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PUC Rejects Utility Proposal To Recover Generation Costs Through Nonbypassable Charge

September 27, 2017

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Copyright 2010-17
Reporting by Paul Ring •

The New Hampshire PUC recently issued an order rejecting Public Service Company of New Hampshire's (Eversource) proposal to recover the net costs of generation prior to divestiture through the nonbypassable stranded cost recovery charge

PSNH is conducting a process to divest its assets, and has filed a proposal for a competitively procured default service once such divestiture is complete

Specifically, PSNH requested approval of a competitive power supply procurement process, to be effective for service rendered on and after January 1, 2018, regardless of whether divestiture of its generation assets is completed. PSNH had said that it would continue to operate its plants in a reasonable and prudent manner even as default service is sourced from the competitive process, as required by a 2015 Settlement Agreement and as called upon by the Independent System Operator-New England, for the length of time from January 1, 2018, to the divestiture closing date.

Given that its owned generation would still be operating but not be used for default service, PSNH's proposal would have the costs and revenues from such power plant operations flow through the stranded cost recovery charge, along with the costs relating to purchases from independent power producers and through power purchase agreements

PSNH said that starting the competitive procurement process on January 1, regardless of the sale process, would avoid the need to rely on the spot market if a hard cut to competitive default service were required based on a floating closing date. PSNH said the spot market could be "economically devastating" to customers if winter prices spike as they did a few years ago.

PSNH suggested that if the transition to the competitively procured default service occurred after the closing on divestiture, PSNH default energy service customers would be exposed to the vagaries of the energy market without the price hedge provided by the generation assets.

PSNH said that its proposal to recover costs and revenues relating to its generation plants through the stranded cost rate is part of a rational divestiture transition process.

PSNH's proposal was opposed by RESA, which said that the movement of generation costs to the nonbypassable stranded cost charge is not permitted by the 2015 Settlement Agreement nor statute.

The PUC found that under the relevant statute and the 2015 Settlement Agreement, no generation-related costs can be included in stranded costs until such time that those costs are recognized in connection with divestiture, and the PUC denied PSNH's petition

"Reading RSA 374-F:2, IV(d) together with the 2015 Settlement Agreement, we find that no generation-related costs can be included in stranded costs until such time that those costs are recognized in connection with divestiture. Had the parties intended to allow generation-related costs to be a stranded cost prior to divestiture, they could have so stated this in the Settlement Agreement and in the proposed legislation accompanying the Settlement Agreement. Based on the foregoing, we deny Eversource’s proposal to move all generation-related costs and revenues into a stranded cost category prior to divestiture," the PUC said

"If a different set of facts are presented to us, for example, generation plants are identified for retirement, or financial closing is achieved for some plants but not others, we may reach a different conclusion as to whether Eversource should structure a competitive solicitation to replace the generation it no longer owns," the PUC said

"We commend Eversource for being proactive and looking to develop a strategy to manage energy costs for customers in the interim between divestiture of their generating assets and the implementation of a competitive procurement contract," the PUC said

"Given the uncertainty of timing, we encourage the Company, the parties and Staff, to work on a plan for power procurement for this time period and we acknowledge the challenges that plan faces given the statutory regime that has developed around these generating assets," the PUC said

"Based on the foregoing, we direct Eversource to prepare a filing to establish an energy service and stranded cost recovery charge in the customary manner for effect with rates on and after January 1, 2018. We emphasize that in so ruling, we are not making any decision regarding the merits of the Eversource proposal for procuring electric service from the competitive market following divestiture, or whether such a proposal is consistent with the restructuring statute," the PUC said

PUC Staff was directed to develop a schedule for this matter that will permit Commission review of the Eversource proposal to acquire power through the competitive market, following a sale of generating assets, as soon as possible

DE 17-113

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