EXCEPTIONS by shitingting


									                                       STATE OF CONNECTICUT


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

                                     WRITTEN EXCEPTIONS
                                            OF THE
                                 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

at all.


                 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
                Interest Amounts

        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.

                                                   Respectfully submitted,

                                                   GUY R. MAZZA
                                                   CONSUMER COUNSEL

                                                   By: _______________________
                                                      Bruce C. Johnson
                                                      Staff Attorney

          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


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