In re Public Service Co. of New Hampshire, Bankruptcy No. 88-43.
| Decision Date | 17 May 1990 |
| Docket Number | Bankruptcy No. 88-43. |
| Citation | 114 BR 820 |
| Parties | In re PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Hampshire |
Richard Levin, for Public Service Co.
Geoffrey B. Kalmus, J. Michael Deasy, for Unsecured Creditors Committee.
Richard N. Tilton, Howard J. Berman, for Equity Committee.
Harold T. Judd, Asst. Atty. Gen., Concord, N.H., Mark W. Vaughn, Manchester, N.H., for State of N.H.
Virginia A. Greiman, Wellesley Hills, Mass., U.S. Trustee.
George J. Wade, Barbara Gould Overend, for Citicorp and Consol. Utilities & Communications, Inc. (CUC).
Paul R. Gioia, Examiner.
George A. Hahn, Michael S. Schreiber, for Examiner.
John B. Nolan, Jeffrey G. Grody, Janice B. Grubin, Katherine A. Burroughs, for Northeast Utilities Service Co.
Victor Bass, Boston, Mass., for Maryland Nat. Bank as Indenture Trustee Co.
Paul A. Savage, Concord, N.H., for Pinetree Power, Inc., Pinetree Tamworth, Bio Energy.
Ted A. Berkowitz, New York City, for First Fidelity, Nat. Ass'n, New Jersey, Indenture Trustee.
Peter Nils Baylor, Boston, Mass., for Bank of New England, Indenture Trustee.
Robert Drain, New York City, for Shearson, Lehman, Hutton, Inc.
Paul R. DeFilippo, Newark, N.J., for Midlantic Nat. Bank.
Lawrence R. Katz, Boston, Mass., for Small Power Producers.
Bradford Paul Anderson, Newton, Mass., for New England Power Service.
Robert C. Richards, for Martin Rochman, Edward Kaufman, and Robert Richards.
Allen M. Rideout, pro se and for Allene L. Rideout.
Harry Saxon, pro se.
TABLE OF CONTENTS
I. ISSUES AND RECORD .......................................... Page 822
II. KEY FINDINGS AND CONCLUSIONS ............................... Page 823
III. APPLICABLE LEGAL STANDARDS ................................. Page 825
IV. THE SEABROOK INVESTMENT .................................... Page 827
Construction and Cost ..................................... Page 827
Excess Cost Plants ........................................ Page 828
The 1987 Write-Down ....................................... Page 828
V. THE PLAN/COMPROMISE ........................................ Page 829
The Plan Auction .......................................... Page 829
The Plan Compromise ....................................... Page 829
Price Paths/Charts ........................................ Page 830
Phase-In Approaches/Limits ................................ Page 831
Full Seabrook Recovery .................................... Page 831
One-Time 31 Percent Increase .............................. Page 831
Off-Load Danger ........................................... Page 832
Municipalization .......................................... Page 833
Transmission Access ....................................... Page 833
VI. LITIGATED RATE CASE ........................................ Page 833
Commission Ratemaking/Process ............................. Page 833
Return on Equity .......................................... Page 835
Seabrook Rate Case/Delay .................................. Page 835
Effects of RKR Proposal ................................... Page 836
GAAP/FASB Accounting ...................................... Page 837
Other Seabrook Recoveries ................................. Page 838
Other Nuclear Plant Recoveries ............................ Page 839
VII. GENERAL CONCLUSION ......................................... Page 839
This Court by its "Order Confirming Third Amended Joint Plan of Reorganization" entered April 20, 1990 confirmed a $2.3 billion plan of reorganization in this case proposed by Northeast Utilities Service Company ("NUSCO"), Public Service Company of New Hampshire ("PSNH"), the Official Committee of Unsecured Creditors, the Official Committee of Equity Security Holders, Citicorp, Consolidated Utilities & Communications, Inc., and Shearson Lehman Hutton, Inc., (collectively, the "Proponents"), which plan had been filed by the Proponents on January 2, 1990 and was heard in a series of confirmation hearings spanning the period of April 4, 1990 to April 13, 1990.
The Confirming Order was supported by this Court's "General Findings of Fact and Conclusions of Law Re Plan Confirmation Issues" entered also on April 20, 1990 together with various supporting Memorandum Opinions dealing with various objections to confirmation and objections to claims. The Court in dealing with the various objections in those pleadings effectively disallowed some $700 million in claims in this estate that were intertwined with objections to confirmation; dealt with a myriad of other objections including objections to the disclosure and voting procedures with acceptance of the plan of reorganization; and also denied the objections of three common stockholders, Martin Rochman, Edward Kaufman, and Robert Richards ("RKR") contending that a Rate Agreement compromise with the State of New Hampshire embodied in the plan of reorganization was not fair and equitable and that the "best interests" requirement of § 1129(a)(7) of the Bankruptcy Code was violated because the debtor could obtain greater value flowing down to the common stockholders by a litigated rate case with the State of New Hampshire.
The Court in dealing with the RKR objections made certain key findings on April 20, 1990, but due to the press of time in acting upon the pending plan of reorganization, deferred for further entry the setting forth of amplified findings and conclusions in support of the denial of these objections. This opinion therefore provides those amplified findings and conclusions in support of the Confirming Order. The RKR objectors have been granted an appropriate extension of time, to file any notice of appeal from the Confirming Order, to a date subsequent to the entry of this Memorandum Opinion.
The issues raised by the RKR objections consumed most of the time during the confirmation hearings. While the record at times reads as though a utility rate case was going on before this Court it must be emphasized that notwithstanding the extensive testimony and cross-examination relating to rates, accounting methods, and rate-making procedures, the issue before this Court raised by these objections is not what actual rate orders would be issued by the New Hampshire Public Utilities Commission ("NHPUC") if this plan were not confirmed and a litigated rate case ensued, but rather whether the Rate Agreement embodied in the plan is a fair and equitable compromise in that regard under applicable bankruptcy reorganization case law and standards.
It also should be noted that considering the unique nature of this regulated public utility debtor, the Section 1129(a)(7) test of "best interests" is essentially the reverse side of the same "fair and equitable" issue, i.e., would common stockholders receive more net value if a chapter 7 trustee or any successor in interest conducted a litigated rate case with regard to the Seabrook investment.1
During the course of the confirmation hearings the Proponents put on a number of expert witnesses with regard to utility operations, accounting methods, and rate-making case procedures, to establish that the rates provided under the Rate Agreement in the plan were in fact fair and equitable in terms of what might come out of a litigated rate case. The RKR objectors put on no witnesses other than Mr. Richards himself. The case presented by the RKR objectors consisted primarily of extensive cross-examination of the witnesses put forward by the Proponents. The Court in this Opinion will refer to the testimony of the various witnesses put forward by the Proponents in those areas in which the testimony was found to be credible and persuasive notwithstanding cross-examination. In those areas in which a substantial dispute or question remains in the record the Court will so indicate.
For ease of reference beyond the foregoing incorporation by reference, this Opinion will set forth at this point the pertinent provisions of Paragraph 28 of the Confirming Order dealing with the objections to confirmation here in question:
Each of the Objections to Confirmation that have been filed is hereby overruled. . . . This also includes without limitation the Objections filed by the common stockholders, Martin Rochman, Edward Kaufman, and Robert Richards ("RKR"), referred to in Paragraph 69 of the General Findings and Conclusions, contending that greater value could be realized for stockholders by a litigated rate case before the New Hampshire Public Utilities Commission as opposed to the compromise embodied in the Rate Agreement under the Plan. The credible evidence, however, supports a finding that PSNH could not recover substantially more under a traditional rate case than it would under the Plan because it is unlikely PSNH would recover significantly higher rates under a rate case. Even if PSNH were successful in obtaining higher rates, the impact of such rate hikes would likely lead to a loss of customers and loss of net revenue to PSNH, and ultimately to a lower return than that proposed under the Plan. Moreover, the expectable delay of approximately three years in obtaining the action by the NHPUC and the N.H. Supreme Court, with interest and other charges accruing to superior classes at approximately $176 million per year makes it even more unlikely that rate increases of a magnitude sufficient to overcome this "additional hurdle" to getting value down to the common could be achieved. The sum total of the evidence before the Court on this issue supports a finding — here made — that the rate increase results under the Rate Agreement represents a fair and equitable settlement and compromise well...
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