Opinion ID: 197774
Heading Depth: 2
Heading Rank: 1

Heading: The Night the Lights (Almost) Went Out in New Hampshire.

Text: 4 PSNH is New Hampshire's largest electric public utility and supplies approximately 70% of the citizenry's power needs. In the early 1970s, management predicted that rising energy demands soon would outstrip PSNH's generating capabilities. To ameliorate this bleak outlook, PSNH undertook to construct a nuclear power plant in Seabrook, New Hampshire. Because state law prevented it from factoring the plant's construction costs into the rate structure until Seabrook became operational, PSNH relied primarily on commercial financing to underwrite the project. Regulatory reform and public opposition hindered Seabrook's progress to the point where the facility became an albatross wrapped snugly around PSNH's corporate neck. Management's forecast that Seabrook would be on line in 1979 proved much too sanguine: construction of the plant's generating unit was not completed until 1986, and even then, commercial operation was infeasible. 5 As delays mounted, so too did PSNH's indebtedness. In 1988, PSNH no longer could service the debt and filed for bankruptcy protection in the United States Bankruptcy Court for the District of New Hampshire. The State of New Hampshire, fearful that its residents might find themselves consigned to an unusually rustic lifestyle, intervened in the insolvency proceedings. The State's participation was essential to resolving the bankruptcy: as a regulated utility, PSNH's value depends on the rates that it can charge for electricity, and the State sets those rates based on its calculation of the investment that PSNH prudently devotes to the provision of electric service (the so-called rate base). 6 In the end, PSNH's creditors and equity holders agreed to place a $2.3 billion value on the utility--a value significantly higher than its pre-bankruptcy rate base. Northeast Utilities (NU) then acquired all of PSNH's stock at the capitalized price. As part and parcel of this transaction, the State executed a rate agreement (the Agreement) designed to permit NU to recoup its investment over time. To mitigate the impact of this recoupment on ratepayers while still providing meaningful financial relief to the rehabilitated bankrupt, the Agreement preserved PSNH's status as an integrated electric utility (i.e., one that engages in the generation, transmission, and distribution of electric power) and promised annual 5.5% electric rate increases for the next seven years. 7 The Agreement also made provision for the gradual recovery of PSNH's Seabrook-related costs. It contemplated that NU would take over the operation of Seabrook via a corporate affiliate, North Atlantic Energy Corporation (NAEC), subject to a stipulation, contained in the Agreement, that the State would permit PSNH to buy Seabrook-generated power from NAEC at prices sufficient to recover the portion of the rate base attributable to Seabrook over a reasonable interval. Finally, to ensure the eventual recovery of PSNH's entire capitalized value, the Agreement allowed PSNH to designate some $400 million of the rate base as regulatory assets. Under this arrangement, these regulatory assets (which in this case consisted mostly of governmentally mandated purchase agreements with small power producers) became eligible for amortization, albeit over a long number of years (thus cushioning the impact on electric rates). 8 The bankruptcy court approved the Agreement, see In re Public Serv. Co., 114 B.R. 820, 843 (Bankr.D.N.H.1990); the New Hampshire legislature authorized the PUC to review it, see N.H.Rev.Stat. Ann. Chapter 362-C (1995); the PUC furnished its seal of approval, see In re Northeast Utils./Public Serv. Co., 114 P.U.R.4th 385 (N.H.P.U.C.1990); the New Hampshire Supreme Court upheld the PUC's action, see Appeal of Richards, 134 N.H. 148, 590 A.2d 586 (1991); and PSNH emerged from bankruptcy. 9