PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
CHARLESTON
MONONGAHELA
POWER COMPANY and
THE
POTOMAC EDISON COMPANY, both
doing
business as ALLEGHENY POWER
Application
for Certificate of Public
Convenience
and Necessity to Authorize
Construction
of Emission Control Facilities
At the
Ft. Martin Generating Station in
Monongalia
County, West Virginia
MONONGAHELA
POWER COMPANY and
THE
POTOMAC EDISON COMPANY, both
doing
business as ALLEGHENY POWER
Application
for Financing Order,
Approval
of Affiliated Agreements,
And
Related Relief
SECOND JOINT STIPULATION AND
AGREEMENT TO MODIFY FINANCING ORDER
Pursuant to West
Virginia Code § 24-1-9 and Rules 11 and 13.4 of the Commission’s Rules of
Practice and Procedure, Monongahela Power Company (“Mon Power”) and The Potomac
Edison Company (“PE,” and together with Mon Power, the “Applicants”), the Staff
of the Public Service Commission of West Virginia (“Staff”), the Consumer
Advocate Division of the Public Service Commission of West Virginia (“CAD”),
and the West Virginia Energy Users Group (“WVEUG”), WVEUG, and together with
the Applicants, the Staff, and the CAD, the “Parties”), hereby join in this
Second Joint Stipulation and Agreement to Modify Financing Order (“Second Joint
Stipulation”).
I. Introduction and
Procedural Summary
On January 11, 2006, the Parties filed a Joint Stipulation and
Agreement for Settlement (“FO Joint Stipulation”) which recommended to the
Commission a resolution of two related matters then pending before the
Commission: (i) the Applicants’ request that the Commission grant a certificate
of public convenience and necessity (“Certificate”) authorizing the Applicants
to construct and operate a flue gas desulfurization system (the “Wet Scrubbers”)
and related facilities (collectively, the “Project”) at the Ft. Martin
generating station in Monongalia County, West Virginia (“Ft. Martin”), as set
forth in the Application for Certificate of Public Convenience and Necessity
(“Certificate Application”) filed with the Commission on March 24, 2005 and
docketed as Case No. 05-0402-E-CN (“Certificate Case”); and (ii) the
Applicants’ request that the Commission issue a financing order pursuant to the
provisions of W. Va. Code §24-2-4e (“Section 4e”) to authorize the
Applicants to finance the construction of the Project and related financing
costs using the securitization financing mechanism (“Securitization”), as
provided in the Application for Financing Order, Approval of Affiliated
Agreements, and Related Relief (“Financing Order Application,” and together
with the Certificate Application, the “Applications”) filed with the Commission
on May 24, 2005 and docketed as Case No. 05-0750-E-PC (“Financing Order Case,”
and together with the Certificate Case, the “Consolidated Cases”).
2. The
Commission issued an Order on April 7, 2006 (“Financing Order”) that, among
other things, granted much of the relief set forth in the FO Joint Stipulation
and approved the conditions contained in it, except to the extent the Commission
modified certain of those conditions.[1] In addition to the many
Securitization-related approvals in the Financing Order, the Commission made
the following specific findings about the Wet Scrubber, its estimated
construction cost, recoverable Financing Costs, and the process by which the
Applicants would be permitted to seek the recovery of actual construction costs
that exceeded the previously estimated amount.
·
The Commission
determined that the maximum amount of Environmental Control Costs that would be
permitted to be financed from the proceeds of Environmental Control Bonds is
$338 million, the amount included in the FO Joint Stipulation and reflective of
the cost estimate for the Wet Scrubber as of May 24, 2005. (FOF ¶9; OP ¶38.)
·
The Commission
determined that Upfront Financing Costs in an aggregate amount of up to $27
million would be permitted to be recovered from the proceeds of Environmental
Control Bonds, subject to separate cost caps of $14.25 million on Lender
Consent Costs (“Indirect Cost Cap”) and $12.75 million on certain other costs
(“Direct Cost Cap”).[2] (FOF ¶19; OP ¶¶24 and 25.)
·
To the extent the
“actual amount” of Environmental Control Costs exceeded $338 million, the
Applicants would be permitted to seek recovery of the excess in a subsequent
base rate proceeding and any and all parties would be free to take whatever
position they deem appropriate concerning the recovery of the excess amounts.
(OP ¶38.)
·
The Commission
established that the standard for the financing should be that the structuring,
marketing and pricing of Environmental Control Bonds will result in the lowest
Environmental Control Charges consistent with (i) prevailing market conditions
on or about the time of the pricing of the Environmental Control Bonds and (ii)
the proposed structure of Environmental Control Bonds approved pursuant to the
terms of the Financing Order (the “Lowest Cost Objective”). (Part II.E.2, at
pages 41 and 42; FOF ¶4.)
·
The Commission also
established standards and procedures which the Commission found represent best
practices for the benefit of consumers while respecting legitimate interests of
the Applicants. The Commission found
that these best practices standards and procedures will ensure that the imposition
of Environmental Control Charges are just and reasonable, are otherwise
consistent with the public interest, and constitute a prudent, reasonable and
appropriate mechanism for the financing of Environmental Control activities, as
required by W. Va. Code 5 24-2-4e(d)(3)(F).
(Part II.E.2, at pages 42 and 43.)
·
To ensure that these
standards are met, these procedures are followed, and that the benefits of
Securitization to the Applicants’ West Virginia customers are realized, the
Commission decided it will use additional experts and resources to assist it in
implementing its duty to customers. The
Commission will act through its designated personnel and a financial advisor
(the “Financial Advisor”) to participate in all aspects of the structuring, marketing,
and pricing of the Environmental Control Bonds.
(FOF ¶¶76-84; OP ¶¶10-23.)
·
The Commission
directed that the Financial Advisor shall participate as a co-equal joint
decision maker with the Applicants in the structuring, marketing and pricing of
each series of Certificates and Environmental Control Bonds, with the
Applicants and the Financial Advisor working cooperatively to meet the
Statutory Requirement and to achieve the Lowest Cost Objective. (FOF ¶79.)
3.
On October 3, 2006, the Applicants filed a Petition to Reopen
Proceedings and to Amend Financing Order (“Initial Petition”). In the Initial Petition, the Applicants
explained that, as a direct result of further engineering and design work,
evaluation of site specific conditions at Ft. Martin by the prime contractors,
and initial procurement activities, all of which were conducted subsequent to
the issuance of the Financing Order, the Applicants’ then-current construction
cost estimate for the Project was expected to reach up to $550 million,
exclusive of Financing Costs. The Applicants
also explained with accompanying analysis that the Project continued to be the
best option for controlling emissions at Ft. Martin, even at the increased
construction cost estimate. To mitigate
the exposure to further significant cost escalations that could result from any
delay in the Project’s schedule and to enable the Applicants to take advantage
of relatively lower interest rates in the financial markets, the Applicants
requested the Commission consider the Initial Petition on an expedited basis
and enter an order by not later than January 1, 2007 that would modify the
Financing Order (i) to amend the Applicants’ certificate of public convenience
and necessity for the Project, (ii) to authorize the Applicants to finance and
recover from the Proceeds of Environmental Control Bonds up to $550 million in
Project-related Environmental Control Costs, (iii) to modify the Indirect and
Direct Cost Caps, and (iv) to authorize the Applicants to impose Environmental
Control Charges on the Applicants’ West Virginia customers in amounts that
reflect the increased authorizations to issue Environmental Control Bonds (in
an amount up to $573 million, plus Financial Advisor Costs).
4. On
December 18, 2006, the Parties entered into a Joint Stipulation and Agreement
to Modify Financing Order (“First Joint Stipulation”). The First Joint Stipulation recommended that
the Commission modify the Financing Order: (i) to increase from $338 million to
$450 million the maximum amount of the Environmental Control Costs that would
be permitted to be financed from the proceeds of the Environmental Control
Bonds issued under the authority of the Financing Order; (ii) to decrease from
$27 million to $16.5 million the amount of Upfront Financing Costs that would
be permitted to be recovered from Environmental Control Bond proceeds by
reducing the Indirect Cost Cap to $1 million and increasing the Direct Cost Cap
to $15.5 million; (iii) to implement certain changes regarding the Staff’s
audit and review of Project construction expenditures; (iv) to alter the
Environmental Control Charge from the Applicants’ electric customers in West
Virginia consistent with the modification to the maximum amount of
Environmental Control Bonds permitted to be issued; (v) to provide a framework
for the Applicants to seek recovery of a return on the amounts of actual
construction work in progress expenditures that exceed the $450 million maximum
for securitization financing during the period prior to the completion and
placing of the Project into commercial service; and (vi) to amend the
Applicants’ certificate of public convenience and necessity for the Project at
the revised construction cost estimate reflected in the Initial Petition.
5. In
a Commission Order dated January 17, 2007, the Commission approved the First
Joint Stipulation. The Commission
authorized the Applicants to use Securitization to finance and recover from the
proceeds of Environmental Control Bonds up to $450 million in Environmental
Control Costs, along with $16.5 million in Direct Costs, for a total amount not
to exceed $466.5 million (exclusive of Financial Advisor costs). The Commission also concluded that, to the
extent that the actual amount of the Environmental Control Costs were to exceed
the $450 million maximum, the Applicants could use traditional financing
mechanisms and then seek recovery of the excess amounts in a subsequent rate
proceeding.
6. On April
17, 2007, each of the Applicants caused to be completed the sale of a series of
Environmental Control Bonds issued by a special purposes subsidiary under the
authority granted by the Commission in the Financing Order (the “Initial
Bonds”) in the total amount of $459.3 million ($450 million for Environmental
Control Costs, plus $7.957 million in
the Applicants’ Direct Costs (reduced from $16.5 million after review by the
Commission’s Financial Advisor) and $1.343 million for the Commission’s
Financial Advisor and their counsel’s expenses).
7. Construction
on the Project commenced with fabrication of the absorber vessels in September
2006. The Applicants have informed the
Parties that the Project is still on schedule to meet its expected completion
date, with anticipated in-service dates of November 21, 2009 for Unit 1 and
October 31, 2009 for Unit 2. The
Applicants have also indicated that Project costs have not increased from the
levels projected in the Initial Petition.
Thus, the total Environmental Control Costs are still estimated be
approximately $550 million.
8. On July 1,
2009, the Applicants filed a Second Petition to Reopen Proceedings and to Amend
Financing Order (“Second Petition”). The
Applicants asserted that, although Project costs have not changed, the
Applicants believe that financing the costs in excess of $450 million for the
Project through traditional means and seeking recovery of those investments in
a subsequent rate proceeding is not the best alternative for the Applicants or
their West Virginia customers at this time.
The Applicants asserted, among other things, that the issuance of additional
Environmental Control Bonds in an amount up to $105 million, plus Financial
Advisor costs, if any (“Additional Bonds”), is preferable because the overall
costs to customers from the issuance of Additional Bonds will be lower than
would result from the use of traditional utility financing mechanisms. The Applicants requested that the Commission
consider the Second Petition on an expedited basis and enter an order by not
later than October 1, 2009 that would modify the Financing Order as it relates
to the authorization and structure of the transaction for the issuance of
Additional Bonds. Specifically, the
Applicants requested that the Commission:
a. Increase
the present authorization to finance a maximum of $450 million of
Project-related Environmental Control Costs, exclusive of Financing Costs, to
the current construction cost estimate of up to $550 million, exclusive of
Financing Costs and cost of a financial advisor, to the extent one is required
for the transaction;
b. Authorize
the Applicants to issue one or more additional series of Environmental Control
Bonds, according to the transaction structure provided for in the Financing
Order (as modified to the extent provided in the order granting this Second
Petition), in an amount up to $105 million (a cumulative amount of up to $564.3
million for all Environmental Control Bonds), plus the costs of a Financial
Advisor, to the extent one is required for the transaction;
c. Authorize
the Applicants to expend up to $5 million in Direct Costs for the issuance of
one or more additional series of Environmental Control Bonds, plus the costs of
a Financial Advisor, to the extent one is required for the transaction, and to
determine that all of these costs constitute recoverable Financing Costs, to be
amortized over the life of the Additional Bonds to be issued;
d. Clarify the
Financing Order to make it clear that the Additional Bonds may be issued
through a private offering exempt from the registration requirements of the
Securities Act of 1933, as amended, if approved by authorized personnel of the
Commission or the Financial Advisor, based on their assessment of
then-prevailing market conditions, as the Applicants believe that such a
private offering might be preferable for the issuance of the Additional Bonds
and due to the fact that the small size of the contemplated offering, the
additional time and expense of a public offering might outweigh the benefit of
marginal differences in pricing that might result from a public offering
e. Use the
same basic structure outlined in FOF ¶¶20-35 and OP ¶¶29-41 of the Financing
Order and used in connection with the issuance of the Initial Bonds and use MP
Environmental, PE Environmental, and one or more of the existing First Tier
Subsidiaries or use one or more newly-created special purpose entities and
first tier subsidiaries, or any combination thereof, as appropriate or
desirable, in connection with the issuance of any Additional Bonds;
f. To
facilitate the timely issuance of the Additional Bonds and take advantage of
any available cost savings associated with the potential use of the same
underwriters, underwriters’ counsel, tax counsel, bankruptcy counsel,
securities law counsel, trustees, and other consultants used in respect of the
issuance of the Initial Bonds, if approved by authorized personnel of the
Commission or by the Financial Advisor, the Commission would not require a
competitive process for the selection of these transaction participants;
g. Authorize
the Applicants to impose related Environmental Control Charges (“ECCs”) (and
associated normalization surcharges (“ECC Normalization Surcharges”))
reflecting the requested increase in financing authority, including Ongoing
Financing Costs, all other costs or charges that are to be recovered through
the ECCs, and all annual and other true-up adjustments, as presently authorized
in the Financing Order;
h. Approve
certain affiliate agreements necessary to effectuate the transaction; and
i. Make such
other changes in and modifications to the Financing Order as may be necessary
or convenient to accomplish the purposes set forth in this Second Petition.
9. Finally, in the Second Petition the
Applicants requested that the Commission retain the same methodology for
allocating financing costs among customer classes and the same proposed
adjustment mechanism for the ECCs as that currently contained in the Financing
Order.
II. Discussions
Leading to Second Joint Stipulation
10. Prior to
and following the Applicants’ July 1, 2009 filing of the Second Petition, the
Applicants, the Staff, the CAD, and the WVEUG discussed the issues raised in
the Second Petition and attempted to negotiate a proposed settlement of those
issues. Specifically, during conferences
held in July and August 2009, and in various correspondence, meetings, and
telephone discussions during that period, the Parties attempted to address,
narrow, or eliminate certain of the issues and concerns raised by the Parties
with respect to the Second Petition.
Based on these negotiations, the Parties have reached the recommended
settlement of the Second Petition, the terms of which are described in Sections
III, IV, and V of this Second Joint Stipulation.
11. The
Parties understand that specific language used in the Financing Order, together
with the provisions of Section 4e, will be taken into account by rating
agencies that will be invited to assign ratings for Additional Bonds to be
issued under the authority of the Financing Order. Consequently, the Parties stipulate, agree,
and recommend that the Commission amend the Financing Order consistent with the
terms of this Second Joint Stipulation in its entirety, without additions,
deletions, or modifications unless (1) such additions, deletions or
modifications are required to comply with existing law; (2) will not impair the
current ratings of the Initial Bonds; and (3) is likely to facilitate
achievement of the Lowest Cost Objective or to protect other customer
interests.
III. Stipulation
and Agreements as to the Estimated Project Construction Cost, the
Securitization Amount, Recoverable Financing Costs, Related Matters, and
Withdrawal of Request for Interim ENEC Relief in Case No. 09-1124.
12. The
Parties stipulate, agree, and recommend that the Commission make the findings
and determinations set forth in this Section III, and in so doing modify the
Financing Order: (i) to increase by an additional $100 million the present
authorization to finance Project-related Environmental Control Costs (from a
maximum of $450 million, exclusive of Financing Costs, to an amount of up to
$550 million), including authorization for the issuance of one or more series
of the Additional Bonds; (ii) to authorize the Applicants to expend up to $5
million in Upfront Financing Costs plus the costs of a Financial Advisor to the
Commission in respect of the issuance of Additional Bonds, and to finance those
amounts as a component of the Additional Bonds; (iii) to increase the level of
Ongoing Financing Costs permitted to be recovered from customers in an amount
necessary to reflect the issuance and servicing of the Additional Bonds; (iv)
to authorize the use of ECCs and related ECC Normalization Surcharges to
reflect the issuance and servicing of the Additional Bonds; (v) to extend the
authority to apply the routine and non-routine true-up mechanism established in
the Financing Order to the ECCs and ECC Normalization Surcharges associated
with the Additional Bonds; and (vi) to approve certain new affiliate agreements
between the Applicants and their affiliates necessary to effectuate the
transaction.
13. Financial
Advisor. The Parties found that the
Commission’s Financial Advisor was helpful in achieving the Lowest Cost
Objective and in ensuring that customers’ interests were protected in
connection with the Initial Bonds. The
Parties therefore stipulate, recommend and agree that the Commission retain a
Financial Advisor, and that the Financial Advisor is required to help achieve
the objectives of this Joint Stipulation, including the timely and efficient
issuance of Additional Bonds and the Lowest Cost Objective. The Financial Advisor should have the same
duties and responsibilities as described in the Financing Order
14. Current
Estimate of Environmental Control Costs.
Based on the Applicants’ current estimate of Environmental Control Costs
of $550 million, the Parties continue to agree that the Project is necessary
and prudent under the circumstances, and is preferable to any alternatives
available to the Applicants at this time.
The Parties agree that the authorized aggregate amount of Environmental
Control Costs to be financed by Environmental Control Bonds should be increased
by $100 million to $550 million.
15. Recoverable
Upfront Financing Costs. The Parties
agree that the maximum amount of Direct Costs that the Applicants may recover
from the proceeds of the Additional Bonds shall be $5 million. In addition, the Parties agree that the costs
of a Financial Advisor shall be determined independently and solely by the
Commission, and that the Applicants also shall recover such costs of a
Financial Advisor from proceeds of the Additional Bonds.
16. Recoverable
Ongoing Financing Costs. As
mentioned in the Financing Order, Ongoing Financial Costs are the costs of
servicing the Environmental Control Bonds over their life, and include both
Determinable Ongoing Financing Costs and Variable Ongoing Financing Costs. The Parties agree that the Applicants are
entitled to recover Ongoing Financial Costs resulting from the issuance of the
Additional Bonds through ECCs.
17. Transaction
Structure. The Parties agree that
the Applicants and the Financial Advisor, with respect to the issuance of the
Additional Bonds, shall in all material respects follow the transaction
structure described in FOF ¶¶20-35 and OP ¶¶29-41 of the Financing Order and
used in connection with the issuance of the Initial Bonds, except as otherwise
modified in this Joint Stipulation and expect as might be necessary or helpful
to achieve the Lowest Cost Objective.
18. Subsidiaries. The Parties agree that the Applicants may use
MP Environmental, PE Environmental, and one or more of the existing First Tier
Subsidiaries or use one or more newly-created special purpose entities and
first tier subsidiaries, or any combination thereof, as appropriate or
desirable, in connection with the issuance of any Additional Bonds.
19. Private
Offering Permitted. The Parties
agree that the Additional Bonds may be offered and sold through a private
offering exempt from the registration requirements of the Securities Act of
1933, as amended, subject to the requirements of the Lowest Cost Objective and
other terms and conditions of the Financing Order.
20. Determination
of ECCs. As stated previously in the
FO Joint Stipulation, and as described and provided for in detail in the
Financing Order, the ECCs are the amounts needed to recover the Environmental
Control Costs and Ongoing Financing Costs.
The Parties agree and recommend that the Applicants should be allowed to
recover an ECC from their electric customers in West Virginia in amounts
necessary to reflect the issuance and servicing of the Additional Bonds, as
requested in this Second Joint Stipulation.
The Parties agree, therefore, that Appendix A to this Second Joint
Stipulation is one alternative and is a reasonable estimate of the expected
impact of the estimated ECC for each of the Applicants’ customer classes based
upon current demand levels and the above-described modifications to the maximum
amounts of Environmental Control Costs and Financing Costs authorized to be
financed. The Parties agree that the
final characteristics of the Additional Bonds, including but not limited to the
timing, principal amount, interest rate, and term of each issuance, as well as
the allocation of costs to customer classes based on forecasted demand relative
to other classes, may differ from the estimates set forth in Appendix A.
21. Treatment
for Environmental Control Costs Less than or in Excess of $550 Million.
a. The Parties stipulate,
recommend and agree that, to the extent the Net Proceeds from the sale of the
Additional Bonds are not needed immediately to pay costs of the Project and
related Environmental Control Costs, the remaining Net Proceeds shall be
invested and the interest earnings thereon shall either be (1) applied and disposed
of as provided in Ordering Paragraph 32 of the Financing Order or (2) applied
to reduce future ECCs. Additionally,
upon completion of construction of the Project, to the extent Net Proceeds are
not needed to pay costs of the Project and related Environmental Control Costs,
then the remaining Net Proceeds shall either be (1) applied and disposed of as
provided in Ordering Paragraph 40 of the Financing Order or (2) applied to
reduce future ECCs. The Parties agree
and recommend that the disposition of interest earnings and/or excess Net
Proceeds, as referenced in this subsection, shall be based on the
recommendation of special bankruptcy counsel for the Applicants. In no event
shall the disposition of interest earnings and/or excess Net Proceeds be other
than the options listed in this section.
b.
The Parties stipulate,
recommend and agree that any over-collection of ECCs above the amount necessary
to pay the Periodic Bond Payment Requirement (as defined in the Financing
Order) will be deposited to the respective Excess Funds Subaccounts, thereby
reducing future ECCs.
c.
Neither the Applicant
nor the remaining Parties presently anticipate that the actual amount of
Environmental Control Costs will exceed $550 million. The Parties stipulate, recommend and agree
that, in the event that the Environmental Control Costs exceed $550 million,
the Applicants may seek recovery of the excess in a subsequent base rate
proceeding, and any and all parties are be free to take whatever position they deem
appropriate concerning the recovery of the excess amounts.
22. Timeliness.
a. The Parties agree that the
prospects of a successful and optimal issuance of Additional Bonds will be
enhanced if the Commission expedites its review of this Joint Stipulation and
issues an order as soon as practicable.
Therefore, the Parties request that
the Commission issue an order granting the relief requested as quickly
as practicable, but in any event no later than October 1, 2009 to ensure that
the Applicants and Financial Advisor have maximum flexibility to access the
fixed income capital markets on a timely basis and optimally prior to December
1, 2009, and to allow the Applicants’ customers to realize the benefits arising
from the lower interest costs as well as the lower revenue requirements from
the issuance of the Environmental Control Bonds. To facilitate this process, the Parties agree
that the Applicants will, at the Commission’s direction, submit a Proposed
Order to the Commission as soon as possible for the Commission’s consideration
in evaluating this Joint Stipulation.
The Parties acknowledge that the last in-service date of the Project is
anticipated to be November 21, 2009, and that the Applicants are not required
to have the Environmental Control Bonds issued prior to the in-service date.
b. To facilitate the timely
issuance of the Additional Bonds and take advantage of any available cost
savings, specialized knowledge or experience associated with the potential use
of the one or more of the same underwriters, underwriters’ counsel, tax
counsel, bankruptcy counsel, securities law counsel, trustees, and other
consultants or personnel used in respect of the issuance of the Initial Bonds,
if approved by authorized personnel of the Commission or the Financial Advisor,
the Commission shall not require a competitive process for the selection of
these transaction participants by the Applicants.
23. Continued Applicability of Remaining
Portions of Financing Order. The
Parties stipulate, recommend and agree that all of the requirements,
procedures, practices, protections, benefits, and relief authorized or ordered
under the Financing Order and Section 4e in respect of the issuance and
servicing of the Initial Bonds shall also be authorized or ordered in respect of
the issuance and servicing of the Additional Bonds and, to the extent
applicable, shall continue in full force and effect as to the Additional Bonds.
As the Commission has previously noted,
the “Financing Order grants authority to issue Environmental Control Bonds and
to impose and collect Environmental Control Charges only if the final structure
of the transaction and the procedures followed comply in all respects with
these [best practices] standards and procedures.” Financing Order at page 42, Part
II.E.2.
24. Discretion
Relating to Bond Issuance. The
Parties stipulate, recommend and agree that, except as otherwise provided in
the Financing Order, the Applicants and Financial Advisor shall be accorded
flexibility in determining the final terms of the Additional Bonds, including
the levels of placement and placement agent costs, if any included in the Upfront
Financing Costs. As the Commission
specified in the Financing Order in respect of the Initial Bonds (see Financing Order at 93, Ordering
Paragraph 77) the Applicants shall have the sole discretion as to whether and
when to proceed with the issuance of the Additional Bonds and the completion of
all related transactions.
25. Irrevocability
of Financing Order, as Modified. The
Parties stipulate, recommend and agree that, except for the Adjustment
Mechanism and as provided in the Financing Order, the Financing Order, as
amended pursuant to the Commission’s consideration of this Second Joint
Stipulation, will continue to be “irrevocable” within the meaning of Section
4e(f) and applicable law.
26. Affiliate
Agreements. The parties agree that
the Commission should approve the affiliate agreements specified in Appendix F
to the Applicants Second Petition to Reopen Proceedings and to Amend Financing
Order, the forms of which were filed with the Commission, without approving the
specific terms and conditions thereof.
27. Interim ENEC Relief. On July 10, 2009, the Companies filed a
Petition for Implementation of Interim ENEC Rate Increase, Effective October 1,
2009 (“Interim ENEC Petition”). In the
ENEC Petition, the Applicants sought to have the Commission implement an
interim ENEC increase effective October 1, 2009, based on the Applicants’ ENEC
under-recovery balance during the ENEC actual cost period ending June 30,
2009. As part of this Joint Stipulation,
the Applicants agree that they shall discontinue their efforts in pursuing the
relief sought by the Interim ENEC Petition and, upon the Commission’s issuance
of a Financing Order, shall withdraw the Interim ENEC Petition.
V. Required and
Recommended Findings
28. The
Parties stipulate, recommend and agree that the Commission should approve this
Joint Stipulation without additions, deletions, or substitutions, and should
amend the Financing Order pursuant to this Second Joint Stipulation. In so doing, the Parties stipulate,
recommend, and agreed that the Commission should make the findings of fact and
conclusions of law specified in this Section V.
For purposes of this Section V, all capitalized terms not otherwise
defined herein shall have the meanings and values ascribed to them in the
Financing Order.
A. Required
Findings Under Section 4e(d)(3).
29. Each of
the Applicants is and remains a Qualifying Utility within the meaning of Section
4e(b)(23).
30. The
Environmental Control Activities, including the Wet Scrubbers to be installed
at Ft. Martin and all other aspects of the Project, remain Environmental
Control Activities within the meaning of Section 4e(b)(5), are necessary and prudent
under the circumstances, and are preferable to any alternatives available to
the Applicants.
31. The cost
of the Environmental Control Activities, and all other aspects of the Project,
is reasonable.
32. Increasing
the authorized amount for the issuance of Environmental Control Bonds to the
amount of $564.3 million, plus any Financial Advisor costs, including the
issuance of the Additional Bonds consistent with the Lowest Cost Objective of
the Financing Order, is reasonable and will result in costs to the Applicants’
respective customers in the State that (i) are lower than would result from the
use of traditional utility financing mechanisms, and (ii) are just and
reasonable.
33. The
financing of the Environmental Control Costs and Upfront Financing Costs
through the issuance of the Additional Bonds to the extent authorized will
result in benefits to the Applicants’ respective customers and the State in
general.
34. The
issuance of Environmental Control Bonds, including the Additional Bonds, together
with the collection of the related ECCs from the Applicants’ customers in the
State in amounts consistent with the relief requested in this Second Petition,
is just and reasonable, is otherwise consistent with public interest, and
constitutes a prudent, reasonable, and appropriate mechanism for the financing
of the Environmental Control Activities.
35. The
standards and procedures established by the Commission in the Financing Order
represent best practices for the benefit of customers while respecting
legitimate interests of the Applicants.
The Commission finds that these best practices standards and procedures
will ensure that the imposition of ECCs are just and reasonable, are otherwise
consistent with the public interest, and constitute a prudent, reasonable and
appropriate mechanism for the financing of Environmental Control Activities, as
required by Section 4e(d)(3)(F).
B. Required Findings Under Section 4e(d)(4).
36. The
maximum amount of Environmental Control Costs that shall be financed under
authority of a modified Financing Order should be increased from the $450
million amount presently reflected in the Financing Order to $550 million,
exclusive of Upfront Financing Costs.
37. The
Applicants may recover Financing Costs as follows: The Commission finds and determines that the
Upfront Financing Costs (which include Regulatory Costs, the Issuance Costs,
the Lender Consent Costs, the Financial Advisor Costs, and the Other Costs) and
the Ongoing Financing Costs, all relating to the issuance of the Additional
Bonds, are general categories of costs that fall within the definition of
Financing Costs in Section 4e(b)(14) and may be recovered as subject to the
limitations set forth in the Financing Order.
The maximum amount of additional Upfront Financing Costs that the
Applicants may recover from the proceeds of the Additional Bonds to be issued
shall be $5 million, plus Financial Advisor Costs.
38. The
Applicants have requested that the Commission retain the same methodology for
allocating Financing Costs among customer classes and the same proposed
adjustment mechanism for the ECC s as that currently contained in the Financing
Order. The current Adjustment Mechanism
provided in the Financing Order, as modified, is just and reasonable and may be
applied with the frequency and in the manner specified in the Financing Order,
as modified.
39. The
proceeds of the Additional Bonds may be used to pay, and secure the payment of,
the Environmental Control Costs authorized by the Commission in the Financing
Order.
VI. Disposition of Consolidated Cases and
Related Matters
40. The Parties agree that this Second Joint
Stipulation resolves all the issues in contention among the Parties arising
from the Second Petition.
41. This Second Joint Stipulation is entered
into subject to the acceptance and approval of the Commission. It results from a review of the information
filed by the Applicants, the other Parties’ review of that information, and
extensive discussions. It reflects
compromises by the Parties and is being proposed to expedite the resolution of
these matters and to make time-consuming and costly hearings unnecessary, to
the benefit of the Applicants’ respective customers generally.
42. This Second Joint Stipulation also reflects the Parties’
shared belief that financing the maximum amount of $550 million of Project
Environmental Control Costs and related Financing Costs through this financing
will provide significant cost benefits to the Applicants’ electric customers in
West Virginia. Accordingly, the Parties recommend and urge the Commission to
review this Second Joint Stipulation and to amend the Financing Order
consistent with the provisions herein in an expedited fashion to ensure that
any Additional Bonds issued under the authority of an amended Financing Order
will reflect the most beneficial financial market rates and lowest revenue
requirements possible.
43. This Second Joint Stipulation is made
without any admission or prejudice to any other positions that may be taken by
any Party on other issues, or to positions that may be taken by any Party on
the same or similar issues in subsequent proceedings, except to the extent to
enforce the provisions agreed to herein.
44. The Parties agree this Second Joint
Stipulation is in the public interest and represents a consensus by parties
representing a broad range of interests.
The settlement is fair, reasonable and supported by the record. The Parties acknowledge that it is the
Commission’s discretion, however, to accept, reject or modify any joint
stipulation. In the event that this
Second Joint Stipulation is rejected or modified by the Commission, it is
expressly understood by the Parties that they are not bound to accept this Second
Joint Stipulation as modified or rejected and may avail themselves of whatever
rights are available to them by law including proceeding to hearing, and may
pursue fully all issues and positions herein as if no proposed settlement or
stipulation existed. In such
circumstances, this Second Joint Stipulation shall not be admissible as to that
party for any purpose other than enforcement of this paragraph.
WHEREFORE,
the Parties respectfully request that the Commission make appropriate findings
of fact and conclusions of law adopting and approving this Second Joint
Stipulation and Agreement to Modify Financing Order as soon as practicable.
Respectfully
submitted this 9th day of September, 2009.
MONONGAHELA
POWER COMPANY
and
THE
POTOMAC EDISON COMPANY,
each d/b/a ALLEGHENY POWER
By
Counsel
______________________________
Christopher L. Callas, Esq. (WVSB
#5991)
James Robert Alsop Esq. (WVSB
#9179)
JACKSON KELLY PLLC
Post Office Box 553
Charleston, WV 25322
(304) 340-1000
Kathryn L. Patton, Esq.
Allegheny Energy, Inc.
800 Cabin Hill Drive
Greensburg, PA 15601-1689
(724) 838-6000
THE
STAFF OF THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
By
Counsel
__________________________________
Caryn Watson Short (WVSB #4962)
Wendy Braswell (WVSB #9406)
Public Service Commission
P. O. Box 812
Charleston, WV 25323
THE
CONSUMER ADVOCATE DIVISION OF THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
By
Counsel
_________________________________
David A. Sade (WVSB#3229)
Jennifer Stollings (WVSB#9002)
Consumer Advocate Division
7th Floor, Union Building
723 Kanawha Boulevard, East
Charleston, West Virginia 25301
WEST
VIRGINIA ENERGY USERS GROUP
_________________________________
Susan J. Riggs (WVSB #5246)
SPILMAN THOMAS & BATTLE, PLLC
Spilman Center
300 Kanawha Blvd., East
Charleston, WV 25301
Derrick P. Williamson
Spilman Thomas & Battle, PLLC
1100 Bent Creek Blvd., Ste. 101
Mechanicsburg PA 17050
[1] In this Second Joint Stipulation, the Parties’ references
to the “Financing
Order” are intended to refer to the Commission’s April 7, 2006 order in this
docket, as amended at the point in time referenced. For example, the references to the Financing
Order in paragraphs 3 and 4 of this Second Joint Stipulation refer to the April
7, 2006 order as amended by the June 13, 2006 Order in the same docket;
similarly, discussions of time periods on and after January 17, 2007 include
references to the “Financing Order” as it was further amended by the Commission
Order entered on January 17, 2007.
[2] The Financing Order defined “Direct Costs” to include all the
Applicant’s Issuance Costs, Regulatory Costs (other than Financial Advisor
Costs), and any other Upfront Financing Costs that do not explicitly fall with
the definitions of Issuance Costs and Regulatory Costs. “Upfront Financing Costs” was defined to
include the cost of the Financial Advisor to the Commission (FOF ¶16(a)).