Public Service Co. of N.H. v. Patch

• Decision Date: 28 April 1997
• Docket Number: District of N.H. Civil Action No. 97-97-JD.,District of R.I. Civil Action No. 97-121L.
• Citation: 962 F.Supp. 222
• Parties: PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, North Atlantic Energy Corporation, Northeast Utilities, and Northeast Utilities Service Company, Plaintiffs, v. Douglas L. PATCH, Chairman of the Public Utilities Commission of the State of New Hampshire, Bruce L. Ellsworth, Commissioner of the Public Utilities Commission of the State of New Hampshire, and Susan S. Geiger, Commissioner of the Public Utilities Commission of the State of New Hampshire, Defendants.
• Court: U.S. District Court — District of New Hampshire

962 F.Supp. 222

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, North Atlantic Energy Corporation, Northeast Utilities, and Northeast Utilities Service Company, Plaintiffs, v. Douglas L. PATCH, Chairman of the Public Utilities Commission of the State of New Hampshire, Bruce L. Ellsworth, Commissioner of the Public Utilities Commission of the State of New Hampshire, and Susan S. Geiger, Commissioner of the Public Utilities Commission of the State of New Hampshire, Defendants.

District of N.H. Civil Action No. 97-97-JD.

District of R.I. Civil Action No. 97-121L.

United States District Court, D. New Hampshire.

April 28, 1997.

COPYRIGHT MATERIAL OMITTED

Jeffrey S. Cohen, Sulloway, Hollis & Soden, Concord, NH, John B. Nolan, Allan B. Taylor, James J. Tancredi, Day, Berry & Howard, Hartford, CT, Bruce Gladstone, Cameron & Mittleman, Providence, RI, for Plaintiffs.

Steven M. Houran, Acting Atty. Gen., Wynn Arnold, Asst. Atty. Gen., Stephen J. Judge, Associate Atty. Gen., Attorneys General Office, Concord, NH, Steven W. Phillips, James K. Brown, Special Counsel, Foley, Hoag & Eliot, Boston, MA, for Defendants.

Charles G. Douglas, III, C. Kevin Leonard Douglas, Robinson, Leonard & Garvey, P.C., Concord, NH, Terrance A. Corrigan, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Cabletron Systems, Inc.

James R. M. Anderson, Michael W. Holmes, Office of Consumer Advocate, Concord, NH, for Office of the Consumer Advocate of the State of New Hampshire.

Mark W. Dean, Dean, Rice & Howard, Manchester, NH, for New Hampshire Elec. Co-op., Inc.

Joshua L. Gordon, Concord, NH, for Campaign for Ratepayers Rights.

F. Anne Ross, Concord, NH, for Retail Merchants Ass'n.

John J. Ryan, Casassa and Ryan, Hampton, NH, for Community Action Programs of the State of New Hampshire.

Carlos A. Gavilondo, Westborough, MA, David A. Garfunkel, Gallagher, Callahan & Gartrell, Concord, NH, for Granite State Elec. Co.

Peter H. Grills, David E. Crawford, O'Neill, Grills, & O'Neill, P.L.L.P., St. Paul, MN, Thomas Arnold, III, Asst. City Sol., Manchester, NH, for City of Manchester.

Paul K. Connolly, Jr., H. Glenn Alberich, Scott J. Mueller, Damian R. LaPlaca, LeBoeuf, Lamb, Greene & MacRae, L.L.P., Boston, MA, Jacqueline Lake Killgore, Public Utility Policy Institute, Concord, NH, for Unitil Corp., Concord Elec. Co., Exeter & Hampton Elec. Co. and Until Power Corp.

OPINION AND ORDER

RONALD R. LAGUEUX, Chief Judge.^*

This action stems from a recent undertaking by the Public Utilities Commission of the State of New Hampshire ("Commission") to restructure the state's electric utility industry. Plaintiffs, Public Service Company of New Hampshire ("PSNH"), North Atlantic Energy Corporation ("NAEC"), Northeast Utilities ("NU"), and Northeast Utilities Service Company ("NUSC"), seek injunctive and declaratory relief to bar the implementation and enforcement of the Commission's Final Plan ("Final Plan" or "Plan") for restructuring the industry, as well as an interim costrecovery order adopted pursuant to the Plan, issued on February 28, 1997. As grounds for relief, plaintiffs assert, inter alia, that the Commission's Plan is preempted by federal law, attempts to assert state power beyond the limits allowed by the commerce clause, and results in an impairment of contractual rights and a confiscation of property in violation of certain federal and state constitutional provisions.

The Court is now faced with a threshold question in this litigation: whether the Court should abstain from reaching the merits of the case pending the completion of state administrative proceedings and appeals relating to the restructuring Plan. For the reasons that follow, the Court concludes that the matter is ripe for adjudication, and that abstention is not warranted, except as to a limited range of issues for a limited time as outlined herein.

I. Background

The question presently before the Court cannot be resolved without an understanding of the background in which the dispute has reached this forum. For this reason, the Court offers a sketch of PSNH's position in New Hampshire's electric utility industry, as well as a summary of some of the central aspects of the restructuring Plan adopted by the Commission. With that foundation, the Court will be able to put the legal arguments raised by plaintiffs and others in proper perspective.

A. The Recent History of PSNH

PSNH is New Hampshire's largest electric public utility, providing service to approximately 70% of the state's residents. In the early 1970's, PSNH began planning and constructing the nuclear generating station at Seabrook, New Hampshire, to meet a forecasted need for a substantial increase in the region's energy needs. While PSNH anticipated completing Seabrook by 1979, a combination of regulatory reforms and increasing public opposition to nuclear power delayed progress significantly, so that the first (and only) generating unit was not completed until 1986. Continuing public opposition engendered further delays, so that Seabrook did not commence commercial operations until June 30, 1990.

While the delays dramatically increased the cost of the project, New Hampshire law prevented PSNH from recovering these costs from ratepayers through rate increases until the plant became operational. Thus, PSNH was required to obtain commercial financing in order to continue the project. On January 28, 1988, unable to service the mounting debt supporting its investment in Seabrook, PSNH was forced to seek protection under the bankruptcy laws, the first bankruptcy filing of a major regulated public utility since the Great Depression.

The State of New Hampshire, recognizing that the pending reorganization of its largest electric utility was of paramount public importance, sought and was granted full intervenor status in the bankruptcy proceedings, and was an active participant in the reorganization of the company. As part of the bankruptcy case resolution, NU invested $2.3 billion to acquire PSNH, and assumed the operations of Seabrook through an NU affiliated company, NAEC. The State played a key role in negotiating both the acquisition and the manner by which NU would be allowed to recover its investment in PSNH from New Hampshire ratepayers. To this end, NU and the State, acting through its Governor and Attorney General, entered into a formal written agreement, dated November 29, 1989, to express the obligations of NU and of the State with respect to the acquisition of PSNH ("Rate Agreement"). The Rate Agreement was ratified by the New Hampshire legislature and the Commission.

Under the Rate Agreement, PSNH was able to continue operating as an integrated electric utility, providing bundled generation, transmission, and distribution service at rates set by the Commission. The hallmark of the Rate Agreement was the establishment of a ratemaking scheme that would allow NU to recover the costs of acquiring and operating PSNH and Seabrook over time, while recognizing the short-term interests of New Hampshire ratepayers, who would ultimately bear these costs through rate increases. In particular, NU agreed to defer collection of its costs to the long term, instead of passing the costs on to ratepayers immediately. The Rate Agreement established a fixed-rate period of seven years, during which electric rates would rise 5.5% a year. While a substantial portion of NU's investment would be recovered during the period of scheduled increases, the Rate Agreement also provided that the remainder of the investment, plus a return, would be recovered from ratepayers beyond the seven-year period. Thus, the Rate Agreement achieved the desired balance: NU would ultimately recover its acquisition costs, while the burden to New Hampshire ratepayers would be spread over time.

Despite this deferral of cost recovery, New Hampshire's average electric rates are currently among the highest in the nation. Because PSNH serves 70% of the market, the great portion of these rates is governed by the annual 5.5% rate increases provided in the Rate Agreement. This fact, coupled with the success of recent efforts to foster competition in the electric utility industry on the federal level and in other states, prompted the New Hampshire legislature to consider competitive alternatives for the state's electric utility industry, to take effect soon after the May 31, 1997 expiration of the fixed-rate period set by the Rate Agreement.

B. The Restructuring of the Electric Utility Industry

The Electric Utility Restructuring Act, N.H.Rev.Stat. Ann. §§ 374-F:1 to F:6 (Supp. 1996) ("RSA 374-F"), provides for the restructuring of New Hampshire's electric utility industry in order to inject retail competition into the market. As outlined in RSA 374-F:1(I), the competitive market will hopefully "develop a more efficient industry structure and regulatory framework that results in a more productive economy by reducing costs to consumers while maintaining safe and reliable electric service with minimum adverse impacts on the environment." To achieve these goals, the legislature directed the Commission to develop a statewide restructuring plan to implement retail choice for all customers of electricity, to take effect by January 1, 1998. See RSA 374-F:4(I).

Pursuant to this mandate, and after a series of hearings on the matter, on February 28, 1997 the Commission issued its Final Plan for restructuring the industry,¹ as well as an appended "Legal Analysis" confirming the validity of the restructuring scheme adopted by the Commission.² While the Final Plan is comprehensive and highly detailed, at this juncture the Court will simply highlight some of the key features that are relevant to the present litigation.

First, and most centrally, the Final Plan requires New Hampshire's electric utilities to unbundle their retail electric service into the generation, transmission, and distribution components, and to open their existing distribution channels ...