EXHIBIT D 3.2.2
Public Utilities Commission
DE 99-099
PSNH Proposed
Restructuring Settlement
Order Addressing Financing Issues
Order No. 23,550
September 8, 2000
Douglas L. Patch, Chairman
Susan S. Geiger, Commissioner
Nancy Brockway, Commissioner
DE 99-099
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Proposed Restructuring Settlement
Order Addressing Financing Issues
O R D E R N O. 23,550
September 8, 2000
APPEARANCES: Robert A. Bersak, Esq., Gerald M. Eaton, Esq. and Sulloway
& Hollis by Martin L. Gross, Esq. for Public Service Co. of New Hampshire;
Foley, Hoag & Eliot, LLP by James K. Brown, Esq., Stephen J. Judge, Esq. and
Wynn E. Arnold, Esq. of the New Hampshire Attorney General's Office for the
Governor of New Hampshire, the Governor's Office of Energy and Community
Services and the New Hampshire Attorney General; Mark W. Dean, Esq. of Dean,
Rice & Kane, for New Hampshire Electric Cooperative; Seth Shortlidge, Esq.
and Lisa Shapiro of Gallagher, Callahan & Gartrell, for Wausau Papers; Rep.
Jeb Bradley, member of the Legislature, pro se; Rep. Gary Gilmore, member of
the Legislature, pro se; Connie Rakowsky, Esq. of Orr & Reno P.A. for the
Granite State Hydro Association and individual hydroelectric facilities;
David W. Marshall, Esq. for the Conservation Law Foundation; John Ryan, Esq.
for the Community Action Program; Alan Linder, Esq. of New Hampshire Legal
Assistance, for the Save Our Homes Organization; James Rubens for THINK - New
Hampshire; Pentti Aalto for PJA Energy Systems Designs; Peter H. Grills, Esq.
and Elizabeth I. Goodpaster, Esq. of O'Neill, Grills & O'Neill, for the City
of Manchester; Susan Chamberlin, Esq. of Donahue, Tucker & Ciandella, for the
City of Concord; Carlos A. Gavilondo, Esq. for Granite State Electric/New
England Power Company; Robert A. Olson, Esq. of Brown, Olson, and Wilson
representing six wood-fired power plants; Steven, V. Camerino, Esq. of
McLane, Graf, Raulerson & Middleton, for Great Bay Power Corp. and the City
of Claremont; Timothy W. Fortier for the Business & Industry Association of
N.H.; James A. Monahan and Andrew Weissman, Esq. of Morrison & Foerster,
L.L.P. for Cabletron Systems, Inc.; Joshua L. Gordon, Esq. and Robert A.
Backus, Esq. For the Campaign for Ratepayers' Rights; Robert Upton II, Esq.
of Upton, Sanders & Smith for the Towns of Bow, New Hampton, Gorham,
Hillsboro and Franklin; Robert P. Cheney, Jr., Esq. of Sheehan Phinney Bass +
Green P.A. representing JacPac Foods, Ltd.; Mary Metcalf for Seacoast Anti-
Pollution League; James T. Rodier, Esq. for Consumers Utility Service
Cooperative and Freedom Partners, LLC; Michael W. Holmes, Esq. and Kenneth
Traum of the Office of Consumer Advocate representing Residential Ratepayers;
John E. McCaffrey, Esq. of Morrison & Hecker, LLP for PUC Staff advocates;
Lynmarie Cusack, Esq. of the NH Public Utilities Commission for PUC
Settlement Staff, and Larry Eckhaus, Esq. for the Staff of the New Hampshire
Public Utilities Commission.
I. INTRODUCTION
This Order addresses Public Service Company of New Hampshire's ("PSNH")
Motion for Findings of Fact and Issuance of a Finance Order, filed with the
New Hampshire Public Utilities Commission ("Commission") in this docket on
June 23, 2000. This Motion, and its accompanying proposed finance order, was
filed in response to the Commission's directive to PSNH to file a request for
a finance order pursuant to which rate reduction bonds would be issued, and
to include a proposed form of order. See General Counsel letter of June 12,
2000.
The scope of this Order is confined to addressing the relief requested
in PSNH's Motion. The companion order issued today in this docket, Order No.
23,549, addresses all other remaining issues in this case, and contains a
more complete recitation of the procedural history and positions of the
parties.
As stated in the Motion, 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
requires the prior approval by the Commission in the form of a finance order.
PSNH asserts that the finance order must contain provisions that maximize the
likelihood of achieving "triple-A" ratings on the RRBs and enhance the
marketability of the Rate Reduction Bonds ("RRBs"). Accordingly, PSNH
included in its filing a proposed 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").
PSNH requests that 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;
(iii) approve the organization and capitalization of a special purpose
financing entity, to which the RRB Charge and other related rights
will be sold;
(iv) provide for the periodic adjustment of the RRB Charge via a true-up
mechanism;
(v) approve the general structure of the RRB Transaction and terms of
the RRBs;
(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.
Hearings on this matter and the remaining outstanding issues were held
on July 6 and 7, 2000, during which PSNH presented a panel of witnesses who
testified in support of its Motion. An opportunity to cross-examine the
panel and provide responsive testimony was provided to all parties. Other
than the issue of the appropriate level of securitization, which is addressed
by the Commission in today's companion order, objections to the relief
requested by PSNH's Motion were raised in the post hearing briefs filed by
Wausau Papers of New Hampshire ("Wausau") and Great Bay Power Corporation
("Great Bay").
Wausau objects to PSNH's Motion, including the proposed finance order,
on grounds that it would violate the unambiguous terms of RSA 369-B and
result in an unconstitutionally vague decision. Wausau argues that PSNH's
description of the procedures and methodologies it is asking the Commission
to approve make it impossible for the Commission to determine with certainty
what it is approving. Further, it alleges that a finance order with such
vague references to testimony for describing essential terms will be
unconstitutionally vague because it will fail to apprise a person of the
circumstances upon which the RRB charge will be assessed. Wausau recommends
that the Commission explicitly state the terms, procedures and methodologies
it is approving, and that the Commission should limit the scope of the post
finance order modifications (as a result of negotiations with the rating
agencies) to those outlined in Exhibit F-12.
Great Bay raises several objections. First, Great Bay claims that RSA
369-B is unconstitutional, but it does not discuss the issue, asserting that
the Commission has previously determined that it has no jurisdiction to
determine the constitutionality of legislation.
Second, Great Bay argues that approval of PSNH's finance proposal would
require the Commission to abrogate its responsibility to review the prudence
of the utility's expenditures and result in an improper delegation of
authority to the State Treasurer. Great Bay points out that PSNH's
securitization proposal seeks broad authority to change the terms of the
proposed transaction, and seeks approval of terms before the specific amounts
or nature of the expenditures are known. Further, Great Bay submits that the
proposed finance order allows rating agencies to dictate additional
requirements, such as further conditions to be imposed upon a third party
supplier seeking to provide billing services.
Great Bay argues that RSA 369-B:5, XI, which provides the Treasurer with
oversight authority does not require wholesale abrogation of regulatory
oversight as, it alleges, is proposed by PSNH. PSNH, according to Great Bay,
is proposing that the Commission improperly divest itself of jurisdiction
with regard to any matters once the finance order is issued, unless and only
if the Treasurer files a complaint. Great Bay submits that the Treasurer's
role, as proposed by PSNH, is supposed to constitute part of this proceeding,
yet she is not an intervenor, and there is no role provided for any other
party in the oversight process.
Great Bay also argues that PSNH is requesting that the Commission rule
ex ante that numerous expenditures, agreements and actions yet to be known
(or, in the case of the Servicing Agreement and Administration Agreement yet
to be filed) are reasonable, and that this approach will deny due process for
any of the parties participating in the case. In a similar vein, Great Bay
argues that PSNH's proposed financing order would result in the Commission's
delegating to private rating agencies numerous important matters that could
affect the terms of the financing transactions being approved, the cost of
those transactions ultimately borne by ratepayers, and the terms on which
competitive suppliers may participate in New Hampshire's electric market.
On August 28, 2000 the Commission's General Counsel notified the parties
by letter that it was necessary to convene a technical session to address
certain questions and to obtain clarification on certain portions of the
proposed finance order. The State Treasurer was invited to attend the
session in respect of her obligations under RSA 369-B:5, IX. Prior to the
technical session, the General Counsel circulated to the parties a revised
draft of the proposed finance order. The technical session was held on
August 31, 2000. As part of the technical session, parties were given an
opportunity to submit written comments upon the revised draft proposed
finance order by September 1, 2000. Written comments were submitted by
Governor's Office of Energy and Community Service ("GOECS"), PSNH, Wausau,
and the State Treasurer.
As described in greater detail below, we grant PSNH's Motion in most
material respects. The Commission finds, however, that there is some merit
to the arguments of Wausau and Great Bay concerning the proposed finance
order. Therefore, the Commission has not approved the form of proposed
finance order originally submitted by PSNH. The order below, consisting of
the Transaction Description, Findings and Approvals and Authorizations, has
been crafted to more closely adhere to the requirements of RSA Chapter 369-B
with respect to the terms and conditions of rate reduction financing, and
more precisely define the scope of the necessary flexibility PSNH will have
to negotiate the final terms of the bond issuances. In addition, the
authority and responsibilities of the Commission and the State Treasurer
during and subsequent to the transaction are more clearly spelled out.
II. TRANSACTION DESCRIPTION
A. The Original Proposed Settlement and the April 19 Order
The "Agreement to Settle PSNH Restructuring" dated August 2, 1999 (the
"Original Proposed Settlement" or "OPS"), was entered into by and among the
Governor of New Hampshire, GOECS, the Office of the Attorney General, the
Settlement Staff of the Commission, PSNH, and Northeast Utilities ("NU") "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 OPS. OPS at 1:11.
Among its most significant provisions, the OPS provided that the
Commission "will be requested, subject to final action by the Legislature as
provided in 1999 N.H. Laws 289:3, II" to approve the issuance of rate
reduction bonds ("RRBs") to finance a portion of the PSNH's stranded assets.
OPS at 61:1754. The OPS asserted that: "securitization is a useful tool for
lowering customers' bills and maximizing customer benefits"; it "will allow
PSNH to reduce its cost of capital, thereby significantly reducing rates for
customers"; and it was a "pivotal element of the settlement" accounting for
approximately 4 to 8.2 percentage points of the OPS's proposed 18.3% rate
reduction. OPS at 60:1709-1718. NHPUC Order No. 23,443 at 136.
Securitization is the financing of a specific asset or pool of assets,
through the issuance of securities, frequently referred to as "asset-backed
securities." For debt service and repayment of principal, these securities
rely solely on the revenue stream underlying the asset or pool of assets,
and, as a result, their ratings are dependent upon the predictability or
volatility of that associated cash flow. PSNH Witness Englander, Direct
Testimony, Phase I, Ex. 6 (hereinafter "Phase I, Ex.6") at 4:15.
The parties to the OPS agreed to support legislation that would allow
PSNH to securitize a portion of its stranded costs by issuing RRBs. OPS at
60:1725. The OPS provided that passage of acceptable legislation and
successful completion of the proposed RRB issue was a condition to
implementing the agreement. OPS at 60:1717.
The OPS also provided 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 may mutually agree,
to assure that PSNH exercises fiscal prudence, and achieves the lowest
overall cost for the RRBs." OPS at 68:1940.
The OPS stated that the Commission would be requested to approve the
issuance of $725 million of RRBs to securitize a like amount of the following
stranded costs: <FN 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
In its Order No. 23,443 dated April 19, 2000 (the "April 19 Order"), the
Commission approved the OPS, subject to the settling parties accepting a
number of conditions. Among its findings, the Commission, after careful
examination of the record, found that securitization would offer significant
cost savings to PSNH's customers. April 19 Order at 200. However, as
prescribed in the April 19 Order, the Commission also found that, because of
their continuing amortization, and as a result of Competition Day ,<FN 2>
occurring on or after July 1, 2000 rather than January 1, 2000 as originally
modeled, 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 OPS, as set forth above. April 19
Order at 202. 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. April 19 Order at 283.
Following the issuance of the April 19 Order, PSNH notified the
Commission of its contingent acceptance of the Commission's conditions for
approval of the OPS. PSNH Response to Order No. 23,443, filed May 1, 2000.
PSNH responded that it would accept a "cap on securitization to an amount up
to $688 million" and that it would "agree to calculate the maximum amount of
securitization based upon estimated financial results reconciled to our
best-estimate of Competition Day." PSNH Response at 4. <FN 3> Attachment A
to PSNH's Response, at page 27, indicated an estimated securitized amount of
$575 million. The other parties to the OPS notified the Commission of their
acceptance of all of the Commission's conditions. See "Acceptance of
Conditions by the Governor's Office of Energy and Community Services and
Settling Staff," filed May 1, 2000.
Requests for Rehearing, Reconsideration or Clarification of the April 19
Order were filed by: the Towns of Bow, Hillsboro, and Gorham, the City of
Franklin and the Village Precinct of New Hampton; Great Bay Power
Corporation; Freedom Partners, L.L.C.; Wausau Papers of New Hampshire, Inc.;
Cabletron Systems, Inc.; the Office of consumer Advocate, on behalf of itself
and EnerDev, Inc., and Granite State Taxpayers, Inc.; the Business & Industry
Association of New Hampshire; and the Campaign for Ratepayers Rights, on
behalf of itself and Granite State Taxpayers, Inc., THINK-NH, and New
Hampshire Public interest Research Group. These motions are addressed in the
accompanying Order on Rehearing, issued today by the Commission.
B. Legislation
1. 1999 N.H. Laws 289
1999 N.H. Laws 289:3, I, effective July 16, 1999, required the
Commission to hold hearings to review any compliance filing under RSA 374-F
or settlement proposal that included a securitization proposal. It also
required that the Commission, as part of any order addressing the compliance
filing or settlement proposal, make a determination as to: whether the
securitization proposal contained therein will result in benefits to
customers that are substantially consistent with the principles set forth in
RSA 374-F:3, RSA 369-A:1, X and RSA 369-A:1, XI; and, whether the rate
reduction bonds issued pursuant to the securitization proposal would be
successfully traded at favorable rates on the existing securitization market.
The Commission was also authorized to issue an order on a settlement proposal
that included a conditional securitization proposal for legislative review.
Under 1999 N.H. Laws 289:3, II, the Commission was prohibited from permitting
the issuance of rate reduction bonds without legislative authorization. In
addition, this section provided that any Commission determination regarding
securitization would not create a presumption of legislative approval of the
necessary authorization to use securitization, and that any Commission
conditional order would not become effective until the passage of enabling
legislation.
2. 2000 N.H. Laws 249
Following the issuance of the April 19 Order, the General Court enacted
2000 N.H. Laws 249, effective June 12, 2000. This legislation, among other
things, creates a new chapter RSA Chapter 369-B which, in the Declaration
of Purpose and Findings, finds that implementation of the securitization
proposal contained in the OPS, subject to the conditions listed in the April
19 Order, and as further modified by such chapter, will result in benefits to
customers that are substantially consistent with the principles contained in
RSA 374-F:3, RSA 369-A:1, X and RSA 369-A:1, XI. RSA 369-B:1,VII.
RSA Chapter 369-B provides 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.
(a) Limitations on Issuance of RRBs
The authority of an electric utility to issue RRBs, once approval from
the Commission has been obtained, expires on December 31, 2002. RSA 369-B:5,
I. The use of proceeds from the issuance of the RRBs is also strictly
limited: they shall only be applied for the purposes approved in the finance
order. RSA 369-B:5, II. RRBs issued according to the provisions of RSA
Chapter B shall not constitute a debt or liability of the state or any
political subdivision thereof, or a pledge of the full faith and credit of
the state or any political division thereof, and shall be payable only from
the funds provided for, as described below. RSA 369-B:5, IV. RRBs shall
mature at the times provided in the finance order, but not later than 14
years after Competition Day. RSA 369-B:5, VIII.
(b) Limitation on Aggregate Amount of Securitization, Issuance and
Redemption Cost Recovery With Respect to PSNH
RSA 369-B:3, IV(b) provides that the Commission may only authorize the
issuance of not more than $670 million in rate reduction bonds as part of a
settlement to implement restructuring within the service territory of PSNH.
It also requires that a financing order may not be issued by the Commission
unless it is able to find that PSNH has committed to reducing the maximum
amount of financing costs and costs of any premiums associated with the
retirement of debt and preferred stock that may be recovered from customers
to $15 million.<FN 4> Pursuant to RSA 369-B:3, V, finance orders issued by
the Commission that are consistent with RSA Chapter 369-B shall become
effective without further action by the General Court.
(c) RRB Costs, Charges and Property
RRB Costs are costs incurred by and obligations of an electric utility,
and designated as such by the Commission, and may include, but not be limited
to: (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. RSA
369-B:2, XIV.
The RRB Charge is the portion of the retail electric service rate
designated to recover RRB Costs. It is to be assessed on a per kilowatt-hour
basis, shall be non-by-passable, and assessed against all "retail customers"
of the electric utility distribution system taking "retail electric
service."<FN 5> The RRB Charge must be sufficient to recover all RRB Costs
approved by the Commission, including the payment of principal, premium, if
any, interest, credit enhancement and all other fees costs, and charges of
the RRBs. RSA 369-B:2, XII; RSA 369-B:4, I, II and IV. The RRB Charge may
vary by cost of service, by customer class, and between special contract
customers. RSA 369-B:2, XIII. The RRB Charge is Part 1 of the stranded cost
recovery charge ("SCRC") described in the OPS and the April 19 Order. The
RRB Charge is to be adjusted periodically, but not less frequently than
semi-annually nor more frequently than monthly, as specified in the finance
order. RSA 369-B:4, III. (See the description of the "True-Up Mechanism"
below).
RRB Property is an irrevocable vested property right created by the
Commission in a finance order issued under authority of RSA Chapter 369-B.
It includes the right to all revenues, collections, claims, payments, money
or proceeds arising from the RRB Charge authorized to be imposed and
collected pursuant to such finance order. RSA 369-B:2, XV. The RRB Property
right shall continue to exist until the RRBs, the RRB Costs and any
arrearages are paid in full. RSA 369-B:6, I.
(d) State Pledge Not to Impair Rights
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 met and
discharged, unless adequate provision is made by law for the protection of
the owners, holders and trustees. RSA 369-B:6, II.
(e) Sale of RRB Property
RRB Property may be sold to an affiliate or one or more financing
entities (hereinafter known as a "special purpose financing entity" or "SPE")
that make that property the basis for the issuance of the RRBs. RSA 369-B:6,
III. The sale or transfer of the RRB Property shall be treated as a "true
sale" or absolute transfer, if the parties to the transfer expressly so state
in the governing documentation, and the transaction is approved by the
Commission in a finance order and is made in connection with the issuance of
the RRBs. RSA 369-B:6, V. If any interest in RRB Property is sold or
assigned by the utility, the Commission will require the utility to contract
with the SPE that it will continue to operate its system to provide service
to its retail customers, will collect the RRB Charge for the benefit and
account of the SPE, and will remit the amount of the RRB Charge so collected
to the account for the SPE. RSA 369-B:6, IV. A SPE or other assignee shall
not be considered an electric utility solely by virtue of its acquisition of
an interest in RRB Property in the manner described above. Id.
The characterization of the transfer of the RRB Property as a "true
sale" will not be impaired or negated notwithstanding any contrary treatment
of such transfer for accounting, tax or other purposes. RSA 369-B:6, V. The
finance order will remain in effect notwithstanding any bankruptcy,
reorganization or insolvency proceeding involving the transferor of the RRB
Property. Id. The interest of the transferee or assignee in the RRB
Property is not subject to setoff, counterclaim, surcharge, or defense by the
electric utility or any other person, or in connection with the bankruptcy of
the electric utility or any other person. RSA 369-B:6, VIII.
(f) Effect of Municipalization
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 September 8 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 OPS
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 initial hearings in this matter, the conditions set forth in
the April 19 Order accepted by such parties, and the new conditions and
requirements set forth in RSA Chapter 369-B.
In its Order No. 23,549, dated September 8, 2000 (the "September 8
Order" and, together with the April 19 Order the "Settlement Orders"), the
Commission approved the Conformed Settlement Agreement and modified the April
19 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 its proposed RRB Transaction, and find that they are
consistent with achieving the highest rating and therefore the lowest cost on
the RRBs. This proposed structure is subject to certain limited
modifications, as described below, subsequent to the issuance of this finance
order, to allow for negotiations with rating agencies that will assign credit
ratings to the RRBs, tax authorities, and market conditions at the time the
RRBs are issued. The final structure will be determined 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 exercise of fiscal prudence
and achievement of the lowest overall cost, and remaining substantially and
materially consistent with the transaction structure described herein and
approved by the Commission. During the hearings on this matter, PSNH
provided its estimation of the overall cost, calculating an effective rate
7.52 percent on the RRBs assuming a RRB coupon rate of 7 percent, a term of
12 years, overcollateralization of 0.50 percent, 5 percent interest on the
overcollateralization account, ongoing transaction costs of $220,000 per
year, and $17,000,000 of issuance costs (including call premiums to retire
debt and preferred stock). Phase I, Ex. 66 (Response to HD-08, Q-RR-001).
As provided in RSA 369-B:5, IX, the State Treasurer shall oversee the
terms and conditions of the RRB issuances. As provided in RSA 369-B:6, I,
the Commission has the authority to initiate such other proceedings, hold
such other hearings, and take such other actions as may be necessary to
implement, protect, and preserve the value of this finance order, the RRB
Charge specified herein, and the RRB Property.
Pursuant to the Settlement Orders and RSA 369-B:3, IV(b), PSNH will
securitize not greater than $670 million of its overall stranded costs, minus
$6 million for each month from October 1 to Competition Day, and including
$15 million of financing and debt retirement premium costs. The maximum
amount of each of the four categories of stranded costs that may be
securitized is as follows:<FN 6>
Seabrook Over-Market Generating Assets (NAEC) $494 million
Millstone 3 Over-Market Generating Assets 64 million
Acquisition Premium and FAS 109 97 million
Financing and Debt Retirement Premium Costs 15 million
Total $670 million
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 as a
Delaware limited liability company authorized to acquire RRB Property and to
issue RRBs. Phase I, Ex. 6 at 17:25; Tr. 7/6/00 at 235:18. As a limited
liability company, it will be wholly-owned by PSNH. In order for the SPE to
remain "bankruptcy-remote" from PSNH, the fundamental organizational
documents of the SPE shall impose significant limitations upon its activities
and the ability of PSNH to take actions as the holder of the equity interest
therein. The SPE shall be formed for the limited purpose of acquiring the
RRB Property and Other SPE Collateral (defined below) and issuing and selling
the RRBs. It shall not be permitted to engage in any other activities, and
shall have no assets other than the RRB Property and Other SPE Collateral.
The SPE shall 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, out of a total board of not more than five members.
Without the consent of these independent parties, the SPE shall 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. Phase I, Ex. 6 at 17:29.
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. 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. A draft of the Administration Agreement was provided by PSNH in
response to Q-RR-004, Ex. F-17. 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 shall sell all of its rights in the RRB Property to the SPE,
expressly stating in the transfer's governing documentation that it is a sale
or other absolute transfer from PSNH to the SPE. Pursuant to RSA 369-B:6,
V, this transfer shall be treated as an absolute transfer of all of PSNH's
right, title and interest to the SPE, as a true sale. As an absolute
transfer or true sale of RRB Property to the bankruptcy-remote SPE, and as
provided in RSA 369-B:6, VIII, 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. Phase I, Ex. 6 at 18:10.
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.
Phase I, Ex. 6 at 19:4-12. 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, while
remaining consistent and in accord with the terms and conditions of the
Conformed Settlement Agreement, the Settlement Orders and RSA Chapter 369-B.
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 the
Commission, as provided in this Finance Order, of the results of her
oversight and her conclusions with respect thereto. Upon final determination
of all terms of the RRBs, and prior to their issuance, PSNH will file an
issuance advice letter substantially in the form of Attachment MAE-1 to Phase
I, Ex.6 (the "Issuance Advice Letter").<FN 7>
The RRBs will be non-recourse to PSNH and its assets, and, as provided
in RSA 369-B:5, IV, shall 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. 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 shall 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. To the extent that
the variable rate of the RRBs ever exceeds the fixed rate that was used to
calculate the RRB Charge, such a mechanism will absorb the rate increase that
would otherwise be required to fully pay the interest on the RRBs. Phase I,
Ex. 6 at 22:20. The RRBs may only be variable-rate instruments if such
issuance will result in a lower all-in cost associated with the RRBs. Id. at
22:14.
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 Issuance Advice Letter. Phase I, Ex. 6 at 24:26 and 25:9. Prior to
the issuance of each series of 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 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). Tr. 7/6/00 at 237:11.
As provided in RSA 369-B:4, V, 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. RSA 368-B:6, IV. 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, subject to the approval of the Commission, under the Servicing
Agreement pursuant to this Finance Order, RSA 369-B:6, I, 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 Phase I, Ex. 6, 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. Phase I, Ex. 6 at 34:5-22.
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. PSNH testified that it anticipated
being required by the rating agencies to remit such actual collections of the
RRB Charge to the SPE on a daily basis. Tr. 10/29/99 at 233:14. To the
extent PSNH or any successor Servicer may be permitted to remit such RRB
Charge collections to the SPE less frequently than daily, it may be required
by the Commission to provide data showing the calculation of the customer
daily remittances, timing of remittances to the SPE and the then applicable
short-term interest rate to determine the amount of income earned by PSNH or
its successor in its capacity as Servicer. Such income may be imputed in
calculating and reconciling the SCRC pursuant to Section V.B.4 of the
Conformed Settlement Agreement.
To the extent estimation of collections of the RRB Charge 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. Phase I, Ex. 6 at 34:30.
Unless a successor Servicer is not billing the RRB Charge in conjunction
with other charges, the Servicer will allocate amounts collected from each
retail customer on a pro rata basis among the SCRC and the Delivery charge,
system benefits charge, energy consumption tax, Hydro-Quebec support
payments, and, if applicable, the transition or default service charges as
these charges are identified in Section V of the Conformed Settlement
Agreement. <FN 8> 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
The Commission shall not permit, approve or require 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 to
any successor Servicer), in whole or in part, unless the following minimum
requirements apply:
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.
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 foregoing requirements may be modified in accordance with the
terms of the RRB financing documents, subject to approval by the Commission,
and written confirmation from each rating agency then maintaining a rating on
the RRBs that such change will not adversely affect the ratings then
outstanding on the RRBs.
6. Credit Enhancement; Overcollateralization and True-Up
Credit enhancement is typically necessary in securitization transactions
to provide rating agencies and investors with added confidence that principal
and interest will be paid. Phase I, Ex. 6 at 25:28. 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. Id. at 26:7. 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). Id. at 26:24-28:13. 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 Phase I, Ex. 6 at 28:16-30:8.
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"). Id. at 27:20. 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.
Id. at 27:29. 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. Id. at 28:1.
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 Phase I, Ex. 6 at 30:9-32:31 (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 semi-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 or such other manner as the Commission may direct at that time.
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
Phase I, Ex. 6). 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, ("RED", 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) only to be effective upon
review and approval by the Commission that such adjustment is necessary to
ensure the timely recovery of all RRB Costs that are the subject of this
Finance Order, with such review and determination to occur within 60 days of
such filing. RSA 369-B:4, III.
Both Routine True-Up Letters and Non-Routine True-Up Letters may be
filed 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 Part 3, and, if necessary or
if the RED has occurred, Part 2 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. Phase I, Ex. 6 at 36:25.
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. Id.
at 37:14.
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. Phase
I, Ex. 6 at 36:8. 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. Id. at 36:18. 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. Id. at 36:13.
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 as a 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:<FN 9>
Buyout of Power Purchase Obligations $329 million
Retire PSNH Capital 326 million
Financing and Debt Retirement Premium Costs 15 million
Total Use of Proceeds $670 million
PSNH shall 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.
III. FINDINGS
Based on the foregoing, the Commission hereby FINDS:
Overall Findings
1. The issuance of this Finance Order, the implementation of the
securitization transaction described above in the Transaction Description and
the consummation of the RRB Transaction in accord thereof, 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 Establishment of the RRB Costs
7. Pursuant to the Commission's determination in the September 8 Order
that PSNH may securitize up to $670 million of its stranded costs (consisting
of Seabrook Over-Market Generating Assets (NAEC), Millstone 3 Over-Market
Generating Assets, Acquisition Premium and FAS 109, and Financing and Debt
Retirement Premium Costs), this entire amount is eligible to be considered
"RRB Costs" within the meaning of RSA 369-B:2, XIV, is reasonable and is
eligible to be funded with the proceeds of the RRBs issued under the
authority of this Finance Order.
8. 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, 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.
9. 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
10. 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, is just and reasonable. This ultimate finding
is based upon the totality of evidence presented on the record of this
proceeding. This ultimate finding is also based upon the Commission's
specific reliance upon sworn representations of NU and PSNH witnesses during
the hearing on this matter that if, because of PSNH's conduct, the actual RRB
Charge or RRB Transaction is found to differ in a significant, material or
unreasonable way from the terms of this Finance Order, the Conformed
Settlement Agreement, the Settlement Orders or RSA Chapter 369-B, the
Commission will have the jurisdiction and authority with respect to PSNH or
its successors to take such remedial rate-making measures as necessary in
order to protect the public interest and to restore the equitable,
appropriate and balanced result previously determined to exist. The evidence
presented also supports the following specific findings. The RRB Charge:
(a) will be a non-bypassable, nondiscriminatory, appropriately
structured charge of limited duration;
(b) will be a monthly usage-based charge to be stated on each
retail customer's monthly bill;
(c) will be in an amount necessary and sufficient to provide for
the full recovery and payment of the Total RRB Payment Requirements; and
(d) will be a component of the SCRC.
11. The procedures and methodologies for adjusting the RRB Charge as
necessary to ensure the timely recovery of all RRB Costs during the term that
the RRBs are outstanding, as set forth in the Transaction Description, 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,
and this Finance Order, and comply with RSA 369-B:4, III.
12. 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, 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 369-B:4, IV and
this Finance Order.
13. The procedures and methodologies for allocating amounts collected
from retail customers that purchase or otherwise obtain back-up, maintenance,
emergency or other delivery or energy service, on a pro rata basis among the
SCRC and the Delivery Charge, system benefits charge, energy consumption tax,
Hydro-Quebec support payments, and, if applicable, the transition or default
service charges as these charges are identified in Section V of the Conformed
Settlement Agreement and other rates and charges, as described in the
Transaction Description and PSNH's Retail Delivery Service Tariff as filed
with the Commission in this proceeding, are reasonable.
14. 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 and the
Settlement Orders, 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.
15. 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.
16. 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
17. The issuance of the RRBs pursuant to the terms of this Finance
Order is reasonable and consistent with the public good.
18. The Commission finds that in order to obtain the highest rating on
the RRBs as possible, commensurate with achieving the lowest overall cost for
the RRBs consistent with market conditions then in existence, it is
necessary, reasonable and consistent with RSA Chapter 369-B that PSNH be
afforded a reasonable degree of flexibility in establishing the terms and
conditions of the RRB issuances with respect to the following matters, as
long as the resulting issuance is consistent with the Transaction Description
and Settlement Orders:
(a) The amount of the initial capitalization of the SPE;
(b) The form, interest rate (whether fixed or variable), price,
amortization schedule, number of series, number of classes and their
principal amount, and determination of credit ratings and other
characteristics of RRBs;
(c) The all-in cost of the RRBs, provided that as calculated in
accordance with Exhibit 1 attached to this Finance Order, the all-in cost
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;
(d) The rating agencies from which it will seek ratings for the RRBs,
the number of ratings agencies from which ratings shall be sought, and the
actual ratings level targeted;
(e) The issuance of variable-rate RRBs, provided that a fixed-interest
rate payment must be used to calculate the RRB Charge, and if such
variable-rate issuance will result in a lower all-in cost associated with the
RRBs;
(f) The Servicing Fee for any successor Servicer, if such 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;
(g) The number of subaccounts of the Collections Account into which
the RRB Charge collections will be deposited;
(h) The actual amount of Overcollateralization and other credit
enhancement;
(i) Whether it is necessary to obtain a letter of credit or other
credit enhancement to protect against any cash collection losses resulting
from the temporary commingling of funds; and
(j) Such other up-front and ongoing transaction costs, as described in
the Transaction Description, as may be required by the rating agencies and
tax authorities.
19. 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.
20. 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.
21. 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.
22. 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
23. 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.
24. 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 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.
25. 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.
26. 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
27. The organization and capitalization of the SPE in accordance with
the Transaction Description or as may be required by the rating agencies and
tax authorities will, along with other measures, enable the RRBs to receive
the highest investment ratings and therefore be issued at the lowest possible
cost under then-current market conditions.
28. The SPE is a "financing entity" within the meaning of RSA 369-B:2,
VI.
29. 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 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 Transaction Description.
30. PSNH's proposed use of the proceeds from the sale of the RRB
Property to the SPE as described in the Transaction Description constitutes
permissible uses of such proceeds in accordance with RSA 369-B:5, II.
Findings Regarding Related Agreements and Accounting and Collections
31. PSNH is authorized to enter into a Servicing Agreement and
Administration Agreement with the SPE to consummate the RRB Transaction and
to implement this Finance Order, as described in the Transaction Description.
Such Servicing and Administration Agreements shall be in substantially the
same form in material respects as those submitted as Exhibit F-17 in this
docket. PSNH shall file a copy of the executed Servicing and Administration
Agreements with the Commission within three business days of their effective
dates.
32. 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.
33. The RRB Charge billing, collection, and remittance procedures to
be imposed upon any approved TPS, as set forth in the Transaction
Description, are commercially reasonable and comply with the provisions of
RSA 369-B:4, IV. The Commission finds that the billing, collection and
remittance of RRB Charges by a TPS may increase the risk of shortfalls in the
RRB Charge collections. The Commission also finds that the risk of
interruption may increase the risk to investors, potentially reducing the
credit ratings and increasing the cost of the RRBs. Tr. 7/06/00 at 134-137;
190-192. The standards for such procedures set forth in the Transaction
Description are consistent with those imposed by public utility commissions
in connection with recent securitization approvals of similar size and
complexity. See Re Public Service Electric and Gas Company, 197 PUR4th 102
(NJBPU, September 17, 1999); Re Boston Edison Company, 193 PUR4th 274 (MDTE,
April 2, 1999).
34. 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 Regarding PSNH's Use of Proceeds
35. The use of proceeds by PSNH, as long as deployed in a manner that:
(i) will maximize the savings to retail customers; (ii) is consistent with
the goals and objectives described at the July 6-7, 2000 hearings; and (iii)
will be applied to the three "use of proceeds" categories described in the
Transaction Description is just and reasonable. Any subsequent review by the
Commission of the use of proceeds by PSNH shall not suspend the effectiveness
of this Finance Order.
Findings Required by RSA 369-B:3, IV(b)
36. The RRBs authorized by this Finance Order are consistent with the
Settlement Orders.
37. This Finance Order is consistent with the conditions set forth in
RSA 369-B:3, IV(b).
38. This Finance Order satisfies the conditions and requirements of
RSA 369-B:3, IV and the other requirements of RSA Chapter 369-B.
39. 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
40. 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. This determination is
subject to the provisions of RSA 365:28.
Findings Regarding Application of Restructuring Payments by NAEC
41. Utilizing the proceeds received from PSNH in connection with the
restructuring 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.
IV. APPROVALS and AUTHORIZATIONS
Based on the foregoing, the Commission hereby GRANTS the following Approvals
and Authorizations:
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 proposal 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. 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
4. The Commission approves and designates as RRB Costs, within the
meaning of RSA 369-B:2, XIV: (i) an amount no greater than $670 million of
PSNH's stranded costs and up-front transaction costs, as detailed in this
Finance Order and described in the Transaction Description, and approved in
the Settlement Orders; <FN 10> and (ii) 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.
Approvals Regarding the RRB Charge
5. 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, and the Findings is just and reasonable and is
hereby approved.
6. The initial RRB Charge, as determined in accordance with the
Transaction Description, 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 Phase I, Ex. 6, is just and reasonable and is hereby
approved. Such initial RRB Charge will be effective upon such filing.
7. 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, are just and reasonable, and are
hereby approved.
8. 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, is just and reasonable, and is
hereby approved.
9. The procedures and methodologies for allocating amounts collected
from retail customers that purchase or otherwise obtain back-up, maintenance,
emergency or other delivery or energy service, on a pro rata basis among the
SCRC and the Delivery Charge, system benefits charge, energy consumption tax,
Hydro-Quebec support payments, and, if applicable, the transition or default
service charges as these charges are identified in Section V of the Conformed
Settlement Agreement, and other rates and charges, as described in the
Transaction Description and PSNH's Retail Delivery Service Tariff as filed
with the Commission in this proceeding, are reasonable, and such procedures
and methodologies are hereby approved.
10. The SCRC, averaged over all customers (including the RRB Charge),
shall not exceed 3.40 cents/kWh.
Approvals Regarding the Issuance of the RRBs
11. Subject to Approval No. 13 below, the issuance of the RRBs
substantially in accordance with the Transaction Description, 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.
12. Subject to Approval No. 13 below, and as long as consistent with
Finding No. 18, above, 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, 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 overall 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.
13. 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.
14. 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.
15. The State Treasurer shall provide a report of the results and
conclusions of her oversight activities to the Commission and PSNH (the
"Report") within 90 days after the RRB issuance.
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 the Commission and PSNH in writing
of such conclusion (the "State Treasurer's Preliminary Conclusion"). Such
written notice shall include in reasonable detail the basis for the State
Treasurer's Preliminary Conclusion. Such notification by the State Treasurer
to the Commission and PSNH shall not suspend the effectiveness of this
Finance Order.
17. If the State Treasurer (i) shall have delivered to the Commission
and PSNH a written notice pursuant to Approval No. 16 above and (ii)
concludes that PSNH caused the RRBs to be issued without adequately
addressing the State Treasurer's Preliminary Conclusion (the "State
Treasurer's Final Conclusion"), the State Treasurer shall include in its
Report in reasonable detail the basis for the State Treasurer's Final
Conclusion. Such filing by the State Treasurer with the Commission shall not
suspend the effectiveness of this Finance Order.
18. Upon receipt of the Report, delivered pursuant to Approval No. 17
above and containing therein the State Treasurer's Final Conclusion, 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 Preliminary Conclusion, PSNH failed to exercise prudence and
achieve the lowest overall cost for the RRBs. If the Commission so
determines that 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 is hereby approved. Such RRB Property, constituted and effective in
accordance with RSA 369-B:2, XV, 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:2, XV and 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 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 recover RRB Costs and 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 (b) 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 with all of
the rights and privileges of RSA 369-B:2, XV, RSA 369-B:6, and RSA 369-B:7
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 creation 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 hereby approved.
24. The initial capitalization by PSNH of the SPE, in accordance with
the Transaction Description and Findings, 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 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.
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 acknowledgment 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 to the SPE, PSNH or any successor Servicer shall not be entitled to
recover RRB Charges other than for the benefit of the SPE or its successor,
in accordance with RSA 369-B:6, IV and PSNH's or any successor'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, upon the effective date of this
Finance Order, 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.
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 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 and such other procedures contained in the
RRB Transaction documents as the rating agencies may require, once such
additional procedures are approved by the Commission.
34. The RRB Charge billing, collection, and remittance procedures to
be imposed upon any approved TPS, as set forth in the Transaction
Description, and found, in Finding No. 33, above, to be commercially
reasonable and in compliance with the provisions of RSA 369-B:4, IV, are
hereby approved.
Approval Regarding Swap and Hedge Transactions
35. Subject to Approval No.13 above, the implementation of swap
agreements or other hedge transactions in connection with the RRBs consistent
with the Transaction Description and Findings, above, 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, to the extent it is substantially
consistent in material respects with the description of such agreement in the
Transaction Description and the draft submitted as part of Ex. F-17, 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, 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 Delivery charge, system
benefits charge, energy consumption tax, Hydro-Quebec support payments, and,
if applicable, the transition or default service charges as these charges are
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 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 or such other manner as the Commission may direct at that time.
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, to the extent it is substantially
consistent in material respects with the description of such agreement in the
Transaction Description and the draft submitted as part of Exhibit F-17,
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, 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 OPS;
(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 April 19 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 OPS 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 one 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
OPS. 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
benefits 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 benefits 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. This approval is subject to the provisions of RSA 365:28.
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.
V. ORDER
Based on the foregoing, it is hereby
ORDERED, that PSNH's Petition for Issuance of a Finance Order is
APPROVED, as modified by and subject to the terms of the Transaction
Description contained herein, and consistent with the Findings and Approvals
and Authorizations granted.
By order of the Public Utilities Commission of New Hampshire this eighth
day of September, 2000.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Debra Howland
Acting Executive Director
EXHIBIT 1 ALL-IN COST<FMN 11>
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.
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:<FN 12>
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 $0.04 mm
(net of interest earnings) and
fees and expenses per annum
(excluding servicing fees)
Principal Payment Schedule:
Payment Date Principal Payment Principal Ending
($mm) 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 $100 -
Calculation
Payment (t) Payment (p) Principal (i) Interest (f)(p)+(i)(f)
Date Period Payment ($mm) Payment Overco- ($mm)
($mm) collateral
-ization
Fees, and
Expenses ($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
Payments are annual so n = 1.
17.54 + 26.79 + 35.29 + 43.04 y 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) filed with the Commission pursuant
to Docket No. DR 97-059, calculated in accordance with the following
example:13
Calculation of ROR
Capital Structure 3/31/99Begin 3/31/00End of Average % Embedded ROR
Average ning of Period Period(000s) (000s) Cost
(000s)
Long Term Debt $516,485 $516,485 $516,485 39.40% 8.24% 3.25%
Preferred Stock 75,000 50,000 62,500 4.77% 9.54% 0.46%
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 for (Average Common
Common) Equity) (Net Income
ROE),<FN 14>
Calculation of Pre-Tax Revenue WACC
ROR GRCF Pre-Tax Revenue
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%
Pre-Tax Revenue WACC = 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.
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: <FN 15>
Assumptions
Issuance amount: $100mm
Issuance date: 1/1/2000
Final maturity: 1/1/2010
Payment dates: January 1st every year
Principal Payment Schedule:
Payment Date Principal Payment Principal Ending
($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 $100
Calculation
Payment Date (t) Payment (pt) Principal (dt-I) Days Between pt(dt-I)
Period Payment ($mm) Issuance Date and
Payment Date
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
= 7.05 years
Footnotes
FN1 See OPS at 61:1755 and at Appendix C thereto. 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 OPS. 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 OPS. OPS at 19:520. In accordance with the OPS,
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. OPS at 19:523.
Thus, in accordance with the OPS, 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.
FN2 Competition Day is defined in RSA 369-B:2, III, which in turn
references the definition provided in the OPS ("Competition Day").
FN3 Out of 39 conditions contained in the April 19 Order, PSNH requested
rehearing with respect to one that it did not unconditionally accept, and
sought clarification and modification of several others.
FN4 The $670 million securitization limitation is set forth in RSA
369-B:3, IV(b). RSA 369-B:3, IV(b) also provides that such limitation shall
be reduced by $6 million for each month from October 1, 2000 to Competition
Day. The $15 million limit on the recovery of financing costs and costs of
premiums associated with retirement of debt and preferred stock is set forth
in RSA 369-B:3, IV(b)(3)(E). PSNH shall include within this cap on cost
recovery the first $700,000 of the costs of the office of the State
Treasurer. Thus, to the extent that the State Treasurer incurs costs of
$700,000 or more, PSNH's recovery of its costs will be limited to $14.3
million.
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).
FN5 The definitions of "retail customers" and "retail electric service" set
forth in RSA 369-B:2, XI and XII are incorporated herein.
FN6 In its Response to Order No. 23,443 dated May 1, 2000 (the "Response
to April 19 Order"), PSNH proposed to securitize stranded costs in an amount
not greater than $575 million, including financing costs of $17 million. See
Response to Order No. 23,443, Attachment A, p. 11. This proposal was further
reduced by PSNH to not greater than $573 million to comply with the $15
million limit on securitizable financing and debt retirement premium costs
set forth in RSA 369-B:3, IV(b)(3)(E). During the July 7, 2000 hearing, the
GOECS and Settlement Staff provided testimony recommending that the finance
order authorize the issuance of the full amount authorized by the
Legislature, giving the Company the discretion to issue whatever amount it
determined was most appropriate, and having the Commission review the
prudence of the Company's decision at a later time. The final securitization
amount will be determined immediately prior to RRB issuance and will reflect
asset amortizations, actual financing costs, and the effect of the cost
recovery limitations required by RSA 369-B:3, IV(b)(3)(E).
FN7 The reference to "exit fees" on pages 1 and 3 of Attachment MAE-1 will
be eliminated in the final form of the Issuance Advice Letter.
FN8 RSA 369-B:4, V provides that the finance order shall specify how amounts
collected from a retail customer shall be allocated between the RRB Charge
and other rates and charges.
FN9 The actual use of proceeds amount will be adjusted, as necessary, to
reflect the final securitization amount. See supra note 6 and accompanying
text.
FN10 See supra notes 1, 4 and 6 and accompanying text.
FN11 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."
FN12 All numbers are for illustration purposes only.
FN13 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.
FN14 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.
FN15 All numbers are for illustration purposes only.
