FILE NO.70-9543
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 9
(POST-EFFECTIVE AMENDMENT NO. 1)
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES NORTHEAST GENERATION SERVICES
174 Brush Hill Avenue COMPANY
West Springfield, MA 01090-0010 107 Selden Street
Berlin, CT 06037
(Name of companies filing this statement and
addresses of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Cheryl W. Grise, Esq.
Senior Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to
David R. McHale Jeffrey C. Miller, Esq.
Vice President and Treasurer Assistant General Counsel
Northeast Utilities Northeast Utilities
Service Company Service Company
P.O. Box 270 P.O. Box 270
Hartford, Connecticut Hartford, Connecticut
06141-0270 06141-0270
I. The Applicants hereby request that the Commission release jurisdiction
over the proposal for NGS to provide services to NGC at other than cost, on
which the Commission reserved jurisdiction in HCAR No. 35-27148 (March 7,
2000).
II. Accordingly, the Application/Declaration in this File, as amended, is
hereby amended as follows:
A. Paragraphs 48 through 50 are deleted in their entirety and replaced with
the following paragraphs 48 through 55:
"The Service Agreement
48. As described in Item 1 of this Application, it is proposed that under
the Service Agreement, NGS will provide NGC with a variety of administrative,
operation, management and support services. These services are expected to
include, without limitation, services relating to information systems,
meters, transportation, electric system maintenance, marketing and customer
relations, engineering and construction services, materials management,
facilities, power planning, environmental affairs, equipment maintenance,
operations management and any other managerial, technical, administrative or
consulting services required in connection with NGC's business of owning or
operating facilities used for the generation of electric energy. Under the
Service Agreement NGC would agree to pay NGS a fixed annual fee plus an
incentive payment of up to 10% of the fixed fee (up to $2.5 million) if NGS
exceeds negotiated performance goals. NGS will forfeit up to 5% of the fee
(up to $1.25 million) if the goals are not met. NGS requests an exemption
pursuant to Section 13(b) from the "at cost" requirements of Rules 90 and 91
under the Act in connection with the rendering of such services to NGC,
provided that NGC remain an EWG authorized by FERC to sell power at market-
based rates and that fees charged by NGS are not passed through to an
affiliate operating company's customers. NGC presently sells all of its
power to Select, which provides power to various customers including two
affiliates, CL&P and Holyoke Water Power Company ("HWP"), pursuant to
contracts accepted by FERC.
49. Section 13(b) of the Act generally requires that intrasystem sales,
service and construction contracts be performed at cost, "as necessary or
appropriate in the public interest or for the protection of investors or
consumers and to ensure that such contracts are performed economically and
efficiently for the benefit of such associate companies at cost, fairly and
equitably allocated among such companies." Section 13 was "designed to
protect public-utility companies against the tribute heretofore exacted from
them in the performance of service, sales, and construction contracts by
their holding companies and by servicing, construction, and other companies
controlled by their holding companies." (S. Rep. No. 621, 74th Cong., 1st
Sess. 36 (1935). See, also section 1(b)(2) of the Act).
50. Section 13(b), however, also authorizes the Commission to exempt from
the at-cost requirement transactions that "involve special or unusual
circumstances or are not in the ordinary course of business." The Commission
has previously granted exemptions under section 13(b) in circumstances where
a market rate would not "adversely affect consumers." (See, Interstate Energy
Corporation, et al., HCAR No. 35-27069, August 26, 1999, Ameren Corporation,
HCAR No. 35-27053, July 23, 1999, Cinergy Corp. HCAR No. 35-26984 (March 1
1999), Central and South West Corporation, et al. HCAR No. 35-26887 (June 19,
1998), the "Exemption Orders"). For example, some orders granting an
exemption from the at-cost requirement involve power projects that (1) do not
derive their income from sales of electricity within the United States, (2)
sell electricity at rates that have been approved by federal or state
regulators, (3) sell electricity to industrial or commercial customers at
arms-length negotiated rates, or (4) sell electricity, but not to associate
companies that are retail public-utility companies, at rates based upon cost
of service and approved by federal or state regulators. The authorization
requested is similar to those the Commission has previously granted "where
structural protections to protect consumers against any adverse effect of
pricing at market rates were in place." (Entergy Corporation, HCAR No. 35-
27039 (June 22, 1999)). The purpose of the structural protections was to
ensure that "departure from the at cost standard will not adversely affect
consumers." (Cinergy Corp. HCAR No. 35-26984 (March 1 1999)).
51. In the instant situation, although the power generated by NGC may
eventually be purchased by operating company affiliates (CL&P or HWP) of the
EWG, the fees charged by NGS to NGC for services cannot be passed through to
such operating company's customers. Under Select's contract with CL&P,
Select agrees to provide 50% of CL&P's "Standard Offer Service" ("SOS") load
for four years beginning January 1, 2000 under Connecticut's electric utility
restructuring legislation. The rates on Select's supply contract were set at
the weighted average rate of the suppliers furnishing the other 50% of CL&P's
SOS load. These rates were established by competitive bidding conducted
under DPUC supervision and approved by FERC. Although Select bid for the
remaining 50% of CL&P's SOS load, it did not win, so no rates to be paid by
Select entered into the determination of its own SOS contract rates with
CL&P. The power generated by NGC will be added to Select's portfolio and
will be used to satisfy its SOS contract with CL&P along with other
contracts.
52. The power contract between CL&P and Select explicitly states that
Select will be unable to seek a change in rates for any circumstance
whatsoever except in very limited cases where one of the unaffiliated
suppliers changed its rates or defaulted or the DPUC changed its own rules in
a way that materially disadvantaged CL&P or Select. Thus, any adjustment in
fees charged by NGS to NGC occasioned by an incentive payment by NGC to NGS
will be absorbed by Select and cannot be passed along to CL&P.
53. In the case of HWP, HWP is a generator of power and sells such power to
Select at FERC accepted cost based rates. HWP also has contracts with
approximately 40 customers to supply power at rates negotiated between the
parties at arms-length prior to the creation of NGS. Generally, these
contracts have an average expiration date of 2003, and are at fixed rates
with an escalator indexed to the US Department of Labor's Wholesale Price
Index - Electric Power. Select sells to HWP all the power HWP needs to
service such contracts under a FERC accepted contract. HWP is not a
franchised retail electric utility. Its customers have the option to
negotiate to terminate their contracts with HWP and obtain power from the
municipal utility, the City of Holyoke Gas and Electric Company ("HG&E")*.
Accordingly, HWP must maintain competitive rates or risk losing its customers
to HG&E. In return for the power it receives from Select, HWP pays Select
the revenues it receives from its customers, less transmission and
distribution costs. Select's revenues under this contractual arrangement are
in no way reflective of its costs. Therefore, any excess of fees over cost
charged by NGS to NGC and absorbed by Select can not be passed through to HWP
customers under their current contractual arrangements. When those retail
contracts expire, those customers have the opportunity simply to switch to
HG&E, should HWP attempt to pass additional costs that are above market to
those customers under new contractual arrangements. It is clear, then, that
market fees charged by NGS to NGC would "not adversely affect consumers.
____________
* Like all other Massachusetts municipalities, HG&E is not required to open
its electric service territory to open competition. HWP is uniquely situated
to provide the only competition to which HG&E is subject.
_____________
54. Because the fees charged by NGS cannot be passed through to CL&P's
customers, and would not be passed through to HWP's customers because such
customers' current fixed rates and subsequent ability to obtain power from
the local municipal utility, the Applicants hereby request that the
reservation of the Commission of jurisdiction be released and an exemption
pursuant to Section 13(b) from the "at cost" requirements of Rules 90 and 91
under the Act be granted in connection with the services performed by NGS to
NGC.
55. NGS hereby undertakes to provide the Commission a quarterly
certificate pursuant to Rule 24 which would, among other things, represent
that, in connection with the rendering of services, no affiliate public
utility has subsidized the operations of NGS, and further, that any transfer
of personnel from any affiliate pubic utility to, and the rendering of
services by, NGS are in compliance with applicable rules, regulations and
orders of the Commission and have not adversely affected the services
provided by such affiliate public utility to their respective customers. NU
further acknowledges that the Commission's authorization of incentive pricing
with regard to any services provided by NGS shall not be binding upon the
FERC or any state public utility commission having jurisdiction over the
rates charged by any associate company of NU, and represents and agrees that
it will not assert or take any position to the contrary in any administrative
determination of the rates that may be charged by any such associate
company."
B. Paragraphs 51 through 54 are renumbered 56 through 59.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this Amendment
to be signed on their behalf by the undersigned thereunto duly authorized.
Date: June 23, 2000
NORTHEAST UTILITIES
NORTHEAST GENERATION SERVICES COMPANY
By: /s/ David R. McHale
Name: David R. McHale
Title: Vice President and Treasurer-Northeast Utilities Service Company, as
Agent for Northeast Generation Company and Northeast Generation Service
Company
