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About The Author:

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions.

He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive
Suite 301
Concord, NH 03301
(603) 225-9716









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STATELINE by Robert Olson

January 1999

Connecticut Deparmtnet Of Public Utility Control Orders Revisions To Utility's Divestiture Plan, Including Auctioning Of Private Power Contracts
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 01/99)

In a draft decision, the Connecticut Department of Public Utility Control (CDPUC) rejected the divestiture plan of Connecticut Light & Power Company (CL&P), a subsidiary of Northeast Utilities (NU), and ordered that specific modifications be submitted by January 13, 1999. One of the ordered modifications requires that CL&P package its private power provider (PPP) contracts with its generation assets for auction if it is unable to renegotiate them. Other modifications addressed administration of the auction, the potential sale of the assets to an NU affiliate, land use and environmental concerns, sale of a transmission-related generation facility, and conditions on the sale of the assets.

Under the Connecticut restructuring act, utilities divesting themselves of nonnuclear generating assets are required to submit divestiture plans with the CDPUC. The restructuring act requires that all nonnuclear generation units be divested at public auction of the utility seeks recovery of stranded costs. The restructuring act also requires the utility to take all reasonable steps to mitigate its stranded costs. After tendering a Reverse Request for Proposals and renegotiating PPP contracts, CL&P was able to renegotiate or buy out a small number of contracts, leaving most of the above-market contracts in place. CL&P proposed to divest its PPP contracts by auctioning them simultaneously with its generating assets.

The PPPs intervened in CL&P’s divestiture plan filing, and opposed CL&P’s plan to auction the contracts. The PPPs put forth a number of arguments challenging the plan: they asserted a state law right to have their contracts assigned to the distribution company and a modification negotiated; claimed the assignee of the contracts would pose a credit risk; claimed the administration would be more complex and riskier with a continuing question as to legal rights and obligations of CL&P and the winning bidder; claimed the auction would not be commercially reasonable as there is no market for long-term qualifying facilities contracts; claimed the auction avoids good faith renegotiation of the contracts, in contravention to the restructuring act’s requirement for the negotiation of such contracts or distribution company retention of such contracts; and claimed the intent of the restructuring act was that only generating assets be sold.

The CDPUC did not specifically address the PPPs’ arguments. Rather, the CDPUC stated that because the restructuring act makes PPP contracts eligible for securitization and contains a requirement that all licensed suppliers demonstrate a certain percentage of their electric output is from renewable energy sources, renegotiation of the contracts is still a viable option. Therefore, the CDPUC rejected CL&P’s portion of the plan concerning auctioning of the PPP contracts and directed CL&P and the PPPs to continue to negotiate in good faith. In the absence of successful negotiation, the CDPUC directed that the plan be modified such that the PPP contracts be packaged with the generation assets and sold at auction by the consultant hired by the CDPUC, and not auctioned by CL&P. The CDPUC supported this revision to the plan, stating the CDPUC-overseen auction would ensure neutrality and fairness and provide the best opportunity to reduce the over-market pricing of the PPP contracts.

Under the order, the CDPUC consultant will be supervised and directed by a team which will be effectively separate from the CDPUC. Because NU is permitted to bid on the assets, a code of conduct has been established to protect the integrity of the auction process. Employees on "Buy Teams" and "Sell Teams" within NU must abide by the code of conduct, and may not move from one team to the other.

In addressing the environmental and land use concerns, the CDPUC approved a Memorandum of Understanding entered into by CL&P and the Connecticut Department of Environmental Protection. The CDPUC determined that some real estate would be withheld from auction and would be maintained by CL&P with appropriate environmental protections. Many auctioned properties would be subject to land use or environmental easements pertaining to public recreation or the maintenance of fish restoration efforts or bird habitats. The CDPUC also required that successful bidders on FERC-licensed hydroelectric units would be subject to both the FERC license requirements pertaining to public and environmental use and the additional voluntary uses provided by CL&P.

CL&P also sought to retain a 68 MW generating facility for the purpose of maintaining reliability and voltage on the transmission system. The CDPUC rejected this portion of the plan and instead required the facility to be auctioned, stating that transmission constraints are the responsibility of the Independent System Operator. Additionally, the CDPUC rejected all of CL&P’s proposed sale conditions. The condition that a successful bidder must contract with NU’s affiliate for generation support services was rejected as potentially decreasing bids. Furthermore, the condition was presented as fulfilling the restructuring act’s policy of protecting CL&P employees, however the CDPUC found its effect was to protect out-of-state NU employees. The condition that a successful bidder must be subject to a callback option under which assets sold would be required to supply CL&P’s standard offer requirements was rejected as potentially lowering bids and as unnecessary given the amount of available generation. The condition that preference be given to a single bidder if it agrees to purchase all the assets was rejected as raising market power concerns and as contrary to the restructuring act’s preference for robust competition.

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301 | (603) 225-9716

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