STATE OF CONNECTICUT
DEPARTMENT OF PUBLIC UTILITY CONTROL
RE: JOINT PETITION OF THE : DOCKET NO. 86-02-12RE02
CONNECTICUT LIGHT AND :
POWER COMPANY AND AES :
THAMES, INC. FOR CONTRACT :
APPROVAL AND :
DECLARATORY RULING :
REGARDING SALE OF :
ELECTRICITY --- EXTENSION : FEBRUARY 8, 2001
OFFICE OF CONSUMER COUNSEL
The Office of Consumer Counsel ("OCC") is a party to the above-captioned
proceeding. This docket concerns the modification of a buydown agreement previously
entered into between The Connecticut Light and Power Company ("CL&P") and AES
Thames, Inc. (“AES”), and specifically the request of CL&P/AES for an extension of their
agreement for six months, to July 1, 2001.
OCC is in receipt of a copy of the Draft Decision (“Draft Decision” or “Draft”) of
the Department of Public Utility Control ("Department" or "DPUC"), issued on February 6,
2001. OCC herewith files its Written Exceptions in this matter.
The Draft’s key factual conclusions support DPUC rejection of this CL&P/AES
request for an extension of their agreement, and yet the Draft proposes to approve this
extension while penalizing these parties merely to the extent of $2.3 Million. If the DPUC
does not flatly reject this CL&P/AES request, then at the very least it should (in the
alternative) deny AES recovery of the extraordinary interest amount of $48 Million.
OCC herewith presents its argument in support of the conclusions briefly
summarized above. It should be noted that the shortness of these OCC Exceptions does not
reflect OCC’s perception of the relative importance of this matter, but reflects only the
exceptionally short time afforded by the docket schedule for preparation of any Exceptions
II. WRITTEN EXCEPTIONS
A) The Draft’s Key Findings Support Rejection of this Extension
Public Act 98-28, Connecticut’s electric industry restructuring act, encourages
utilities such as CL&P to enter into buydown/buyout agreements, and rightly so. Properly
structured, such agreements can save money for ratepayers. However, the economic realities
associated with PPA buydowns/buyouts have thoroughly changed in the months since this
CL&P/AES agreement was first negotiated, and since it was first proposed to the DPUC,
and since it was first approved by the DPUC, and since this extension was first sought by
the applicants. For instance, market prices for electricity sold at wholesale in Connecticut
have risen sharply over this period. This price rise, when taken into account in regulatory
decision-making, has the direct effect of diminishing the stranded cost obligations that
ratepayers otherwise would have with respect to PPA contracts such as the AES Thames
PPA buydowns/buyouts are supposed to save money for ratepayers. That is the point
of the Restructuring Act’s requirement that CL&P must seek out such buydowns/buyouts as
part of its obligation to mitigate stranded costs. Act, § 8(c), CGS § 16-245e(c). Thus, when
any specific buyout/buydown is presented for regulatory approval, the DPUC must evaluate
whether mitigation in fact has occurred. This evaluation, inherently, must be done on a case
by case basis.
In its January 23, 2001 Brief in this docket, OCC urged the DPUC to reject the
CL&P/AES request for an extension. And, in fact, the Draft’s key factual findings strongly
support this very regulatory conclusion. In so noting, OCC has two groups of such factual
findings in mind.
The first concern ratepayer savings in this buydown. As the Draft makes clear, these
savings are questionable at best. Those savings actually are negative (i.e., nonexistent) in
some scenarios. Draft, p. 5. To the extent that any such ratepayer savings can be perceived,
they are based primarily in tax benefits possibly to be obtained by CL&P in the future.
Draft, p. 5. However, the realization of those possible tax benefits is contingent and
unknown. Draft, p. 6. Further, there are serious questions about whether the proper discount
was used to evaluate these possible ratepayer savings. Draft, p. 6.
The second group of factual findings that support DPUC rejection of this transaction
concern candor to regulators. In this proceeding, CL&P and AES supplied the DPUC with
inaccurate data on production levels at the AES facility. Draft, p. 7. In fact, CL&P and AES
witnesses actively misrepresented such facts. Draft, p. 8.
And the inaccuracies/misrepresentations that the Draft references (i.e., concerning
production at the AES facility during the last quarter of 1999) are not all of it. For instance,
notwithstanding that the CL&P/AES buydown agreement was not approved by the DPUC
during 1999, CL&P nonetheless paid that amount to AES Thames before year’s end. The
pertinent “side agreement” between CL&P and AES was never disclosed to the DPUC until
the instant re-opening of this docket --- in other words, it was not disclosed until over a year
after those parties entered into that agreement and acted on its basis. See EL-5, pp. 3-4; Tr.,
1/18/01, pp. 336-338.
Further still, at the recent hearing in this docket, a CL&P witness conceded that a
previous (1999) analysis of the economics of this CL&P/AES buydown contained errors of
considerable magnitude. Tr., 1/18/01, pp. 371-374. Those errors cannot be described here in
any specific detail, as the pertinent CL&P admission occurred during a confidential portion
of this hearing. However, OCC believes that CL&P’s ratepayers clearly were financially
harmed by those errors. Thus, it is reasonable to speculate that the DPUC (had it been
apprised of these errors in a timely fashion) either would have disapproved this buydown or
would have approved it on terms differing from those actually imposed in due course.
Thus, as the Draft itself states:
(1) there is substantial uncertainty about whether this
CL&P/AES buydown will produce ratepayer savings, and
(2) there is substantial reason to believe that the proponents of
this buydown seriously misled the DPUC.
These questions and concerns on the DPUC’s part are well taken. OCC’s problem lies not
with those questions and concerns on DPUC’s part, but rather with the regulatory
conclusion drawn from the same. Instead of rejecting this transaction, the Draft proposes to
approve it in full --- subject only to a disallowance of $2.3 Million. This disallowance
amount is an insignificant fraction of the hundreds of millions of dollars involved in this
B) In the Alternative, the DPUC Should Deny AES any Recovery of
OCC’s main position in this proceeding remains as stated, on Brief and above ---
this transaction should be rejected. However, in the alternative and at the very least, the
DPUC should deny AES any recovery of interest amounts. As the Draft (p. 4) states, “The
buydown payment [to AES] has increased by approximately $48 Million due to interest on
the payment amount in 2000.”
Forty-eight Million Dollars! Even in the heady world of electric industry
restructuring, with billion dollar transactions all around us, this is not a trivial amount. And,
it is proposed to be collected from CL&P’s ratepayers --- and on the irrevocable basis
represented by securitization.
OCC believes that the DPUC should flatly deny AES any right to recover this
interest amount (assuming the DPUC does not accept OCC’s main recommendation, to
reject this transaction in its entirety).
This conclusion is fully justified by the two considerations already summarized in
the initial section of these OCC Exceptions.
First, since the Draft concludes that ratepayer savings in this transaction are
questionable, regulatory caution counsels erring on the conservative side --- and not
allowing those purported savings clearly to diminish to the extent of $48 Million, through
DPUC allowance to AES for recovery this extraordinary interest amount.
Second, since the Draft concludes that CL&P and AES acted improperly in
important respects during this proceeding, regulatory prudence counsels erring on the
conservative side --- and limiting the dollar recoveries allowed to AES in this context.
Finally here, there are still further grounds for the Draft to reject any recovery of this
$48 Million in interest amounts. While these further reasons were mentioned in OCC’s
1/23/01 Brief in this proceeding, they are not addressed by the Draft. Thus, OCC repeats
those points here.
How could this $48 Million in interest payments possibly be proper, given that the
fundamental logic supporting all PPA buydowns/buyouts under the Restructuring Act is that
they mitigate stranded costs? To the contrary, any such interest amounts increase ratepayer
obligations, rather than reducing them. What this element of the CL&P/AES transaction
actually amounts to is the proposed imposition upon ratepayers of a special penalty based
upon the time required for proper regulatory review of these complex transition
arrangements under Public Act 98-28.
Further, OCC believes that there exists still another legal impediment to DPUC
approval of the interest amount that the Draft now proposes to approve. Securitization of
the AES buydown amount is subject to a specific ceiling stated in the DPUC’s recent
securitization decision1 --- a ceiling that does not take account of the interest-related
augmentation under discussion here. Thus, securitization of the newly proposed (higher)
CL&P/AES buyout amount cannot be pursued by CL&P absent a re-opening of the
securitization docket, and DPUC reconsideration/revision of the ceiling just referenced.
For the foregoing reasons, OCC urges the Department to revise the Draft in
accordance with the recommendations presented above.
GUY R. MAZZA
Bruce C. Johnson
Specifically, in its 11/8/00 decision in Docket No. 00-05-01, Application of The
Connecticut Light and Power Company for Approval of the Issuance of Rate Reduction
Bonds and Related Transactions, at p. 5, the DPUC states that CL&P is authorized to
securitize “each PPA Buyout/Buydown in an amount up to, but not exceeding, the
individual amounts set forth in Late Filed Exhibit No. 2." (Emphasis added.)
I hereby certify that a copy of the foregoing has been mailed and/or hand-delivered
to all known parties and intervenors of record this 8th day of February, 2001.
Bruce C. Johnson
Commissioner of Superior Court