and the NU initial system will be
null and void on Competition Day with no financial compensation due either
party except for final reconciliation for amounts due with respect to
entitlements or transactions accruing before this termination date.
21. Bankruptcy of NU or Other Affiliates
PSNH and NU agree to take all possible steps to insure that the State,
acting on behalf of PSNH customers, will be entitled to participate as a
party in any bankruptcy of NU, PSNH or any current or future affiliate during
the term in which any Rate Reduction Bonds remain outstanding.
22. Termination of Administrative and Court Proceedings
Upon execution of this MOU, PSNH will petition the federal court and
the parties will jointly petition the PUC to stay the following proceedings
during the pendency of the approval process for the settlement, and to move
to dismiss the proceedings upon implementation of the settlement, thereby
resolving all issues related to PSNH in the following proceedings:
Federal Court Litigation (D.N.H. 97-97, D.R.I. 97-121)
PUC Dockets:
DR 96-148 (Best Efforts)
DR 96-149 (Light Loading)
DR 96-424 (Hannaford)
DR 97-014 (FPPAC)
DR 97-059 (Base Rate Case)
DE 97-167 (OCA - Millstone Review)
DF 97-185 (Management Audit)
DR 98-006 (LCIRP)
DR 98-014 (FPPAC)
DSF 98-066 (Bulk Power Supply)
DR 98-071 (LCIRP)
23. Conditions for Competition Day
In order for Competition Day to occur, all of the following must be met:
The PUC must approve the settlement without condition or modification,
unless
agreed to by the parties, through a final order.
PSNH must have obtained the consent of the New Hampshire Attorney
General,
and all regulatory approvals necessary, to make any necessary revisions or
to cancel the 1989 Rate Agreement, the Sharing Agreement, the Capacity
Transfer Agreements between PSNH and the initial NU system and the Seabrook
Power Contract between PSNH and NAEC.
PSNH must receive approval from appropriate lenders pursuant to existing
credit agreements.
There must be an arrangement in place with one or more suppliers for the
provision of Transition Service and Default Service.
PSNH must close on the issuance of Rate Reduction Bonds.
PSNH must have agreements to sell power from any remaining entitlements
or
there must be an arrangement in place for PSNH to bid the remaining power to
the ISO and receive market prices for such power.
There must be approval by the FERC, SEC, NRC and other state agencies as
required for any jurisdictional matters.
24. Date for Customer Choice
PSNH will restructure its tariff and the rates set forth therein, and
revise its billing, customer accounting, electric load reporting and related
systems and processes to provide for retail customer choice of generation
services. Customer choice will begin on the first day of the month following
the month in which the conditions set forth in Section 23 are met
(Competition Day). On Competition Day all of PSNH's retail customers will
have the opportunity to choose an energy supplier.
Signed this 14th day of June, 1999
/s/Jeanne Shaheen
Governor of the State of New Hampshire
State House
Concord, NH 03301
/s/Philip T. McLaughlin
Attorney General of the State of New Hampshire
33 Capitol Street
Concord, NH 03301
/s/Thomas B. Getz
Executive Director and Secretary
New Hampshire Public Utilities Commission
8 Old Suncook Road
Concord, NH 03301
/s/Deborah J. Schachter
Director
Governor's Office of Energy and Community Services
57 Regional Drive
Concord, NH 03301
/s/Michael G. Morris
Chairman, President and Chief Executive Officer
Northeast Utilities
107 Selden Street
Berlin, CT 06037
/s/William T. Frain, Jr.
President and Chief Operating Officer
Public Service Company of New Hampshire
P.O. Box 330
Manchester, NH 03105
