EXHIBIT D 3.1.2
STATE OF NEW HAMPSHIRE
BEFORE THE
PUBLIC UTILITIES COMMISSION
DOCKET NO. DE 99-099
PSNH RESTRUCTURING SETTLEMENT AGREEMENT
MOTION FOR FINDINGS OF FACT
AND FOR
ISSUANCE OF FINANCE ORDER
JUNE 23, 2000
STATE OF NEW HAMPSHIRE
BEFORE THE
PUBLIC UTILITIES COMMISSION
DOCKET NO. DE 99-099
PSNH RESTRUCTURING SETTLEMENT AGREEMENT
MOTION FOR FINDINGS OF FACT
AND FOR
ISSUANCE OF FINANCE ORDER
Pursuant to RSA 541-A:35, RSA Chapter 369-B and the Commission's procedural
letter dated June 12, 2000 (the "Procedural Letter"), Public Service Company
of New Hampshire ("PSNH") moves for certain findings of fact and for issuance
of a finance order for the purpose of authorizing securitization of certain
costs via the issuance of rate reduction bonds (the "RRBs"). In support of
this Motion, PSNH provides the following information:
I. INTRODUCTION
The securitization by PSNH of certain of its stranded costs as contemplated
by (i) RSA Chapter 369-A, (ii) 1999 N.H. Laws 289, (iii) the "Agreement to
Settle PSNH Restructuring" dated August 2, 1999 (the "Original Settlement
Agreement"), entered into by and among the Governor of New Hampshire, her
Office of Energy and Community Services, the Office of the Attorney General,
Staff of the New Hampshire Public Utilities Commission (the "Commission"),
PSNH, and Northeast Utilities, (iv) the Commission's Order No. 23,443 dated
April 19, 2000 with respect to the Original Settlement Agreement (the "First
Settlement Order"), (v) RSA Chapter 369-B, and (vi) the "Agreement to Settle
PSNH Restructuring" dated August 2, 1999, conformed as of June 23, 2000 (the
"Conformed Settlement Agreement"), submitted by PSNH and the other parties to
the Original Settlement Agreement to the Commission pursuant to the
Procedural Letter, will require the prior approval by the Commission in the
form of a finance order (the "Finance Order"). The Finance Order must
contain provisions that maximize the likelihood of achieving "triple-A"
ratings on the RRBs and enhance the marketability of the RRBs. Accordingly,
a detailed description (the "Transaction Description") of PSNH's proposed RRB
transaction (the "RRB Transaction"), together with requested findings (the
"Findings") and orders and approvals (the "Orders and Approvals") are set
forth below.
Pursuant to RSA 541-A:35 and RSA Chapter 369-B, PSNH proposes that, in the
Finance Order, the Commission, among other things:
(i) approve the issuance of RRBs in an amount not greater than $573 million;
(ii) establish the charge from which the RRBs will be repaid (the "RRB
Charge"), the calculation of which is described in the testimony of Michael
J. Mahoney included with the Original Settlement Agreement (Phase I Exhibit
4) and the testimony of Mark A. Englander included with the Original
Settlement Agreement (Phase I Exhibit 6) (the "Englander Testimony"), and the
collection of which from retail customers through the proposed Retail
Delivery Tariff is described in the joint testimony of Gary A. Long and
Stephen R. Hall included with the Original Settlement Agreement (Phase I
Exhibit 3);
(iii) approve the organization and capitalization of a special purpose
financing entity, to which the RRB Charge and other related rights (the "RRB
Property") will be sold;
(iv) provide for the periodic adjustment of the RRB Charge via a true-up
mechanism described herein and in the Englander Testimony;
(v) approve the general structure of the RRB Transaction and terms of the
RRBs, as described herein, including the proposed use of proceeds, as
described in the testimony of David R. McHale included with the Original
Settlement Agreement (Phase I Exhibit 5) and subsequent testimony provided by
Mr. McHale on this topic;
(vi) approve the servicing of the RRB Charge by PSNH, as the initial servicer
for the RRB Property, or any successor servicer, under a servicing agreement;
(vii) declare that the Finance Order shall be irrevocable as provided in
RSA Chapter 369-B;
(viii) find the RRB Charge to be just and reasonable; and
(ix) find and declare the issuance of the Finance Order to be consistent with
the public good.
II. PSNH'S REQUESTED TRANSACTION DESCRIPTION
PSNH respectfully requests that the Commission include in the Finance Order
the Transaction Description that is set forth in Attachment A to this Motion.
III. PSNH'S REQUESTED FINDINGS
PSNH respectfully requests that the Commission make in the Finance Order the
Findings that are set forth in Attachment B to this Motion.
IV. PSNH'S REQUESTED ORDERS AND APPROVALS
PSNH respectfully requests that the Commission include in the Finance Order
the Orders and Approvals that are set forth in Attachment C to this Motion.
V. CONCLUSION
PSNH respectfully requests the Commission to adopt, as part of the Finance
Order, the Transaction Description, the Findings, and the Orders and
Approvals set forth above, all of which are necessary for PSNH to
successfully implement the securitization proposed under the Conformed
Settlement Agreement and to achieve the rate reduction required thereby.
June 23, 2000
Respectfully submitted,
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By: /s/ Robert A. Bersak
Robert A. Bersak
Assistant Secretary and Assistant General Counsel
Certification of Service
I hereby certify that copies of this Motion have been served this day upon
parties granted full intervenor status in this docket.
/s/ Robert A. Bersak
Robert A. Bersak
TRANSACTION DESCRIPTION
Public Service Company of New Hampshire ("PSNH") respectfully requests that
the New Hampshire Public Utilities Commission (the "Commission") include in
the finance order (the "Finance Order") the following detailed description of
the rate reduction bond transaction (the "Transaction Description").
A. The Original Settlement Agreement and the First Settlement Order
The "Agreement to Settle PSNH Restructuring" dated August 2, 1999 (the
"Original Settlement Agreement"), was entered into by and among the Governor
of New Hampshire, her Office of Energy and Community Services, the Office of
the Attorney General, Staff of the Commission, PSNH, and Northeast Utilities
to provide a resolution of all major issues pertaining to PSNH in the
electric industry restructuring proceeding of the Commission in Docket No. DR
96-150, as well as in the other dockets and pending litigation described in
Section XV of the Original Settlement Agreement. The General Court, in RSA
369-A:1, III, recognized, and the Original Settlement Agreement contemplated,
that securitization would be a useful tool for lowering retail customers'
bills. The parties to the Original Settlement Agreement believed that the
issuance of rate reduction bonds ("RRBs") would reduce the carrying charge
associated with stranded costs. By so reducing the carrying charge, the
parties believed that PSNH retail customers would realize a net savings,
reflected in a lower stranded cost recovery charge (the "SCRC") than would be
required to recover the stranded costs if enabling legislation authorizing
the securitization of stranded costs and this Finance Order were not adopted.
The parties indicated that securitization was expected to account for a
material portion of the rate reduction that would be achieved upon the
Original Settlement Agreement's implementation.
Accordingly, the parties to the Original Settlement Agreement agreed to
support legislation that would allow PSNH to securitize a portion of its
stranded costs by issuing RRBs. The parties acknowledged that securitization
of stranded costs was a pivotal element of the settlement, and that the
successful completion of the proposed RRB issue was a condition to
implementing the Original Settlement Agreement.
The Original Settlement Agreement also provides that the New Hampshire State
Treasurer, or other State official designated by the State Treasurer, shall
have oversight over the terms and conditions of the RRB issue, including, but
not limited to, tax aspects and such other arrangements to which the parties
to the Original Settlement Agreement may mutually agree, to assure that PSNH
exercises fiscal prudence, and achieves the lowest overall cost for the RRBs.
The parties to the Original Settlement Agreement proposed the issuance of
$725 million of RRBs to securitize a like amount of the following stranded
costs(1):
Seabrook Over-Market Generating Assets (NAEC) $506 million
Millstone 3 Over-Market Generating Assets 84 million
Acquisition Premium 74 million
Acquisition Premium - FAS 109 44 million
Financing Costs 17 million
Total $725 million
Footnote 1
The first two assets listed above - Seabrook Over-Market Generating
Assets (NAEC) and Millstone 3 Over-Market Generating Assets - are amortizing
assets. The amount shown for each such asset is its estimated balance as of
January 1, 2000, as set forth in the Original Settlement Agreement. The
amount shown for the fifth asset listed above - Financing Costs - is the
parties' agreed-upon maximum amount of financing costs to be securitized
pursuant to the Original Settlement Agreement. In accordance with the
Original Settlement Agreement, the amounts of the third and fourth assets
listed above - Acquisition Premium and Acquisition Premium - FAS 109 - are
measured as the difference between $725 million and the amount of the other
three assets listed. Thus, in accordance with the Original Settlement
Agreement, these amounts would increase as the amount of each of the first
two amortizing assets decreases, and would also increase if the actual amount
of financing costs is less than $17 million, so that the total amount to be
securitized would remain equal to $725 million.
In its Order No. 23,443 dated April 19, 2000 with respect to the Original
Settlement Agreement (the "First Settlement Order"), the Commission approved
the Original Settlement Agreement, with several modifications. Among other
things, the Commission, after careful examination of the record, found that
securitization would offer significant cost savings to PSNH's customers.
However, as described in the First Settlement Order, the Commission also
found that, when securitized, the net book balances of the four stranded
assets proposed to be securitized - Seabrook Over-Market Generating Assets
(NAEC), Millstone 3 Over-Market Generating Assets, Acquisition Premium, and
Acquisition Premium - FAS 109 - will be approximately $37 million less than
the balances assumed and proposed to be securitized in the Original
Settlement Agreement, as set forth above. Accordingly, the Commission found
that the total level of securitization should be reduced by $37 million, and
approved a securitization level of $688 million, including up to $17 million
for financing costs.(2)
Following the issuance of the First Settlement Order, PSNH notified the
Commission of its unconditional acceptance of most of the Commission's
conditions for approval of the Original Settlement Agreement, including the
total level of securitization as aforesaid and all other conditions relating
to the proposed securitization.(3) The other parties to the Original
Settlement Agreement notified the Commission of their acceptance of all of
the Commission's conditions.
Footnote 2
The First Settlement Order indicated that if PSNH is able to negotiate
reductions in its existing small power producers rate order obligations, the
Commission will consider allowing an additional amount of securitization up
to $37 million.
Footnote 3
Out of 39 conditions contained in the First Settlement Order, PSNH
requested rehearing with respect to one that it did not unconditionally
accept.
B. Legislation
1999 N.H. Laws 289:3, I and II authorized the Commission to review a
compliance filing or settlement proposal that includes a securitization
transaction. These provisions further authorized the Commission to issue an
order on the settlement and a conditional securitization order. Under 1999
N.H. Laws 289:3, I and II, the final effectiveness of such an order approving
a settlement proposal and related securitization transaction was to be
expressly conditioned upon the enactment of subsequent enabling legislation.
Following the issuance of the First Settlement Order, but before the issuance
of this Finance Order, the General Court enacted, and the Governor signed
into law, 2000 N.H. Laws 249, which, among other things, creates a new
chapter - RSA Chapter 369-B - in which the General Court sets forth its
finding that implementation of PSNH's securitization proposal, subject to
specified conditions, will result in benefits to customers that are
substantially consistent with the principles contained in RSA 374-F:3 and RSA
369-A:X and with RSA 369-A, XI. RSA Chapter 369-B also sets forth a
comprehensive framework for stranded cost securitization and empowers the
Commission to issue finance orders approving securitization, subject to the
requirements and conditions set forth therein. RSA Chapter 369-B authorizes
a securitization level for PSNH of $670 million, including up to $15 million
for financing costs.(4) Pursuant to RSA Chapter 369-B, finance orders issued
by the Commission that are consistent with RSA Chapter 369-B shall become
effective without further action by the General Court.
Footnote 4
The $670 million securitization level is set forth in RSA 369-B:3,
IV(b). RSA 369-B:3, IV(b) also provides that such level shall be reduced by
$6 million for each month from October 1, 2000 to competition day, as defined
in RSA 369-B:2, III, referring to the Original Settlement Agreement (the
"Competition Day"). The $15 million limit on securitizable financing costs
is set forth in RSA 369-B:3, IV(b)(3)(E).
RSA 369-B:3, IV(a) authorizes $130 million in RRBs to finance
renegotiated agreements of existing power purchase obligations requiring PSNH
to purchase power from six wood-to-energy facilities and one trash-to-energy
facility. This amount is in addition to the $670 million securitization
level authorized in RSA 369-B:3, IV(b).
RSA Chapter 369-B authorizes, among other things, the creation by the
Commission through the issuance of this Finance Order of an irrevocable
vested property right (referred to in RSA Chapter 369-B and herein as the
"RRB Property") to establish, adjust, bill and collect non-bypassable charges
authorized by the Commission (referred to in RSA Chapter 369-B and herein as
the "RRB Charge") in amounts sufficient to recover or pay (i) expenditures
incurred in respect of generation assets, entitlements and acquisition
premiums, (ii) expenditures incurred in respect to the buyout, buydown,
restructuring, or renegotiation of power purchase obligations, (iii)
expenditures incurred in respect to regulatory assets, (iv) expenditures
incurred to refinance or retire existing debt or existing equity capital of
the electric utility and any costs related thereto, (v) amounts necessary to
recover federal or state taxes actually paid by an electric utility, which
tax liability recovery is modified by the transactions approved in a finance
order issued by the Commission pursuant to RSA Chapter 369-B, and (vi)
reasonable costs, as approved by the Commission, relating to the issue,
servicing, or refinancing of RRBs under the provisions of RSA Chapter 369-B,
including, without limitation, principal and interest payments and accruals,
sinking fund payments, debt service and other reserves, costs of credit
enhancement, indemnities, if any, owed to the State or the trustee for the
RRBs, issuance costs and redemption premiums, if any, and all other
reasonable fees, costs, and charges in respect of RRBs (collectively, these
amounts referred to in RSA Chapter 369-B and herein as the "RRB Costs"). The
RRB Charge is Part 1 of the SCRC described in the Original Settlement
Agreement and the First Settlement Order.
Pursuant to RSA Chapter 369-B, the State of New Hampshire has pledged,
contracted and agreed with the owners of the RRB Property and holders of and
trustees for RRBs that neither the State, nor any of its agencies, including
the Commission, will limit, alter, amend, reduce or impair the RRB Charge,
RRB Property, this Finance Order or any rights hereunder or thereunder, or
ownership thereof or security interest therein, until the RRBs, including all
principal, interest, premium, costs and arrearages thereon, are fully
discharged, unless adequate provision is made by law for the protection of
the owners, holders and trustees. RSA Chapter 369-B also provides that RRB
Property may be sold in a true sale transaction to a special purpose
financing entity (the "SPE") in order to facilitate the issuance of RRBs.
RSA Chapter 369-B directs the Commission to adjust the RRB Charges
periodically in order to ensure the timely recovery of Periodic RRB Payment
Requirements (defined below) (see the description of the "True-Up Mechanism"
below).
The RRB Charges will be non-bypassable pursuant to RSA 374-F:3 and RSA
Chapter 369-B, and will be assessed against all "retail customers" of PSNH's
distribution system taking "retail electric service" (such terms used herein
as defined in RSA 369-B:2).
Pursuant to RSA 369-B:4, VIII, in the event of municipalization of a portion
of PSNH's service territory, the Commission shall, in matters over which the
Federal Energy Regulatory Commission does not have jurisdiction, or has
jurisdiction but chooses to grant jurisdiction to the State, determine, to a
just and reasonable extent, the consequential damages such as stranded
investment in generation, storage, or supply arrangements resulting from the
purchase of plant and property from PSNH and RRB costs, and shall establish
an appropriate recovery mechanism for such damages. Any such damages shall
be established, and shall be allocated between the RRB Charge and PSNH's
other rates and charges in a just and reasonable manner.
C. The Conformed Settlement Agreement and the Second Settlement Order
In order to comply with the Commission's procedural letter dated June 12,
2000 (the "Procedural Letter"), PSNH and the other parties to the Original
Settlement Agreement submitted to the Commission the "Agreement to Settle
PSNH Restructuring" dated August 2, 1999, conformed as of June 23, 2000 (the
"Conformed Settlement Agreement"). The Conformed Settlement Agreement
reflects compliance with the various changes accepted by such parties during
the course of the hearings in this matter, the conditions set forth in the
First Settlement Order accepted by such parties, and the new conditions and
requirements set forth in RSA Chapter 369-B.
In its Order No. dated , 2000 (the "Second Settlement Order"
and, together with the First Settlement Order, the "Settlement Orders"), the
Commission approved the Conformed Settlement Agreement and modified the First
Settlement Order, taking into account, in each case, the enactment into law
of RSA Chapter 369-B.
D. Proposed RRB Transaction
PSNH requests that this Finance Order, among other things, approve the
following aspects of PSNH's proposed RRB transaction (the "RRB Transaction"),
as more fully described in the testimony of David R. McHale included with the
Original Settlement Agreement (Phase I Exhibit 5) (the "McHale Testimony"),
the testimony of Michael J. Mahoney included with the Original Settlement
Agreement (Phase I Exhibit 4) (the "Mahoney Testimony"), the testimony of
Mark A. Englander included with the Original Settlement Agreement (Phase I
Exhibit 6) (the "Englander Testimony"), and the joint testimony of Gary A.
Long and Stephen R. Hall included with the Original Settlement Agreement
(Phase I Exhibit 3) (the "Long/Hall Testimony" and, together with the McHale
Testimony, the Mahoney Testimony, and the Englander Testimony, in each case
as supplemented by subsequent testimony and filings in this proceeding, the
"PSNH Testimony"), finding that they are consistent with achieving the
highest rating and therefore the lowest cost on the RRBs. This proposed
structure is subject to modification, depending upon negotiations with rating
agencies that assign credit ratings to the RRBs, tax authorities, and market
conditions at the time the RRBs are issued. The final structure will be
determined by PSNH at the time the RRBs are priced, subject to meeting
certain requirements regarding the all-in cost and the weighted average life
of the RRBs. The State Treasurer shall oversee the determination by PSNH of
the final structure and terms of the RRBs.
Pursuant to the Conformed Settlement Agreement, the Settlement Orders and RSA
Chapter 369-B, PSNH will securitize not greater than $573 million of its
overall stranded costs, including financing costs, as follows:(5)
Seabrook Over-Market Generating Assets (NAEC) $494 million
Millstone 3 Over-Market Generating Assets 64 million
Financing Costs 15 million
Total $573 million
Footnote 5
As indicated above, RSA Chapter 369-B authorizes a securitization level
for PSNH of $670 million, including $15 million for financing costs, subject
to a $6 million reduction for each month from October 1, 2000 to Competition
Day. See supra note 4 and accompanying text. However, in its Response to
Order No. 23,443 dated May 1, 2000 (the "Response to First Settlement
Order"), PSNH indicated that it would securitize stranded costs in an amount
not greater than $575 million, including financing costs of $17 million. See
Response to First Settlement Order, Attachment A, p. 11. This amount has
been further reduced to not greater than $573 million to comply with the $15
million limit on securitizable financing costs set forth in RSA 369-B:3,
IV(b)(3)(E). The final securitization amount, which will not be greater than
$573 million, will be determined immediately prior to RRB issuance, and will
reflect further asset amortizations, actual financing costs, and the effect
of any reductions required by RSA 369-B:3, IV(b)(3)(E). See supra notes 1
and 4.
PSNH will recover such amount - together with the other, ongoing RRB Costs -
from its retail customers through an RRB Charge. PSNH's right to collect the
RRB Charge is irrevocable as provided in RSA 369-B:3, II, and the charge
itself is non-bypassable to PSNH's retail customers pursuant to RSA 374-F:3,
XI(d), RSA 369-B:2, XIII, and RSA 369-B:4, IV. The RRB Property is the
principal asset securing the RRBs and represents a continuously existing
current and irrevocable vested property right created pursuant to RSA 369-
B:6, I.
1. Formation/Capitalization of SPE and Sale of RRB Property
PSNH will cause the organization of a bankruptcy-remote SPE, which is
expected to be a Delaware limited liability company authorized to acquire RRB
Property and to issue RRBs but which, for tax and other reasons, may
ultimately be structured as a Delaware business trust. If the SPE is a
limited liability company, it will be wholly-owned by PSNH, and if a business
trust, the SPE's sole beneficial owner will be PSNH. In order for the SPE to
remain "bankruptcy-remote" from PSNH, the fundamental organizational
documents of the SPE will impose significant limitations upon its activities
and the ability of PSNH to take actions as the holder of the equity interest
therein. For example, the SPE will be formed for the limited purpose of
acquiring the RRB Property and Other SPE Collateral (defined below) and
issuing and selling the RRBs. It will not be permitted to engage in any
other activities, and will have no assets other than the RRB Property and
Other SPE Collateral.
The SPE will be managed by a board of managers, trustees or directors, with
rights and authority similar to that of a board of directors of a
corporation. As long as the RRBs remain outstanding, PSNH shall be required
to cause the SPE to have at least two managers, trustees or directors with no
affiliation with PSNH. Without the consent of these independent parties, the
SPE will be unable to (a) amend provisions of fundamental organizational
documents which ensure the bankruptcy-remoteness of such SPE, (b) institute
bankruptcy or insolvency proceedings or to consent to the institution of
bankruptcy or insolvency proceedings against it, or (c) dissolve, liquidate
or wind up the SPE. Other provisions may also be included to support the
bankruptcy-remote character of the SPE as required by the rating agencies.
PSNH will capitalize the SPE in an amount anticipated to be at least 0.50% of
the initial principal balance of RRBs. This capitalization is required in
order that PSNH may treat the RRB issuance by the SPE as debt for tax
purposes, and it also provides a source of credit enhancement. It is
anticipated that the SPE will enter into an administration agreement (the
"Administration Agreement") with PSNH, pursuant to which PSNH shall perform
administrative services and provide facilities for the SPE to ensure that it
is able to perform such day-to-day operations under the RRB Transaction
documents. The Administration Agreement incorporates provisions to ensure
that PSNH will be paid a fee (the "Administration Fee") as consideration for
the performance of such services and providing such facilities, as described
in Attachment 2 to the Issuance Advice Letter (as defined below).
PSNH will sell all of its rights in the RRB Property to the SPE in a
transaction that will be intended and treated as a legal true sale and
absolute transfer to the SPE. A true sale of RRB Property to a bankruptcy-
remote SPE provides that, in the event of a PSNH bankruptcy, the RRB Property
owned by the SPE will not become a part of the PSNH bankruptcy estate and
PSNH creditors will have no recourse to the RRB Property or RRB Charge.
2. Issuance of RRBs
The SPE will issue and sell RRBs to capital market investors in one or more
series, each of which may be offered in one or more classes having a
different principal amount, term, interest rate and amortization schedule.
The form, interest rate (whether fixed or variable), amortization schedule,
classes, number and determination of credit ratings and other characteristics
of RRBs will be determined by PSNH at or before the time of pricing based on
then-current market conditions, with the objective being to achieve the all-
in lowest cost financing possible. Under certain circumstances, the RRBs may
be subject to redemption prior to maturity and may be refinanced through a
subsequent issuance of RRBs to the extent such refinancing would result in a
lower interest cost associated with the RRBs refinanced. Any such
refinancing would require a new finance order. The all-in cost of the RRBs,
calculated in accordance with Exhibit 1 attached to this Finance Order, shall
be at least 100 basis points less than PSNH's Pre-Tax Revenue WACC (as
defined in Exhibit 2 attached to this Finance Order) as of the date the RRBs
are priced. In addition, the weighted average life of all series of RRBs,
calculated in accordance with Exhibit 3 attached to this Finance Order, shall
be not less than 5 years and not more than 10 years. The State Treasurer,
with input and advice from such advisors as she may select, shall oversee the
development and determination of the final structure, documentation and terms
of the RRBs, and shall notify PSNH (and, if necessary, the Commission), as
provided in this Finance Order, if she concludes that PSNH has failed to
exercise fiscal prudence or to achieve the lowest overall cost for the RRBs.
Upon final determination of all terms of the RRBs, PSNH will file an issuance
advice letter substantially in the form of Attachment MAE-1 to the Englander
Testimony (the "Issuance Advice Letter").
The RRBs will be non-recourse to PSNH and its assets, and, as provided in RSA
369-B:5, IV, will not be secured by a pledge of the general credit, full
faith or taxing power of the State of New Hampshire or any agency or
subdivision of the State of New Hampshire. Instead, the RRBs will be secured
by the assets of the SPE, including the RRB Property as well as all other
assets of the SPE (the "Other SPE Collateral"). The Other SPE Collateral
includes (i) the rights of the SPE under all RRB Transaction documents such
as the purchase agreement by which the SPE acquires all rights in the RRB
Property (including any interest rate swap agreements or other hedging
agreements entered into with respect to any variable rate RRBs), and
including the servicing agreement (the "Servicing Agreement") by which PSNH,
or any successor servicer, acts as servicer for the RRB Property (the
"Servicer"), (ii) the Collection Account (as described below) and funds held
therein, including the capital of the SPE, and (iii) certain investment
earnings on amounts held in the Collection Account.
It is expected that the RRBs will be rated by one or more recognized rating
agencies. The targeted ratings on the RRBs will be triple-A.
Because each class of RRBs will likely receive principal payments at
different times, each will have different expected and legal final maturity
dates. The RRBs will have legal final maturities not longer than 14 years,
in accordance with RSA 369-B:5, VIII, with expected final maturities no more
than 12 years from the date of issuance.
The RRBs are expected to be sold at or near par value and will not in any
event be sold for more than par value. Bondholders will receive interest
payments on the RRBs not less frequently than semiannually. The RRBs will
not be subordinated to the claims of any creditors or the equity owner of the
SPE (other than for payments of trustee, servicing, and other specified
transaction-related fees).
RRBs will be repaid through the collection of the RRB Charge from all retail
customers, by PSNH or any successor to the PSNH distribution system or any
other successor Servicer. The SPE will transfer the proceeds from the
issuance of the RRBs, net of its transaction expenses, if any, to PSNH as
consideration for the transfer of the RRB Property to the SPE.
If variable rate RRBs are issued, the SPE will enter into an interest rate
swap agreement or other hedge arrangement whereby the SPE would make fixed
payments to a counterparty, and the counterparty would make variable rate
payments to the SPE who would remit or credit such amounts to RRB holders.
In this case, the fixed rate payments would be used to calculate the RRB
Charge. This protects the SPE and retail customers against the risk that
interest rate fluctuations would cause variable rates to exceed the fixed
rates that were used to calculate the RRB Charge.
3. The RRB Charge
The RRB Charge will be calculated and set at levels intended to provide for
the full recovery of payments of interest, principal and premium, if any, on
the RRBs, in accordance with the expected amortization schedule determined at
the time of offering, any credit enhancement, including
overcollateralization, and any ongoing related fees, costs, and expenses
(including, but not limited to, periodic rating agency fees, accounting fees,
legal fees, the Servicing Fee, the Administration Fee, trustee fees,
contingent indemnity obligations in the RRB Transaction documents, servicer
and trustee expenses and any operating expenses of the SPE), based upon
assumptions including sales forecasts, payment and charge-off patterns, and
lags between RRB Charge billing and collection by the Servicer (the required
periodic payment of such, including deficiencies on past due amounts for any
reason, the "Periodic RRB Payment Requirements" and collectively, the "Total
RRB Payment Requirements"), calculated pursuant to the methodology set forth
in the PSNH Testimony. Prior to the issuance of the RRBs, PSNH will file an
Issuance Advice Letter with the Commission, which will set forth the final
structure and repayment terms of the RRB Transaction, the total principal
amount and pricing of the RRBs, the initial RRB Charge, the
overcollateralization amount (described below) and targeted transaction
subaccount balances (described below), the capital contribution amount, the
frequency of the true-ups and dates of true-up filings and the actual
transaction costs. Such filing is not a condition to the authority to issue
RRBs.
The RRB Charge is expected to be collected over 12 years such that the
principal of and interest and other costs associated with RRBs are fully paid
by the end of the 12th year. However, in the event that the RRBs have not
been fully repaid by the end of the 12th year, the RRB Charge may be billed
and collected for an additional 2 years (or, if earlier, through the date on
which the RRB Costs have been fully paid). This additional period of up to 2
years is a form of credit enhancement that helps achieve triple-A ratings on
the RRBs and which is expected to have no cost to retail customers (i.e., in
the expected case, the RRBs are paid in 12 years).
The RRB Charge will be included as a component of the unbundled SCRC line
item on a retail customer's bill and will be footnoted as such and may
include reference to it being sold to the SPE.
4. Servicing of RRBs
After the issuance of the RRBs, PSNH will act as the Servicer for the RRB
Property on behalf of the SPE, and will be responsible for calculating,
billing, collecting, and remitting the RRB Charge. PSNH, therefore, will
carry out billing and collection activities both as Servicer with respect to
the RRB Charges-on behalf of the SPE and RRB holders-and as principal with
respect to its own charges to be paid by such customers, including Part 2 and
Part 3 of the SCRC. As Servicer, PSNH will also be obligated to retain all
books and records regarding the RRB Charge, subject to the right of the SPE,
and the trustee for the RRBs and the Commission to inspect those records.
PSNH may not resign as Servicer or transfer its servicing obligations (except
to a successor to its distribution system), although the RRB holders may
remove PSNH as Servicer and appoint a successor Servicer under the Servicing
Agreement pursuant to this Finance Order, RSA Chapter 369-B, and the RRB
Transaction documents.
As consideration for its servicing responsibilities, PSNH or any successor
Servicer will receive a market-based periodic servicing fee (the "Servicing
Fee"), as described in the Englander Testimony, which will be recovered
through the RRB Charge. The Servicing Fee will be equal to 0.25% of the
outstanding principal balance of the RRBs if PSNH is the Servicer. For any
successor Servicer, the Servicing Fee will be no more than 1.5% of the
outstanding principal balance of the RRBs if the successor Servicer is not
billing the RRB Charge in conjunction with other charges. If the successor
Servicer is billing the RRB Charge in conjunction with other electric service
charges, then the Servicing Fee payable to such successor Servicer will be
0.25% of the outstanding principal balance (equal to the fee payable to PSNH
as initial servicer). PSNH (or any successor Servicer) will bill and collect
the RRB Charge from PSNH's retail customers.
In accordance with RSA 369-B:4, IV, any retail customer that fails to pay any
RRB Charge will be subject to disconnection of service to the same extent
that such customer would, under applicable law and regulations, be subject to
disconnection of service for failure to pay any other charge payable to an
electric utility.
PSNH or any successor Servicer will periodically remit (as frequently as
required by the rating agencies but not less frequently than monthly) actual
collections of RRB Charges to the SPE. To the extent estimation of such
collections is required, PSNH will design a methodology that will be
satisfactory to the rating agencies, and which will approximate most closely
actual collections. The SPE will use the RRB Charge remittances to make
payments of Periodic RRB Payment Requirements. In accordance with RSA 369-
B:7, VI and VIII, in the event of default by any Servicer in payment of the
RRB Charges to an SPE, the Commission will, upon application by (a) the
trustees or holders of the RRBs, (b) such SPE or its assignees or (c)
pledgees or transferees of the RRB Property, order the sequestration and
payment to or for the benefit of such SPE or such other party of revenues
arising with respect to the RRB Property. This will provide additional
certainty that the RRB Charges will benefit the owner of the RRB Property and
serve to enhance the credit quality of the RRBs.
The Servicer will allocate amounts collected from each retail customer on a
pro rata basis among the SCRC and the other individual rate components
identified in Section V of the Conformed Settlement Agreement. Such amounts
so allocated to the SCRC shall, in accordance with the Conformed Settlement
Agreement, in turn be allocated pro rata among the RRB Charge, or Part 1 of
the SCRC, and to any remaining portion of the SCRC not the subject of a
finance order (i.e., Parts 2 and 3 of the SCRC, as described in the Conformed
Settlement Agreement).
5. Third Party Suppliers
If the Commission permits the billing, collection and remittance of RRB
Charges by a third party supplier (a "TPS") within the PSNH service territory
for remittance to PSNH as Servicer (or any successor Servicer), such
authorization must be consistent with the following minimum rating agency
requirements, which PSNH believes are necessary for the RRBs to receive the
targeted triple-A rating:
The TPS must agree to remit the full amount of RRB Charges it bills to
retail customers, regardless of whether payments are received from such
retail customers, within 15 days of its or PSNH's (or any successor
Servicer's) bill for such charges.
The TPS must provide PSNH (or any successor Servicer) with total monthly
kWh usage information in a timely manner for the Servicer to fulfill its
obligations, as such information is the basis of such remittance.
PSNH (or any successor Servicer) will be entitled, within seven days
after a default by the TPS in remitting any RRB Charges billed, to assume
responsibility for billing all charges for services provided by PSNH (or any
successor Servicer), including the RRB Charges, or to switch responsibility
to a third party, which must meet the criteria herein described.
If and so long as a TPS does not maintain at least a triple-B long-term
unsecured credit rating from Moody's Investors Service or Standard & Poor's
Rating Services, such TPS shall maintain, with the Servicer or as directed by
the Servicer, a cash deposit or comparable security equal to at least one
month's maximum estimated collections of RRB Charges, in a form and manner as
agreed upon by PSNH (or any successor Servicer) and the TPS. In the event of
a default in the remittance of RRB Charges by a TPS, such amount will be
included in the periodic adjustment of the RRB Charge as described in the
PSNH Testimony.
6. Credit Enhancement; Overcollateralization and True-Up
In order for the RRBs to receive triple-A ratings, the exposure to losses due
to, among other things, sales of energy below those projected, longer-than-
expected delays in bill collections, and higher-than-estimated uncollectible
accounts, must be minimized. This will be accomplished with various forms of
credit enhancement, including the various components of the Collection
Account and the "True-Up Mechanism" summarized below.
The RRB Charge collections will be deposited into a Collection Account, which
will be comprised of a General Subaccount (which will hold the collections
with respect to principal, interest, fees, and expenses) and at least three
other subaccounts - the Overcollateralization Subaccount (which will hold the
Overcollateralization amount described below), the Capital Subaccount (which
will hold the initial capital contribution to the SPE), and the Reserve
Subaccount (which will hold any excess collections of RRB Charges as
described below). RRB Charge collections in excess of Periodic RRB Payment
Requirements will be allocated (a) to the Capital Subaccount to the extent
the amount therein has been reduced to below the initial capital
contribution, (b) to the Overcollateralization Subaccount up to the required
level established at issuance by the rating agencies and (c) to the Reserve
Subaccount any remaining amounts. To the extent that RRB Charges are
insufficient to make scheduled Periodic RRB Payment Requirements during any
period, the accounts will be drawn upon in the following order (a) the
Reserve Subaccount, (b) the Overcollateralization Subaccount and (c) the
Capital Subaccount. A more detailed description of the Collection Account
allocation procedure is set forth in the Englander Testimony.
The RRB Charge will be calculated (both initially and as a result of the
"True-Up Mechanism" described below) to recover an amount in excess of the
amounts needed to make payments of principal, interest, fees and expenses on
RRBs (such amount, "Overcollateralization"). The actual amount of
Overcollateralization required to achieve the highest credit rating will be
finalized prior to the issuance of the RRBs and will depend primarily on
rating agency requirements and tax considerations, but is currently expected
to be at least 0.50% of the initial principal amount of the RRBs. The
Overcollateralization will be collected "pro rata" over time and deposited to
the Overcollateralization Subaccount such that the amount therein will
accumulate over time in accordance with a schedule set forth at issuance.
PSNH will file adjustments, up or down, to the RRB Charge pursuant to a true-
up mechanism established in accordance with RSA 369-B:4, III and as described
in the Englander Testimony (the "True-Up Mechanism"). The True-Up Mechanism
is a periodic adjustment to the RRB Charge which is designed to account for
any previous or projected over- or under-collections of the RRB Charge. At
least annually and as frequently as monthly, PSNH will request an RRB Charge
adjustment such that, during the period for which that RRB Charge will be
billed, RRB Charge collections will be sufficient to (a) pay principal and
interest on the RRBs in accordance with the expected amortization schedule,
(b) maintain the Overcollateralization Subaccount balance at the required
levels, (c) restore the capital contribution to the Capital Subaccount to the
extent it has been drawn upon to make payments on RRBs and (d) pay fees and
expenses related to RRBs, including any ongoing fees and expenses associated
with any other credit enhancement. Any amounts on deposit in the Reserve
Subaccount at the time that PSNH calculates a periodic RRB Charge adjustment,
will be incorporated in such adjustment. PSNH, as initial Servicer (or any
successor Servicer), intends to account for, and ultimately credit to retail
customers, any amounts remaining in the Collection Account, with the
exception of the amount remaining in the Capital Subaccount, after the RRBs
are paid in full and the Total RRB Payment Requirements have been discharged.
Such amounts will be released to the SPE free and clear of any lien in the
favor of the RRB trustee upon retirement of the RRBs and discharge of the
Total RRB Payment Requirements. These amounts will be credited to retail
customers through a subsequent ratemaking proceeding.
Not later than thirty days prior to each semiannual anniversary of the RRB
Transaction closing, PSNH as Servicer (or any successor Servicer) will file
with the Commission a periodic RRB Charge true-up advice letter ("Routine
True-up Letter", a form of which was included as Attachment 3 to the
Englander Testimony). Further, to the extent required by the rating agencies
(and also to the extent described in the Conformed Settlement Agreement prior
to the Recovery End Date, (as defined in the Conformed Settlement
Agreement)), PSNH may file Routine True-Up Letters, as frequently as monthly,
in addition to the Routine True-Up Letter filed prior to each semiannual
anniversary of the RRB Transaction. Absent manifest error in the Routine
True-Up Letter, the resulting upward or downward adjustments to the RRB
Charge will be effective (i) in the case of any semiannual adjustment, on the
ensuing semiannual anniversary of the RRB Transaction closing, or (ii) in the
case of a more frequent adjustment, immediately upon the filing of the
applicable Routine True-Up Letter.
In addition, PSNH seeks Commission authorization that whenever it is
determined that the methodology used to calculate RRB Charge adjustments
requires modification to more accurately project and generate adequate RRB
Charge collections, a non-routine true-up letter ("Non-Routine True-Up
Letter") may be filed, with the resulting RRB Charge adjustment (reflecting
such modification to the methodology or model) to be effective upon review
and approval by the Commission within 60 days of such filing.
Both Routine True-Up Letters and Non-Routine True-Up Letters may be filed
periodically through the legal final maturity date.
Pursuant to the Conformed Settlement Agreement and RSA 369-B:3, IV(b)(9), the
SCRC, averaged over all customers (including Part 1, the RRB Charge), shall
not exceed 3.40 cents/kWh. If the RRB Charge is increased or decreased
pursuant to the True-Up Mechanism, the SCRC, averaged over all customers,
will remain capped at 3.40 cents/kWh. Thus, any increase in the RRB Charge
will result in an adjustment to the other components of the SCRC.
Unless PSNH's unsecured debt achieves investment grade ratings, PSNH may be
required by the rating agencies to obtain a letter of credit or other credit
enhancement to protect against any cash collection losses resulting from the
temporary commingling of funds. If (and for so long as) such credit
enhancement is required, the RRB Costs and the RRB Charge will be adjusted
accordingly to cover the cost of such enhancement.
7. Tax Considerations
The possibility that the Internal Revenue Service (the "IRS") would assess
income taxes when this Finance Order is issued or when PSNH receives the
initial proceeds from the RRBs, rather than when the RRB Charge revenues are
collected, is an issue to PSNH associated with financing the RRB Costs. In
addition to having tax consequences, this would also significantly affect the
economics of issuing the RRBs, as the benefits of the RRB Transaction depend
largely upon recognizing taxable income in respect of RRB Costs as RRB
Charges are paid by retail customers, rather than being accelerated into
current income upon the issuance of the RRBs.
As a result, PSNH has submitted a private letter ruling request to the IRS
seeking confirmation that (a) the issuance of this Finance Order by the
Commission authorizing the collection of RRB Charges will not result in gross
income to PSNH; (b) the issuance of RRBs by the SPE will not result in gross
income to PSNH; and (c) RRBs will be treated as obligations of PSNH for tax
purposes. If the RRB Transaction results in current income taxation, the
benefits of the RRB Transaction would be substantially reduced. Should the
IRS choose not to provide a ruling, or rule adversely, PSNH would reassess
the RRB Transaction and, if possible, modify it to eliminate the risk of
current taxation. Based upon favorable IRS rulings previously issued in
respect of several previous RRB transactions, PSNH anticipates a favorable
ruling.
Under RSA 369-B:5, IV and VI, the RRBs will be treated as notes or bonds of a
political subdivision of the State for purposes of the interest and dividends
tax imposed under RSA Chapter 77, but will not constitute in any way a debt
or liability of the State or of any political subdivision thereof and shall
not constitute a pledge of the full faith and credit of the State or any of
its political subdivisions.
8. Accounting and Financial Reporting
The amount financed through the RRB Transaction is expected to be recorded in
accordance with generally accepted accounting principles ("GAAP") as long-
term debt on the balance sheet of the SPE for financial reporting purposes.
PSNH, the SPE, and the holders of RRBs will expressly agree pursuant to the
terms of the applicable documents to treat the RRBs as debt of the SPE
secured by, among other things, the RRB Property and the Other SPE
Collateral. Because PSNH either will wholly-own or become the sole
beneficial owner of the SPE, it is required that the SPE be consolidated with
PSNH for financial reporting purposes under GAAP. Therefore, the SPE's debt
will appear on the consolidated balance sheet of PSNH in its annual and
quarterly financial filings to the Securities and Exchange Commission. The
RRB Transaction is not expected to impact PSNH's credit ratings, as it is
expected that the rating agencies will determine that the RRBs, which are not
supported by PSNH's general revenue stream, and not collateralized by the
assets of PSNH, do not affect PSNH's creditworthiness. Therefore, it is
anticipated that the rating agencies will exclude the RRBs as debt of PSNH
for purposes of calculating financial ratios.
9. True-Sale Opinion and Collection Shortfalls
Rating agencies will require acceptable opinions of bankruptcy counsel at the
time the RRBs are issued for assurance that the SPE and the RRB Property will
be bankruptcy-remote from PSNH. As described above, to obtain such opinions,
the transfer of the RRB Property from PSNH to an SPE must constitute a legal
"true sale" such that if PSNH were to become the subject of a bankruptcy or
insolvency case, the RRB Property would not be part of PSNH's bankruptcy
estate and therefore would not be subject to the claims of PSNH's creditors.
RSA 369-B:6, V expressly provides that transfers of RRB Property, as
described in that section and as approved in a finance order, shall be
treated for all purposes as an absolute transfer and true sale. In addition,
the RRBs will be non-recourse to PSNH and its assets, other than the RRB
Property sold to an SPE and the Other SPE Collateral.
Another element of the bankruptcy analysis focuses on the separate legal
status of PSNH and the SPE. Although PSNH either will wholly-own or become
the sole beneficial owner of the SPE, the RRB Transaction will be structured
so that, in the event of a bankruptcy of PSNH, the SPE's separate legal
existence would be respected and the assets and liabilities of the SPE would
remain separate from the estate of PSNH. The structural elements supporting
such separate existence include, without limitation, requirements that the
SPE be adequately capitalized, that PSNH be adequately compensated on an
arms-length basis for the servicing functions it performs in billing,
collecting, and remitting the RRB Charges, and that PSNH and the SPE take
certain steps to ensure that creditors are not misled as to their separate
existence. These structural protections are important because, without such
protections, a bankruptcy court might invoke the doctrine of "substantive
consolidation" and disregard the SPE's separate existence. Substantive
consolidation is an equitable doctrine in bankruptcy cases that allows courts
to disregard the separate existence of two or more affiliated entities to
ensure the equitable treatment of all creditors and to maximize creditor
recoveries. When entities are "substantively consolidated" in a bankruptcy
proceeding, their assets and liabilities are pooled, thereby eliminating
intercompany claims, and claims of third-party creditors against any of those
entities are generally treated as claims against the common pool of assets
created by consolidation.
In order to preserve the bankruptcy-remote status of the SPE and the true-
sale nature of the RRB Property and Other SPE Collateral once it is
transferred to the SPE, PSNH cannot have any claim against the RRB Charges.
In its capacity as Servicer, PSNH will bill RRB Charges along with other
charges for services rendered to retail customers obligated to pay such
charges. Amounts collected from a retail customer which are allocated to the
SCRC in accordance with the Conformed Settlement Agreement and this Finance
Order shall, in accordance with the Conformed Settlement Agreement and this
Finance Order, in turn be allocated pro rata to the RRB Charge (Part 1 of the
SCRC) and to any remaining portion of the SCRC not the subject of a finance
order (Parts 2 and 3 of the SCRC). If PSNH collects less than the full
amount that is billed to such customers, it is not permitted, in the
allocation of such collections, to favor itself over the SPE, as owner of the
RRB Property.
10. Use of Proceeds
PSNH will use the proceeds of securitization in such manner as the Commission
approves in this Finance Order, but intends generally to provide for the
following: payment of transaction costs; payment of taxes; reduction of
capitalization and payment of call and tender premiums and refinancing costs
associated therewith; and provision for the required buy-down of the Seabrook
Power Contract with North Atlantic Energy Corporation ("NAEC") and other
purchased power obligations, including the prefunding of decommissioning
costs. The following represents a preliminary estimate of the use of
proceeds:(6)
Buyout of Power Purchase Obligations $329 million
Retire PSNH Capital 229 million
Financing Costs 15 million
Total Use of Proceeds $573 million
Footnote 6
The actual use of proceeds amount will be adjusted, as necessary, to
reflect the final securitization amount. See supra note 5 and accompanying
text.
PSNH will seek to deploy the total proceeds received related to
restructuring, including those arising from asset sales, in a manner that
will provide the greatest possible savings to retail customers. Because the
timing and amount of such proceeds is not yet known, and market conditions at
the time of repurchase cannot be predicted with certainty, the amounts listed
above are subject to change.
FINDINGS
PSNH respectfully requests that the Commission make in the Finance Order the
following findings (the "Findings"). Capitalized terms used in this
Attachment B and not otherwise defined are used as defined in the Transaction
Description attached as Attachment A to the accompanying Motion.
Overall Findings
1. The issuance of this Finance Order, the implementation of the
securitization and the consummation of the RRB Transaction are consistent
with the public good and will result in benefits to retail customers that are
substantially consistent with the principles contained in RSA 374-F:3 and RSA
369-A:1, X, with RSA 369-A:1, XI, and with RSA Chapter 369-B.
2. The issuance of this Finance Order is pursuant to a petition by PSNH and
hearings on that petition in this proceeding.
3. The issuance of this Finance Order is in the public interest as set
forth in RSA 369-B:1, IX.
4. The issuance of this Finance Order, the implementation of securitization
and the consummation of the RRB Transaction will permit any RRBs issued
pursuant to the RRB Transaction to be traded successfully at favorable rates
on the existing securitization market in accordance with 1999 N.H. Laws
289:3, I, which the Commission interprets to mean sold at favorable rates
into the capital markets.
Findings Regarding Authority and Procedures
5. The issuance of this Finance Order is part of a settlement approved by
the Commission under RSA Chapter 374-F to implement electric utility
restructuring within the service territory of PSNH.
6. The Commission has conducted the procedures and investigations in this
proceeding and issued this Finance Order pursuant to 1999 N.H. Laws 289:3 and
RSA Chapter 369-B.
Findings Regarding the Issuance of this Finance Order
7. The overall findings stated above are based on the totality of evidence
presented on the record of this proceeding which supports the following
specific findings. The issuance of this Finance Order, the implementation of
securitization and the consummation of the RRB Transaction will:
(a) enhance and facilitate the expeditious transition to competition, choice
for retail customers, and reductions in electric rates for all consumer
classes consistent with the near term rate relief principle of RSA 374-F:3,
XI, without creating any debt or obligation of the State or other adverse
impacts upon the State's finances or credit rating;
(b) facilitate and help mitigate stranded cost recovery that is appropriate,
equitable and balanced;
(c) permit PSNH to recapitalize its debt structure favorably and take
advantage of its improved risk profile;
(d) have a reasonable impact on today's retail customers as well as future
retail customers;
(e) enhance the opportunity to establish electricity prices consistent with
RSA 374-F:3, XI;
(f) enhance the opportunity to establish electricity prices in a manner that
narrows rate differentials between New Hampshire retail customers;
(g) effectuate the risk-sharing provisions of the Conformed Settlement
Agreement;
(h) allow any municipality to continue a process of establishment,
acquisition and expansion of plants according to the Conformed Settlement
Agreement and RSA Chapter 38; and
(i) enable the settlement, cessation and termination of litigation and
disputes between PSNH and the State.
Findings Regarding the Establishment of the RRB Costs
8. The $573 million of PSNH's costs described in the Transaction
Description and the PSNH Testimony and approved in the Settlement Orders(7)
are "RRB Costs" within the meaning of RSA 369-B:2, XIV, are reasonable, and
are eligible to be funded with the proceeds of the RRBs, in accordance with
this Finance Order.
Footnote 7
See supra notes 1, 2, 4 and 5 and accompanying text.
9. The up-front and ongoing transaction costs, the cost of any credit
enhancement associated with the RRB Transaction, the cost of any swap
agreement or hedge transaction related to the RRBs, and any other fee, cost
or expense in respect of the RRBs as described in the Transaction Description
and the PSNH Testimony, are "RRB Costs" within the meaning of RSA 369-B:2,
XIV, are reasonable, and are eligible to be financed through the issuance of
the RRBs, in accordance with this Finance Order.
10. All RRB Costs may be recovered through the RRB Charge, to be assessed
against and collected from all of PSNH's retail customers taking retail
electric service.
Findings Regarding the RRB Charge
11. The RRB Charge to be established, adjusted, maintained and collected
from all retail customers during the term that the RRBs are outstanding in
accordance with the terms of the Conformed Settlement Agreement, the
Settlement Orders and RSA Chapter 369-B, and as described in the Transaction
Description and the PSNH Testimony, is just and reasonable. This ultimate
finding is based upon the totality of evidence presented on the record of
this proceeding which supports the following specific findings. The RRB
Charge:
(a) will be a non-bypassable, nondiscriminatory, appropriately structured
charge that is reasonable and fair to all retail customer classes, lawful,
constitutional, limited in duration, consistent with the promotion of fully
competitive markets and consistent with the principles set forth in RSA 374-
F:3;
(b) will be a monthly usage-based charge to be stated on each retail
customer's monthly bill and will include a pro rata component of any back-up,
maintenance, emergency or other delivery or energy service fee;
(c) will be equitable, affordable and appropriate, will be substantially
consistent with the interdependent principles referenced in RSA 374-F:4, V;
will reasonably balance the competing interests of consumers and RRB
investors so that RRB investors will realize a reasonable return and retail
customers will not suffer any undue burden, and will be in the public
interest;
(d) will be in an amount necessary and sufficient to provide for the full
recovery and payment of the Total RRB Payment Requirements; and
(e) will be a component of the SCRC and will be required to implement the
RRB Transaction and the Conformed Settlement Agreement and enable the
benefits of the Conformed Settlement Agreement to inure to retail customers.
12. The procedures and methodologies set forth in this Finance Order for
adjusting the RRB Charge during the term that the RRBs are outstanding, as
set forth in the Transaction Description and the PSNH Testimony, are just and
reasonable, will serve to reconcile the actual RRB Charge collected with the
RRB Charge expected to have been collected during the relevant prior periods
in a manner such that the adjusted RRB Charge will be sufficient to provide
for the full recovery of the Total RRB Payment Requirements in accordance
with the Conformed Settlement Agreement, the Settlement Orders, RSA Chapter
369-B and this Finance Order, and comply with RSA 369-B:4, III.
13. The procedures and methodologies for ensuring that the RRB Charge is
collected from all retail customers that obtain retail electric service from
other electricity service providers, as described in the Transaction
Description and the PSNH Testimony, are reasonable and will be sufficient to
provide for the full recovery of the Total RRB Payment Requirements in
accordance with the Conformed Settlement Agreement, the Settlement Orders,
RSA Chapter 369-B and this Finance Order.
14. The procedures and methodologies set forth in this Finance Order to
establish charges for retail customers that purchase or otherwise obtain
back-up, maintenance, emergency or other delivery or energy service, and for
allocating such charges between the RRB Charge and other rates and charges,
as described in the Transaction Description and the PSNH Testimony, are
reasonable, and such charges are just and reasonable.
15. The range of rates projected for the RRB Charge, based on evidence in
the record concerning estimated interest costs, electricity costs, other
economic factors, and the procedures and methodologies for establishing rates
more generally set forth in the Conformed Settlement Agreement, the
Settlement Orders and RSA Chapter 369-B, are equitable, affordable and
appropriate and reasonably balance the competing interests of consumers and
RRB investors so that RRB investors will realize a reasonable return and
retail customers will not suffer any undue burden.
16. The assumptions and projections upon which the RRB Charge and
projections as to future RRB Charges are based, including but not limited to
the load forecast and the projection of wholesale electric prices, are
reasonable.
17. The Commission finds that the SCRC, averaged over all customers
(including the RRB Charge), will not exceed 3.40 cents/kWh.
Findings Regarding the Issuance of the RRBs
18. The issuance of the RRBs pursuant to this Finance Order is reasonable
and consistent with the public good, and will enhance and facilitate the
expeditious transition to competition, choice for retail customers, and
reductions in electric rates for all consumer classes consistent with the
near-term rate relief principle of RSA 374-F:3, XI, and will be supported by
the RRB Charge to be established pursuant to this Finance Order.
19. The terms and amounts of the RRBs, the terms of the RRB Transaction,
including without limitation the amount of necessary credit enhancement, the
uses of the proceeds from the issuance of the RRBs, and the up-front and
ongoing transaction costs, as described in the Transaction Description and
the PSNH Testimony or as may be required by the rating agencies and tax
authorities, are reasonable, and enhance and facilitate the expeditious
transition to competition, choice for retail customers, and reductions in
electric rates for all consumer classes consistent with the near term rate
relief principle of RSA 374-F:3, X, and will enable the RRBs to receive the
highest investment rating and therefore the lowest possible cost.
20. The RRB Transaction is necessary to achieve the overall reduction in
rates intended by the Conformed Settlement Agreement, the Settlement Orders
and RSA Chapter 369-B.
21. The RRBs will be non-recourse to PSNH and its assets, but will be
secured by a pledge of all right, title, and interest of the SPE in its RRB
Property and Other SPE Collateral.
22. The procedure for issuing the RRBs, including but not limited to the
establishment of interest rates for the RRBs and the amount of necessary
credit enhancement as described in the Transaction Description and the PSNH
Testimony or as may be required by the rating agencies and tax authorities,
the pricing of the RRBs, the offering of the RRBs in one or more series, each
of which may be offered in one or more classes having a different principal
amount, term, interest rate (whether fixed or variable) and schedule of
principal amortization, each based on the then-current market conditions in
order to achieve the lowest all-in cost possible, and the filing of Issuance
Advice Letter, is reasonable and will enable the RRBs to receive the highest
investment rating and therefore the lowest possible cost consistent with
then-current market conditions and the terms of this Finance Order.
23. The determinations by PSNH concerning the final terms and conditions of
the RRBs shall be subject to the oversight of the State Treasurer. The State
Treasurer's oversight shall be part of this docket and not a separate
proceeding. The State Treasurer's oversight over the terms and conditions of
the RRB issuance shall be governed by the terms of this Finance Order and,
pursuant to RSA 369-B:5, XI, shall not be governed by the provisions of RSA
Chapter 541 or RSA Chapter 541-A.
24. In accordance with RSA 369-B:5, IV and VI, RRBs issued pursuant to this
Finance Order will be treated as notes or bonds of a political subdivision of
the State for purposes of the interest and dividends tax imposed under RSA
Chapter 77, but will not constitute a debt or liability of the State or of
any political subdivision thereof, and will not constitute a pledge of the
full faith and credit of the State or any of its political subdivisions. In
accordance with RSA 369-B:5, V, the issuance of RRBs pursuant to this Finance
Order will not in any way obligate the State or any political subdivision
thereof to make appropriations for payment thereof.
Findings Regarding the Establishment of RRB Property
25. The RRB Charge constitutes "RRB Property" within the meaning of RSA 369-
B:2, XV and will represent a current and irrevocable vested property right
including, without limitation, the right, title and interest of PSNH or the
SPE in and to all revenues, collections, claims, payments, money or proceeds
of or arising from the RRB Charges authorized pursuant to this Finance Order
to recover the RRB Costs, and to all rights to obtain adjustments to the RRB
Charge pursuant to the terms of this Finance Order. As provided in RSA 369-
B:2, XV, "RRB Property" shall constitute a current and irrevocable vested
property right, notwithstanding the fact that the value of such property
right may depend upon electricity usage or the performance of certain
services.
26. Pursuant to RSA 369-B:6, II, the State of New Hampshire has pledged,
contracted and agreed with the owners of the RRB Property and holders of and
trustees for RRBs that neither the State, nor any of its agencies, including
the Commission, will limit, alter, amend, reduce or impair the RRB Charge,
RRB Costs, RRB Property, this Finance Order or any rights hereunder or
thereunder, or ownership thereof or security interest therein, until the
RRBs, including all principal, interest, premium, costs and arrearages
thereon, are fully met and discharged, unless adequate provision is made by
law for the protection of the owners, holders and trustees.
27. The RRB Charge imposed, and the RRB Property established, pursuant to
this Finance Order will be irrevocable, and the prohibition established in
RSA 369-B:3, II against any rescission, alteration, or amendment of this
Finance Order or the taking of any other action, directly or indirectly, to
revalue or revise the RRB Charge or the RRB Costs will be binding upon the
Commission and any successor thereto and is reasonable and will enhance and
facilitate the expeditious transition to competition, choice for retail
customers, and reductions in electric rates for all consumer classes
consistent with the near term rate relief principle of RSA 374-F:3, XI,
without creating any debt or obligation of the State or other adverse impacts
upon the State's finances or credit rating.
28. The owner of the RRB Property will have the right to recover an
aggregate amount equal to the Total RRB Payment Requirements until the RRBs
(or any refunding RRBs authorized by the Commission) have been discharged in
full through continued assessment, collection, and remittance of RRB Charges
from all retail customers taking retail electric service.
Findings Regarding the SPE and the Sale of the RRB Property to the SPE
29. The organization and capitalization of the SPE in accordance with the
Transaction Description and the PSNH Testimony or as may be required by the
rating agencies and tax authorities is reasonable, and will enhance and
facilitate the expeditious transition to competition, choice for retail
customers, and reductions in electric rates for all consumer classes
consistent with the near-term rate relief principle of RSA 374-F:3, XI, and
will enable the RRBs to receive the highest investment ratings and therefore
be issued at the lowest possible cost under then-current market conditions.
30. The SPE is a "financing entity" within the meaning of RSA 369-B:2, VI.
31. The sale and transfer of the RRB Property to the SPE pursuant to this
Finance Order is reasonable. In accordance with RSA 369-B:6, V, the sale and
transfer of the RRB Property by PSNH to the SPE pursuant to this Finance
Order shall be treated as an absolute transfer of all of PSNH's right, title,
and interest, as in a legal true sale, and not as a pledge or other
financing, of the RRB Property, in each case notwithstanding the following,
which are hereby determined not to affect such absolute transfer and legal
true sale: (i) any contrary treatment of such transfer for accounting, tax or
other purposes, (ii) certain indemnities (including mandatory redemption or
repurchase obligations related thereto) provided for in the RRBs or in the
RRB transaction documents, (iii) PSNH's collection of RRB Charges pursuant to
the Servicing Agreement authorized by this Finance Order, or (iv) PSNH's
providing any credit enhancement to the SPE as described in the PSNH
Testimony.
32. PSNH's application of the proceeds from the sale of the RRB Property to
the SPE and the capital structure and capitalization ratios for PSNH
resulting from such application, as described in the PSNH Testimony, are
reasonable and are reasonably required to enable PSNH to supply reliable
electric service in the future to New Hampshire ratepayers and its economy.
Findings Regarding Related Agreements and Accounting and Collections
33. The terms of the Servicing Agreement, including but not limited to the
annual Servicing Fee, the Administration Agreement, including but not limited
to the Administration Fee, and other agreements and documents required to be
executed by PSNH and the SPE to consummate the RRB Transaction and to
implement this Finance Order, as described in the Transaction Description and
the PSNH Testimony, are reasonable.
34. Based upon PSNH's accounting and billing information systems
capabilities, the proposed billing, collection and remittance of actual RRB
Charges is reasonable. To the extent estimation of RRB Charge collections is
required for remittance to the SPE, such estimation methodology will be
subject to rating agency approval and, prior to the issuance of RRBs, the
oversight of the State Treasurer.
35. The RRB Charge billing, collection, and remittance procedures imposed
upon any successor Servicer, or any approved TPS, are commercially reasonable
and comply with the provisions of RSA 369-B:4, IV.
36. PSNH's plan to account for, and ultimately credit to ratepayers, any
amounts remaining in the Collection Account, with the exception of the amount
remaining in the Capital Subaccount, after the RRBs are paid in full and the
Total RRB Payment Requirements have been discharged is reasonable and is in
accordance with RSA Chapter 369-B.
Findings Required by RSA 369-B:3, IV(b)
37. The RRBs authorized by this Finance Order are consistent with the
Settlement Orders.
38. This Finance Order is consistent with the conditions set forth in RSA
369-B:3, IV(b).
39. This Finance Order satisfies the conditions and requirements of RSA 369-
B:3, IV and the other requirements of RSA Chapter 369-B.
40. PSNH satisfactorily committed in writing by June 30, 2000 to all of the
conditions set forth in RSA 369-B:3, IV(b), including those regarding
customer savings included in RSA 369-B:3, IV(b)(3).
Findings Regarding Investment in NU Money Pool
41. It is in the public interest to permit PSNH to invest in the Northeast
Utilities ("NU") Money Pool once the write-offs associated with the Conformed
Settlement Agreement have been taken. However, if the Conformed Settlement
Agreement is terminated, it is in the public interest for such restriction to
remain in effect until such time as the Commission orders otherwise.
Accordingly, it is in the public interest for the restriction on such
investment that was extended by the Commission in PSNH's most recent
financing case, Docket No. DE 00-016, in Order No. 23,416, issued March 1,
2000, to terminate upon the taking of such write-offs.
Findings Regarding Application of Restructuring Payments by NAEC
42. Utilizing the proceeds received from PSNH in connection with the
restructure of the Seabrook Power Contract, it is in the public interest to
permit NAEC to repay up to $135 million in First Mortgage Bonds and up to
$200 million in Term Notes to most efficiently reduce its costs, and to issue
a dividend to NU or repurchase NAEC common stock from NU.
ORDERS AND APPROVALS
PSNH respectfully requests that the Commission include in the Finance Order
the following Orders and Approvals. Capitalized terms used in this
Attachment C and not otherwise defined are used as defined in the Transaction
Description attached as Attachment A to the accompanying Motion.
Overall Approval
1. PSNH is authorized to consummate the RRB Transaction upon the authority
granted in this Finance Order without further action or order by this
Commission.
2. The issuance of this Finance Order, the implementation of the
securitization and the consummation of the RRB Transaction are consistent
with the public good, will result in benefits to retail customers that are
substantially consistent with the principles contained in RSA 374-F:3 and RSA
369-A:1, X, with RSA 369-A:1, XI and with RSA Chapter 369-B, will permit any
RRBs issued pursuant to the RRB Transaction to be traded at favorable rates
on the existing securitization market in accordance with 1999 N.H. Laws
289:3, I, which the Commission interprets to mean sold at favorable rates
into the capital markets, and are hereby approved. This Finance Order is
approved under the authority of and issued pursuant to RSA Chapter 369-B.
3. The terms of this Finance Order shall be construed consistently with the
provisions of RSA Chapter 369-B.
4. This Finance Order and the RRB Charge authorized to be imposed and
collected pursuant to this Finance Order shall be irrevocable and neither
this Commission nor any successor thereto shall take any action to rescind,
alter or amend this Finance Order or otherwise to, directly or indirectly,
revalue or revise for ratemaking purposes the RRB Costs, or the costs of
providing, recovering, financing, or refinancing the RRB Costs, determine
that such RRB Charge is unjust or unreasonable, or in any way reduce or
impair the value of the RRB Property either directly or indirectly by taking
such RRB Charge (other than the portion of such RRB Charge constituting a
servicing fee payable to PSNH) into account when setting other rates for
PSNH, nor shall the amount of revenues arising with respect to the RRB Charge
be subject to reduction, impairment, postponement or termination.
Approval Regarding the Establishment of the RRB Costs
5. The establishment of the $573 million of PSNH's costs, as detailed in
this Finance Order and described in the Transaction Description and the PSNH
Testimony and approved in the Settlement Orders(8) as "RRB Costs" within the
meaning of RSA 369-B:2, XIV, including but not limited to the up-front and
ongoing transaction costs, the cost of any credit enhancement associated with
the RRB Transaction, the cost of any swap agreement or hedge transaction
related to the RRBs, and any other fee, cost or expense in respect of the
RRBs as described in the Transaction Description and the PSNH Testimony, is
reasonable, consistent with the public good, and is hereby approved.
Footnote 8
See supra notes 1, 2, 4 and 5 and accompanying text.
Approvals Regarding the RRB Charge
6. The RRB Charge to be established, adjusted, maintained and collected
from all retail customers taking retail electric service during the term that
the RRBs are outstanding in accordance with the terms of the Conformed
Settlement Agreement, the Settlement Orders, RSA Chapter 369-B, the
Transaction Description, the Findings and the PSNH Testimony is just and
reasonable and is hereby approved.
7. The initial RRB Charge, as determined in accordance with the Transaction
Description and the PSNH Testimony, as modified by the Settlement Orders and
RSA Chapter 369-B, and to be filed in the Issuance Advice Letter,
substantially in the form of Attachment MAE-1 to the Englander Testimony, is
just and reasonable and is hereby approved. Such initial RRB Charge will be
effective upon such filing.
8. The procedures and methodologies set forth in this Finance Order for
adjusting the RRB Charge during the term that the RRBs are outstanding, as
described in the Transaction Description and the PSNH Testimony, comport with
the terms of RSA Chapter 369-B, are just and reasonable and are hereby
approved.
9. The procedures and methodologies set forth in this Finance Order for
ensuring that the RRB Charge is collected from all retail customers that
obtain retail electric service from other electricity service providers, as
described in the Transaction Description and the PSNH Testimony, are just and
reasonable and are hereby approved.
10. The procedures and methodologies set forth in this Finance Order to
establish charges for retail customers that purchase or otherwise obtain
back-up, maintenance, emergency or other delivery or energy service, and for
allocating such charges between the RRB Charge and other rates and charges,
as described in the Transaction Description and the PSNH Testimony, are
reasonable, and such charges are just and reasonable, and such procedures,
methodologies and charges are hereby approved.
11. The SCRC, averaged over all customers (including the RRB Charge), will
not exceed 3.40 cents/kWh.
Approvals Regarding the Issuance of the RRBs
12. Subject to paragraph 14 below, the issuance of the RRBs substantially in
accordance with the Transaction Description and the PSNH Testimony, including
but not limited to the terms and amounts of the RRBs, the expected and legal
final maturities of the RRBs of up to 12 and 14 years respectively, the up-
front and ongoing transaction costs expected to be incurred in issuing the
RRBs, the costs of any credit enhancements, and the uses of the proceeds from
the issuance of the RRBs, is reasonable and consistent with the public good,
and is hereby approved.
13. Subject to paragraph 14 below, the final terms and conditions of the
RRBs authorized by this Finance Order, including but not limited to the
schedule of principal amortization, credit enhancement, frequency of
principal or interest payments, the interest rates on the RRBs and manner of
setting such interest rates (fixed or variable), redemption features, the
manner of sale of the RRBs, the number and determination of credit ratings
and all other terms and conditions of the RRBs, the approval of final
transaction documents, and certain up-front and ongoing transaction costs as
set forth in the PSNH Testimony, shall, to the extent consistent with the
provisions of this Finance Order, be determined by PSNH at the time RRBs are
priced and after input from the rating agencies, tax authorities, the
underwriters, and the State Treasurer. This procedure for issuing the RRBs,
based on current market conditions and directed to achieve the lowest all-in
cost possible, including the filing of the Issuance Advice Letter, in
accordance with this Finance Order is reasonable and consistent with the
public good, and is hereby approved.
14. PSNH is authorized to consummate the issuance of the RRBs in one or more
series upon such terms as may be established by or on behalf of PSNH at the
time of issuing such securities, so long as (a) the all-in cost of the RRBs,
calculated in accordance with Exhibit 1 attached to this Finance Order, is at
least 100 basis points less than PSNH's Pre-Tax Revenue WACC (as defined in
Exhibit 2 attached to this Finance Order) as of the date that the RRBs are
priced, and (b) the weighted average life of all series of RRBs, calculated
in accordance with Exhibit 3 attached to this Finance Order, is not less than
5 years and not more than 10 years.
15. The determinations by PSNH concerning the final terms and conditions of
the RRBs shall be subject to the oversight of the State Treasurer. PSNH
shall cooperate with the State Treasurer and her advisers throughout the
entire process of issuing the RRBs, including but not limited to providing
the State Treasurer and her advisers with drafts of all documents pertaining
to the issuance of the RRBs and an opportunity to comment on such documents
as well as such other information and materials as the State Treasurer or her
advisers may reasonably request.
16. If at any time (but not later than two business days prior to the
closing for the RRBs) the State Treasurer concludes that PSNH has failed to
exercise fiscal prudence or to achieve the lowest overall cost for the RRBs,
the State Treasurer shall promptly notify PSNH in writing of such conclusion
(the "State Treasurer's Conclusion"). Such written notice shall include in
reasonable detail the basis for the State Treasurer's Conclusion. Such
notification by the State Treasurer to PSNH shall not suspend the
effectiveness of this Finance Order.
17. If the State Treasurer (i) shall have delivered to PSNH a written notice
pursuant to paragraph 16 above and (ii) concludes that PSNH caused the RRBs
to be issued without adequately addressing the State Treasurer's Conclusion,
the State Treasurer may, within 90 days after RRB issuance, file with the
Commission a written report to such effect. Such written report shall
include in reasonable detail the basis for the State Treasurer's Conclusion.
Such filing by the State Treasurer with the Commission shall not suspend the
effectiveness of this Finance Order.
18. Upon receipt of a written report from the State Treasurer delivered
pursuant to paragraph 17 above, the Commission may conduct such further
proceedings as it deems appropriate to determine if, as a result of PSNH's
failure to adequately address the State Treasurer's Conclusion, PSNH failed
to exercise fiscal prudence or to achieve the lowest overall cost for the
RRBs. If the Commission so determines that, as a result of such failure,
PSNH failed to exercise fiscal prudence or to achieve the lowest overall cost
for the RRBs, the Commission may reduce Part 3 of the SCRC by the Present
Value (as defined in the Conformed Settlement Agreement) of the excess costs,
if any, that the Commission determines were incurred as a result of such
failure. Such further proceedings shall not suspend the effectiveness of
this Finance Order.
19. In accordance with RSA 369-B:5, IV and VI, RRBs issued pursuant to this
Finance Order will be treated as notes or bonds of a political subdivision of
the State for purposes of the interest and dividends tax imposed under RSA
Chapter 77, but will not constitute a debt or liability of the State or of
any political subdivision thereof, and will not constitute a pledge of the
full faith and credit of the State or any of its political subdivisions. In
accordance with RSA 369-B:5, V, the issuance of RRBs pursuant to this Finance
Order will not in any way obligate the State or any political subdivision
thereof to make appropriations for their payment.
Approvals Regarding the Establishment of the RRB Property
20. The creation and establishment for the benefit of PSNH (or any assignee
in accordance with the terms of this Finance Order) of the RRB Property, are
consistent with the public good, are just and reasonable, and are hereby
approved. Such RRB Property will be "RRB Property" within the meaning of RSA
369-B:2, XV, and will be entitled to all treatment and rights accorded to RRB
Property under RSA Chapter 369-B.
21. The RRB Property established by this Finance Order will represent a
continuously existing current and irrevocable vested property right in
accordance with the provisions of RSA 369-B:6, I for all purposes, including
for the purpose of contracts relating to or securing the RRBs, whether or not
the revenues and proceeds arising with respect to the RRB Charge have accrued
at the time of this Finance Order, and will include, without limitation, the
right, title, and interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from or constituting (a) the RRB
Costs established by this Finance Order including such amounts established in
the Issuance Advice Letter, (b) the RRB Charge authorized by this Finance
Order including the initial RRB Charge set forth in the Issuance Advice
Letter as may be adjusted from time to time in order to generate amounts
sufficient to discharge an amount equal to the sum of the Periodic RRB
Payment Requirements, for the period which such RRB Charge will be billed, as
found and authorized herein, and (c) all rights to obtain periodic
adjustments and non-routine adjustments to the RRB Charge in accordance with
the True-Up Mechanism.
22. The RRB Property created and established by this Finance Order will
constitute a current and irrevocable vested property right of the owner
thereof or its assignee or transferee, which continuously exists for all
purposes with all of the rights and privileges of RSA Chapter 369-B until the
owner or its assignee or transferee has received RRB Charges sufficient to
discharge the Total RRB Payment Requirements in full. Such property right
may not be limited, altered, amended, reduced, or impaired by any subsequent
actions of the State, any of its agencies, including the Commission, PSNH or
any third party, and shall, to the fullest extent permitted by law, be
enforceable against PSNH, its successors and assigns, and all other third
parties, including judicial lien creditors, claiming an interest therein by
or through PSNH or its successors or assigns. Nothing in this paragraph
shall preclude such limitation, alteration, amendment, reduction, or
impairment if and when adequate provision shall be made by law for the
protection of the owner of the RRB Property or its assignee or transferee.
Approvals Regarding the Establishment of the SPE
23. The establishment of a bankruptcy-remote SPE in accordance with the
Transaction Description, to which the RRB Property subject to this Finance
Order is to be sold, is consistent with the public good and is hereby
approved.
24. The initial capitalization by PSNH of the SPE, in accordance with the
Transaction Description and the PSNH Testimony or as may be required by the
rating agencies and tax authorities and subject to prevailing market
conditions at the time the RRBs are priced and input from the State
Treasurer, is consistent with the public good, and is hereby approved.
Approvals Regarding the Sale and Assignment of the RRB Property
25. The sale or assignment, without recourse, by PSNH of all of its right,
title and interest in the RRB Property to the SPE, and the acquisition of
such RRB Property by the SPE, in accordance with the Transaction Description
and the PSNH Testimony is consistent with the public good and is hereby
approved.
26. The sale by PSNH of the RRB Property to the SPE in accordance with the
Transaction Description will be pursuant to and governed by RSA 369-B:6, III
and V, and accordingly will be treated as an absolute transfer of all of
PSNH's rights, title, and interest, as a legal true sale, and not as a pledge
or other financing, of the RRB Property, in each case notwithstanding the
following, which are hereby determined not to effect such absolute transfer
and legal true sale: (i) any contrary treatment of such transfer for
accounting, tax or other purposes, (ii) certain indemnities (including
mandatory redemption or repurchase obligations related thereto) provided for
in RRBs or in the RRB Transaction Documents, (iii) PSNH's collection of the
RRB Charge pursuant to the Servicing Agreement authorized by this Finance
Order, or (iv) PSNH's providing any credit enhancement to such SPE as
described in the Transaction Description and the PSNH Testimony.
27. Upon the effectiveness of the sale and assignment of the RRB Property,
the SPE, as owner of the RRB Property, and the holders of the RRBs, or any
trustee acting therefor, will be entitled to rely on and shall be entitled to
the benefit of the pledge, contract and agreement of the State of New
Hampshire set forth in RSA 369-B:6, II, and the SPE is hereby authorized to
include this pledge, contract, agreement and acknowledgement of the State in
any contracts with current or prospective holders, or any trustee therefor,
of the RRBs, or in any documentation relating to the RRBs.
28. Upon the effectiveness of the sale and assignment of the RRB Property,
(i) the SPE shall have all of the rights originally held by PSNH with respect
to such RRB Property, including, without limitation, the right to exercise
any and all rights and remedies, including the right to authorize the
Servicer to disconnect service (including backup service) to the extent
permitted by RSA 369-B:4, IV, and applicable regulations, to assess and
collect any amounts payable by any customer in respect of such RRB Property,
notwithstanding any objection or direction to the contrary by PSNH, as
initial Servicer, or any successor Servicer, and (ii) any payment by any
customer to the SPE shall discharge such customer's obligations in respect of
such RRB Property to the extent of such payment, notwithstanding any
objection or direction to the contrary by the Servicer.
29. Upon the effectiveness of the sale and assignment of the RRB Property,
PSNH or any successor Servicer shall not be entitled to recover RRB Charges
other than for the benefit of the holders of the RRBs in accordance with
PSNH's duties as Servicer of such RRB Property as authorized by this Finance
Order.
Approvals Regarding the Establishment of a Statutory Security Interest in the
RRB Property
30. Pursuant to RSA 369-B:7, VIII, there shall exist a statutory first
priority lien on all RRB Property then existing or thereafter arising
pursuant to the terms of this Finance Order. The establishment of such lien
in accordance with RSA Chapter 369-B is consistent with the public good, and
is hereby approved.
31. Such lien shall secure all obligations, then existing or subsequently
arising, to the holders of RRBs, the trustee or representative for such
holders and the SPE and shall arise by operation of law automatically without
any action on the part of PSNH or any other person. Such lien shall be
valid, perfected, and enforceable upon the effectiveness of this Finance
Order without any further public notice. PSNH does expect to file financing
statements with respect to the RRB Property which will constitute a
protective filing pursuant to RSA 369-B:7, VIII. If the RRB Property subject
to this Finance Order is transferred and sold to more than one SPE, any
collections in respect of the undivided beneficial interests in RRB Charges
related to such RRB Property will be allocated pro rata among such undivided
beneficial interests to give effect to the pari passu first priority
statutory liens on the SPE's portion of the RRB Property subject to this
Finance Order.
32. The pledge by the SPE of all of its interest in the RRB Property and the
Other SPE Collateral, to secure RRBs issued in connection with such pledge,
is consistent with the public good and is hereby approved.
Approvals Regarding Third Party Suppliers
33. Any TPS that may be permitted to collect RRB Charges shall (i) meet the
creditworthiness criteria to be established by the Commission and, at a
minimum, the criteria set forth and approved in this Finance Order; and (ii)
comply with the billing, collection and remittance procedures and information
access requirements set forth in the PSNH Testimony and such other procedures
contained in the RRB Transaction documents as the rating agencies may
require.
34. The Commission will not authorize a TPS to bill and collect the RRB
Charge for remittance to PSNH as Servicer (or any successor Servicer), unless
(i) such TPS agrees to remit the full amount of RRB Charges it bills to
retail customers, regardless of whether payments are received from such
retail customers, within 15 days of its or PSNH's (or any successor
Servicer's) bill for such charges, (ii) such TPS shall provide PSNH (or any
successor Servicer) with total monthly kWh usage information in a timely
manner for the Servicer to fulfill its obligations, as such information is
the basis of such remittance, and (iii) PSNH (or any successor Servicer) will
be entitled, within seven days after a default by the TPS in remitting any
RRB Charges billed, to assume responsibility for billing all charges for
services provided by PSNH (or any successor Servicer), including the RRB
Charges, or to switch responsibility to a third party. In addition, if and
so long as such TPS does not maintain at least a "triple-B" long-term
unsecured credit rating from Moody's Investors Service or Standard & Poor's
Rating Services, such TPS shall maintain, with the Servicer or as directed by
the Servicer, a cash deposit or comparable security equal to one month's
maximum estimated collections of RRB Charges, as agreed upon by PSNH (or any
successor Servicer) and the TPS. In the event of a default in the remittance
of RRB Charges by a TPS, such amount will be included in the periodic
adjustment of the RRB Charge as described in the PSNH Testimony.
Approval Regarding Swap and Hedge Transactions
35. Subject to paragraph 14 above, the implementation of swap agreements or
other hedge transactions in connection with the RRBs consistent with the
Transaction Description and the PSNH Testimony is consistent with the public
good and is hereby approved. Interest payments made to a counterparty of a
swap agreement or hedge transaction, and the costs of implementing such
transaction, shall constitute "RRB Costs" within the meaning of RSA 369-B:2,
XIV, shall be calculated in and recovered through the RRB Charge, and shall
be entitled to all the rights and protections under this Finance Order and
RSA Chapter 369-B as other RRB Costs, just as if the RRBs were fixed rate
instruments and these amounts were directly due to holders of the RRBs.
Approvals Regarding Servicing and Collection Procedures, and Accounts
36. The Servicing Agreement, substantially consistent with the description
of such agreement in the Transaction Description and the PSNH Testimony,
under which PSNH will agree to continue to operate its distribution system to
provide service to retail customers, to bill and collect RRB Charges for the
benefit and account of such SPE or its assigns, and to account for and remit
these amounts to or for the account of such SPE or its assigns, including the
amount of the Servicing Fee imposed thereunder, is reasonable and consistent
with the public good, and is hereby approved. Pursuant to RSA 369-B:6, IV,
PSNH shall enter into the Servicing Agreement, and any successor Servicer
shall be required to enter into a similar Servicing Agreement.
37. The RRB Charge billing, collection and remittance procedures, as
described in the Transaction Description and the PSNH Testimony, subject to
rating agency approval to the extent estimation of RRB Charge collections is
required, are reasonable, consistent with the public good and are hereby
approved.
38. In the event of a default by a Servicer in remittance of RRB Charges,
the Commission will, in accordance with RSA 369-B:7, VI and VIII, upon
application by (i) the trustee or holders of the RRBs, (ii) the trustee for
the SPE or its assignees, or (iii) pledgees or transferees of the RRB
Property, order the sequestration and payment to or for the benefit of the
pledgees or transferees of the revenues arising with respect to the RRB
Property.
39. In the event of a default by a Servicer under any Servicing Agreement
with respect to RRBs, the SPE or the trustees or representatives of the
holders of RRBs may appoint a successor Servicer for the RRB Property,
subject to the approval of the Commission, who shall promptly assume billing
responsibilities for RRB Charges. The Commission shall act on an expedited
basis within 30 days to approve such successor Servicer. Such successor
Servicer shall assume all rights and obligations under RSA Chapter 369-B and
this Finance Order as though it were the Servicer at the time such RRBs were
issued.
40. The Servicer will allocate amounts collected from each retail customer
on a pro rata basis among the SCRC and the other individual rate components
identified in Section V of the Conformed Settlement Agreement. Such amounts
so allocated to the SCRC shall, in accordance with the Conformed Settlement
Agreement, in turn be allocated pro rata among the RRB Charge, or Part 1 of
the SCRC, and to any remaining portion of the SCRC not the subject of a
finance order (i.e., Parts 2 and 3 of the SCRC, as described in the Conformed
Settlement Agreement).
41. A successor Servicer may not replace PSNH as Servicer in any of its
servicing functions with respect to the RRB Charge and the RRB Property
authorized by this Finance Order unless (i) such replacement is requested by
RRB holders, (ii) such replacement will not cause the then current credit
ratings on RRBs to be withdrawn or downgraded, or (iii) the successor
Servicer is the successor to PSNH's distribution system.
42. Regardless of who is responsible for billing of the RRB Charge, the RRB
Charge will be assessed against and collected from all PSNH's retail
customers taking retail electric service. Any retail customer will continue
to be responsible for payment of the RRB Charge billed, but not yet remitted,
to the Servicer to the extent such customer has not paid the RRB Charge
billed to it.
43. In the event of a failure of any retail customer to pay the RRB Charge,
the Servicer or any approved TPS is authorized to disconnect retail electric
service to such customer in accordance with RSA 369-B:4, IV and applicable
regulations.
44. PSNH, as initial Servicer, or any successor Servicer, shall be entitled
to an annual Servicing Fee. The Commission approves the Servicing Fee as
follows: As initial Servicer, PSNH will be paid a Servicing Fee equal to
0.25% of the outstanding principal balance of the RRBs, which fee will be
included in the calculation of the RRB Charge. A successor Servicer will be
paid a Servicing Fee equal to no more than 1.5% of the outstanding principal
balance of the RRBs, if such successor Servicer is not billing the RRB Charge
in conjunction with other charges. If the successor Servicer is billing the
RRB Charge in conjunction with other electric service charges, then the
Servicing Fee payable to such successor Servicer will be 0.25% of the
outstanding principal balance (equal to the fee payable to PSNH as initial
Servicer).
45. PSNH, as initial Servicer, may not voluntarily resign its duties as
Servicer without prior written approval of the Commission. In any event,
PSNH shall not resign as Servicer if such resignation would result in the
reduction or withdrawal of the credit rating for the RRBs.
46. The establishment and procedures for maintenance of the Collection
Account, the General Subaccount, the Capital Subaccount, and the Reserve
Subaccount in accordance with the Transaction Description and the PSNH
Testimony are reasonable, consistent with the public good and are hereby
approved.
47. Any amounts accounted for in the Reserve Subaccount, which represent
collections in excess of the fully funded credit enhancement reserves, at the
time that PSNH calculates a periodic RRB Charge adjustment, will be
incorporated in such adjustment, in accordance with RSA 369-B:4, III. PSNH,
as initial Servicer (or any successor Servicer), shall account for, and
ultimately credit to retail customers, any amounts remaining in the
Collection Account after the RRBs are paid in full, such as any
overcollateralization amounts, including interest earnings thereon, or RRB
Charge collections that remain after the Total RRB Payment Requirements have
been discharged. Such amounts will be released to the SPE, upon retirement
of the RRBs and discharge of the Total RRB Payment Requirements. These
amounts will be credited to retail customers through a subsequent ratemaking
proceeding.
Approval Regarding Municipalization
48. Pursuant to RSA 369-B:4, VIII, in the event of the municipalization of a
portion of PSNH's service territory, the Commission shall, in matters over
which the Federal Energy Regulatory Commission does not have jurisdiction, or
has jurisdiction but chooses to grant jurisdiction to the State, determine,
to a just and reasonable extent, the consequential damages such as stranded
investment in generation, storage, or supply arrangements resulting from the
purchase of plant and property from PSNH and RRB costs, and shall establish
an appropriate recovery mechanism for such damages. Any such damages shall
be established, and shall be allocated between the RRB Charge and PSNH's
other rates and charges, in a just and reasonable manner.
Approval Regarding Administration Agreement
49. The Administration Agreement, substantially consistent with the
description of such agreement in the Transaction Description and the PSNH
Testimony, under which PSNH shall perform administrative services and provide
facilities for the SPE to ensure that it is able to perform such day-to-day
operations under the RRB Transaction documents, including the amount of the
Administration Fee (which shall be an annual amount not to exceed 0.01% of
the original principal balance of the RRBs and which will be included in the
calculation of the RRB Charge), is reasonable and consistent with the public
good, and is hereby approved.
Approval Regarding Financial Accounting Treatment
50. The financial accounting treatment proposed by PSNH for the RRBs and the
RRB transaction, as described in the Transaction Description and the PSNH
Testimony, is reasonable, consistent with the public good, and is hereby
approved.
Approvals Regarding Reports
51. At least three business days in advance of the RRB issuance, PSNH shall
file with the Commission, for informational purposes, an Issuance Advice
Letter setting forth the final structural details of the RRBs, including the
repayment terms (in accordance with the expected amortization schedule), the
initial RRB Charge, the amount necessary for credit enhancement, the
identification of the SPE, and the transaction costs of issuance. Such filing
shall not be a condition to the effectiveness of this Finance Order or the
issuance of the RRBs.
52. Within 90 days following the RRB issuance, and within 60 days of the end
of each fiscal quarter thereafter until the proceeds have been applied in
full, PSNH shall file with the Commission a report showing the use of RRB
proceeds in compliance with this Finance Order. Such filing shall not be a
condition to the effectiveness of this Finance Order or the issuance of RRBs.
Approval Regarding Conditions Required Under RSA 369-B:3, IV(b)
53. In accordance with RSA 369-B:3, IV(b), this Finance Order is subject to
the following conditions:
(1) (A) From Competition Day until initial transition service end day
(as defined in RSA 369-B:2, VII), PSNH shall supply transition service and
default service in its retail electric service territory. After initial
transition service end day, any provider or providers of transition service
shall have been chosen through a competitive bid process, administered by the
Commission, to provide such service. The Commission may, if it finds it to
be in the public interest, divide the competitive bid process into multiple
categories or multiple competitive bids;
(B) (i) Transition service for residential customers, street
lighting customers, and general delivery service rate G customers shall be
available until 24 months after initial transition service end day. From
Competition Day until initial transition service end day, the price of
transition service for these customers shall be $0.044 per kilowatt-hour.
From initial transition service end day to 12 months after initial transition
service end day, the price of transition service for these customers shall be
$0.044 per kilowatt-hour, or the competitively bid price for transition
service, whichever is less. From 12 months after initial transition service
end day to 24 months after initial transition service end day, the price of
transition service for these customers shall be $0.046 per kilowatt-hour, or
the competitively bid price for transition service for these customers,
whichever is less. If the competitively bid price exceeds these fixed
prices, the differences shall be reconciled for these customers in the manner
prescribed in the Original Settlement Agreement;
(ii) At the end of the transition service period, up to 25
percent of the residential customers, street lighting customers, and general
delivery service rate G customers who have not chosen a competitive supplier
may be assigned randomly to registered competitive suppliers other than the
transition service supplier or suppliers, if the Commission finds such random
assignment to be in the public interest. The Commission shall develop
procedures and regulations for this assignment process. Any random
assignment must be affirmatively approved by an individual customer;
(C) Transition service for all other customers shall be available
until 12 months after initial transition service end day. From Competition
Day to initial transition service end day, the price of transition service
for these customers shall be $0.044 per kilowatt-hour. From initial
transition service end day to 12 months after initial transition service end
day, the price of transition service for these customers shall be the
competitively bid price for transition service;
(D) Any difference between the price of transition service from
Competition Day to initial transition service end day and PSNH's actual,
prudent and reasonable costs of providing such power shall first be separated
between the 2 groups of customers described in RSA 369-B:3, IV(b)(1)(B) and
(b)(1)(C), used first to offset any differences described in RSA 369-B:3,
IV(b)(1)(B), and the net then reconciled for each group of customers either
by changing the Recovery End Date, or by decreasing the SCRC, as the
Commission finds to be in the public interest;
(E) The Commission shall retain the authority to reject any or all
bids for transition service at its sole discretion if it finds such action to
be in the public interest. Except as specifically provided in this section,
the Commission shall not accept any bid or implement any pricing strategy for
transition service that creates any deferrals;
(F) The selection of a provider or providers of default service
prior to 24 months after initial transition service end day may be combined
with the selection of a provider or providers of transition service to the
extent that the Commission finds it to be in the public interest;
(2) No amount shall be securitized which was not listed as part of the
$688,000,000 proposed for securitization in the First Settlement Order, as
reduced by any subsequent amortization;
(3) Customer savings shall be not less than the total amount of
$450,000,000, excluding savings from rate reduction financing and merger
savings, including the $367,000,000 contained in the Original Settlement
Agreement, and the $6,200,000 resulting from the settlement of issues
pertaining to New Hampshire Electric Cooperative, Inc. A commitment by PSNH
to all of the following actions shall be deemed to satisfy this condition:
(A) PSNH shall credit customers with the higher return associated
with accumulated deferred income taxes (ADITs) as proposed in PSNH's May 1,
2000 filing;
(B) PSNH shall credit customers with the value derived from using
its own assets to provide transition service for a period of 9 months;
(C) PSNH shall extend from 30 months to 33 months the period
during which the delivery service charge, exclusive of Hydro Quebec
transmission support payments, is fixed at 2.8 cents per kilowatt-hour;
(D) PSNH shall absorb the first $7,000,000 of difference of costs
that results in the event that transition service costs during the 12 months
following the initial transition service end day exceed the transition
service price for that 12 months, as provided in RSA 369-B:3,IV(b)(1)(B)(i);
(E) PSNH shall reduce the maximum amount of necessary and prudent
costs associated with the issuance of and closing on the securitization
financing and any premiums associated with the retirement of debt and
preferred stock from these proceeds that may be recovered from $17,000,000 to
$15,000,000. PSNH shall include in its costs the first $700,000 of the costs
of the office of the state treasurer related to reviewing and issuing the
RRBs;
(F) PSNH agrees to move the Recovery End Date to 1 month earlier
than it would otherwise be; and
(G) PSNH agrees that if Competition Day has not occurred by
October 1, 2000, then effective October 1, 2000 PSNH shall temporarily reduce
its current effective total rates (base rates plus FPPAC rates) by 5 percent
across the board until either Competition Day or April 1, 2001, whichever
occurs earlier.
(4) In the event that PSNH or its parent company is acquired or
otherwise sold or merged:
(A) Such merger, acquisition, or sale shall be subject to the
jurisdiction of the Commission under RSA Chapter 369, RSA Chapter 374, RSA
Chapter 378 or other relevant provisions of law, and the merger, acquisition,
or sale shall be approved only if it is shown to be in the public interest;
(B) In recognition of the extraordinary benefits provided to PSNH
from rate reduction financing, should PSNH or its parent company be acquired
or otherwise sold or merged, such merger, acquisition or sale shall be
subject to the jurisdiction of the Commission under the standard set forth in
the Original Settlement Agreement. The Commission may approve such a merger
if such approval results in the receipt by PSNH customers of a just and
reasonable amount of the cost savings that result from such merger,
acquisition or sale.
(C) No acquisition premium paid by an acquiring company for the
assets or securities of any acquired company, resulting from any such merger,
acquisition or sale, may in any way increase rates at any time from what they
would have been without the acquisition premium;
(5) The delivery service charge, exclusive of the Hydro Quebec
transmission support payments, shall be fixed for a period of 33 months from
Competition Day at $0.028 per kilowatt-hour;
(6) The total system benefits charge shall be fixed at $0.002 per
kilowatt-hour for 33 months from Competition Day divided between low-income
assistance and energy efficiency/conservation programs. In the event that
the Commission finds that a significant amount of unencumbered dollars have
accumulated in either program, and are not needed for program purposes, the
Commission shall refund such unencumbered dollars to ratepayers in a timely
manner;
(7) All currently existing opportunities shall be continued for retail
customers to generate or acquire electricity for their own use, other than
through retail electric service, without an exit fee;
(8) To the maximum extent allowed by federal law, non-discriminatory,
open access to PSNH's transmission system shall be available to customers,
electricity suppliers, marketers, aggregators, and municipal electric
utilities, with charges based only on rates set by federal regulations, plus
the actual cost of service for any services not subject to federal price
regulation plus, for retail customers, applicable SCRCs, RRB Charges, systems
benefit charges, and taxes;
(9) The SCRC, averaged over all customers, shall not exceed $0.0340 per
kilowatt-hour. Any changes in the delivery service charge, SCRC, transition
service charge, systems benefit charge, or any other charge between the
estimated amounts in the First Settlement Order and 24 months after
Competition Day shall be applied as an equal change in the cost per kilowatt-
hour for all rate classes to which they apply;
(10) The Commission shall not order changes in the total rates of
customers taking service under special contracts approved pursuant to RSA
378:18 for the duration of those special contracts in effect as of May 1,
2000. Special contract customers selecting option 2 of the Original
Settlement Agreement shall have the energy charges under the contract reduced
by the initial transition service price;
(11) During any sale of electricity generation assets required by this
settlement, neither PSNH, nor any affiliate of PSNH, nor any company that
would become an affiliate of PSNH if an announced merger, acquisition or sale
were to be consummated, may bid for those assets;
(12) During any competitive bid process to determine a provider or
providers of transition service, or of default service to any customer
belonging to a rate class that at the time of service is eligible to receive
transition service, neither PSNH, nor any affiliate of PSNH, nor any company
that would become an affiliate of PSNH if an announced merger, acquisition or
sale were to be consummated, may bid to provide such service;
(13) The Commission shall administer the liquidation of any electricity
generation assets required to be sold by the settlement. Any sale of assets
located in the state of New Hampshire that are administered by the Commission
pursuant to this paragraph shall be conducted in this state. The Commission
shall select the independent, qualified asset sale specialist who will
conduct the asset sale process. PSNH shall be allowed to comment prior to
the selection of any such specialist;
(14) The Commission shall administer any competitive bid process for
transition service or default service required by the settlement;
(15) Subject to the approval of the Federal Energy Regulatory
Commission, in the event that the Commission either rejects a proposed sale
of Seabrook, or fails to act on such application within 180 days after NAEC's
proposed sale application is filed with the Commission, and the failure of
the sale is through no fault of NU or PSNH, NAEC's return on equity shall be
increased from 7 percent to 150 basis points more than the average 10-year
Treasury bond yield for the preceding 6 months, but not less than 7 percent
nor more than 11 percent, and then readjusted accordingly at the end of every
6 month period; and
(16) This Finance Order shall not be final or effective until PSNH and
NU have agreed to dismiss with prejudice on Competition Day PSNH's and NU's
claims and causes of action in all pending litigation associated with the
implementation of RSA Chapter 374-F, including civil action No. 97-97-JD (New
Hampshire) / 97-121 L (Rhode Island).
Approval Regarding Investment in NU Money Pool
54. PSNH is authorized to invest in the NU Money Pool once the write-offs
associated with the Conformed Settlement Agreement have been taken, and,
accordingly, the restriction on such investment that was extended by the
Commission in PSNH's most recent financing case, Docket No. DE 00-016, in
Order No. 23,416, issued March 1, 2000, shall terminate upon the taking of
such write-offs.
Approval Regarding Application of Restructuring Payments by NAEC
55. Pursuant to Section VIII.K of the Conformed Settlement Agreement, NAEC
is authorized to repay up to $135 million in First Mortgage Bonds and up to
$200 million in Term Notes to most efficiently reduce its costs, and to issue
a dividend to NU or repurchase NAEC common stock from NU.
EXHIBIT 1
ALL-IN COST(1)
All-in Cost computation:
The all-in cost will be the internal rate of return of the series of
cashflows beginning with the initial principal balance, followed by the
Periodic RRB Payment Requirement to be paid at each payment date. All
computations will be based on a 30/360 day-count convention and semi-annual
compounding.
(Formula)
For all-in cost, solve for r.
r = all-in cost
p = scheduled principal payment
i = scheduled interest payment
f = overcollateralization (net of interest earnings) and fees and expenses
(excluding servicing fees)
P = initial issuance amount
t = payment period (which, in the case of the first or last payment
period, may be more or less than a full period)
T = total number of payment periods
n = number of payment periods in a year (e.g. for semiannual payments,
n=2)
Illustrative Example:(2)
Assumptions
Issuance amount: $100mm
Issuance date: 1/1/2000
Final maturity: 1/1/2004
Payment dates: January 1st every year
Coupon: 7.5% per annum
Overcollateralization (net of interest
earnings) and fees and expenses per
annum (excluding servicing fees): $0.04mm
Footnote 1
The method herein for calculating all-in cost is consistent with the
Conformed Settlement Agreement, in which the term "All-In Cost" is defined as
"The cost of the RRBs, including the coupon rate, any discounts or premiums,
ongoing fees, the overcollateralization account, [SPE] expenses, any letter
of credit costs, but excluding servicing fees."
Footnote 2
All numbers are for illustration purposes only.
Principal
Payment Payment Date Principal Principal
Schedule: Payment ($mm) Ending Balance ($mm)
Issuance date - 100
1/1/2001 10 90
1/1/2002 20 70
1/1/2003 30 40
1/1/2004 40 -
Total $100
Calculation
(t) (p) (i) (f)
Payment Payment Principal Interest Overcollateralization,
Date Period Payment Payment Fees, and (p)+(I)+(f)
($mm) ($mm) Expenses ($mm) ($mm)
1/1/2001 1 10.00 7.50 0.04 17.54
1/1/2002 2 20.00 6.75 0.04 26.79
1/1/2003 3 30.00 5.25 0.04 35.29
1/1/2004 4 40.00 3.00 0.04 43.04
Total 100.00
(Formula)
Payments are annual so n = 1.
17.54 + 26.79 +35.29 +43.04 -100
_________________________________ = 0
(1+r)1 (1+r)2 (1+r)3 (1+r)4
Solve for r.
All-in cost = r = 7.55%
EXHIBIT 2
PRE-TAX REVENUE WACC
As used in this Finance Order, "Pre-Tax Revenue WACC" shall mean, as of any
date, PSNH's "ROR" (rate of return) set forth in its most recent filing with
the Commission pursuant to Docket No. IR 90-218, multiplied by the applicable
"GRCF" (gross revenue conversion factor) most recently approved by the
Commission pursuant to Docket No. DR 97-059, calculated in accordance with
the following example:(1)
Calculation of ROR
Capital 3/31/99 3/31/00 Average % Embedded ROR
Structure Beginning End of (000s) Cost
(Average) of Period Period
(000s) (000s)
Long Term $516,485 $516,485 $516,485 39.40% 8.24% 3.25%
Debt
Preferred 75,000 50,000 62,500 4.77% 9.54% 0.46%
Stock Issued
Common Equity 701,652 761,821 731,737 55.83% 9.62% 5.37%
Total $1,293,137 $1,328,306 $1,310,722 100.00% 9.07%
Capitalization
Calculation of Embedded Cost
Total Cost of Long Term Debt $42,539 / $516,485 = 8.24%
Preferred Dividends Declared $5,963 / $ 62,500 = 9.54%
ROE Calculation $70,396 / $731,737 = 9.62%
(Earnings (Average (Net Income
for Common) Common ROE)2
Equity)
Footnote 1
Although taken from PSNH's actual May 1, 2000 filing with the Commission
pursuant to Docket No. IR 90-218, all numbers are for illustration purposes
only.
Footnote 2
The "ROE Calculation" shall equal the lesser of (i) PSNH's actual ROE
(as calculated above) and (ii) the 11.00% ROE allowed by the Commission in
Docket No. DR 97-059.
Calculation of Pre-Tax Revenue WACC
Pre-Tax Revenue
ROR GRCF WACC
Long Term Debt 3.25% 1.0000 3.25%
Preferred Stock Issued 0.46% 1.5489 0.70%
Common Equity 5.37% 1.5489 8.32%
Total 12.27%
EXHIBIT 3
WEIGHTED AVERAGE LIFE
Weighted Average Life (WAL) computation:
To calculate the WAL of the RRBs, sum the product of each principal payment
with the number of days between the corresponding principal payment date and
the RRB issuance date (based on a 360-day year and 30-day months). Then,
divide this sum by the product of the total principal amount of the RRBs and
360 to calculate the WAL in years.
(Formula)
p = scheduled principal payment
d = payment date
I = issuance date
t = payment period (which, in the case of the first or last payment
period, may be more or less than a full period)
P = initial issuance amount
T = total number of payment periods
Note: (dt-I) represents days from and excluding issuance date (I) to and
including payment date (dt), based on a 360-day year of twelve 30-day months.
Illustrative Example:(1)
Assumptions
Issuance amount: $100mm
Issuance date: 1/1/2000
Final maturity: 1/1/2010
Payment dates: January 1st every year
Principal Payment Schedule:
Payment Date Principal Principal Ending
Payment ($mm) Balance ($mm)
Issuance date - 100
1/1/2001 5 95
1/1/2002 5 90
1/1/2003 5 85
1/1/2004 5 80
1/1/2005 5 75
1/1/2006 10 65
1/1/2007 10 55
1/1/2008 15 40
1/1/2009 20 20
1/1/2010 20 -
Total $100
Footnote 1
All numbers are for illustration purposes only.
Calculation
(dt - I)Days
(p) Between
(t) Principal Issuance
Payment Payment Payment Date and
Date Period ($mm) Payment Date pt(dt-I)
1/1/2001 1 5 360 1,800
1/1/2002 2 5 720 3,600
1/1/2003 3 5 1,080 5,400
1/1/2004 4 5 1,440 7,200
1/1/2005 5 5 1,800 9,000
1/1/2006 6 10 2,160 21,600
1/1/2007 7 10 2,520 25,200
1/1/2008 8 15 2,880 43,200
1/1/2009 9 20 3,240 64,800
1/1/2010 10 20 3,600 72,000
Total 100 253,800
(Formula) = 7.05 years
