FILE No. 70-9543
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------
AMENDMENT NO. 5
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES NORTHEAST GENERATION SERVICES
174 Brush Hill Avenue COMPANY
West Springfield, MA 01090-0010 107 Selden Street
Berlin, CT 06037
(Name of companies filing this statement and
addresses of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Cheryl W. Grise, Esq.
Senior Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices
and communications to
David R. McHale Jeffrey C. Miller, Esq.
Vice President and Treasurer Assistant General Counsel
Northeast Utilities Northeast Utilities
Service Company Service Company
P.O. Box 270 P.O. Box 270
Hartford, Connecticut Hartford, Connecticut
06141-0270 06141-0270
The Application/Declaration in this File, as amended, is hereby amended by
the filing
of the following exhibits:
Item 6. EXHIBITS AND FINANCIAL STATEMENT
(a) Exhibits
b.1 Form of Service Agreement*
b.3 Assumption Agreement*
d.1 Connecticut Department of Public Utility Control Order
d.2 Massachusetts Department of Telecommunications and Energy Order
dated November 26, 1999
d.3 New Hampshire Public Utility Commission Order
d.4 Massachusetts Department of Telecommunication and Energy Order dated
January 31, 2000
f.1 Legal Opinion*
g Financial Data Schedule*
h.1 Form of Notice*
(b) Financial Statements*
* previously filed
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned companies have duly
caused this Amendment to be signed on their behalf by the undersigned
thereunto duly authorized.
Date: February 4, 2000
NORTHEAST UTILITIES
By: /s/ Randy A. Shoop
Name: Randy A. Shoop
Title: Assistant Treasurer-Finance
NORTHEAST GENERATION SERVICES COMPANY
By: /s/: Frederic Lee Klein
Name: Frederic Lee Klein
Title: Assistant Secretary
Exhibit d.1
STATE OF CONNECTICUT
DEPARTMENT OF PUBLIC UTILITY CONTROL
TEN FRANKLIN SQUARE
NEW BRITAIN, CT 06051
DOCKET NO. 98-10-
08RE02
DPUC REVIEW OF THE CONNECTICUT LIGHT AND
POWER COMPANY'S DIVESTITURE PLAN - SALE
OF ASSETS
September 15, 1999
By the following Commissioners:
Donald W. Downes
Glenn Arthur
Linda Kelly Arnold
DECISION
TABLE OF CONTENTS
I. INTRODUCTION 1
A. SUMMARY 1
B. BACKGROUND OF THE PROCEEDING 2
C. CONDUCT OF THE PROCEEDING 2
D. PARTIES AND INTERVENORS 2
II. DEPARTMENT ANALYSIS 3
A. JOINT APPLICATION 3
B. CL&P APPLICATION ON CALCULATION OF PROCEEDS 5
III.FINDINGS OF FACT 6
IV. Conclusion and Orders 7
A. CONCLUSION 7
B. ORDERS 7
DECISION
I. INTRODUCTION
A. SUMMARY
In this Decision, the Department of Public Utility Control approves the
sale of The Connecticut Light and Power Company's non-nuclear generating
assets pursuant to the Company's Divestiture Plan as approved by the
Department in the Decision dated January 8, 1999, in this docket. The sale
of the generating assets was conducted by the Department through its
consultant, J. P. Morgan, as authorized by Section 6 of Public Act 98-28, An
Act Concerning Electric Restructuring.
NRG, a wholly-owned subsidiary of Northern States Power Company, is
purchasing 2235 MW of fossil generating assets consisting of four plants in
Connecticut. NGC is purchasing 1057 MW of CL&P's hydroelectric generating
assets as well as 272 MW representing the ownership share of Western
Massachusetts Electric Company in the same assets, for a total of 1329 MW.
NGC is an unregulated subsidiary of NU Enterprises, Inc., which is a wholly-
owned subsidiary of Northeast Utilities, the parent company of CL&P and
Western Massachusetts Electric. The sale to NGC involves 10 hydroelectric
facilities in Connecticut and the Northfield Mountain System located in
Massachusetts. The sale price for the hydroelectric facilities is $865.5
million. NGC as the purchaser of the hydroelectric facilities is required to
observe certain land use conditions imposed by the Department in approving
CL&P's divestiture plan.
The Department also makes certain findings that are necessary for the
generating assets to qualify as "exempt wholesale generators" since the
purchasers intend to operate them solely for the purpose of wholesale sales.
In addition, since Select Energy, an unregulated affiliate of CL&P, will be
providing some or all of the electricity supply necessary for CL&P's standard
offer service and will be contracting with NGC to do so, the Department makes
other findings that the arrangement will benefit consumers; does not violate
any State law; would not provide NGC with an unfair competitive advantage by
virtue of its association with CL&P, and is in the public interest.
In approving the sale of these assets, the Department finds that the
sales price exceeds book value; the purchasers meet applicable qualifications
established by federal law and regulation; the sale was conducted in
accordance with the divestiture plan approved by the Department; the
purchasers will preserve labor agreements in effect at the time of sale, and
that the sale will result in a net benefit to customers.
The Department also approves the methodology for CL&P to calculate the
proceeds of the sale of assets with the exception of the Devon Station gas
turbines lease. The Department reserves judgment on the lease and the dollar
values of the other expenses until actual costs are known.
B. BACKGROUND OF THE PROCEEDING
By letter dated June 18, 1999, The Connecticut Light and Power Company
(CL&P or Company) requested that the Department of Public Utility Control
(Department) reopen the instant docket for the limited purpose of considering
the results of the auction of the Company's non-nuclear generating assets and
the sale of the assets.
By Decision dated June 30, 1999, the Department reopened the instant
docket for the limited purposes requested by the Company.
By Joint Application dated July 19, 1999 (Joint Application), The
Company, Western Massachusetts Electric Company (WMECO), J. P. Morgan
Securities, Inc. (J. P. Morgan), NRG Energy, Inc. (NRG) and Northeast
Generation Company (NGC) requested Department approval of the results of the
auction of the non-nuclear generating assets of the Company pursuant to
Public Act 98-28, An Act Concerning Electric Restructuring (Act).
By separate application dated July 19, 1999 (CL&P Application), the
Company requested Department approval of CL&P's proposed sale proceeds
calculation.
C. CONDUCT OF THE PROCEEDING
By Notice of Reopened Hearing dated July 9, 1999, the Department
indicated its intention to conduct a public hearing in this matter on August
16, 1999. By Notice of Rescheduled Hearing dated July 22, 1999, the hearing
was rescheduled to August 11, 1999. The hearing was held on the date in the
Department's offices, Ten Franklin Square, New Britain, CT.
The Department issued a draft Decision in this matter on August 27,
1999. Parties and intervenors were provided an opportunity to provide
written exceptions to and give oral argument on the draft Decision.
D. PARTIES AND INTERVENORS
Parties and intervenors to the original docket maintained their status
in the instant proceeding. In addition, the Department designated J. P.
Morgan, 60 Wall Street, New York, NY 10260-0060, NGC, P.O. Box 270, Hartford,
CT 06141-0270, and NRG, 1221 Nicollet Mall, Suite 700, Minneapolis, MN 55403,
as parties to this proceeding.
II. DEPARTMENT ANALYSIS
A. JOINT APPLICATION
Section 6(b)(3) of the Act states that:
the department shall not approve a sale [of a non-nuclear
generating asset] unless (A) the sale price . . . equals or exceeds
book value for the asset . . . , (B) the department determines the
bidder meets all applicable qualifications established by federal
law and regulation, (C) the sale is conducted in accordance with
the divestiture plan as approved by the department, (D) the bidder
proves to the satisfaction of the department that the bidder will
preserve labor agreements in effect at the time of the sale, and
(E) the sale will result in a net benefit to ratepayers, as
determined by the department. Transfer in ownership of any asset
shall not occur until the department determines the purchaser is
fully qualified to provide electric generation services pursuant to
section 16-245 of the general statutes, as amended by this act, or
pursuant to applicable federal law and regulation.
According to the Joint Application, the Company has entered into a
Purchase and Sale Agreement with NRG to divest 2235 megawatts (MW) of fossil
generating assets for $460 million subject to certain costs that will be
known at closing. The Company and WMECO entered into a Purchase and Sales
Agreement to divest 1329 MW of hydroelectric generation assets (1057 of
CL&P's and 272 MW of WMECO's) to NGC, an unregulated affiliate of CL&P and
WMECO. The hydroelectric assets have a sale price of $865.5 million subject
to certain costs that will be known at closing. Joint Application, pp. 8 and
9. NGC is purchasing the hydroelectric facilities subject to land use
restrictions set forth in agreements between CL&P and the Connecticut
Department of Environmental Protection (DEP) and between CL&P and certain
municipalities. Id., Exhibit 4, p. 7. All assets were sold subject to the
Memorandum of Understanding between CL&P and DEP adopted in the January 8,
1999 Decision in the instant docket (Original Decision).
A Company witness testified that the sale price of the fossil assets is
5.3 times book value and the winning bid for the hydroelectric assets is 6.9
times book value. Both these figures are as of December 31, 1998. Joint
Application, Exhibit 2, p. 5.
Based on the evidence presented, the Department finds that the sale
prices for both the fossil and hydroelectric assets exceed their respective
book values, as required by Section 6(b)(3)(A) of the Act.
In accordance with Section 6(b)(2) of the Act, the Department hired J.P.
Morgan to act as its agent and conduct the auction. J. P. Morgan filed
testimony as part of the Joint Application describing the auction process and
the steps taken to meet the requirements of the Original Decision, which
approved CL&P's divestiture plan. J. P. Morgan further testified that the
auction process was conducted in a commercially reasonable manner as required
by Section 6(b)(1) of the Act, and met all the requirements of Section
6(b)(3) of the Act. Joint Application, Exhibit 1, pp. 2-19.
J. P. Morgan also provided testimony at the hearing describing the
auction process and how it and the results comported with the Original
Decision and the Act. Tr. 8/11/99, pp. 996-1016.
In the Original Decision, the Department designated the Utility
Operations and Management Analysis Unit (UOMA) of the Department to oversee
the auction process " . . . to ensure that the terms of this Decision [the
Original Decision] and the Department's engagement with the auction agent are
executed and the requirements in the Act are observed." Original Decision,
pp. 5 and 6.
On July 19, 1999, the Department received a position paper from UOMA
(UOMA Position Paper), which recommended the results of the auction conducted
by J. P. Morgan to the Department for approval. UOMA attested to the
integrity of the auction process and the fairness of the results and
indicated its support for the Joint Application. UOMA further attested that
" . . . the Auction complied with each of the requirements of the . . .
Decision . . ." and stated its belief that the requirements of the Act had
been met. UOMA Position Paper, pp. 1-4. UOMA reiterated its position and
urged Department approval of the auction results in direct testimony at the
hearing. Tr. 8/11/99, pp. 1083-1088.
OCC believes because of Department rulings on discovery issues, the
record is inadequate as a basis for determining whether the auction was
commercially reasonable or whether the sale comported with the Divestiture
Plan as approved by the Department or whether the sale results in a net
benefit to subscribers. OCC Brief, p. 6.
The Department has reviewed the evidence presented, some of which was
filed as confidential under protective order, and the testimony of the two
entities charged with representing the Department in the auction process,
J.P. Morgan and UOMA, and finds that the results of the auction meet the
requirements of Section 6(b)(3)(B) through (E) of the Act.
NRG and NGC intend to operate their respective generating facilities
exclusively for wholesale sales rather than for sales to end use customers.
Therefore, as a condition precedent to closing the respective sales, NRG and
NGC each must obtain the determination from the Federal Energy Regulatory
Commission (FERC) that it is an "exempt wholesale generator" (EWG) under
Section 32 of the Public Utility Holding Company Act (PUHCA), 15 U.S.C. 79z-
5a(c). In this manner, both companies will be allowed to acquire and operate
the purchased facilities without causing their parent companies to become
subject to restrictions that PUHCA would impose. An eligible facility is one
that is used for the generation of electric energy exclusively for sale at
wholesale. Further, when the generating asset, formerly used for retail
sales and reflected in a regulated utility's rate base is to be removed from
rate base and no longer used for retail purposes, the state regulatory
commission having jurisdiction over such facilities must make certain
findings. The findings are "that allowing such facility to be an eligible
facility (1) will benefit consumers, (2) is in the public interest, and (3)
does not violate State law. . . . " 15 U.S.C. 79z-5a(c). With respect to
these findings, the General Assembly has required the divestiture of an
electric company's non-nuclear generating assets at this time. The
Department gave prior approval to CL&P's divestiture plan in its previous
Decision in this docket. The sales price of these assets is far above book
value with the net proceeds to be used to reduce costs associated with
restructuring. The Department hereby finds that allowing the generating
assets to be sold to become eligible facilities under PUHCA (1) will benefit
consumers, (2) is in the public interest, and (3) does not violate State law.
In so ruling, the Department determines that NRG and NGC are fully qualified
to provide electric generation services in accordance with the requirements
of Section 6(b)(3) of the Act.
The Department approved CL&P's procurement of at least 50% of its
electricity supply for the standard offer service (SOS) from CL&P's affiliate
Select Energy Inc (Select). June 25, 1999 Interim Decision in Docket 99-03-
36, DPUC Determination of The Connecticut Light and Power Company's Standard
Offer (Interim Decision), p. 4. Select will enter into a contract with NGC
under which NGC will be directly or indirectly providing a portion of the
electricity supply for CL&P's SOS from the hydroelectric assets it is
purchasing from CL&P. Joint Application, Exhibit 4, p. 8. Therefore,
additional findings are necessary to allow NGC to qualify as an EWG.
Pursuant to section 32(k) of PUCHA, 15 U.S.C. 79z-5a(k), a state commission
having jurisdiction over the retail rates of an electric utility that may
enter into a contract to purchase electric energy at wholesale from an EWG
that is an affiliate or associate company must make a determination that such
commission has sufficient regulatory authority, resources and access to books
and records of the electric utility company and any relevant associate,
affiliate or subsidiary company to exercise its duties and that the potential
transaction (1) will benefit consumers, (2) does not violate any State law,
(3) would not provide NGC any unfair competitive advantage by virtue of its
affiliation and association with CL&P; and (4) is in the public interest. In
approving the competitive solicitation scheme allowing Select to provide 50
percent of the electricity supply for CL&P's SOS, the Department recognized
that Section 20 of the Act allows CL&P to obtain generation capacity from an
affiliate to meet its SOS obligation. The fact that NGC is the recommended
purchaser of part of CL&P's generating assets and will use them, in part, to
sell electricity to Select at wholesale, does not affect the Department's
previous determination in Docket No. 99-03-36 that Select's participation in
supplying the SOS was fair, reasonable and provided significant benefits to
CL&P customers. Interim Decision, pp. 2-4. The Department hereby endorses
the necessary findings and determination to allow the transaction to proceed.
B. CL&P APPLICATION ON CALCULATION OF PROCEEDS
CL&P has calculated the proceeds from the auction using the base
purchase price adjusted for estimated transaction costs, items related to the
Purchase and Sale Agreements and other closing adjustments. CL&P has not
reflected any tax impacts related to the fossil and hydroelectric generation
assets divestiture. The Company believes that the Department will address
the calculation of the net proceeds (including tax impacts) from the
divestiture in Docket No. 99-03-36. CL&P proposes that the Department use
this calculation, plus any associated tax adjustments, in Docket No. 99-03-36
to reduce stranded costs for nuclear generation assets as required by the
Act. Mahoney PFT, pp. 2, 3 and 4.
The Company estimated the transaction costs include legal; financial;
environmental and engineering fees; auction fees to J.P. Morgan, and fees to
Morgan Stanley and Co., the Company's auction agent, for its assistance in
the preparation for the auction prior to the Company's filing in the original
proceeding in the instant docket. Mahoney PFT, Exhibit MJM-1; p. 5. The
Company indicated that it would update its estimated transaction costs at the
closing of the sale of its fossil and hydroelectric generation assets.
Section 6(a)(2) of the Act defines net proceeds as "the book income from
the sale or divestiture of assets, consisting of sales price less reasonable
expenses of the sale, related income and other taxes." With the exception of
the estimated $53,525,000 cost of terminating the Devon gas turbine lease,
the Department believes that the types of transaction costs set forth by CL&P
appear to be reasonable expenses of the sale and should be deducted from the
sales price. Because the final amounts are currently unknown, the Department
limits its approval to the Company's methodology in calculating the non-
nuclear divestiture proceeds. The Department will review the actual costs
when they are submitted for final approval. The Department will also review
the cost of the Devon lease at that time.
III. FINDINGS OF FACT
1. The sale prices of the fossil and hydroelectric assets are 5.3 and 6.9
times book value, respectively.
2. The Department hired J. P. Morgan to act as its agent and conduct the
auction.
3. The Department designated UOMA to oversee the auction process.
4. Both J. P. Morgan and UOMA recommended approval of the auction results.
5. NRG and NGC intend to operate their respective generating facilities
exclusively for wholesale sales rather than for sales to end use
customers.
6. Both NRG and NGC are fully qualified to provide electric generation
services pursuant to applicable federal law as exempt wholesale
generators.
7. Some or all of the output of the plants that NGC will acquire will be
contracted to another CL&P unregulated generation affiliate, Select
Energy, Inc., to supply CL&P's SOS requirements.
8. The Act allows CL&P to obtain generation from an affiliate to meet its SOS
obligations.
9. The proposed calculation of the proceeds resulting from the fossil and
hydroelectric generation assets auction used the base purchase price
adjusted for estimated transaction costs, items related to the Purchase
and Sale Agreements, and other closing adjustments.
10. The Company did not include any tax impacts in its proposed calculation.
11. Section 6(a)(2) of the Act defines net proceeds as "the book income from
the sale or divestiture of assets, consisting of sales price less
reasonable expenses of the sale, related income and other taxes."
12. NRG and NGC meet all applicable qualifications established by federal law
and regulation.
13. The sale was conducted in accordance with the divestiture plan approved
in the Original Decision.
14. NRG and NGC have proven to the satisfaction of the Department that NRG
and NGC will preserve labor agreements in effect at the time of sale.
15. The sale will result in a net benefit to ratepayers.
IV. CONCLUSION AND ORDERS
A. CONCLUSION
Based on the evidence presented, the Department finds that the sale by
CL&P of 2235 MW of fossil generating assets to NRG for $460 million less
certain costs to be determined at closing meets the requirements of the
Original Decision and the Act and is hereby approved. The Department also
finds that the sale by CL&P and WMECO of a total of 1329 MW of hydroelectric
generating assets to NGC for $865.5 million less certain costs that will be
known at closing meets the requirements of the Original Decision and the Act
and is hereby approved.
The Department further concludes that allowing the generating assets
formerly used for retail sales and reflected in CL&P's rate base to be
removed from rate base and no longer used for retail purposes (1) will
benefit consumers, (2) is in the public interest, and (3) does not violate
State law. In addition, the Department has sufficient regulatory authority,
resources and access to books and records of CL&P and any associate,
affiliate or subsidiary company to exercise its duties and the potential
transaction between NGC, Select Energy and CL&P (1) will benefit consumers,
(2) does not violate any State law, (3) would not provide either affiliate an
unfair competitive advantage by virtue of its affiliation and association
with CL&P; and (4) is in the public interest. The Department also concludes
that NRG and NGC are fully qualified to provide electric generation services
in accordance with the requirements of Section 6(b)(3) of the Act.
With the exception of the cost for terminating the Devon gas turbine
lease, the Department concludes that the Company's methodology for
calculating the proceeds is reasonable and hereby approves it. The
Department reserves judgment of the actual costs until they are submitted for
final approval. The Department will review the Devon lease cost as that time
as well.
B. ORDERS
For the following Orders, please submit an original and 10 copies of any
requested material to the Executive Secretary, identified by Docket Number,
Title and Order Number.
1. At the time of the sale, the Company shall submit to the Department an
itemization of actual costs that will be used in the calculation of the
proceeds. In addition, CL&P shall provide the Department with all journal
entries resulting from the sale
2. The Company shall file with the Department a copy of the final document
indicating that the terms and conditions of the sale are substantially as
specified by CL&P and that no further material written or oral supplements
to, or material modifications of, those terms and conditions shall be
executed or accepted without the Department's approval. The Company shall
include confirmation that it has received all other approvals required to
complete the transaction.
DOCKET NO. 98-10-08RE02
DPUC REVIEW OF THE CONNECTICUT LIGHT AND
POWER COMPANY'S DIVESTITURE PLAN - SALE
OF ASSETS
This Decision is adopted by the following Commissioners:
Donald W. Downes
Glenn Arthur
Linda Kelly Arnold
CERTIFICATE OF SERVICE
The foregoing is a true and correct copy of the Decision issued by the
Department of Public Utility Control, State of Connecticut, and was forwarded
by Certified Mail to all parties of record in this proceeding on the date
indicated.
September 16, 1999
Louise E. Rickard Date
Acting Executive Secretary
Department of Public
Utility Control
Exhibit d.2
THE COMMONWEALTH OF MASSACHUSETTS
DEPARTMENT OF
TELECOMMUNICATIONS AND ENERGY
November 26, 1999
D.T.E. 99-80
Petition of Connecticut Light & Power Company for findings required under
Section 32C of the Public Utility Holding Company Act of 1935.
__________________________________________________________________________
APPEARANCES: Stephen H. Klionsky, Esq.
260 Franklin Street
Boston, MA 02110
- -and-
Cynthia Brodhead, Esq.
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
FOR: THE CONNECTICUT LIGHT AND POWER COMPANY
Petitioner
Dwight A. Johnson, Esq.
Murtha, Cullina, Richter and Pinney LLP
CityPlace I
185 Asylum Street
Hartford, CT 06103
- -and-
Michael Yount, Esq.
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403
FOR: NRG ENERGY, INC.
Intervenor
Philip M. Small, Esq.
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141
Intervenor
I. INTRODUCTION
On September 3, 1999, The Connecticut Light and Power Company ("CL&P") filed
with the Department of Telecommunications and Energy ("Department") a
petition requesting that the Department make the requisite findings pursuant
to 15 U.S.C. Section 79z-5a in connection with CL&P's sale of 2,235 megawatts
("MW") of its fossil-fueled generating assets to NRG Energy, Inc. ("NRG"),
and 1,058 MW of its hydroelectric generating assets to Northeast Generation
Company ("NGC") (collectively, the "assets"). <1> Specifically, CL&P
requests that the Department consider the assets as facilities eligible to be
exempt wholesale generators ("EWG") by the Federal Energy Regulatory
Commission ("FERC"), pursuant to 15 U.S.C. Section 79z-5a(c).<2> In
accordance with 15 U.S.C. Section 79z-5a(c), for an asset to be considered an
"eligible facility," the Department must find that the divestiture of the
assets would:(1) benefit consumers, (2) be in the public interest, and (3) be
in conformance with state law. The petition was docketed as D.T.E. 99-80. The
Department granted the petitions to intervene of NRG and NGC.
CL&P is a wholly-owned operating company subsidiary of Northeast Utilities
and an affiliate of Western Massachusetts Electric Company ("WMECo"), an
electric company that operates in Massachusetts. CL&P is not engaged in the
business of supplying retail electric service in Massachusetts, has no
ratepayers in Massachusetts, is not selling assets in Massachusetts, and is
regulated by numerous other jurisdictions.<3> Because CL&P is an affiliate
of WMECo, findings by the Department are required.
With its petition, CL&P filed a Motion for Protective Treatment for the
Purchase and Sales Agreements ("PSAs") that it entered into with NRG and NGC.
The Motion is discussed in Section II, below.
After notice duly published, the Department conducted a public hearing at its
Boston offices on October 27, 1999 to afford interested persons an
opportunity to comment on CL&P's proposal.
II. MOTION FOR PROTECTIVE TREATMENT
A. Introduction
CL&P filed, pursuant to G.L. c. 25, Section 5D, a Motion for Protective
Treatment ("Motion") of the PSAs that it entered into with NRG and NGC for
the sale of its fossil-fueled and hydroelectric generating assets.
CL&P argues that the PSAs are commercially sensitive in that they establish
bidder strategy and are the outcome of the auction process (Motion at 1).
CL&P notes that the DPUC has awarded confidential status to the PSAs (id. at
2-3). To bolster its argument, CL&P incorporated into its Motion, the
arguments of J.P. Morgan Securities, Inc.("J.P.Morgan") in the Motion for
Protective Order that they filed in Western Massachusetts Electric Company,
D.T.E. 99-74.<4> In that case, J.P. Morgan contended that withholding a PSA
from public disclosure is consistent with the Commonwealth's electric
restructuring statutes in light of the importance of an expectation of
privacy in promoting competition (JPM Motion at 4). J.P. Morgan argued that,
in light of the developing and relatively narrow market to purchase
generating assets, information about a bidder's approach to an auction does
not become less commercially sensitive simply because the auction is ended
(id.).
B. Standard of Review
General Law c. 25, Section 5D provides that the Department may protect from
public disclosure trade secrets, confidential, competitively sensitive or
other proprietary information provided in the course of proceedings before
the Department. Section 5D also states that "[t]here shall be a presumption
that the information for which such protection is sought is public
information and the burden shall be upon the proponent of such protection to
prove the need for such protection." Thus, the burden on the company is to
establish the need for protection of the information cited by the company. In
determining the existence and extent of such a need, the Department must
consider the presumption in favor of disclosure and the specific reasons that
disclosure of the information benefits the public interest. The Berkshire Gas
Company et al., D.P.U. 93-187/188/189/190, at 16 (1994).
C. Analysis and Findings
The Department has found that information regarding the specific bids that a
company received in preparing to divest is competitively sensitive and should
be protected from public disclosure. Fitchburg Gas and Electric Light
Company, D.T.E. 98-121 (1998). In Fitchburg, the Department stated that
disclosure of information regarding the specific bids that were received
could undermine its efforts to secure the highest bids during the on-going
divestiture process. Id. at 4. Moreover, the Department has stated that
protecting information from public disclosure concerning specific bids would
likely add value to a company's assets and increase its ability to negotiate
higher prices when divesting other portions of its portfolio. Id.
In the instant matter, no such information is contained in the PSA. While it
is true that the PSA is the outcome of an auction process, we reject the
argument that the PSA reflects bidder strategy. The Department notes that the
PSA delineates the terms and conditions of the sale of specific assets; it
does not describe the strategy of either the buyer or seller of those assets.
Moreover, the PSA is no indication of the strategy that the buyer or seller
would employ in the future.<5>
The Department also rejects the argument that we should protect the PSA from
public disclosure as a gesture of comity to the DPUC. The DPUC is governed by
the laws and regulations of the State of Connecticut and makes its findings
in accordance with those laws. Similarly, this Department is governed by
Massachusetts' laws and regulations. As noted above, the Department finds
that CL&P's arguments to protect the PSA from public disclosure do not meet
the standard established by the Massachusetts General Court and implemented
by this Department.
Accordingly, the Department finds that the CL&P has not provided sufficient
reasons to protect the PSA from public disclosure in accordance with G.L. c.
25, Section 5D, and hereby denies CL&P's Motion for Protective Treatment.
IV. FINDINGS UNDER 15 U.S.C. 79z-5a(c)
A. Introduction
As noted above, CL&P requests that the Department designate the assets being
sold to NRG and NCG, as facilities eligible for EWG status pursuant to 15
U.S.C. 79z-5a(c) (Exh. CL&P-1, at 3-5). CL&P explains that it seeks this
finding so that when the assets are ultimately transferred, NRG and NGC would
be able to file with the FERC for EWG designation of those assets (id. at 2).
CL&P states that for the fossil-fueled and the hydroelectric generating
assets to be considered as eligible facilities, the Department must make a
specific determination that divestiture of the assets: (1) will benefit
consumers, (2) is in the public interest, and (3) does not violate state law.
U.S.C. Section 79z-5a(c) (id. at 3-4).
B. Position of CL&P
In support of its motion, CL&P posits that wholesale power generation
facilities, once divested, will compete openly in the wholesale market,
causing the reduction in wholesale power prices (id. at 4). CL&P argues that
the reduction of wholesale prices that will result from this divestiture will
benefit consumers (id.).
Further, CL&P states that designation of the assets as eligible facilities is
in the public interest since it would accomplish the Commonwealth's stated
goals of eliminating the vertical integration of the electric utility
industry and of making electricity generation a competitive function (id.).
Finally, CL&P contends that the designation proclaiming the assets as
eligible facilities does not violate state law (id.) To the contrary, CL&P
argues that the sale of assets is consistent with the G.L. c. 164, Section 1
et seq., which mandates divestiture of generating assets (id. at 5-6).
C. Analysis and Findings
The Department, as a state commission with retail rate authority over WMECo
has reviewed CL&P records relating to sale of its fossil-fueled and
hydroelectric generating assets (Exh. CL&P-1, Att. B). The Department notes
that NGC and NRG propose to purchase the assets in order to operate them as
an EWG, with the purchase price reflecting that expectation (id.).
The Department agrees with CL&P that the sale of the assets will likely add
to the availability of generating capacity in the competitive generation
market in New England. This increased competition will lower the price to
generate electricity from what it otherwise would have been. The Department
finds that such a reduction in the cost to generate electricity will benefit
consumers.
In addition to the benefit to consumers, the record indicates that a
designation of the assets as EWGs would likely reduce the vertical
integration of the electric utility industry in New England. Consequently,
this will contribute to the development of a competitive wholesale generation
market. The Department finds that the development of the competitive
wholesale generation market is in the public interest.
Finally, because competing wholesale generators will be an integral part of
the competitive generation industry that the Act was designed to enable, the
Department finds that the designation of CL&P's assets as an EWG does not
violate state law, but rather, furthers the objectives of the state law.
Accordingly, because the Department has found that designating CL&P's fossil-
fuel and hydroelectric assets as eligible facilities will benefit consumers,
is in the public interest, and does not violate state law, the Department
approves CL&P's petition.
VII. ORDER
Accordingly, after due notice, opportunity for public comment, and
consideration, it is hereby
ORDERED: That the sale of Connecticut Light and Power Company's 2,235 MW of
fossil-fueled generating assets to NRG Energy, Inc., and 1,058 MW of
hydroelectric generating assets to Northeast Generation Company be granted
eligible facility status pursuant to 15 U.S.C. Section 79z-5a(c); and it is
FURTHER ORDERED: That the Motion For Protective Treatment filed by
Connecticut Light and Power Company is denied.
By Order of the Department,
__________________________________
Janet Gail Besser, Chair
__________________________________
James Connelly, Commissioner
__________________________________
W. Robert Keating, Commissioner
__________________________________
Paul B. Vasington, Commissioner
__________________________________
Eugene J. Sullivan, Jr., Commissioner
Appeal as to matters of law from any final decision, order or ruling of the
Commission may be taken to the Supreme Judicial Court by an aggrieved party
in interest by the filing of a written petition praying that the Order of the
Commission be modified or set aside in whole or in part.
Such petition for appeal shall be filed with the Secretary of the Commission
within twenty days after the date of service of the decision, order or ruling
of the Commission, or within such further time as the Commission may allow
upon request filed prior to the expiration of twenty days after the date of
service of said decision, order or ruling. Within ten days after such
petition has been filed, the appealing party shall enter the appeal in the
Supreme Judicial Court sitting in Suffolk County by filing a copy thereof
with the Clerk of said Court. (Sec. 5, Chapter 25, G.L. Ter. Ed., as most
recently amended by Chapter 485 of the Acts of 1971).
<1> CL&P is divesting the assets pursuant to Section 6(b) of Connecticut's
Public Act 98-28, an Act Concerning Electric Restructuring, codified as Conn.
Gen. Stat. Section 16-244f.
<2> Title 15 of U.S.C.A. Section 79z-5(a)(a)(1) defines an EWG as
"exclusively in the business of owning, operating, or both owning and
operating all or part of one or more eligible facilities and selling electric
energy at wholesale."
Further, an eligible facility is used for the "generation of electric energy
exclusively for sale at wholesale." 15 U.S.C.A. Section 79-5a(2)(A). Title 15
of U.S.C.A. Section 79z-5a(c) requires specific state determinations before a
facility that was already under construction or operating on the date of
enactment of these provisions may become an eligible facility.
<3> In addition to the Department, CL&P must also receive the approval of
FERC, the New Hampshire Public Utilities Commission, and the Connecticut
Department of Public Utility Control.
<4> Western Massachusetts Electric Company, D.T.E. 99-74 is currently under
consideration by the Department.
<5> The Department notes that Northeast Utilities System issued a press
release announcing the agreement to the sell the assets and detailing the
price to be paid for the non-nuclear generation facilities. Hence,
information contained within the PSA is already in the public domain.
Exhibit d.3
DE 99-117
CL&P AND WMECO
Joint Application of The Connecticut Light and Power Company and Western
Massachusetts Electric Company for Findings Under Section 32(C) of the Public
Utility Holding Company Act of 1935 (Eligible Facilities)
Final Order
O R D E R N O. 23,354
November 29, 1999
APPEARANCES: Gerald M. Eaton, Esq. And Cynthia Brodhead, Esq. for
Connecticut Light and Power Company and Western Massachusetts Company; Robert
A. Bersack, Esq. For Public Service Company of New Hampshire; Murtha,
Cullina, Richter and Pinney, L.L.P. by Dwight Johnson, Esq. For NRG Energy;
James Rubens for THINK, New Hampshire; Michael Holmes, Esq. and Kenneth Traum
for the Office of Consumer Advocate; Lynmarie Cusack, Esq. and Gary Epler,
Esq. in separate appearances on behalf of members of the Staff of the New
Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On August 13, 1999, Connecticut Light and Power Company and Western
Massachusetts Electric Company (CL&P and WMECO) filed with the New Hampshire
Public Utilities Commission (Commission) a Joint Application for Findings
Under Section 32(c) of the Public Utility Holding Company Act of 1935 (15
U.S.C.A. Section 79, referred to as "1935 Act"). The filing requests a
determination by the Commission as to whether allowing certain non-nuclear
generation assets of CL&P and WMECO, which are affiliates of Public Service
Company of New Hampshire (PSNH), to become "eligible facilities," as defined
by 15 U.S.C. Section 79z-5a(2), subsequent to their sale to NRG Energy, Inc.
(a subsidiary of Northern States Power) and Northeast Generating Company
("NGC") is consistent with the requirements of the 1935 Act.
An Order of Notice was issued on September 24, 1999, ordering that
a hearing be held at the offices of the Commission on this matter on October
12, 1999 at 10:00 a.m. As directed by the Commission, Public Service Company
of New Hampshire (PSNH) caused a copy of the Order of Notice to be published
in The Union Leader on September 30, 1999.
On October 11, 1999, a Petition to Intervene was filed by Dwight
Johnson, Esq. on behalf of NRG Energy ("NRG"). Intervention was orally
granted to both NRG and James Rubens of THINK-NH by the Commission during the
first day of hearings on October 12, 1999.
On October 18, 1999, the testimony of Michael D. Cannata, Jr.,
Chief Engineer of the Commission was filed.
Hearings before the Commission were held on October 12, October 13
and October 25, 1999.
Briefs or written comments were submitted to the Commission by NRG
on November 4, 1999, jointly by CL&P and WMECO on November 5, 1999, by PSNH
on November 5, 1999, by PSNH on November 5, 1999, jointly by the OCA and
THINK-New Hampshire on November 5, 1999, and on behalf of Staff Chief
Engineer Michael Cannata on November 5, 1999.
The Commission deliberated this matter at its public agenda meeting
of November 15, 1999.
II. POSITIONS OF THE PARTIES AND STAFF
A. CL&P and WMECO
CL&P and WMECO argue that they have requested a very narrow finding
in this matter: whether to allow the generating facilities these entities
propose to sell to be "eligible facilities" under the Public Utilities
Holding Company Act of 1935 (PUHCA), 15 U.S.C. Section 79z-5(a) (c) (A).
Granting approval, and assuming such approval is obtained from the other
necessary jurisdictions, would enable the proposed purchaser of the
facilities to qualify as an exempt wholesale generator (EWG). The
designation of EWG status is alleged to be of benefit to an owner of
generating assets as it provides exemption from certain regulations and
accompanying oversight by the Federal Energy Regulatory Commission (FERC) and
the Securities and Exchange Commission (SEC).
The Petitioners believe that the Commission, in its previous order
in DE 99-074 (Order No. 23, 254, issued July 7, 1999) has established a
narrow test for the public interest which reflects the public policy goal
favoring competition in the production and marketing of electricity. They
argue further that this standard is implicit in the congressional enactment
of the Energy Policy Act of 1992 (Pub. L. No. 102-486, 106 Stat. 2776, 2905-
10 (1992)) establishing EWG status and the regional and state policies
favoring a strong competitive market for electric generation services. The
Petitioners also cite to decisions from other jurisdictions where the state
commissions have granted the requested findings, and consistently applied a
narrowly focused public interest standard based on favoring the development
of a competitive electric generation market.
At the hearing, CL&P and WMECO presented the testimonies of Anne
Bartosewicz, Manager of Regulatory Policy for WMECO and Stephen Hall, Manager
of Rates and Regulatory Matters for PSNH. Mr. Hall testified as to how the
proposed sale of CL&P's and WMECO's non-nuclear assets, due to the
Connecticut and Massachusetts restructuring legislation, would affect the
Sharing Agreement and the Capacity Transfer Agreements, and therefore the
costs PSNH recovers from customers through the Fuel and Purchased Power
Adjustment Clause (FPPAC). According to Mr. Hall, due to Massachusetts and
Connecticut restructuring legislation, all three agreements become inoperable
on January 1, 2000. This occurs because there will no longer be an Initial
System with its own generating assets and load responsibility for purposes of
calculating combined system dispatch savings or capacity transfer revenues.
CL&P and WMECO emphasize, however, that the denial of the requested
findings in the instant proceeding will not alter the fact that they must
sell these assets pursuant to a legislative mandate. It is alleged that
denial of the petition would require that CL&P and WMECO go out to auction
again. The Petitioners also point out that a purchaser who did not require
exempt wholesale generator status from FERC would not need this Commission's
approval. The Petitioners assert that non-EWG status would result in a lower
bid price and therefore less revenue to offset stranded costs for CL&P's and
WMECO's customers.
B. PSNH
PSNH notes that it was not made a party to this proceeding.
Nonetheless, counsel for PSNH made an appearance, and PSNH provided a
witness, Mr. Stephen Hall, to respond to questions concerning the effect of
the pending generation asset sales in Connecticut and Massachusetts on the
Sharing Agreement and the Capacity Transfer Agreements.
PSNH supports the positions of WMECO and CL&P with respect to the
scope of review in this proceeding. It also submits that testimony
concerning the Sharing Agreement and Capacity Transfer Agreements is not
relevant to the narrow findings the Petitioners are requesting pursuant to
PUHCA. PSNH argues that the changes to those agreements will occur
notwithstanding the Commission's decision in this proceeding.
PSNH states that if the Commission were to make the requested
findings, it would be making no findings or rulings with respect to the
Sharing Agreement or the Capacity Transfer Agreements, and that issues
concerning those agreements may be addressed in the context of Docket No. DE
99-099, where the Settlement Agreement proposes to terminate the agreements.
PSNH also warrants that:
if the Commission makes the requested findings under the
limited scope, PSNH will not argue in any other
proceeding or forum that such findings in this proceeding
constitute a decision or an admission with respect to the
Rate Agreement, Sharing Agreement or Capacity Transfer
Agreements including performance thereunder by PSNH or
other Northeast Utilities subsidiary. (Letter from
Robert Bersack, Assistant General Counsel, PSNH, to Debra
Howland, Acting Secretary, NHPUC, November 5, 1999).
C. NRG Energy, Inc.
NRG Energy, Inc. (NRG) is a wholly-owned subsidiary of Northern
States Power Company, which is based in Minneapolis, Minnesota. Northern
States is a combination electric and gas utility company with operations in
Minnesota, North Dakota, South Dakota, Wisconsin and Michigan. NRG is an
independent power producer, and was the winning bidder for CL&P's fossil-fuel
assets in Connecticut, and has entered into a contract with CL&P to purchase
2,235 megawatts of those assets at a price of $460 million.
NRG asserts that CL&P's assets are being sold as part of the
restructuring of Connecticut's electricity market pursuant to the state's
restructuring act. NRG also states that failure to complete the sale of
CL&P's generation assets to NRG by the end of the year will seriously
interfere with the ability of CL&P to meet the various requirements under the
restructuring act.
NRG presented one witness, Mr. Ross Hammond, an electrical engineer
employed by NRG to assist in the transition of power plants from the
regulated business environment to a non-regulated business environment. Mr.
Hammond testified as to his experience in achieving substantial cost savings
and reliability improvements in such transitioned plants, and the expectation
of NRG that similar savings could be realized at the Connecticut plants. Mr.
Hammond also testified that reducing the costs of the Connecticut plants
would, in turn, benefit New Hampshire customers by making lower cost power
available to the New England power pool.
NRG argues that while it is difficult to specifically quantify the
benefits to New Hampshire customers as a result of NRG's acquisition of the
Connecticut plants, it must be recognized that because of the interconnected
ness of the New England system, the restructuring efforts of the New England
state are clearly interdependent. The full scale of benefits will only be
realized when restructuring takes place throughout the entire region. The
requested findings are a necessary "piece of the puzzle of electric
restructuring."
D. OCA and THINK-NH
OCA and THINK-NH argue that, in order for the Commission to make
the findings required under 15 U.S.C. Section 79z-5a(c), it is not sufficient
to only allege that New Hampshire consumers will realize certain competitive
benefits if the generating plants in question are deemed "eligible
facilities." They argue that the Commission must find that status as an
"eligible facility," as opposed to traditional regulation of those assets, is
preferable in terms of consumer benefits and the public interest. OCA and
THINK-NH argue further that the "eligible facilities" designation is
requested in this case only in order to facilitate the sale of these assets.
To the extent it facilitates a sale, "eligible facilities" status likewise
facilitates a breach of contract if those assets are required to meet
contractual obligations to PSNH under the Capacity Transfer and Sharing
Agreements.
OCA and THINK-NH submit that the Commission must consider whether
Northeast Utilities (NU) and PSNH have committed a material breach to a
commitment that is vital to the Rate Agreement such as the Sharing or
Capacity Transfer Agreement. If so, they are concerned that granting the
findings requested concerning the "eligible facilities" designation would
provide a defense of that breach to NU and PSNH, and would violate the
Commission's obligation to protect ratepayers. As a result, OCA and THINK-NH
argue that the only course for the Commission is to deny the petition for the
requested findings and let NU renegotiate the proposed CL&P and WMECO sales
in a way that recognizes the obligations owed to New Hampshire ratepayers.
In the event the Commission grants the relief requested in the
petition, OCA and THINK-NH recommend that the Commission make clear that it
has not found that a breach of the Sharing Agreement has occurred, but that
one will occur unless cured because the pending sale of the generation assets
by CL&P and WMECO are to take place without being subject to the Sharing
Agreement obligations. Second, the Commission should request that NU and all
of its affiliates waive any and all claims or defenses that would be based
upon the grant of the relief requested in this docket to a later complaint
alleging that these parties have breached the Sharing Agreement.
E. Staff Chief Engineer Michael Cannata
Staff Chief Engineer Michael Cannata testified that the present
filing is identical to the filing by WMECO approved by the Commission in
Docket DE 99-074, and that Staff was not opposed to the relief granted in
that docket. Mr. Cannata discussed how the generating units which are the
subject of the petition are expected to participate in the competitive
market, and that this should bring lower prices and choice to consumers.
According to Mr. Cannata, this satisfies the first requested finding.
Mr. Cannata next discussed how this Commission and the other five
Commissions in New England have been working to bring a competitive market
into existence and have found that said market would be in the public
interest, that RSA 374-F:3, XIII calls for the encouragement of restructuring
on a regional basis, and that generation targeted to provide for this
competitive market must also be in the public interest. This, Mr. Cannata
argues, satisfies the second requested finding. As to the third requested
finding, Mr. Cannata points out that the Commission previously found that no
state laws are violated by the granting of "eligible facility" status.
Mr. Cannata testified that other matters, such as the impact of the
proposed asset sales upon the Sharing Agreement and Capacity Transfer
Agreements are beyond the narrow focus of the "eligible facility" status
sought by the Petitioners, and while these matters need to be considered,
that should not occur in this case. Rather, these issues should be
considered in Docket DE 99-099.
In the brief submitted by Ms. Cusack, it is argued that in DE 99-
074 the Commission's decision observed the proper jurisdictional distinction
between the attachment of "eligible facility" status to certain assets, and
the effects the sale of the underlying assets might have on New Hampshire
customers, and urges the Commission to make the same distinction in this
docket. It is also argued that, based on the legislative history of the
Energy Policy Act the "public interest" standard in 15 U.S.C. Section 79z-
5a(c) is narrow and should be restricted to the attachment of eligible
facility status.
III. COMMISSION ANALYSIS
The Joint Petition requests that the Commission make specific findings
required by the PUHCA with respect to certain generating assets owned by the
Joint Petitioners, CL&P and WMECO. This request is made of the Commission
because the Joint Petitioners are concurrently seeking a determination from
the SEC that these generating assets may be deemed "eligible facilities"1
when the assets are sold to entities that intend to use them to sell power to
the wholesale electricity market. The designation of generating facilities
as "eligible facilities" is considered beneficial as it would tend to
increase the market value of the facility, for it enables the owner to
operate as an "exempt wholesale generator" (EWG), and avoid regulation as an
electric utility company under PUHCA. See 15 U.S.C. Section 79z-5(a).
________________________________
1. As defined in 15 U.S.C Section 79z-(a)(2), an "eligible facility" is a
plant used for the generation of electric energy exclusively at
wholesale or used for the generation of electricity and leased to one or more
public utility companies, where the lease is treated as a sale
at wholesale.
These generating assets are being divested by CL&P and WMECO
pursuant to restructuring directives in Connecticut and Massachusetts. In
both states, the proceeds from the sales of these assets will be employed as
an offset to the stranded costs of CL&P and WMECO found to exist by their
respective state commissions. It is apparent that any action that increases
the market value of these plants will result in a greater offset to stranded
costs, and a reduction to the amount of stranded costs either borne by the
companies or by their customers. Thus, obtaining the designation of the
generating assets as "eligible facilities" is in the direct interest of the
states where the facilities are included in rates.
PUHCA states that if the costs of a generating facility were
included in retail rates under the laws of any state, in order for that
facility to be considered an "eligible facility," every state utility
commission having jurisdiction over that facility's rates must determine that
allowing the designation "eligible facility" 1) will benefit customers; 2) is
in the public interest; and 3) does not violate state law. PUHCA further
provides that if the facility in question is owned by an affiliate of a
registered holding company, then each state commission having jurisdiction
over the retail charges of any other affiliate of that registered holding
company must make the same three determinations in order to obtain the
eligible facility designation. Because CL&P and WMECO are subsidiaries of NU
and affiliates of PSNH, and because this Commission regulates PSNH's retail
rates, PUCHA requires that this Commission, along with the relevant
commissions of Connecticut and Massachusetts, make the same three specific
determinations in order for CL&P and WMECO to obtain the "eligible
facilities" designation for the assets in question.
The determination of whether the public interest findings applied
for may be made by this Commission for the assets in question is complicated
by the litigation concerning the restructuring orders issued by the
Commission and the status of the Rate Agreement entered into between the
Governor and the Attorney General, and PSNH and NU on November 22, 1989.2
Pursuant to the Rate Agreement, a Sharing Agreement was entered into between
PSNH and the NU initial system and two Capacity Transfer Agreements were
entered into between PSNH and CL&P. Since their inception, these agreements
have provided tangible benefits to PSNH and its customers.
_______________________________
2. Public Service Company of New Hampshire, et al. v. Douglas Patch, et al.,
C.A. 97-97-JD (New Hampshire), 97-121 L (Rhode Island).
In Order No. 23, 254, issued July 7, 1999, WMECO petitioned for, and
received, similar approvals to those sought in the instant case under the
PUHCA for its sale of non-nuclear generating facilities to Consolidated
Edison Energy, Inc. That Order states that:
The concerns raised by Staff and the OCA on the effects this sale
and the pending CL&P sale will have on the Sharing Agreement and
cost allocation are shared by this Commission. PSNH's claim in
this proceeding that the Sharing Agreement will become inoperable
or effectively nullified on January 1, 2000, as a result of actions
by other states and state regulators, raises questions about the
validity of PSNH's arguments concerning New Hampshire's
restructuring orders as they pertain to any obligations under the
Sharing Agreement. The effects of WMECO's and CL&P's asset
divestitures as they relate directly to PSNH's customers will be
subject to further review by the Commission in an appropriate
proceeding.
In the Order Of Notice for this proceeding, issued on September 24,
1999, we stated that CL&P and WMECO's Joint Petition raises the issue of
whether the effects of the proposed sale as it relates to PSNH's customers
should be considered at this time.
Accordingly, a considerable amount of discussion during the hearing
of this case focused on the fact that the Connecticut assets proposed to be
sold have been used by CL&P to satisfy its obligations under the Capacity
Transfer and Sharing Agreements. There was also testimony concerning the
effect that electric industry restructuring has upon the continued viability
of the Sharing Agreement and the Capacity Transfer Agreement. The Commission
also heard testimony that PSNH would receive approximately $4.7 million in
November and December, 1999, under the Sharing Agreement, but that revenue
under the Sharing Agreement and the Capacity Transfer Agreement would no
longer be forthcoming. According to CL&P, this is because it will no longer
have load responsibility after January 1, 2000, and the new ISO rules make it
impossible to calculate its obligations under the Sharing Agreement and the
Capacity Transfer Agreements and renders those agreements meaningless. There
was also cross-examination and testimony concerning whether PSNH had acted
prudently and in accord with its fiduciary obligations towards its customers
with respect to protecting and asserting its rights under the Sharing
Agreement and Capacity Transfer Agreements.
The Joint Petitioners urge the Commission to focus its attention on
the very limited question of whether the designation of the facilities as
eligible under PUHCA is beneficial to consumers, in the public interest and
does not violate the state law. They, along with PSNH and NRG, argue that,
because these assets are intended to be used by participants in New England's
regional competitive electricity market, the eligible facility status is
consistent with RSA 374-F:3, XIII, which directs New Hampshire to work with
other New England states to achieve restructuring on a regional basis.
Moreover, the Petitioners stress, that, due to the divestiture requirements
of the Connecticut and Massachusetts restructuring legislation, the
underlying sale would occur regardless of the action taken by the Commission,
and the same impact upon the Sharing Agreement and Capacity Transfer
Agreement would result. Finally, we note PSNH's express warranty, set out
above, not to argue in any other forum that the Commission's findings in this
proceeding would constitute a decision or an admission with respect to the
Rate Agreement, Sharing Agreement or Capacity Transfer Agreements, or the
prudence of PSNH's or NU's actions.
Based upon the record before us, we make a limited and narrow
finding that allowing the generating assets in question to be an "eligible
facility" will be beneficial to consumers and is in the public interest
because the assets in question are being transferred to an entity that will
be engaged in the competitive electricity market in New England, and the
development and growth of that market is in the interest of New Hampshire
electric customers. We also find that such designation would not violate
state law.3
____________________________
3. We note that the "eligible facility" designation will tend to increase the
market value of the assets which, in turn, will reduce stranded costs for
consumers in Connecticut and Massachusetts. While we do not base our
findings upon this consideration, we do believe that a healthy market for
generating assets should provide similar benefits to New Hampshire
ratepayers if and when the state's utility companies' generation assets
are divested.
In reaching this decision, the Commission has interpreted the terms
"benefit to consumers" and "public interest" in 15 U.S.C. Section 79z-5(a)(c)
as applying only to the question of whether those assets, if sold, should be
allowed to be deemed "eligible facilities." The Commission is not rendering
an opinion on the terms of the proposed underlying sale of these generating
assets; nor have we determined the impact, if any, the underlying sale will
have on either the Sharing Agreement or the Capacity Transfer Agreement. We
believe that we have the necessary jurisdiction to judge these matters, and
deferring their consideration is in the interest of judicial economy and
within our discretion, and will not compromise our position in the federal
litigation, particularly in light of PSNH's warranty.
Therefore, we determine that all questions concerning the status of
the Sharing Agreement and the Capacity Transfer Agreement, the prudence of
PSNH's actions with respect to these Agreements, and PSNH's and NU's
obligations under the Rate Agreement are not before the Commission at this
time. We reserve the detailed review of these questions to the PSNH
Settlement Agreement docket (DE 99-099) or other existing dockets, or such
other investigations that may be opened to consider such matters.
Based upon the foregoing, it is hereby
ORDERED, that the findings requested by Petitioners Connecticut
Light and Power and Western Massachusetts Electric Company are approved as
described herein; and it is
FURTHER ORDERED, that the unresolved matters discussed above may be
raised by interested parties for consideration by the Commission in Docket DE
99-099 or otherwise as discussed above.
By order of the Public Utilities Commission of New Hampshire this
twenty-ninth day of November, 1999.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary
Exhibit d.4
The Commonwealth of Massachusetts
Department of
Telecommunications and Energy
January 31, 2000
D.T.E. 99-74
Petition of Western Massachusetts Electric Company for Approval of Asset
Divestiture.
APPEARANCES: Stephen Klionsky, Esq.
260 Franklin Street, 21st Floor
Boston, Massachusetts 02110
-and-
Cynthia Brodhead, Esq.
P.O. Box 270
Hartford, Connecticut 06141
FOR: WESTERN MASSACHUSETTS ELECTRIC
LIGHT COMPANY
Petitioner
Thomas F. Reilly, Attorney General
By: Joseph W. Rogers
Office of the Attorney General
200 Portland Street
Boston, Massachusetts 02114
Intervenor
Philip M. Small, Esq.
107 Selden Street
Berlin, Connecticut 06037
FOR: NORTHEAST GENERATION COMPANY
Intervenor
Sonja G. Shuford, Esq.
10 Franklin Square
New Britain, Connecticut 06051
FOR: CONNECTICUT DEPARTMENT OF PUBLIC
UTILITY CONTROL-UTILITY OPERATIONS
MANAGEMENT ANALYSIS
Limited Participant
Carmen D. Legato, Esq.
Kevin C. Clayton, Esq.
Laura M. Wilson, Esq.
White & Case LLP
601 Thirteenth Street, N.W.
Suite 600 South
Washington, D.C. 20005
-and-
John DeTore, Esq.
Maribeth Ladd, Esq.
Rubin and Rudman LLP
50 Rowes Wharf
Boston, Massachusetts
FOR: J.P. MORGAN SECURITIES, INC.
Limited Participant
Robert M. Granger, Esq.
Ferriter Scobbo Caruso & Rodophele PC
75 State Street
Boston, Massachusetts 02108
FOR: MASSACHUSETTS MUNICIPAL WHOLESALE
ELECTRIC COMPANY
Limited Participant
I. INTRODUCTION
On August 13, 1999, Western Massachusetts Electric Company ("WMECO" or
"Company") filed a petition with the Department of Telecommunications and
Energy ("Department") for approval to divest several non-nuclear generating
facilities. Specifically, WMECo proposes to sell its portion of the
Northfield Mountain pumped storage generating facility ("Northfield
Mountain"), Turner Falls No. 1 ("Turners Falls") and Cabot ("Cabot")
("Related Facilities" or "Assets") to its affiliate, Northeast Generation
Company ("NGC")1 WMECo also asks the Department to find that the Assets are
eligible for exempt wholesale generator ("EWG") status in accordance with 15
U.S.C. Section 79-5a. 2
_________________________________________
1. NGC is an unregulated subsidiary of NU Enterprises, Inc., which is a
wholly-owned unregulated subsidiary of Northeast Utilities. WMECo is a
wholly-owned operating subsidiary of Northeast Utilities. WMECo is a wholly-
owned operating subsidiary of Northeast Utilities (Petition at 3).
2. As detailed below, without exempt wholesale generator status, the
purchaser of the assets would be required to operate the facilities as a
single integrated utility system, and be subjected to constraints on the
scope and nature of their operations (Exh. DTE 1-4).
On September 27, 1999 and October 18, 1999, the Department held public
hearings in Boston and Springfield, respectively, to afford interested
persons an opportunity to be heard. An evidentiary hearing was conducted on
October 21, 1999.3
__________________________________________
3. All cites to transcripts refer to the evidentiary hearing.
The Attorney General of the Commonwealth ("Attorney General") intervened
as of right, pursuant to G.L. c. 12, Section 11E. The Department granted
NGC's petition to intervene, and afforded limited participant status to J.P.
Morgan Securities, Inc. ("J.P. Morgan"), the Utility and Operations
Management Analysis unit ("UOMA") of the Connecticut Department of Public
Utility Control ("DPUC"), and Massachusetts Municipal Wholesale Electric
Company.
On January 11, 2000, the Hearing Officer granted UOMA and J.P. Morgan's
Motion for Protective Treatment ("Motion") allowing specific discovery
responses and testimony to be afforded confidential status.4 This Motion
supersedes all other motions for protective treatment filed by UOMA and J.P.
Morgan.
_________________________________
4. In addition to the exhibits entered into evidence at the conclusion of the
evidentiary hearing, the Department, on its own Motion, admits the following
proprietary exhibits into evidence: AG 1-3; AG 1-4; AG1-10(a); AG 1-15; AG
1-27; AG 1-40(b)(c)(e); AG 1-41(b); AG 1-44(a)(b)(c)(e)(f)(g); AG 1-51; AG 1-
52(a)(b); AG 1-53; AG 1-83; AG 1-86(b); AG 2-4; AG 2-12; AG 2-13(a)(b)(c); AG
2-14; AG 2-15; AG 2- 16; AG 2-17; DTE 1-24; DTE 1-27; DTE 1-29; DTE 1-30;
and, the unredacted version of Paul Dabbar's supplemental direct testimony
(JPM-2(P)).
The redacted version of Mr. Dabbar's supplemental direct testimony and
Mr. Corey's testimony will be marked as JPM-2and UOMA-1, respectively.
In support of its filing, WMECo submitted the testimony of John B.
Keane, Northeast Utilities Service Company's ("NUSCo") vice president for
administration;5 Michael J. Mahoney, NUSCo's director of revenue
requirements; and Michael C. Finnegan, J.P. Morgan's managing director.
Additionally, J. P. Morgan and UOMA submitted the supplemental testimony of
Paul Corey, executive director of the DPUC, and director of UOMA; and Paul M.
Dabbar, an associate at J.P. Morgan
____________________________________
5. NUSCO provides management and other services to WMECo and related
companies in the Northeast Utilities System (Exh. WMECo-3, at 1).
II. STANDARD OF REVIEW
The Legislature has vested broad authority in the Department to regulate
the ownership and operation of electric utilities in the Commonwealth. See,
e.g., G.L. c. 164, Section 76; D.P.U./D.T.E. 97-111, at 17. The
Department's authority was most recently augmented by the Restructuring Act,
G.L. c. 164, Section 1 et seq.6 See Boston Edison Company, D.P.U./D.T.E.
96-23, at 9 (1998). The Restructuring Act requires that each electric
company organized under the provisions of Chapter 164 file a plan for
restructuring its operations to allow for the introduction of retail
competition in generation supply in accordance with the provisions of Chapter
164, G.L. c. 164, Section 1A(a). Among other things, the Restructuring Act
requires that all restructuring plans contain a detailed accounting of the
company's transition costs and a description of the strategy to mitigate
those transition costs. Id. One possible mitigation strategy is the
divestiture of a company's generating units. G.L. c. 164, Section 1.
___________________________________________
6. An Act Relative to Restructuring the Electric Utility Industry in the
Commonwealth, Regulating the Provisions of Electricity and Other Services
and Promoting Enhanced Consumer Protections (the "Restructuring Act"). The
Department previously approved WMECo's Restructuring Plan. Western
Massachusetts Electric Company, D.T.E. 97-120 (1998).
In reviewing a company's proposal to divest its generating units, the
Department considers the consistency of the proposed transactions with the
company's restructuring plan, or in some cases the company's restructuring
settlement, and the Restructuring Act. A divestiture transaction will be
determined to be consistent with the company's restructuring plan or
settlement and the Restructuring Act if the company demonstrates to the
Department that the "sale process is equitable and maximizes the value of the
existing generation facilities being sold." G.L. c. 164, Section 1A(b)(1).
A sale process will be deemed both equitable and structured to maximize the
value of the existing generation facilities being sold, if the company
establishes that it used a "competitive auction or sale" that ensured
"complete, uninhibited, non-discriminatory access to all data and information
by any and all interested parties seeking to participate in such auction or
sale." G.L. c. 164, Section 1A(b)(2).
The Restructuring Act provides that all proceeds from any such
divestiture of generating facilities "that inure to the benefit of
ratepayers, shall be applied to reduce the amount of the selling company's
transition costs." G.L. c. 164, Section 1A(b)(3). Where the Department has
approved a company's restructuring plan or settlement as consistent or
substantially complaint with the Restructuring Act, the Department will
approve a company's proposed ratemaking treatment of any divestiture proceeds
if the company's proposal is consistent with the company's approved
restructuring plan or settlement
III. DESCRIPTION OF ASSET DIVESTITURE
A. Overview
WMECo has proposed to divest 272.1 megawatts ("MW") of hydroelectric
generating assets. Specifically, WMECo seeks the Department's approval to
sell; (1) its 19 percent interest in Northfield Mountain; and (2) its 100
percent interest in the Cabot and Turners Falls hydroelectric stations.7
Cabot and Turners Falls are operationally interrelated with Northfield
Mountain (Exh. WMECo-1 at 3). The Company states that it offered Northfield
Mountain and the Related Facilities for sale through an open and competitive
auction conducted by J.P. Morgan on behalf of the DPUC (id.).8 The DPUC
delegated several members of their staff to serve on the UOMA team and to
supervise J.P. Morgan (id.).
_______________________________________
7. WMECo's proposed sale was combined with the offer by Connecticut Light and
Power Company to sell 81 percent of its interest in Northfield Mountain and
certain other assets to NGC (Exh. WMECo-1, at 3).
8. In Connecticut, the DPUC is charged with conducting the auctions that lead
to divestiture of assets pursuant to Connecticut Public Act 98-28, An Act
Concerning Electric Restructuring (Conn. Gen. Stat. Section 16-224f). J.P.
Morgan was contracted by the DPUC to conduct the auction on its behalf
(Petition at 5).
The sale is documented in several agreements entered into by WMECo and
NGC. WMECo requests that the Department approve the following agreements:
(1) Purchase and Sale ("PSA"); (2) Interconnection and Operation; (3)
Assignment and Assumption; (4) Asset Demarcation; (5) Generation and Support
Services; and (6) Property Tax (id. At 7).
B. Description of The Divestiture Process
WMECo states that it offered Northfield Mountain and the Related
Facilities in conjunction with Connecticut Light and Power's ("CL&P")
majority interest in Northfield Mountain,9 in a public auction conducted
pursuant to Connecticut law (Exh. WMECo-1, at 5). Together, CL&P offered to
sell 3,564 MW of generation assets located in Massachusetts and Connecticut
(id. At 7).10 To prevent an affiliate from receiving any undue advantage in
the auction process, the Connecticut Restructuring Act required the
appointment of an auction agent unrelated to the selling company (Exh. JPM-1,
at 3). J.P. Morgan was selected as the auction agent after a competitive
solicitation was conducted by the DPUC (id.).11 Under UOMA's supervision,
J.P. Morgan: (1) developed a strategy for the sale; (2) assisted in the
production of the descriptive memorandum and related marketing materials; (3)
formulated and contacted a list of potential interested parties; (4)
coordinated management presentations, site visits, responses to bidders' due
diligence questions and legal activities; and (5) prepared bid evaluations
for each round of bids (id., at 60).
_________________________________________
9. CL&P is a wholly-owned operating subsidiary of NU.
10. Cabot and Turners Falls operate under a single FERC license and are
connected with Northfield Mountain because of the
operational synergies between the facilities and the FERC license (Exh.
WEMCo-2, at 9; Tr. At 68-69).
11. Although J.P. Morgan acted as an independent auction agent for the DPUC,
not as an agent for WMECo, the Assets are sold
pursuant to the auction conducted for Connecticut Light & Power Company (Tr.
1, at 57).
J.P. Morgan notes that NUSCo employees were segregated into buy and sell
teams which were required to abide by a code of conduct established by the
DPUC (Exhs. AG-1-58; AG-1-59; WMECo-2, Schedule JBK-2, at 2).12 This code
of conduct was necessary to prevent an affiliate from gaining an unfair
advantage in the bidding process (Exh. AG 1-63; JPM-2 at 9).
____________________________________
12. The duties of the sell team were to (1) manage the document center
established by NU; (2) facilitate bidder due diligence investigations; (3)
conduct orientation presentations; (4) provide guides for site visits; and
(6) respond to bidder inquiries (Exh. WMECo-2, at 7).
Also, by structuring the auction so that the sell team could not
exercise any control over the terms and conditions of the sale for the
benefit of the buy team, J.P. Morgan states that an arms-length relationship
between the two teams was established (id.) Moreover, J.P. Morgan explains
that to avoid the differences in income tax laws between a sale to affiliates
as opposed to nonaffiliates, J.P. Morgan instructed bidders that the basis
for selection would be, in addition to other non-price criteria, the gross
sales price without adjustment to account for any differences in tax to the
seller (id. at 13). As a result, J.P. Morgan contends that any increase in
the net proceeds, after tax, available to ratepayers resulting from a sale to
an affiliate would not subsidize the bid of an affiliate, thereby prohibiting
the undue selection of an affiliate (id. at 13). According to J.P. Morgan,
this method required the affiliate to bid a higher price than it otherwise
would have (id. at 13).
J.P. Morgan states that they compiled a list of 236 potential buyers
using (1) information internal to J.P. Morgan (e.g., existing client base and
other entities); (2) information from WMECo; and (3) trade publications and
other industry sources (Tr. 1, at 61). According to J.P. Morgan, of the 236
potential bidders contacted, 82 executed confidentiality agreements and 35
submitted round one nonbinding bids (Tr.1, at 61). J.P. Morgan states that
those bidders who executed a confidentiality agreement received details
concerning the auction process and the Assets (JPM-1, at 10). J.P. Morgan
informed prospective bidders that they could be disqualified from the sale
process if they contacted the sell team directly (id.). Once bidders
executed confidentiality agreements, code names were assigned. J.P. Morgan
states that the identity of a bidder was shared only with UOMA and DPUC (Tr.
1, at 86).
According to J.P. Morgan, first round bidders were required to submit a
non-binding bid that (1) identified the assets being bid;13 (2) provided
financial, operating, and due diligence plans; (3) stated that existing labor
agreements would be honored; and (4) listed required regulatory and board
approvals (Exh. JPM-1, at 11; Exh. D.T.E. 1-16).
___________________________________
13. Bidders were instructed that they could make an offer to purchase the
assets either individually or collectively (Tr. 1, at 69).
J.P. Morgan received 35 non-binding bids from prospective buyers and
evaluated the qualifications of each bidder to ensure that they would be
capable of purchasing and operating the assets (Exhs. JPM-1, at 11; JPM-2, at
17). In addition to evaluating the bids on financial, operational, and other
qualifications, J.P. Morgan placed particular emphasis on bids that were not
contingent on significant exceptions to the selling documents, and where a
plant's operational plans maximized opportunities for current employees (Exh.
JPM-2, at 17).
Of the 35 bids received, J.P. Morgan narrowed the list to 13 bidders who
were invited to make binding bids in the second round of the auction (id.)14
Twelve bidders elected to participate in due diligence meetings, access the
data room, and visit the site (Tr. 1, at 81). Upon completion of that
process, J.P, Morgan received eight binding bids (Exhs. JPM-1, at 14; JPM-2
at 18). J.P. Morgan evaluated each bid and compared price, the portion of
the assets bid, whether changes would be required to the seller's documents,
and the bidder's ability to close expeditiously (id.). According to J.P.
Morgan, negotiations were conducted with the three bidders that produced the
greatest aggregate value for Northfield Mountain and Related Facilities (Exh.
JPM-2 at 17). As a result of those negotiations, J.P. Morgan narrowed the
field to two final bidders; each bidder was offered the opportunity to submit
supplemental bids and was requested to allocate its bid among Northfield
Mountain, Cabot and Turners Falls (id., at 21). After evaluating the
supplemental bids, J.P. Morgan and UOMA selected NGC as the winning bidder
(id.). J.P. Morgan states that the two bidders accepted the same PSA,
therefore, the decision was based on the highest price (id.).
______________________________________
14. J. P. Morgan asserts that the sell team was not involved in the process
of reviewing and selecting the indicative bids, and that the
identity of the bidders was not revealed to the sell team (JPM-1, at 11).
2. Analysis and Findings
In evaluating WMECo's divestiture of the Assets, the Department first
determines whether the sale process was equitable and structured to maximize
the value of the assets being sold. In making these determinations, the
Department considers whether the Company used a "competitive auction or sale"
that ensured "complete, uninhibited, non-discriminatory access to all data
and information by any and all interested parties seeking to participate in
such auction or sale." G.L. c. 164, Section 1A(b)(2).
The record establishes that all bidders had equal access to data,
thereby facilitating due diligence inquiries. Moreover, each bidder was
permitted to conduct corporate management meetings and site visits. To
ensure that no inappropriate information was exchanged with plant employees
during a site visit, each bidder was escorted to the facilities by an
employee of J.P. Morgan and a member of the UOMA team. Finally, the entire
auction process was guided by a strict code of conduct established by the
DPUC.
Based on the above evidence, the Department finds that the auction
process used by WMECo to divest Northfield Mountain and the Related
Facilities ensured complete, uninhibited, non-discriminatory access to all
data and information by all parties seeking to participate in the auction,
and therefore was equitable. The process satisfied the requirements of
G.L.c. 164, Section 1A(b)(2).
3. Maximization of Asset Value
a. Description
The auction was structured so that the proceeds from the sale of the
assets would be realized by WMECo in two transactions. First, WMECO's 19
percent ownership interest in Northfield Mountain was accounted for in the
same percentage applied to the total value ascribed by bidders to that plant.
Second, the Related Facilities, which are owned 100 percent by WMECo, were
required to be given a separate value by the bidders. WMECo ratepayers were
credited with 100 percent of the market values which the bidders ascribed to
these particular assets. J.P. Morgan reports that NGC allocated $54 million
of its final bid of $739 million for Northfield Mountain and the Related
Facilities. WMECo's share of the Northfield Mountain is reported by J.P.
Morgan $130.15 million. The combination of both of these values constituted
the $184 million of value that has been allocated to WMECo as a result of the
auction (Exh. JPM-2 at 40). The auction results in a sales price of about
4.4 times the book value (Exh. WMEC0-1, at 7). According to WMECo, this sale
price is subject to adjustment to account for, among other things, (1)
inventories, (2) capital expenditures; and (3) certain expenditures incurred
during the period between the date of signing the PSA and the closing date
(id., at 4). According to WMECo, the estimate net proceeds before taxes is
approximately $179.54 million (Exh. WMECo-3, Schedule MJM-1, at 1).
b. Analysis and Findings
In evaluating WMECo's divestiture of Northfield Mountain the Related
Facilities, the Department determines whether the value of the Assets was
maximized. The record shows that J.P. Morgan employed several measures in
the divestiture process to ensure the assets were sold at the highest price
without potential affiliate abuse.
First, a code of conduct was established in which the NUSCo buy and sell
team had to strictly abide. Second, confidentiality was maintained
throughout the divestiture process and therefore the bidders as well as the
NUSCo buy and sell teams were uncertain of the identity of other bidders.
Shielding bidder identity enhanced the competitiveness of the divestiture
process, thus maximizing the value of the sale. In addition, strict bidder
confidentiality contributed to ensuring that all bidders received equal
treatment throughout the process.
Third, J.P. Morgan used an indicative first round bidding state as an
opportunity to select qualified bidders, who submitted non-binding bids based
on initial due diligence. J.P. Morgan managed the final stage of bidding in
order to produce the maximum value for ratepayers. J.P. Morgan conducted
confidential discussions with the two bidders that had submitted highly
competitive bids and solicited supplemental bids from each of the two
bidders. Throughout the process, UOMA and J.P. Morgan evaluated the bids
with the objective of selecting bids that provided the highest overall value
to WMECo' customers.
Based on the evidence above concerning the auction process and the bid
selection, the Department finds that J.P. Morgan and UOMA selected the higher
of the two final bids from an equitable auction process. Accordingly, the
Department finds that the divestiture process used by J.P. Morgan and UOMA
maximized the value of WMECo's Assets.
4. Consistency with Company's Plan and Restructuring Act
In evaluating WMECo's divestiture of the Assets, the department
determines whether the divestiture transaction is consistent with the
Company's restructuring plan and with the Restructuring Act. Because the
Department has found (1) that the Company's sale process is equitable and
structured to maximize value, and (2) that the value of the Company's Assets
has been maximized, the Department finds that the Company's divestiture
transaction is consistent with the Company's restructuring plan and
consistent with the Restructuring Act.
5. Calculation of Net Proceeds
The Company proposes several adjustments to the sale proceeds to derive
net proceeds: (1) pre-approved capital expenditures; (2) materials and
supplies inventory; (3) leased vehicles purchase costs; (4) Northfield
Mountain adder, an amount to compensate the seller for the costs of achieving
the water level of the upper reservoir; (5) transaction costs; and (6) post-
1995 capital additions(WMECo-3, at 5). Based on its estimates of the
adjustments, the Company calculates $179,546,000 in net proceeds before taxes
(Exh. WMECo-3, Sch. MJM-1, at 1). The Department finds that the method the
Company's calculation of net proceeds is reasonable and is therefore,
approved. The Department directs WMECo to provide actual costs after the
sale is completed and will review these costs in the Company's next
reconciliation proceeding.
6. Designation of Generating Assets as Exempt Wholesale
Generators
WMECo states that in accordance with the regulations of the Securities
and Exchange Commission, assets to be sold that have previously been in rate
base of a retail company cannot be sold and retain EWG status by the buyer
unless the ratemaking jurisdiction approves and makes certain specified
findings (Exh. DTE 1-4). Accordingly, WMECo requests that the Department
make the requisite findings to designate Northfield Mountain and the Related
Facilities as eligible to be EWGs pursuant to 15 U.S.C. 79z-5a (id.). 15
___________________________________________
15. 15 U.S.C. Section 79z-5a(a)(1) defines an EWG to be "exclusively in the
business of owning, operating, or both owning and operating all or part of
one or more eligible facilities and selling electric energy at wholesale."
Further, an eligible facility is a facility used for the "generation of
electric energy exclusively for sale at wholesale." 15 U.S.C. Section 79z-
5a(2)(A). 15 U.S.C. Section 79z-5a(2)(c) requires specific state
determinations before a facility that was already under construction or
operating on the date of enactment of these provisions may become an eligible
facility.
In accordance with 15 U.S.C. Section 79z-5a(c), for an asset to be
considered an "eligible facility," the Department must find that the
divestiture of the assets would: (1) benefit customers, (2) be in the public
interest, and (3)not violate state law.
WMECo states without EWG status, few entities would have been willing to
bid for the Assets, and the purchase price realized by WMECo would have been
greatly reduced (id.). WMECo further states that by obtaining the highest
competitive price for the facilities, the Company has maximized mitigation of
its transition costs (id.). WMECo also claims that the entry of NGC into the
generation market will advance the goal of competition contemplated by the
Restructuring Act (id.).
Based on the evidence that the expectation of eligible status underlies
the purchase price of the facilities and that the price mitigates transition
costs paid by ratepayers, the Department finds that the designation of the
requested facilities as eligible facilities will benefit consumers. In
addition to benefitting ratepayers, the record indicates that a designation
of the assets as EWGs would contribute to the development of the competitive
wholesale generation market. The Department finds that the development of
the competitive wholesale generation market is in the public interest.
Finally, the Department notes that competing wholesale generators, including
EWGs, will be an integral part of the competitive generation industry that
the Restructuring Act was designed to enable. Thus, the Department finds
that the divestiture does not violate state law, but rather, furthers the
objectives of the state law. Accordingly, for the above reasons, the
Department approves Northfield Mountain and the Related Facilities as
eligible for EWG status.
IV. ORDER
Accordingly, after due notice, hearing and consideration, it is hereby
ORDERED: That the Asset Divestiture involving the sale by Western
Massachusetts Electric Company of Northfield Mountain, Cabot, and Turners
Falls to Northeast Generation Company, as embodied in the Purchase and Sale
Agreement and other related documents, is approved; and it is
FURTHER ORDERED: That Western Massachusetts Electric Company's
calculation of net proceeds is approved; and it is
FURTHER ORDERED: That Northfield Mountain, Cabot and Turners Falls are
eligible for exempt wholesale generator status before FERC; and it is
FURTHER ORDERED: That Western Massachusetts Electric Company comply with
all orders and directives contained herein.
By Order of the Department
____________________________
James Connelly, Commissioner
____________________________
W. Robert Keating, Commissioner
____________________________
Paul B. Vasington, Commissioner
A true copy
Attest: ____________________________
Eugene J. Sullivan, Jr., Commissioner
Appeal as to matters of law from any final decision, order or ruling of the
Commission may be taken to the Supreme Judicial Court by an aggrieved party
in interest by the filing of a written petition praying that the Order of the
Commission be modified or set aside in whole or in part.
Such petition for appeal shall be filed with the Secretary of the Commission
within twenty days after the date of service of the decision, order or ruling
of the Commission, or within such further time as the Commission may allow
upon request filed prior to the expiration of twenty days after the date of
service of said decision, order or ruling. Within ten days after such
petition has been filed, the appealing party shall enter the appeal in the
Supreme Judicial Court sitting in Suffolk County by filing a copy thereof
with the Clerk of said Court. (Sec. 5, Chapter 25, G.L. Ter. Ed., as most
recently amended by Chapter 485 of the Acts of 1971).
