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<title>Connecticut Department of Public Utility Control Orders Revisions to Utility’s
Divestiture Plan, Including Auctioning of Private Power Contracts</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">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.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="68%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u>
<br>
January 1999</u><br>
<font face="Arial"><big><big><big>Connecticut Deparmtnet Of Public Utility
Control Orders Revisions To Utility's Divestiture Plan, Including Auctioning
Of Private Power Contracts<br>
</big></big></big></font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
01/99</em>)</font></p>
<p><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p><font face="Arial">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.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>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:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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