Public Service Co. of New Hampshire v. Patch

• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Citation: 136 F.3d 197
• Docket Number: Nos.97-1759,s.97-1759
• Parties: , 184 P.U.R.4th 211, Util. L. Rep. P 14,188 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, et al., Plaintiffs, Appellees, v. Douglas L. PATCH, in his Capacity as a Member of the New Hampshire Public Utilities Commission, et al., Defendants, Appellees, CABLETRON SYSTEMS, INC., et al., Applicants for Intervention, Appellants. to 97-1763, 97-1773, 97-1780, 97-1805, 97-1995 to 97-1997 and 97-2070. . Heard
• Decision Date: 05 December 1997

Page 197

136 F.3d 197 40 Fed.R.Serv.3d 236, 184 P.U.R.4th 211,
Util. L. Rep. P 14,188 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE, et al., Plaintiffs, Appellees,
v.
Douglas L. PATCH, in his Capacity as a Member of the New
Hampshire Public Utilities Commission, et al.,
Defendants, Appellees,
CABLETRON SYSTEMS, INC., et al., Applicants for
Intervention, Appellants. Nos.97-1759 to 97-1763, 97-1773, 97-1780, 97-1805, 97-1995
to 97-1997 and 97-2070. United States Court of Appeals,
First Circuit. Heard Dec. 5, 1997.
Decided Feb. 3, 1998.

Page 200

Steven S. Rosenthal, with whom Jeffery A. Tomasevich, Morrison & Foerster, LLP, F. Anne Ross, F. Anne Ross, P.C., John J. Ryan, Casassa and Ryan, Michael W. Holmes, James R.M. Anderson, Peter H. Grills, David E. Crawford, O'Neill, Grills & O'Neill, PLLP and Thomas I. Arnold III were on consolidated brief, for all appellants.

Peter H. Grills, with whom David E. Crawford, O'Neill, Grills & O'Neill, PLLP and Thomas I. Arnold III, Assistant City Solicitor, were on brief, for appellant City of Manchester.

Philip T. McLaughlin and Martin P. Honigberg on brief, for the State of New Hampshire, amicus curiae.

Evelyn R. Robinson on brief, for Ohio Consumers' Counsel and National Ass'n of State Consumer Advocates, amici curiae.

Dennis Lane, with whom Michael E. Tucci and Morrison & Hecker, LLP were on brief, for defendants-appellees.

Allan B. Taylor, with whom John B. Nolan, Gary M. Becker, and Day, Berry & Howard were on brief, for plaintiffs-appellees.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and TAURO, ^* District Judge.

SELYA, Circuit Judge.

After the New Hampshire Public Utilities Commission (PUC) formulated a plan to inject retail competition into the New Hampshire electric power market, Public Service Company of New Hampshire (PSNH) filed suit against the PUC's members, seeking to block inauguration of the plan. Several parties moved to intervene pursuant to Fed.R.Civ.P. 24. Not all succeeded. Six disappointed would-be intervenors appeal from the denial of intervention. ¹ Finding no sign that the district court abused its discretion, we affirm.

I. BACKGROUND

Two recent opinions of the court below thoroughly recount the complicated background of this case. See Public Serv. Co. v. Patch, 173 F.R.D. 17, 22-24 (D.N.H.1997) (PSNH II ); Public Serv. Co. v. Patch, 962 F.Supp. 222, 225-29 (D.N.H.1997) (PSNH I ). We draw heavily from those sources as we set the stage for consideration of the instant appeals.

A. The Night the Lights (Almost) Went Out in New Hampshire.

PSNH is New Hampshire's largest electric public utility and supplies approximately 70% of the citizenry's power needs. In the early 1970s, management predicted that rising energy demands soon would outstrip PSNH's generating capabilities. To ameliorate this bleak outlook, PSNH undertook to construct a nuclear power plant in Seabrook, New Hampshire. Because state law prevented it from factoring the plant's construction costs into the rate structure until Seabrook became operational, PSNH relied primarily on commercial financing to underwrite the project. Regulatory reform and public opposition hindered Seabrook's progress to the point where the facility became an albatross wrapped snugly around PSNH's corporate neck. Management's forecast that Seabrook would be on line in 1979 proved much too sanguine: construction of the plant's generating unit was not completed until 1986, and even then, commercial operation was infeasible.

As delays mounted, so too did PSNH's indebtedness. In 1988, PSNH no longer could service the debt and filed for bankruptcy

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protection in the United States Bankruptcy Court for the District of New Hampshire. The State of New Hampshire, fearful that its residents might find themselves consigned to an unusually rustic lifestyle, intervened in the insolvency proceedings. The State's participation was essential to resolving the bankruptcy: as a regulated utility, PSNH's value depends on the rates that it can charge for electricity, and the State sets those rates based on its calculation of the investment that PSNH prudently devotes to the provision of electric service (the so-called rate base).

In the end, PSNH's creditors and equity holders agreed to place a $2.3 billion value on the utility--a value significantly higher than its pre-bankruptcy rate base. Northeast Utilities (NU) then acquired all of PSNH's stock at the capitalized price. As part and parcel of this transaction, the State executed a rate agreement (the Agreement) designed to permit NU to recoup its investment over time. To mitigate the impact of this recoupment on ratepayers while still providing meaningful financial relief to the rehabilitated bankrupt, the Agreement preserved PSNH's status as an integrated electric utility (i.e., one that engages in the generation, transmission, and distribution of electric power) and promised annual 5.5% electric rate increases for the next seven years.

The Agreement also made provision for the gradual recovery of PSNH's Seabrook-related costs. It contemplated that NU would take over the operation of Seabrook via a corporate affiliate, North Atlantic Energy Corporation (NAEC), subject to a stipulation, contained in the Agreement, that the State would permit PSNH to buy Seabrook-generated power from NAEC at prices sufficient to recover the portion of the rate base attributable to Seabrook over a reasonable interval. Finally, to ensure the eventual recovery of PSNH's entire capitalized value, the Agreement allowed PSNH to designate some $400 million of the rate base as "regulatory assets." Under this arrangement, these regulatory assets (which in this case consisted mostly of governmentally mandated purchase agreements with small power producers) became eligible for amortization, albeit over a long number of years (thus cushioning the impact on electric rates).

The bankruptcy court approved the Agreement, see In re Public Serv. Co., 114 B.R. 820, 843 (Bankr.D.N.H.1990); the New Hampshire legislature authorized the PUC to review it, see N.H.Rev.Stat. Ann. Chapter 362-C (1995); the PUC furnished its seal of approval, see In re Northeast Utils./Public Serv. Co., 114 P.U.R.4th 385 (N.H.P.U.C.1990); the New Hampshire Supreme Court upheld the PUC's action, see Appeal of Richards, 134 N.H. 148, 590 A.2d 586 (1991); and PSNH emerged from bankruptcy.

B. The Concord Tea Party.

Due in part to the annual rate increases mandated by the Agreement, New Hampshire consumers pay one of the highest average electric rates in the nation. Predictable discontent prompted the state legislature to enact the Electric Utility Restructuring Act, N.H.Rev.Stat. Ann. § 374-F:1 to F:6 (Supp.1997), a statute designed to introduce retail competition into the marketplace as a means of reducing electric rates. The statute directed the PUC to develop and put into effect no later than January 1, 1998, a restructuring plan for New Hampshire's electric utility industry. See id. § 374-F:4.

The PUC conducted hearings apace and issued its restructuring plan (the Plan) on February 28, 1997. The Plan provides that the PUC will continue to set all distribution access rates. However, electric utilities must unbundle their generation, transmission, and distribution services, as well as open their distribution networks--utility poles and wires--to all consumers on a nondiscriminatory basis. In theory, unbundling will enable customers to select from a roster of power generators whose rates will reflect market prices. And although federal law requires that transmission tariffs remain the province of the Federal Energy Regulatory Commission (FERC), the Plan seeks to have the PUC exercise a modicum of control in this area as well by directing utilities to obtain PUC approval of proposed tariffs prior to effecting FERC filings. Finally, the Plan imports a market domination deterrent, mandating that each utility choose whether to

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operate as a power generator or power distributor, and precluding utilities from continuing to act, directly or indirectly, in both capacities. Utilities that select the distribution pathway must divest all power generation assets by December 31, 2000, and likewise must sever contractual and corporate ties with utilities that offer competitive electric service in the same territory. Similar restrictions apply to utilities that select the generation pathway.

Two aspects of the PUC's edict are particularly pertinent for purposes of the pending litigation. First, in promulgating the Plan, the PUC declined to treat the Agreement as a contract that constrained its actions. Second, a side effect of the Plan's divestiture requirement is the creation of "stranded costs." This phenomenon will occur because, under the Plan's competitive market paradigm, the costs of certain asset investments owned by an integrated utility will become unrecoverable from ratepayers when the utility elects between the distribution and generation routes. The Plan provides a palliative in the form of interim and long-term stranded cost recovery charges (SCRECHs). The PUC will assess each affected utility's stranded costs and calculate an appropriate SCRECH for inclusion in the rates set for access to the utility's distribution network. SCRECHs ordinarily will be calculated by means of a cost-of-service ratemaking methodology, but if the PUC concludes that a utility's costs and rates exceed a "regional average rate benchmark," then it may deny the utility full recovery of its stranded costs. At present, PSNH's rates exceed the regional average rate benchmark, and the PUC has ruled that PSNH may not recover completely its stranded costs. Thus, PSNH insists that introduction of the benchmark will require it to write off the $400 million in regulatory assets and lead to another bankruptcy. ²

C. The Empire Strikes Back.

On March 3, 1997, PSNH, NU, and NAEC (collectively "PSNH" or "the plaintiffs") filed...