20180925Avita to Staff Attachment_039A.pdf

STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
CAS2 12-M-0192 -Joint Petition of Fortis Inc. et al. and CH
Energy Group, Inc. et al. for Approval of the
Acquisition of CH Energy Group, Inc. by Fortis
Inc. ~nd Related Transactions.
ORDER AUTHORIZING ACQUISITION
SUBJECT TO CONDITIONS
(Issued and Effective June 26, 2013)
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TABLE OF CONTENTS
BACKGROUND AND PROCEDURAL HISTORY .............................. 2
PUBLIC COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE JOINT PROPOSAL'S TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Risk Mitigation ....................................... 11
1. Corporate Structure, Governance and Financial
Protect ions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
a. Goodwill and Acquisition Costs ..................... 12
b. Credit Quality and Dividend Restrictions ........... 12
c. Money Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
d. Special Class of Preferred Stock ................... 15
e. Financial Transparency and Reporting ............... 16
f. Affiliate Standards ................................ 17
g. Follow-On Merger Savings ........................... 18
h. Corporate Governance and Operational Provisions .... 18
2. Performance ........................................... 20
a. Performance Mechanisms ............................. 20
i. Service Quality .................................. 20
ii. Electric Reliability ........................... 21
iii. Gas Safety ..................................... 21
iv. Leak-Prone Pipe ................................ 22
b. Expenditure Requirements ........................... 22
i. Right-of-Way Tree Trimming ....................... 22
ii. Stray Voltage Testing .......................... 23
iii. Infrastructure Investment ...................... 23
8. Incremental Benefits ............................. , .... 23
1. Rate Freeze ........................................... 24
2. Earnings Sharing ...................................... 24
3 • Synergy Savings ....................................... 24
4. Deferral Write-Offs and Future Rate Mitigation ........ 24
5. Cornmuni ty Benefit Fund ................................ 25
a. Low-Income Program Enhancements .................... 25
b. Economic Development ............................... 26
6. State Infrastructure Enhancements ..................... 27
7. Gas Expansion Pilot Program ........................... 27
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8. Retail Access ....................•.................... 28
DISCUSSION OF EXCEPTIONS TO THE RECOMMENDED DECISION .......... 28
Overall Balance of Interests ...........•................... 29
Economic Benefits . . . • . • . . . . . . . . . . . . . . . . . . . . . . . . • . . • • . . • • . • . 31
Jobs ...............••...................................... 32
NAFTA ...................................................... 33
Low-Income Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4
Foreign Ownership ..............•........................... 36
Community Values ................................•.....•.... 37
Financial Safeguards ...•..•........•....................... 39
Environment and Infrastructure ............................. 44
Retail Access ......•............••.•................ , . . . • . . 4 6
PETITIONERS' ENHANCEMENTS ........••.•..•...................... 48
MOTION FOR EVIOENTIARY HEARINGS ....•.......................... 52
CONCLUSION ...................•................................ 58
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STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
--·---•-Tr ______ _
At a session of the Public Service
Commission held in the City of
Albany on June 13, 2013
COMMISSIONERS PRESENT:
Garry A. Brown, Chairman
Patricia L. Acampora
James L. Larocca
Gregg C. Sayre
CASE 12-M-0192 -Joint Petition of Fortis Inc. et al. and CH
Energy Group, Inc. et al. for Approval of the
Acquisition of CH Energy Group, Inc. by Fortis
Inc. and Related Transactions.
ORDER AUTHORIZING ACQUISITION
SUBJECT TO CONDITIONS
(Issued and Effective June 26, 2013)
BY THE COMMISSION:
INTRODUCTION
By this order, we authorize the acquisition of CH
Energy Group Inc. (CHEG), the parent company of Cem:ral Hudson
Gas & Electric Corporation (Central Hudson), by Fortis Inc.
(Fortis). In doing so, we adopt, with mod~fications, the terms
of a Joint ?roposal submitted for our consideration on
January 28, 2013, by the Department of Public Service trial
staff (Staff); Fortis; CHEG; the Ut~lity Intervention Unit of
the Department of State (UIU); Multiple Intervenors (MI); and
the Counties of Dutchess, Orange and Glster. Those terms ensure
significant, tangible benefits for Central Hudson's customers
including $9.25 million in guaranteed rate savings, a $35
million fund to be used for deferral write-offs and/or future
rate mitigation, a $5 million Corrununity Benefit Fund for low-
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income customer programs and economic development, a rate
freeze, and an earnings sharing mechanism more favorable to
ratepayers. They also establish comprehensive financial
safeguards, corporate governance requirements, service quality
and performance mechanisms, and other measures that will
minimize any risk associated with the transaction. With certain
other requirements we will add to the terms originally proposed,
we find that, on balance, the acquisition will provide a
significant net public benefit, and will serve the public
interest as required by Public Service Law (PSL) §70.
BACKGROUND AND PROCEDURAL HISTORY
On February 20, 2012, CHEG entered into an Agreement
and Plan of Merger (Merger Agreement) with Fortis, a Canadian
holding company; FortisUS Inc. (FortisUS}, a wholly-owned
subsidiary of Fortis; and Cascade Acquisition Sub Inc.
(Cascade), a wholly-owned subsidiary of FortisUS. Under the
terms of the Merger Agreement, CHEG would merge with Cascade,
with CHEG as the surviving entity.
Central Hudson, a regulated utility serving about
301,000 electric customers and 75,000 natural gas customers, 85%
of them residential, in eight counties in the mid-Hudson region,
is a wholly owned subsidiary of CHEG. As a result, consummation
of the proposed merger would make Central Hudson an indirect,
wholly-owned subsidiary of Fortis.
Under PSL §70, the transfer of ownership of all or any
part of the franchise, works or system of any gas or electric
corporation is prohibited without the consent of the Commission.
That consent may be given only if the Commission determines that
the p=oposed acquisition, with such terms and conditions as the
Commission may fix and impose, "is in the public interest."
Consequently, on April 20, 2012, Fortis, FortisUS, Cascade, CHEG
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and Central Hudson sought such consent by filing the petition
that is the subject of this proceeding.
Subsequent to the filing, the matter was assigned to
Administrative Law Judges, and a Notice of Proposed Rulemaking
was published.1 On May 16, 2012, the judges conducted an initial
procedural conference. Participants at the conference in
addition to Petitioners and Staff were UIU, MI, the
International Brotherhood of Electrical Workers Local 320 (IBEW
Local 320), the Retail Energy Supply Association (RESA), Empire
State Development Corporation; and the County of Dutchess. All
were admitted as parties to the proceeding, as were Hess
Corporation, the County of Orange, the County of Ulster, the
Joint Task Force of the Town and Village of Athens (Athens), the
Public Utility Law Project of New York, Inc. (PULP), and, as a
group, Accent Energy Midwest Gas, LLC, Accent Energy Midwest II,
LLC, IGS Energy, Inc., and Interstate Gas Supply, Inc.
Following eight months of litigation, during which
testimony was filed by Staff and PULP, and comments were
submitted by Athens, Dutchess County, ESD, IBEW Local 320, MI,
and UIU, Petitioners filed a notice of settlement negotiations
in December 2012. Discussions pursuant to that notice led to
the Joint Proposal we are now considering.
In a January 29, 2013, ruling, the judges established
a schedule for statements in support of, or opposition to, the
Joint Proposal. Statements expressing general support for the
Joint Proposal were filed by Petitioners, Staff, MI and UIU.
The Counties of Dutchess, Orange, and Ulster expressed support
1 New York State Register, May 23, 2012, p. 15.
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limited to specific provisions of the Joint ?roposal.:
Statements opposing adoption of the Joint Proposal in its
present form weLe fi.led by PULP, RC::SA, the New Yo!:k State Energy
Marketers Coalition, and IBEW Local 320. Reply statements were
filed by Petitioners, Staff, IBEW Local 320, MI, PULP, and RESA.
In their January 29, 2013, ruling, the judges also
required that any party advocating an evidentiary hearing on the
Joint Proposal must specify in its initial co~ments a material
issue of fact that coulct not be resolved without the cross­
examination of witnesses. No party's initial comments attempted
to make such a showLng and, accordingly, no evidentiary hearing
was held.
On April 24, 2013, the Secretary issued a notice
announcing the preparation of a Reco!lllTle~ded Decision (RD) and a
schedule for the filing of exceptions. The RD was filed by the
judges on May 3, 2013. It recommended that the Joint Proposal
not be approved and that the petition to authorize the Derger
transaction be denied. Exceptions to the RD were subsequently
2 The signatures of the Counties were accompanied by disclaimers
stating that they were affixed for the purpose of expressing
support for specific provisions of the Joint Proposal, and
that the Counties took no position on the balance of the
docu~ent. In general, the Counties stated support for
provisions calling for a rate freeze, the crediting of synergy
savings, and the payment of positive benefits including the
Community Benefit Fund and write-down of regulatory assets.
The Counties participated as parties, and signed the Joint
Proposal, through their county executives. Subsequent to
execution of the Joint Proposal, the Ulster County
legislature, by resolution, and a majority of the members of
the Dutchess County legislature, by letter, opposed approval
of Lhe proposal, while Orange County Executive Edward Diana
submitted comments supporting it fully.
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filed by Staff, Petitioners, MI, UIU, PULP, and Citizens for
Local Power and the Consortium in Opposition to the Acquisition.3
PUBLIC COM~ENTS
On February 21, 2013, public statement hearings
concerning the Joint Proposal were held in Kingston and
Poughkeepsie. Approximately 40 people attended the hearings, 17
of whom provided comments on the record. Commenters included
Central Hudson customers from throughout the utility's service
territory, as well as New York State Assembly ~ember Kevin
Cahill and Town of Rosendale Council Member Manna Jo Greene.
The original notice of public statement hearings
called for all comments to be submitted by Xarch 21, 2013.
After receiving numerous requests for additional time from
public officials and others, the Secretary extended the dead:ine
through May 1, 2013. During the extension period, additional
public statement hearings were held on ~pril 17 1 2013, in
Poughkeepsie and April 18, 2013, in Kingston. Approximately 130
people attended the hear~ngs and 47 provided comments. Speakers
included Assembly Member Frank Skartados, Dutchess Cou~ty
Legislators Richard Perkins and Joel Tyner, Rosendale Council
Member Greene, Rosendale Supervisor Jeanne Walsh, Woodstock Town
Council Member Jay Wenk, and a representative frcm the office of
State Senator Cecilia Tkaczyk. All speakers at all of the
public statement hearings opposed the merger. Through June 12,
2013, over 500 comments opposing the merger were received by the
Commission by mail, e-mail, telephone, and posting to the
Commission's website. In addition, 913 individuals had signed a
3 These last two parties were admitted on May 1, 2013. Although
some members of the groups had previously submitted comments,
the organizations themselves had not participated in the
proceeding prior to their admission. These parties have
participated jointly in the proceeding and are referred to
herein as CLP/COA.
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petition posted on the SignOn.org website expressing opposition
to the merger.4
Commenters opposed to the merger included Senator
Tkaczyk and Senator Terry Gipson; Assembly Members Cahill, Didi
Barrett, and James Skoufis; City of Beacon Mayor Randy Casale;
Town of Woodstock Supervisor Jeremy Wilber; 13 members of the
Dutchess County Legislature, by joint letter; Dutchess County
Legislature Assistant Majority Leader Angela Flesland,
individually; and former Member of Congress Maurice D. Hinchey.
All of these past and present public officials urged the
Commission to disapprove the proposed merger transaction, as did
resolutions adopted by the Ulster County Legislature; the City
of Newburgh; the Towns of Esopus, Marbletown, Newburgh, New
Paltz, Olive, Rosendale, and Woodstock; the Village of Red Hook,
and the Rosendale Environmental Commission. The Economic
Development Corrunittee of the Town of Red Hook also opposed the
merger, as did AARP, the Sierra Club, the Dutchess County
Central Labor Council, and the Hudson Valley Area Labor
Federation.
Opponents of the merger expressed varying degrees of
concern about the potential for long-run negative consequences
not only for Central Hudson ratepayers, but also for the
economic well-being of the utility 1 s Mid-Hudson service
territory if the transaction were consummated. The themes
evoked most frequently in the corrunents derived from the
perception that the transaction would replace a well-regarded,
highly capable and locally engaged utility with a foreign entity
of unproven quality having no inherent ties to the service
4 The SignOn.Org website allows petition signers to cause
e-mails to be sent to the Secretary memorializing their
signatures, and many individuals availed themselves of that
option. The numbers cited above do not include those e-mails.
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territory and financial obJectives that may conflict with the
interests of ratepayers.
This perceived potential for a divergence of interests
between a distant holding company and the local community served
by its utility subsidiary was a source of concern for nearly all
of the commenters, many of whom expressed a general uneasiness
with the prospect of foreign ownership of critical
infrastructure necessary to provide essential electric and gas
services. Some saw this as a continuation of a disturbing trend
toward more and more foreign ownership of U.S. businesses, and
expressed concern that domestic control over vital industries
was being lost.
Others had more specific concerns. Many commenters
described Central Hudson as having been very proactive in
promoting energy efficiency and renewable energy. They
suggested that there was no language in the Joint Proposal that
would ensure a comparable environmental responsiveness from the
merged companies. In a similar vein, many commenters noted
Central Hudson's record of community involvement and support for
local economic development. They questioned whether that level
of commitment would extend beyond the funding expressly provided
in the Joint Proposal, which they characterized as a purely
short-term benefit.
For other commenters, the issue was primarily
economic. They viewed the putative financial benefits of the
Joint Proposal for ratepayers as meager and transitory, while
the financial risks would be substantial and persistent.
Assembly Member Cahill, for example, argued that the proposed
merger transaction makes no financial sense. Fortis, he
suggested, could not make a profit and still maintain current
levels of service for Central Hudson ratepayers. Ultimately, he
contended, customers would be forced to provide that profit
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through either increased rates or decreased service reliability
and safety.
Following issuance of the notice announcing the
preparation of an RD, and before the RD itself was issued, we
began to receive comments supporting the merger. The first such
comment, posted on April 24, came from Charles S. North,
President and CEO of the Dutchess County Regional Chamber of
Commerce. Mr. North stated that after meeting with Central
Hudson officials and learning the facts of the transaction, ne
strongly supported it. Fortis's commitments to provide $50
million in benefits and to maintain Central Hudson as a
standalone entity are a win/win for customers, he said. In Mr.
North's opinion, Central Hudson will benefit from the resources
of a larger organization and has done right by its customers in
agreeing to che merger.
Within a week we had received approximately 274
comments urging that the merger be approved. Through June 13,
2013, that number had grown to over 400. Nearly half of those
supporcive comments came from Central Hudson employees. Many
others came from Central Hudson customers and from businesses
and business organizations including the Edison Electric
Institute, the Hudson Valley Economic Development Corporation,
the Putnam County Economic Development Corporation, the
Westchester County Office of Economic Development, the Dutchess
County Economic Development Corporation, the Council of Industry
of Southeastern New York, the New Paltz Regional Chamber of
Commerce, the Sullivan County ?artnersh1p for Economic
Development, the Greater Newburgh Partnership, che Orange County
Industrial Development Authority, and the Orange County
Partnership. Supporters of the merger emphasize the value of
the positive benefits provided for in the Joint Proposal and the
commitments of Fortis to operate Central Hudson as a stand-alone
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entity, maintaining local jobs and keeping its headquarters in
the community. The economic development organizations stress
particularly the importance of the proposed $5 million Community
Benefit Fund (described below).
Supplemental comments were filed on May 1, 2013 by
Citizens for Local Power and Consortium in Opposition to the
Acquisition, jointly (CLP/COAJ; Joint Proposal signatory MI;
opponent IBEW Local 320; and Petitioners. CLP/COA expounded in
detail on the benefits and detriments of the merger as proposed,
to show that it not only would fail the Corrunission's positive
net benefits test but would be affirmatively harmful and, in
that respect, compares unfavorably with all the major energy
company mergers the Commission has approved since 1999. CLP/COA
said the Joint Proposal satisfies neither the statutory public
interest standard, nor the criteria in the Settlement Guidelines
such as conformity with state policies and consensus among
adversarial parties. It charged Fortis with disingenuousness or
indifference regarding values the Commission should uphold in
the pursuit of objectives such as environmental protection,
economic development, utility infrastructure improvements, and
development of sustainable energy resources.
For the most part, MI's comments repeated its
criticism of previously raised objections to the Joint Proposal
and emphasized the potential loss of $49.5 million in positive
benefits to ratepayers if the proposal were rejected. MI also
argued that less weight should be given to comments from
entities that did not participate fully in the process leading
to the Joint Proposal, particularly those of the legislatures of
Dutchess and Ulster Counties whose county executives were
signatories to the proposal.
IBEW Local 320 repeated its previously stated concerns
about Central Hudson's outsourcing policies and their impact on
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union jobs and service quality, and contended that they had not
been alleviated. The Joint Proposal should not be approved, it
said, unless provision is made for a needed infusion of internal
workers. The local also asserted that the ~vast majorityu of
employees who had responded with comments supporting the merger
were not represented by the union.
Petitioners' additional comments contended that the
record demonstrates that the Joint Proposal will produce
benefits that greatly exceed any risks presented by the merger.
They cited conunents by Staff in support cf the Joint Proposal
stating Staff's view that the criteria for approval of the
merger under PSL §70, as established in previous Commission
decisions, have been met or exceeded, and that the transaction
compares favorably with those previously approved.
Petitioners also argued that comments received in
opposition to the merger, mainly from non-parties, have
generally been misinformed, are contradicted by the terms of the
Joint Proposal and/or the comments of the signatories, and have
added nothing of significance to the record. For many of the
most frequently raised criticisms of the merger, Petitioners
provided information tending to refute ~he allegations, for
example, with respect to concerns about foreign ownership of
Central Hudson, NAFTA, environmental issues, infrastructure
investment, financial risks, and so forth. Petitioners
concluded that the Joint Proposal:
5
is a compelling path forward that assures the
continuation and enhancement of Central Hudson
consistent with its past performance as a well­
run, low-cost utility that is extraordinarily
sensitive to local needs and Corrunission
requirements.5
Additional Comments of Petitioners, p. 47.
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Subsequent to the issuance of t~e RD, the parties' and
comrnenters' positions continued to evolve. By letter to the
Secretary dated May 23, 2013, IBEW Local 320 reported that it
had reached an agreement with Petitioners and that it now fully
supports the merger. That support was echoed in letters from
the president of the New York State AFL-CIO and fro~ the Utility
Workers Council of the !BEW. Assembly Member Skoufis,
previously opposed to the merger, also submitted a letter
stating that he was now convinced that the transaction should be
approved. Letters of support also were sent by State Senators
Larkin and Maziarz, and Assembly Member Lalor.
All of lhe comments received have been included in the
official record and have been fully reviewed and considered in
the preparation of this order.
THE JOINT PROPOSAL'S TERMS
The Joint Proposal expresses the agreemenL of the
signatory parties that the proposed acquisition of Central
Hudson by Fortis is in the public interest for purposes of
PSL §70, and should be approved, subject to the terms described
in lhe proposal. Broadly speaking, those terms are intended to
perform two functions: the mitigation of potential risks that
might arise frorr. consummation of the merger transaction, and the
securing of incremental public benefits to ensure a net positive
outcome from the transaction.6
A. Risk Mitigation
6
Corporate Structure, Governance and Financial
The points noted here are simply highlights of the Joint
Proposal, provided as a convenience to the reader. For a
complete statement of its terms, one should rely on the
proposal itself, whic~ accompanies this order as the
Attachment and constitutes a part of the order.
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Protections
a. Goodwill and Acquisition Costs
To the extent that tne consideration paia ny For~is
for the stock of CHEG exceeds the book value of CHEG's assets,
an accounting asset, goodwill, will be created. As we have made
clear in previous orders, neither the cost of acquiring, nor the
cost of carrying, that asset should be borne by utility
customers, and the existence of goodwill should not adversely
at~ect ratepayers. The Joint Proposal includes provisions
intended to ensure that this will be the case for Central Hudson
customers. It oars goodwill associated with the merger
transaction from being recorded on the books of Central Hudson,
to the extent permitted by U.S. Generally Accepted Accounting
Principles (U.S. GAAP). If those accounting rules require
goodwiJl to be npushed down" to Central Hudson for financial
reporting purposes, the Joint Proposal precludes it from being
reflected in the regulated accounts of Central Hudson on which
rates ace based. In addition, if either Fortis or FortisUS is
obligated to record an impairment of the goodwill created by the
transaction, the Commission must be notif~ed within five days.
Finally, the Joint Proposal requires Central Hudson to submit to
Staff a schedule of all external legal, financial advisory, and
similar costs incurred to achieve the merger in order to permit
the Contmission to ensure that they cannot be recovered in rates.
b. Credit Quality and Dividend Restrictions
The Joint Proposal incorporates an array of conditions
designed to protect the credit quality of Central Hudson.
First, to permit the Commission to adequately monitor the impact
of the transaction on Central Hudson's :inances, the Joint
Proposal establishes a continuing requirement that copies of all
presentations made by Central Hudson, Fortis or any Fortis
affiliate be provided to Staff within ten business days. Both
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Fortis and Central Hudson are required to be registered with at
least two major nationally and internationally recognized rating
agencies, to maintain separate debt instruments, and to be
separately rated by at least two rating agencies. In addition,
neither Fortis nor Central Hudson will be permitted to enter
into any debt instrument containing cross-default provisions
that could affect Central Hudson.7
To mitigate the risk of an increase in Central
Hudson's financing costs, the Joint Proposal requires that
Fortis and Central Hudson support the objective of maintaining
an "A" credit rating for the utility, unless the Commission
modifies its financial integrity policies. Also, to ensure that
Central Hudson maintains the common equity capitalization on
which rates are based, the Joint Proposal would bar Central
Hudson from paying dividends if its average common equity ratio
for the 13 months prior to the proposed dividend were more than
200 basis points below the ratio used in setting rates.6
The Joint Proposal would also continue dividend
restrictions originally imposed as part of a Restructuring
Settlement Agreement (RSA) approved by the Commission in 1998.9
7
8
9
A cross-default provision is one that can trigger default on a
debt obligation based on a default on a different debt
obligation. For example, a provision in a Central Hudson debt
instrument permitting acceleration of the due date for
repayment in the event of a default by Fortis on one of its
bonds would be a cross-default provision prohibited under the
terms of the Joint Proposal.
In response to a question posed by the judges, the signatory
parties clarified their intention that this provision would
bar a dividend not only when Central Hudson's trailing 13-
wonth average equity ratio was already below the 200 basis
point threshold, but also when the payment of the dividend
would itself cause the average to drop below the threshold.
Case 96-E-0909, Central Hudson Gas & Electric Corp., Order
Adopting Terms of Settlement Subject to Modifications and
Conditions (issued February 19, 1998).
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Among other things, the RSA stipulates that if Central Hudson's
senior debt rating is downgraded below 'BBB+' by more than one
credit rating agency and the downgrade is because of the
performance of, or concerns about, the financial condition of
its parent or an affiliate, dividends will ne limited to a rate
of not more than 75% of the average annual income available for
dividends, on a two-year rolling average basis. In the event
that the debt rating is placed on 'Credit Watch' for a rating
below 'BBB' by more than one credit rating agency, dividends are
limited to 50% of the average net income, and if there is a
downgrade below 'BBB-' by more than one credit rating agency, no
dividends are allowed to be paid until such time as the rating
has been restored to 'BBB-' or higher.
In addition to continuing the RSA limitations, the
Joint Proposal includes a new provision that would insulate
Central Hudson ratepayers from the effects of a downgrade to
Fortis's credit rating. If within three years of the merger
Central Hudson's credit rating were downgraded as a direct
result of a Fortis downgrade, the higher debt cost resulting
from the downgrade would not be reflected in Central Hudson's
cost of capital used to set rates. Ratepayers would be held
harmless for the financial impact of the Fortis downgrade.
The Joint Proposal also would bar Central Hudson from
providing financial support to Fortis or its other affiliates
except as permitted by the Joint Proposal, the RSA or a
Commission order. It would also require that Central Hudson's
banking and other financial arrangements be kept separate from
those of other Fortis affiliates.
Finally, the Joint Proposal would authorize Central
Hudson to deregister from the United States Securities and
Exchange Commission (SEC) and rely more on the private market
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under SEC Rule 144A to issue debt.10 Our order issued last year
in Case 12-M-0172 would be amended to permit such private
financing.11
c. Money Pooling
Money pools enable affiliated companies to ~ake their
excess cash on hand available as a quick, low-cost source of
short-term funding for other pool participants. The Joint
Proposal would permit Central Hudson to participate in such
pooling arrangements, but only with Fortis, FortisUS and other
entities that are regulated utilities operating in the United
States, provided that Fortis and FortisUS may participate only
as lenders and may not receive loans or fund transfers, directly
or indirectly. Cross-default provisions affecting Central
Hudson would be prohibited.
d. Special Class of Preferred Stock
The Joint Proposal would require the creation of
special class of Central Hudson preferred stock to be held by a
trustee approved by the Commission. Without the consent of the
holder of this ~golden share," Central Hudson would be precluded
from entering into voluntary bankruptcy. This is identical to a
provision included in our order approving the acquisition of New
York State Electric and Gas Corporation and Rochester Gas &
Electric Corporation by Iberdrola.12 The Joint Proposal states
10 Rule 144A is a safe harbor exemption from the registration
requirements of the Securities Act of 1933 that allows
companies to sell securities in the private market to
qualified institutional buyers in a more timely fashion with
fewer disclosures and filing requirements.
11 Case 12-M-0172, Central Hudson Gas & Electric Corp., Order
Authorizing Issuance of Securities (issued September 14,
2012).
12 Case 07-M-0906, Iberdrola, S.A. et al. -Acquisition Petition,
Order Authorizing Acquisition Subject to Conditions (issued
January 6, 2009) (Iberdrola order), pp. 43-44.
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that Commission approval is intended to include "all [other]
Commission authorization necessary for Central Hudson to
establish [this special class of preferred stock] ."13 This
authorization includes the conser.t and approval required under
PSL §108 for an amendment of the Company's certificate of
incorporation to establish the special class of stock.
With the golden share in place, Central Hudson would
be permitted to demonstrate in future rate cases that its stand­
alone capital structure should be used for setting races. That
demonstration would be made by submitting curren~ written
evaluations from at least two rating agencies supporting the
evaluation of Central Hudson as a separate company, without
material adjustments based on risks related to the capital
structure and ratings of fortis. If such evaluations were not
availaole, Central Hudson would have the burden of providing
comparable evidence to support the stand-alone assumption.
e. financial Transparency and Reporting
The Joint Proposal incorporates a number of provisions
intended to ensure that the Commission and its Staff have ready
access to the financial data and other information necessary to
continue our regulatory oversight of Central Hudson. It
provides that Central Hudson will continue to use the standards
of U.S. GAAP for its financial accounting and financial reports.
If that accounting method were replaced for publicly-traded
entities, the change would apply to Centra~ Hudson. Central
Hudson would also be required to continue to satisfy all of the
Comrr.ission's reporting requirements for jurisdictional companies
of its size and nature.
Central Hudson would also continue to comply with the
provisions of sections 302 tr.r8ugh 404 of the Sarbanes-Oxley Act
13 Joint Proposal, p. 11, i4.
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(SOX) as if Central Hudson were still bound directly by the
provisions of SOX, even though it would be a subsidiary of a
±oreign holding company. This would 1nclucie annual aLLestation
audits by independent auditors with respect to Central Hudson's
financial statements and internal controls over financia:
reporting.
The Joint Proposal would also require that Staff be
given ready access to any books and records of Fortis and its
dfflllales that Staff might deem necessary to determine whether
the rates and charges of Central Hudson are just and reasonable.
That access must include, but is not limited to, all information
supporting the underlying costs and the basis for any factor
that determines the allocation of those costs. Central Hudson
would also be required annually to file the financial
statemen~s. including balance sheets, income statements, ana
cash flow statements of Fortis and its major regulated and
unregulated energy company subsidiaries in the United States,
and to provide, to the extent available from a recognized
financial reporting informat:ion service, the "as reported"
quarterly and annual balance sheets, income statements and
statements of cash flows of Fortis in U.S. dollars with the
underlying currency t:ranslation assumptions. All required
financial filings would be in English and in U.S. dollars or, if
that were not practicable, with the underlying currency
translation assumptions.
f. Affiliate Standards
The RSA that we approved when Central Hudson was
reorganized as a subsidiary of CnEG included a set of standards
addressing transactions, conflicts of interest, cost
allocations, and informaLion sharing among Central Hudso~ and
its affiliates. The Joint Proposal would update and revise
those standards and apply them to Fortis. Central Hudson would
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be barred from entering into transactions with affiliates that
were not in compliance with the t~ansaction standards; would be
prohibited from sharing operating (i.e., non-management)
employees with affiliates; and would be required to give 180
days' prior notice and obtain Commission approval before
initiating any material shared services initiatives or
establishing a shared services organization that would provide
material services to Central Hudson.14 Current cost allocation
guidelines would be continued, but would be subject to revision
if intercompany transactions grew beyond a defined level.
g. Follow-On Merger Savings
The Joint Proposal includes a condition that would
ensure Central Hudson customers an appropriate share of any
savings resulting from future mergers or acquisitions by Fortis
until new rates are set. This condition is identical to follow­
on merger savings provisions that have been adopted as a
condition to the approval of other recent mergers.
h. Corporate Governance and Operational Provisions
The Joint Proposal contains a number of provisions
intended to address concerns that the responsiveness of Central
Hudson to the community it serves might be diminished if the
utility becomes a subsidiary of a foreign holding company. The
provisions specify that the headquarters of Central Hudson would
remain within the service territory.15 A new board of directors
would be appointed within one year with a majority of directors
14 "Material" is defined as services individually or collectively
having a value greater than 5% of Central Hudson's net income
on an after tax basis.
15 In response to a question from the judges, the signatory
parties clarified that "headquartersn means the place where
all senior officers and their support staff, legal,
administrative, accounting, operating supervision, and other
head office functions are located.
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who are independent, and at least one independent director would
be required to live wiLhin ~he service territory.16 At least 50%
of Central Hudson's officers would also be required to live
within the territory.
In addition, the Joint Proposal specifies that Central
Hudson is to be governed, managed and operated on a stand-alone
basis post-merger. Local management would continue to make
decisions concerning staffing levels, and current employees,
both management and non-management, would be retained for two
years after closing of the merger. Within 30 days after each of
the first two anniversary dates of the merger closing, Central
Hudson would be required to file a report with the Secretary
comparing the level of union and management employees on that
date to the levels on the merger closing date. The collective
bargaining proc~ss would be continued. The Central Hudson Board
would continue to be responsible for management oversight,
including capital and operating budgets, dividend policy, debt,
and equity requirements. The Board would also have an audit
committee, with a majority of members who are independent, and
it would continue to be responsible for the financial integrity
and effectiveness of internal controls. finally, to maintain an
active corporate and charitable presence in the service
territory, Central Hudson would agree to maintain its 2011 level
of community involvement through 2017.
16 The signatory parties agreed in response to a question from
the judges that an independent director is one who receives no
consulting, advisory or other compensation from Central Hudson
or an affiliate or subsidiary of Central Hudson. A director
who is an officer, employee or consultant of Central Hudson,
FortisUS, Fortis, or any other Fortis affiliate would not be
considered independent.
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2. Performance
To mitigate the risk that pressure to demonstrate the
profitability of the merger transaction might lead to deferred
investment in utility plant, reduced maintenance levels and
other cost -cutting measures that could eventually have a
negative impact on Central Hudson's provision of safe and
reliable service, the Joint Proposal includes a broad range of
performance-related mechanisms, some of which are more stringent
than those currently applicable to Central Hudson. All of these
performance mechanisms would continue until modified by the
Commission in a subsequent proceeding. The Joint Proposal also
incorporates provisions mandating specific levels of
expenditures for important safety, maintenance, and
infrastructure development activities.
a. Performance Mechanisms
i. Service Quality
Under the terms of the Joint Proposal, the Service
Quality Performance Mechanism included in Central Hudson's
current rate plan would be continued with two changes. First,
the target for the PSC complaint rate would be made more
stringent, with the allowed number of complaints reduced from
1.7 per year per 100,000 customers to 1.1. Second, the maximum
negative revenue adjustment (NRA) imposed as a result of failure
to meet defined targets would be doubled from $1.9 million
annually to $3.8 million. During a period of dividend
restriction under the financial provisions of the Joint
Proposal, the maximum NRA would be increased even further, to
$5.7 million, and it would rise again, to $7.6 million, if
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performance targets were missed three times in any five-year
period.17
ii. Electric Reliabllity
The Joint Proposal would maintain the electric
~eliability standards included in Central Hudson's current rate
plan. As with the service quallty performance mechanism,
potential NRAs would be doubled immediately, tripled in the
event of a dividend restriction, and quadrupled if targets were
missed in three of any five calendar years. In addition,
Attachment II to the Joint Proposal defines uniform reporting
requirements that are intended to aid our monitoring of Central
Hudson's performance and to contribute to consistency of
reporting among utilities.
iii. Gas Safety
As with electric reliability, the gas safety
perfor~ance targets in Central Hudson's current rate plan would
be continued, with potential NRAs immediately doubled, cripled
in the event of a dividend restriction and quadrupled ~f targets
are missed in three of five calendar years. In addition, the
Joint Proposal would establish a new metric for compliance with
certain pipeline safety regulations set forth in 17 NYCRR
Parts 255 and 261, with potential NRAs of up to 100 basis
17 In response to a question from the judges, the signatories
clarified that this was what was intended by the phrase "if
targets are missed for three years within the next five year
period," in section IV.B.2 of the Joint Proposal.
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points.18 The provision is essentially the same as those we have
adopted for Corning Natural Gas and National Grid.19
iv. Leak-Prone Pipe
The Joint Proposal would increase required annual
expenditures for the replacement of leak-prone pipe, as
determined through a risk-based analysis, from $6.0 million to
$7.7 million, as recorrunended by Staff. The provision is
intended to drive down active leaks, reduce leakage rates on the
distribution system and lower overtime and operating and
maintenance costs. If Central Hudson fails to expend the
required amount, one-half of the revenue requirement equivalent
of the shortfall would be deferred for ratepayer benefit.
b. Expenditure Requirements
i. Right-of-Way Tree Trimming
The Joint Proposal would continue to budget
expenditures for right-of-way tree trirruning through June 30,
2014 at the level established in Central Hudson's current rate
plan for the year ending June 30, 2013. At the end of the one­
year extension, actual expenditures would be compared to the
budget. Any shortfall would be deferred for the benefit of
ratepayers with carrying charges at the pre-tax rate of return.
18 The Joint Proposal states that all gas safety targets for
calendar year 2013 remain effective until modified by a
Commission order; however, the new safety violation metric has
a calendar year 2014 target. We will require that the
calendar year 2014 target for the New Safety Violation Metric
remain in effect until modified by the Commission.
:9 Case ll-G-0280, Corning Natural Gas Corp., Order Adopting
Terms of Joint Proposal and Establishing a Multi-Year Rate
Plan (issued April 20, 2012), p. 21; Cases 12-8-0201 and
12-G-0202, Niagara Mohawk Power Corp. d/b/a National Grid -
Electric and Gas Rates, Order Approving Electric and Gas Rate
Plans in Accord with ~oint Proposal (issued March 15, 2013),
pp. 13-14.
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ii. Stray Voltage Testing
The Joint Proposal would establish targeted
expenditures for the year ending June 30, 2014, of $2.023
million for stray voltage testing and $350,000 for stray voltage
mitigation. If Central Hudson's expenditures fell short of
either of the targets, the shortfall would be deferred for the
benefit of ratepayers with carrying charges at the pre-tax rate
of return.
iii. Infrastructure Investment
The Joint Proposal would continue the net plant
reconciliation mechanism included in Central Hudson's current
rate plan with new targets established for the year ending
June 30, 2014. Actual net plant in service as of thaL date
would be compared to the targets and the revenue requirement
impact of any difference would be calculated using the
methodology described in Attachment IV to the Joint Proposal.20
If the difference were negative, Central Hudson would be
required to defer the revenue requirement impact for the benefit
of ratepayers with carrying charges at the pre-tax rate of
return. If the difference were positive, no deferral would be
permitted.
B. Incremental Benefits
While the provisions of the Joint Proposal discussed
above are intended to be beneficial to ratepayers, their primary
purpose is to reduce the potential for negative impacts from the
merger. Consequently, to ensure a net positive outcome for
ratepayers, the Joint Proposal includes a number of provisions
that are designed to generate incremental benefits that would
not be realized in the absence of the merger.
20 The signatory parties confirmed that references to
"Attachment III" on page 34 of the Joint Proposal should read
''Attachment IV."
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1. Rate Freeze
The 0oint Proposal provides that Central Hudson rates
currenLly scheduled to remain in effect through June 30, 2013,
would continue through June 30, 2014 - a one-year rate freeze.
2. Earnings Sharing
Central Hudson's current rate plan specifies that when
the utility's earned return on equity exceeds 10.5%, ratepayers
receive 50% of the excess up to an earned return of 11.0%; 80%
of the excess between 11.0% and 11.5%; and 90% of the excess
over 11.5%. Under the terms of the Joint Proposal, the 50% and
90% sharing thresholds would be lowered, and the 80% sharing
level would be eliminated. Ratepayers would be credited wi~h
50% of earnings between ~0.0% and 10.5%, and 90% in excess of
10.5%. In addition, Central Hudson would be required to apply
50% of its share of earnings exceeding 10.5% to write down
certain deferred expenses that would otherwise be recovered in
rates, provided that doing so would not reduce the actual earned
return below 10.5%.
3. Synergy Savinas
The signatories to the Joint Proposal agree that the
merger ~ransaction will generate synergy savings of at least
$1.85 million annually, and Central Hudson would guarantee this
amount for five years, for a total of $9.25 million. The
savings would begin to accrue in the month following closing of
the merger transaction and would be available for rate
~itigation at the start of the first rate year in the next rate
case filed by Central Hudson.
4. Deferral Write-Offs and Future Rate Mitigation
The Joint Proposal specifies that upon closing of the
merger, Fortis will provide Central Hudson $35 million which
will be recorded as a regulatory liabiljty, to be used to write
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down storm restoration expenses for which deferral and recovery
from ratepayers has been requested in three pending petitions to
the Commission, including most notably one for Superstorm
Sandy.21 The total deferral requested in those petitions is
$29.7 million, of which $11.1 million has been denied, with
petitions for rehearing pending. The total deferral authorized
will, therefore, be less than $35 million. The Joint Proposal
provides that the unused portion of the $35 million will be
reserved for the benefit of ratepayers as a regulatory liability
with carrying charges at the pre-tax rate of return, subject to
future disposition by the Commission.
5. Community Benefit Fund
In addition to the $35 million for deferral write-offs
and rate mitigation, Fortis would be required to provide Central
Hudson $5 million for a Corrununity Benefit Fund to be used for
low-income customer and economic development programs.
a. Low-Income Program Enhancements
The Joint Proposal specifies that $500,000 from the
Community Benefit Fund would be used to supplement funds
currently provided in rates for programs targeted to low-income
customers. Currently, Central Hudson provides a bill credit of
21 The three cases involve storm restoration costs associated
with Hurricane Irene in August 2011, a major snowstorm in
October 2011, and Superstorm Sandy in October 2012. In
Case ll-E-0651, Central Hudson Gas & Electric Corp.-Storm
Restoration Expenses for the Rate Year Ended June 30, 2012, we
approved deferral of $8.9 million in expenses associated with
Irene. Central Hudson had sought deferral of $11.4 million.
A petition for rehearing is pending. In Case 12-M-0204,
Central Hudson Gas & Electric Corp.-Costs Associated with the
October 29, 2011 Snow Storm, we denied recovery of $8.6
million associated with the snowstorm. A petition for
rehearing is pending. In Case 13-E-0048, Central Hudson Gas &
Electric Corp.-Deferred Incremental Costs, Central Hudson
seeks deferral of $9.7 million in costs associated with
Superstorm Sandy. The case is pending.
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$11.00 per month for all customers who are Home Energy
Assistance Program (HEAP) recipients. Under the Joint Proposal,
within 30 days after an order in this case, Central Hudson would
implement a new schedule of discounts providing credits of
$17.50 per month for HEAP-participant heating customers
receiving only electric or only gas service, and $23.00 for
those receiving both. Non-heating customers would receive
credits of $5.50 for one service, or $11.0C for both, provided
that customers currently receiving an $11.00 credit for a single
service would continue to receive that amount. Central Hudson
would also be required to waive reconnection fees for
participants in its low-income programs up to a total of
$50,000. If the total cost of the programs exceeded the amount
allowed in rates plus the $500,000 from the Community Benefit
Fund, the shortfall would be made up from funds previously
deferred for the benefit of the low-income programs, with any
excess deferred as a regulatory asset. Central Hudson would be
required to continue to refer parcicipants in its low-income
programs to the New York Energy Research and Development
Authority 1 s EmPower New York program for energy efficiency
services. Finally, the Joint Proposal establishes a schedule
for quarterly reporting on low-income programs to the
Commission, and specifies the data to be provided.
b. Economic Development
The Joint Proposal provides for $5 million dollars to
be allocated by Central Hudson for the support of economic
development programs. The $5 million would consist of $4.5
million from the Community Benefit Fund and $500,000 from
Central Hudson's existing Competition Education Fund. Within 15
days after an order in this case, Central Hudson would file a
proposal with the Commission for modification of its existing
economic development programs and would request expedited
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consideration. The modifications would provide for Central
Hudson to continue to administer its programs pursuant to
existing Commission authorizations with input from the counties
in its service territory. They would also establish a criterion
that applicants for project funding that do not have
participation from Empire State Development, a county industrial
development agency, a county conununity college, or a local
municipal resolution would seek a letter of support from the
county where the project would be located. Central Hudson would
also agree to seek county participation in economic development
grant award notifications and announcements, and would meet
twice a year with representatives of all the counties in its
service territory.
6. State Infrastructure Enhancements
The Joint Proposal would commit Central Hudson to
continue to support the New York State Transmission Assessment
and Reliability Study, the Energy Highway, and economically
justified gas expansion. Fortis would agree to provide equity
support to the extent required by Central Hudson for projects
that receive regulatory approval and proceed to construction.
7. Gas Expansion Pilot Program
Central Hudson would commit to continue its existing
gas marketing expansion campaign during the rate freeze period
and would continue to provide information and assistance to
customers who are seeking or considering gas service. Where
adequate financial commitments and reasonable franchise
conditions can be secured, it would pursue expansion of gas
facilities to areas not currently served and would seek
expedited Commission approval for such expansion. Within 90
days of an order in this case, Central Hudson would initiate a
modified gas service request tracking system retaining
sufficient data to demonstrate why service was or was not
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initiated. In addition, by July 1, 2013, or as part of a new
franchise filing, Central Hudson would propose a limited pilot
expansion program designed to test a number of innovative
measures to facilitate gas service expansion.22
8. Retail Access
For the stated purpose of supporting the Commission's
retail market development initiatives, the Joint Proposal would
require Central Hudson within 90 days following the closing of
the merger transaction to include a total bill comparison on all
retail access residential bills using consolidated billing. The
comparison would be generated using an existing Central Hudson
program that has already been implemented. In addition, within
60 days after the issuance of an order in this case, Central
Hudson would be required to file a proposal to provide payment­
troubled customers --those subject to service termination
with similar bill comparison information. The cost of
implementing these initiatives would be paid from Central
Hudson's existing Competition Education Fund. If the balance in
the fund were inadequate, Central Hudson would be permitted to
defer the excess cost. Central Hudson would report quarterly to
Staff on the progress of its bill comparison efforts.
DISCUSSION OF EXCEPTIONS TO THE RECOMMENDED DECISION
In the RD issued May 3r 2013, the judges concluded
that the transaction as formulated in the JP would not provide
net benefits sufficient to justify Com.mission approval. Briefs
on exceptions were filed May 17 by Petitioners, Staff, CLP/COA,
MI, PULP, and UIU; and briefs opposing exceptions were filed on
or about May 24 by all those parties except UIU. Our
consideration of the RD, the exceptions, and the other comments
22 Given the timing of this order, we will extend this deadline
to September 1, 2013.
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and filings that we have received leads us to reject the RD's
ultimate conclusion, while accepting raost of its reasoning, as
explained below.
Overall Balance of Interests
The judges evaluated the proposed transaction in
accordance with the analytic approach that we stated in our
Iberdrola decision and recapitulate in the concluding section of
this order. That is, the judges compared the transaction's
inherent benefits with any offsetting risks or detriments,
mitigated insofar as possible, to determine whether the merger
would provide net positive benefits or could be made to do so
through the addition of monetary positive benefit adjustments,
On exceptions, Petitioners argue that the RD misdefined and
misapplied the Iberdrola criteria. We disagree, although cur
ultimate conclusion approving the ~erger differs from the
judges' .
We conclude that Petitioners' exceptions in this
regard are moot, for reasons which nevertheless merit further
comment. First, of course, is that we are approving the
transaction, obviating whatever concerns the parties may have as
to precisely what route the judges followed in arriving at their
recommendation to the contrary.
More significantly, there is little fundamental
differe~ce between our reasoning and the judges'. While the RD
attached considerable weight to public comments in which
customers subjectively seemed to devalue the economic benefits
of the transaction, the judges disagreed with nearly all the
other contentions raised in opposition to the merger, namely
that: its economic benefits would not materialize, it would
create NAFTA issues, its low-income provisions were inadequate,
foreign ownership would be objectionable, the financial risks
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would be unacceptable, and environmental values would be
impaired.
The judges accepted the opponents' views in only two
respects: that the transaction would create uncertainty for
employees, and that the community's sense of attachment to an
independent Central Hudson outweighed the merger's benefits.
However, even these two limited reservations on the judges' part
were closely tied to circumstances that either have changed or
that we view differently than did the judges: the unionized and
non-unionized workforce have withdrawn their opposition to the
merger, and we do not observe the monolithic opposition among
the general public that the judges found so unusual. Moreover,
the RD's entire balancing of all the proposal's benefits and
detriments was expressly hedged with an acknowledgement by the
judges thac their analys~s was unavoidably qualitative and,
therefore, that other observers, such as the Commission, might
reasonably reach a contrary result.
For all these reasons, we think the RD is sui generis
and, contrary to the Petitioners' exceptions, cannot usefully be
criticized as a violation of general principles re~evant to a
§70 public interest determination.
Our on~y remaining concern about the exceptions is
Petitioners' argument that the essence of the Iberdrola test is
a comparison of economic benefits among various approved mergers
on a per capita basis. We disagree with this exception. The RD
properly ccP.cluded that such compariso~s are problemdtic because
of significant di ff er·ence8 amoru:1 Lhe rr.ergers themselves, and
because a quantitative comparison does not capture possible
changes in Commission policy over time. Nor do we agree with
Petitioners' argument that the RD should have considered the
alleged financial and ma~agerial superiority of Fortis as
compared with acquiring parent companies in other mergers.
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While the characteristics of an acquiring company may well be
highly relevant in a given case, no two cases are identical;
each presents detriments and benefits to be weighed against each
other, not necessarily in compariso~ with other transactions.
In summary, the RD reflects a valid definition and
understanding of the relevant standard of review under the
Iberdrola precedent. Nevertheless, based on our own weighing of
the merger's benefits, detriments, and mitigation measures, we
conclude that approval would satisfy the public i~terest
criterion of PSL §70 for the reasons cited in the RD and herein.
Economic Benefits
The RD found that the $9.25 million in guaranteed rate
savings I the $ 35 million payment by Fortis to Central Hudson to
establish a regulatory liability for the benefit of ratepayers,
and $5 million to be provided by Fortis to establish a Coromunity
Benefit Fund are tangible monetary benefits that will be
realized only as a result of the merger. In contrast, it
concluded that the one-year rate freeze should not be credited
with providing any significant ratepayer value, because rates
could not be raised until nearly the end of the freeze year even
if Central Hudson filed for such an increase immediately.
Petitioners take exception to the latter conclusion, pointing
out tha~ the rate freeze would preclude Central Hudson from
recovering $8.7 million in carrying charges related to capital
investments made during the year.
PULP, on exceptions, argues that the $35 million
regulatory liability is not as concrete a benefit as the RD
found. It says lhat, normally, deferral petitions are subject
to strict scrutiny and mJst satisfy well-established Commission
criteria before they are allowed. Here, PULP says, Central
Hudson is being permitted to treat untested storm recovery
expense claims as if they were sure to be approved, and to treat
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the offset of those unproven claims as though Lhey were benefits
of the merger.
PULP's arguments are simply wrong. As we explained
above, Central Hudson will be perreitted to offset the $35
million regulatory liability o~ly against storm expenses that
have been fully reviewed and approved by the Commission. Orders
have now been issued in proceedings on two of the petitions
cited in the Joint Proposal involving deferral requests totaling
$2U million for Hurricane Irene and the October 201~ snowstorm.
The orders rejected deferral of $11.1 million, over 55% of the
amounts claimed. The $35 million fund established pursuant to
the Joint Proposal will be used only to eliminate or reduce
amounts that would be recovered from ratepayers under normal
ratemaking star.dards. It is a real, monetary benefit.
As to the rate freeze, the issue is essentially moot.
While it may provide some quantifiable benefit to ratepayers, as
Petitioners allege, that benef:t is not necessary for our
decision. We find that the well-defined, tangible economic
benefits are more than adequate to provide a net positive
benefit to ratepayers.
Jobs
Both Petitioners and Staff take exception to the RD's
conclusion that even after consideration of the job retention
provisions of the Joint Proposal, workforce uncertainty remained
an unmitigated risk of the merger. Petitioners contend that the
preservation of pre-merger contract rig~ts and the two-year no­
layoff period provided by the Joint Proposal actually enhance
err.ployee security. Staff adds that the Joint Proposal's
requirement for Central Hudson to file employee level
information with the Commission for two years, combined with
increased disincentives for fail~re to meet performance targets
and a requirement of CoITL~ission approval for the transfer of
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functions to a shared services affiliate, minimizes the
likelihood of post-acquisition downsizing.
We tind this issue to be substantially less of a
concern than it was at the time of the RD. Since the issuance
of the RD, IBEW Local 320 has reached an agreement with
Petitioners that will provide even greater job security to union
employees than is offered by the Joint Proposal. As a result,
IBEW Local 320 now fully supports the merger. Moreover, since
the RD, we have receivea nearly 200 comments from non-union
employees of Central Hudson expressing support for the merger.
Given this level of support from throughout the organization, we
find no basis for concluding that the merger can be expected to
have a detrimental impact on jobs at Central Hudson.
NAFTA
The RD addressed a contention first put forward by
PULP that the North American Free Trade Agreement (NAFTA) could
threaten our ability to regulate Central Hudson. The threat
allegedly arises from the treaty's anti-expropriation provisions
which allow foreign investors from NAFTA member states to seek
compensation for goverrunent actions that are "tantamount to
expropriation" without compensation. The RD thoroughly analyzed
cases cited by PULP and by other commenters and concluded that
those cases suggested that:
a state regulatory agency acting lawfu:ly within
its statutory authority is not liable to a claim
of damages under NAFTA unless an entity covered
by the treaty can demonstrate that it made its
investment in the state pursuant to express
commitments made by the agency which were
subsequently broken. 23
As the RD noted, none of the Petitioners has been assured of any
particular regulatory treatment by the Commission.
23 RD, p. 4 6,
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On exceptions, PULP reiterates its claim that NAFTA
will be a threat if the acquisition is approved, and PULP is
joined in this contention by CLP/COA. Each argues that
regardless of the current state of the case law, the existence
of NAFTA presents a risk that our future regulation of Central
H~dson may be compromised by a fear of expropriation claims.
CLP/COA adds that the judges must have perceived some ris~ as
they suggested in the RD that we might condition approval of the
acquisition on Petitioners' certification that they have been
promised no particular future regulatory treatCTent.
PULP and CLP/COA present no new legal authority or
other information to discredit the Judges' conclusion that NAFTA
presents no risk to our regulatory jurisdiction. Their
arguments are speculative, at best.
F~rthermore, the RD did not recommend ~hat we
condition approval of the merger o~ a certification that
Petitioners have received no express promise of particular
regulatory treatment. It said, rather, that we could do so if
we were concerned that there might be some doubt on that point.
We have no such concern. The RD correctly stated that no such
express assurances have been given. We find thaL the rights
afforded Fortis under NAFTA do not present a credible risk to
the public interest such as would require the imposition of any
specific conditions on the merger beyond those provided for in
the Joint Proposal.
Low-Income Programs
The RD found that the Joint Proposal's provisions for
enhancing programs aimed at low-income customers are reasonably
well suited to that purpose and quantitatively significant. It
did not, however, consider the enhancements to be a benef~t of
the merger, because they could have been obtained without the
transaction, such as through a rate case.
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UI0, on exceptions, finds the latter conclusion
troubling. It says that the increase in the monthly discount
tor combination gas and electric customers provided for in the
Joint Proposal is unprecedented, both in percentage and dollar
terms, and with respect to the source of the funds to pay for
it. An increase in funding for low-income programs coming from
shareholders rather than ratepayers has never been achieved
before, UIU asser~s. Even assuming such a result could be
obtained in a rate case, UIU adds, that could not happen for at
least a year. According to UIU, causing the poorest of Central
Hudson's customers co forgo the increased monthly discount
provided in the Joint Proposal for an additional year is clearly
not in the public interest.
PuLP, by contrast, reiterates its view that the
provisions for low-income customers are inadequate. It argues
that further steps must be taken to reduce the level of service
terminations on the Central Hudson system, which place an
additional burden on already economically stressed cuscomers.
Central Hudson's rate structure should generally be made more
equitable, PULP argues, with added low-income protections, and
collection efforcs showing deference tu the needs of
economically vulnerable consumers.
We agree with UIU that the low-income customer
discount enhancements specified in the Joint Proposal are unique
and should have been considered an additional benefit of the
merger. While it is true that such changes could, in theo~y,
have been achieved through c:1 rc:1Lt:! case, it is unlikely that they
would have been so advantageous to customers in both size and
funding source; and in a~y case, they would not have been
achieved for a year, and perhaps longer. lt may be reasonable
to argue that measures included in a Joint Proposal involving a
utility acquisition, if they merely reflect established
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Commission policy routinely implemented in rate cases, result
from the policy rather than from the transaction under
consideration. Here, however, the low-income program
en~ancements go well beyond what might be considered normal,
incremental progress that could be expected in a rate case.
PULP reiterates arguments made previously that were
adequately addressed in the RD. For now, we are satisfied that
low-income programs for Central Hudson customers will be
significantly improved when the terms of the Joint Proposa~ are
implemented.
Foreign Ownership
In response to comments arguing that the merger would
be contrary to the public interest because it would result in
ownership of Central Hudson by a foreign company, the RD
concluded that foreign ownership is not objectionable per se,
but that it could complicate our oversight of Central Hudson.
On exceptions, MI argues that this conclusion is
inconsistent w:th the RD's finding that the Joint Proposal's
regulatory safeguards would mitigate such risks to the fullest
extent possible. Petitioners add that there were no disputes
between them and Staff over the production of documents and
informa~ion, assurance of cooperation from Fortis, maintenance
of transparency, or other issues related to facilitating tr.e
regulatory process. The provisions of the Joint Proposal
addressing these matters were agreed to by Staff and many were,
in fact, substantially similar to those in the RSA under which
CHEG and Central Hudson are currently operating.
We agree with Lhe RD that foreign ownership of Central
Hudson is not inherently object~onable, but we do not agree that
it will necessarily complicate our regulatory oversight. One
clarification is required, however, to ensure that the
provisions of the Joint Proposal negotiated by Staff are
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CASE 12-M-0192
interpreted consistently by all parties in a manner that will
ensure the level of cooperation and access to information we
expect from the parent companies of requlated utilities.
Acceptance of the terms of this order will confirm that
Petitioners understand and agree that the Commission and the
Department of Public Service Staff shall have access to the
books and records of Petitioners and all of their affiliates to
the extent such information and materials are relevant to the
Commission's exercise of authority under the PSL or any other
applicable statute. Our authority to review such books and
records is vital to ensuring that ratepayers are protected under
the new organization. Therefore our approval of this
acquisition as in the public interest is conditional upon the
affirmation of this legal authority.
Community Values
As the RD explained, the judges were troubled by the
prospect that the merger would impair a unique affinity that
Central Hudson has built with its community in a small, closely
knit service territory. In assessing the transaction's benefits
and detriments pursuant to the analytic framework defined in our
Iberdrola decision, they counted the supposed erosion of this
community relationship as a detriment. Other than CLP/COA, all
parties except.
The judges found that local public opposition to the
merger was relevant in primarily two respects. First, they
noted that effective management of the utility company depends
on a collaborative relationship between the company and its
customers, especially at a time like the present when regula~ors
are attempting to help utilities develop new services requiring
customer acceptance and ~ooperation. As a few examples, we
would cite our effor~s on behalf of initiatives such as improved
emergency response efforts, energy efficiency programs, retail
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CASE 12-M-0192
access by energy services companies, smart grid technology and
time-of-use pricing, electric and gas infrastructure upgrades
and expansion, and increased reliance on distributed generation
and demand response.
We agree with the judges that any deterioration in
customer relations because of the merger would be detrimental
insofar as it might impede management performance in these
areas. However, as the Iberdrola analysis recognizes, the
weighing of benefits and detriments is a qualitative exercise;
and risks or detriments, once identified, may be at least partly
counterbalanced by mitigating circumstances or directives. One
mitigating factor in this instance is that we expect Central
Hudson's commitments to the State's environmental and energy
policy objectives will continue unabated by the merger.
Another mitigating factor is that Petitioners have
justified the merger partly on the basis of their
representations chat "~ortis operates a stand-alone business
model whereby the holding company provides financial support for
the utility operations ... 1 but has only minimal and infrequent
involvement in the day-to-day management of those operations .
... Fortis believes that, where an acquired utility is
fundamentally sound and well-managed, it should be allowed to
continue operating as a locally managed company that is
responsive to local regulatory requirements .... "24 We expect
this "federal" governance model will minimize any change
experienced by customers in their interactions with Central
Hudson.
In addition to customers' future dealings with Central
Hudson, the judges' second concern about negative community
opinion was that it diminishes the value of the transaction's
Petitioners' initial statement supporting the Joint Proposal,
pp. 4-5.
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benefits insofar as customers prize preservation of the
corporate status quo more highly than the economic benefits
offered in the Joint Proposal. We disagree with the merger
proponents' exceptions to this aspect of the RD; contrary to
their objections, it was not error for the judges to rely o~
public opinion merely because opinions are difficult to measure
or may be misinformed. These infirmities certainly add to the
difficulty of quantitatively analyzing a transaction's net
benefits, but they do not nullify the relevance of customer
preferences.
Financial Safeguards
The RD enumerated the many cond~tions included in the
Joint Proposal that are designed to protect the financial
integricy of Central Hudson in the event that it becomes a
subsidiary o( Fortis. It concluded that those conditions are
reasonably designed to mit~gate the concerns to which they are
addressed.
On exceptions, PULP argues that any hope ~hese
financial protection provisions will perform as intended is
unwarranted. PULP says a bankruptcy court has concluded that an
independent director cannot be bound to vote against a volunlary
bankruptcy filing, and this allegedly means that the "golden
share" holder appointed pursuant to the Join~ Proposal cannot be
relied JD to protect ulility customers. PULP also speculates
that there may be other "cross-border" complications that could
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CASE 12-M-0192
defeat the financial protection provisions required by the Joint
Proposal.~:
PULP's arguments are unpersuasive. The bankruptcy
ruling it refers to was addressing the obligations of an
independent member of the board of directors. It stated that a
director has an inherent fiduciary responsibility to protect the
interests of shareholders. A director cannot be relied upon to
vote against a voluntary bankruptcy if that is the best course
of action available. The holder ot the ''golden share" to be
appointed under the terms of the Joint Proposal, by contras~,
will have no such conflict. It will represent a special class
of preferred stock whose only interest is in avoiding voluntary
bankruptcy. There are no other fiduciary responsibilities for
this trustee to balance. PULP's renaining contentions regarding
other potential "cross-border" complications are not
sufficiently concrete to be given significant weight in our
decision.
CLP/COA also criticizes the RD's conclusions
concerning financial protections. First, it contends, in
essence, that Fortis is engaged in numerous ventures which may
present risks that cannot now be foreseen and addressed by the
Joint Proposal. Second, CLP/COA argues that the lower credit
rating of Fortis makes a future downgrade for Central Hudson
likely, but the Joint Proposal provides protection for
ratepayers from the cost of such a downgrade for only three
years. Finally, CLP/COA maintains that the accounting goodwill
created by the proposed merger is too great to be sustainec. It
PULP also suggests that Fortis's own investment guidelines
state that the company will oppose proposals for golden
shares when they arise, and suggests that this implies that
fortis will attempt to negate the requirement in this case,
perhaps using NAFTA. Pe~itioners point out, however, that
the documents cited by PULP pertained to an unrelated company
named "Fortis," not :Cortis Inc. of Canada.
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says the goodwill will inevitably be impaired and ratepayers
cannot be fully insulated from the effect of the resulting
write-down or write-off.
Staff responds that Fortis's ventures are not overly
risky. Over 90% of its investments are in low-risk North
American regulated utilities. It points out that even if For~is
suffers losses in its other businesses, the Joint Proposal
includes provisions that would prevent Ce~tral Hudson from being
used as a source of cash. Tnese provisions, one of which is
continued from the RSA and one of which is new, limit or
preclude the payment of dividends by Central Hudson to its
parent if Central Hudson's credit rating or equity ratio falls
below defined levels.
As to the time limitation on the automatic protection
of ratepayers from the effects of a Fortis downgrade, Staff
poin~s out that this provision is new and is the product of
lessons learned from previous ~ergers. It says that in
combination with the dividend restriction, the provision ensures
adequate protection for ratepayers.
With respect to goodwill, Staff states that it was
keenly aware of the issue and recognized the risk. It says ~ha~
a significant portion of the positive benefit adjustments
negotiaLed as part of the Joint Proposal were intended to
compensate for that risk.
Petitioners respond that CLP/COA itself acknowledges
that the fi~ancial protection provisions of the Joint Proposal
are as comprehensive, and even stronger, than analogous
conditions we have imposed in other recent mergers. Petitioners
contend that CLP/COA has failed to demonstrate why these
provisions will not perforTI their intended functions, and they
point out that Standard & Poor's has concluded that the ~ring
fencingu set forth in ~he Joint Proposal could enable t~e rating
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CASE 12-M-0192
agency to differentiate the ratings of Central Hudson from those
of Fortis.
Furthermore, Petitioners argue, far from being
inevitable as CLP/COA alleges, neither a credit downgrade nor an
impairment of goodwill is likely for Fortis. They say that
Fortis's level of goodwill after acquiring CHEG will be
substantially lower than t~at of Iberdrola after its acquisition
of Energy East. Petitioners note that Standard & Poor's and
Dominion Bond Rating Services attirmed Fortis's ex~sting credit
ratings after announcement of the merger agreement. In any
event, they say, the ring fencing provisions of the Joint
Proposal ens~re that the risk of any goodwill impairment will be
borne by shareholders of Fortis, not the ratepayers of Central
Hudson.
With the addition of one further condition described
below, we conclude the financial safeguards provided for in the
Joint Proposal are adequate to protect Central Hudson's
ratepayers from any fluctuations in the fortunes of the
utility's parent company. Dividend restrictions combined with
money pooling limitations and the ban on cross-default
provisions will preclude Central Hudson from being used as a
cash or credit source for Fortis's other ventures. The "golden
share" requirement will prevent the placement of Central Hudson
in voluntary bankruptcy. Goodwill accounting requirements will
preclude the effects of any impairment that may occur from being
reflected in utility rates. The automatic exclusion from rates
of any credit cost increase attributable to a downgrade of
Fortis's credit will be in place for only three years, but
protection for ratepayers does not end with its expiration.
Under our normal rate-setting standards, we have, and intend to
exercise, the authority to exclude from rates any credit costs
incurred by Central Hudson that are attributable to its parent
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and are in excess of the cost of credit that would be incurred
by the utility standing alone.
Based on our experience with previous mergers, we will
add to these safeguards a further provision concerning tax
liabilities. During discovery, Fortis informed Staff that, post
merger, Central Hudson's United States federal and New Yori
State income tax returns would be filed as part of the
consolidated tax returns of FortisUS, the holding company for
Fortis's United States subsidiaries. Such consolidated tax
returns join the regulated and competitive market affiliates of
Fortis and could expose New York ratepayers to tax liabilities
that are the responsibility of the non-reg~lated or out-of-state
subsidiaries of Fortis. To prevent this risk, we will require
that Petitioners commit that Fortis will indemnify Central
Hudson for any tax obligations Central Hudson incurs that it
would not have incurred if it had filed on a stand-alone basis.
Fortis also informed Staff thaL it expects that the
staff o= Central Hudson will prepare the consolidated returns
and that tax elections and filing positions related to the
return will be determined by Central Hudson management, with
input provided by Fortis where required as it may relate tc the
nature of the business activities of FortisUS Inc. and the non­
regulated businesses of CHEG.26 We will require that an Income
Tax Preparation and Sharing AgreemenL be adopted and used to
formalize this relationship, protect Central Hudson's customers,
and allocate tax benefits and obligations among the companies
participating in the consolidated income tax returns. The
agreement is to be submitted as a compliance filing in this
proceeding within 90 days following the closing of the merger
26 Responses to Staff Interrogatories DPS-M27B (Sta=f's DPS-M78)
and DPS-M316 (Staff's DPS-M116), which were provided in Staff
Policy Pan.el Exhibit (PP-1) .
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CASE 12-M-0192
transaction. It must provide for full Staff access to all
income tax records of subsidiaries that Join in the consolidated
tax return with Central Hudson, and must also define the
contractual mechanism for implementing the income tax
indemnification requirement defined above.
The financial safeguards defined in the Joint
Proposal, with the one addition we have made, are strong and
comprehensive. They are fully adequate to protect the interests
of Central Hudson's ratepayers.
Environment and Infrastructure
In the RD, the judges rejected concerns raised by
commenters that Fortis might reverse policies of Central Hudson
to promote alternative and green energy within its service
territory. The RD found such concerns misplaced, reasoning
that, because of the differing roles of Central Hudson as a
distribution utility and Fortis as an owner of other
subsidiaries in the generation business, Fortis's past
performance in other settings had little bearing on Central
Hudson's future conduct as a Fortis affiliate subject to our
regulatory supervision. CLP/COA excepts, expressing strong
misgivings about Fortis's record in matters involving utility
infrastructure and environmental impacts, and Petitioners
contest CLP/COA's allegations in response.
7he exception is denied. First, we decline to
evaluate clai~s regarding the highly impassioned and localized
disputes noted by CLP/COA, because they already have been
adjudicated in other jurisdictions and because our investigative
abilities and resources are better employed in deciding
questions material to cases pending before us.
Another, related consideration is that, as the judges
observed, Central Hudson's scope of activity as an energy
distribution company differs significantly from that of Fortis
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CASE 12-M-0192
as an energy producer. CLP/COA responds that Central Hudson's
distribution system should and will evolve as dictated by
environraental and energy policy objectives, and we agree. But
the fact remains that, regardless of Central Hudson's corporate
structure, the distribution system will continue to be designed,
maintained, and operated by Central Hudson under New York's
jurisdiction and regulations, in furtherance of the State's
policies as adopted from time to time.
Moreover, CLP/COA's concerns presuppose that Fortis's
corporate outlook will contradict and supersede Central
Hudson's. We find this assumption simplistic in several
respects. First, as noted, the two firms are in different lines
of business. Second, the supposition that Fortis would override
Central Hudson's fundamental orientation toward environmental
issues overlooks Petitioners' representations, which we deem
binding upon them, that Fortis's decentralized model of
corporate control will afford latitude to local management in
case of differences between subsidiary and parent in terms of
policy orientation or priorities.
Central Hudson has a long-standing history of proven
commitment to environmentally positive policies and practices.
For example, the company supports about 1,323 net-metered
residential or business customers using renewable generation
(predominantly 14 megawatts of solar photovoltaic capacity) in
its service territory, with another 148 systems pending. A
major reason for this relatively large amount of installed solar
PV capacity, which offsets an estimated 5,600 tons of greenhouse
gas emissions annually, is that Central Hudson has been one of
New York's most cooperative utilities in facilitating
interconnection for customers that install renewable energy.
Central Hudson's level of support for renewable energy
reflects not simply internal corporate culture but also the
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CASE 12-M-0192
conditions 1n which the company operates. Thus, Central
Hudson's relatively early embrace of farsighted environmental
policies has been partly a response to the State's financial
incentive programs and p~rtly a response to the high degree of
environmental awareness that prevails among its customers.
Regardless of corporate structure, we expect Central Hudson's
orientation in that respect will continue to comport with state
policies and customer preferences in its service territory, and
therefore that the subsidiary will continue actively supporting
expanded use of environmentally sound energy resources.
Of course we also will exercise our legal authority as
necessary to reinforce the company's perfor~ance of its
obligat~ons under New York laws and regulations and we will
monitor Central Hudson's responses to policy guidance, if any,
from Fortis.
Retail Access
The Joint Proposal would call for Central Hudson to
include, within 90 days following the closing of the merger
transaction, a total bill comparison on all retail access
residential bills using consolidated billing. The comparison
would be generated using an existing Central Hudson program that
has already been imp:emented. Within 60 days after the issuance
of this order, Central Hudson would also be required to file a
proposal to provide payment-troubled customers --those suhject
to service termination --with similar bill comparison
information.
The RD noted that the Jo~nt Proposal expressly
recognized that its provisions might have to be modified based
on the outcome of the Commission's Retail Energy Markets case.27
27 Cases 12-M-0476, et al., Residential aP.d Small Non-residential
Retail Energy Markets.
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It recommended, therefore, that the 0oint Proposal be modified
to defer implementation of both the publication of bill
comparisons on the consolidated bills of residential retail
access customers and the provision of bill comparison
information to payment-troubled customers until 30 days
following an order in that proceeding. RESA takes exception to
this recommendation; it argues that establishing a fixed
implementation period for these measures is premature, given
that the outcome of the generic proceeding remains uncertain as
to how bill comparisons should be presented, or even whether
they should be used at all.
Staff and Petitioners also except to the RD, but their
objection is exactly the opposite of RESA's. They contend that
Central Hudson is capable of providing the required bill
compar:sons now and that postponing implementation until
completion of the Retail Energy Markets case will merely
engender needless delay.
We agree with RESA that mandating an implementation
plan before the nature of the plan to be implemented is fully
defined would be unwise and potentially an inefficient use of
resources. Therefore, we will depart from the Joint Proposal's
terms and instead require that bill comparisons on consolidated
bills and bill comparison information for payment-troubled
customers be implemented in conformance with the requirements of
the order in the Retail Energy Markets case, when issued. To
the extent that Central Hudson has the capability to provide
such bill comparisons more quickly or effectively than other
utilities, that capability can be taken into account in that
order.
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PETITIONERS' ENHANCEMENTS
Following the exchange of briefs on exceptions and
opposing exceptions, on May 30, 2013, Petitioners filed a letter
in which they proposed ''final enhancements" to the terms of the
transaction beyond the terms included in the Joint Proposal.
These enhancements are:
1. Petitioners propose an extension of the freeze on delivery
rates for an additional year beyond that provided in the
Joint Proposal, to June 30, 2015. While Petitioners do not
undertake to quantify the value of this additional one-year
rate freeze, they note that, over the prior seven years,
Central Hudson's delivery rates increased by an average of
$23 million per year. They also state ~hat Central Hudson
is committed to spending $215 million on capital
improvements to its system by mid-2015. This willingness
to make such a capital investment without an increase in
rates to provide a return on that investment is a
demonstration, they say, of Fortis's strong commitment to
the State of New York.
2. Petitioners offer to extend the Joint Proposal's "no lay­
off" commitment for both union and non-union employees of
Central Hudson from two years to four years.
3. Petitioners offer to extend, from five years to ten, their
commitment to maintain Central Hudson's level of community
support.
4. Petitioners commit that the new board of directors of
Central Hudson will include two independent directors who
reside within Central Hudson's service territory, rather
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than the one indepeudent director meeting such
qualifications proposed in the Joint Proposal.28
Multiple Intervenors, PULP, and CLP/COA all filed
comments, on June 5 or June 6, 2013, responding to Petitioners'
offers of these enhancements. MI asserts that Petitioners'
offer represents ~meaningful enhancements to the customer
benefits and protections embodied in the Joint Proposal." MI
further characterizes the enhancements as "entirely one-sided,"
in that they supplement previously offered benefits and
protections [or customers without any reduction or Sllbtraction
of such benefits. Consequently, MI argues that the enhancements
offer should be evaluated very favorably, and it urges us to
adopt the Joint Proposal with the enhancements. According to
MI, the most compelling enhancement is the proposa: ~o extend
the dellvery rate freeze for an additional year, through
June 30, 2015. Although MI admits that the benefit is not
quantifiable, it asserts that the benefit "almost certainly 1s
material."
PULP and CLP/COA similarly single out the one-year
extension of the rate freeze in responding to Petit~oners'
enhancements. Both PULP a~d CLP/COA argue that the additional
year is not a benefit. Instead, they say, the offer undoubtedly
reflects a situation in which Central Hudson is overearning and
seeking to extend rates that are too high. Both point out that
Central Hudson's rates were set based upon an allowed re~urn on
equity (ROE) of 10%1 a level that would likely be considered too
The Petitioners' May 30, 2013, letter containing the proposed
enhancements to the terms of the transaction stated that the
second director would "reside, do business or work within
Cenlral Hudson's service territory." Petitioners c:arified
that this was in error and that the language should be as in
~he Join~ Proposal where the independent director is required
to reside in the service territory, and we will so require.
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high in light of the current interest rate environment. They
point to recently filed Staff testimony in the pending
Conso~idated ~dison rate case, in which ~taff recommends an ROE
of 8. 7%,29 as well as two recent Commission orders, one approving
an ROE of 9.3% for Niagara Mohawk30 and another requiring
National Fuel Gas to show cause why its rates should not be
lowered and made temporary in light of projected overearnings by
that utility.31 PULP arg~es that the average increase in rates
over the last seven years is not particularly indicative of
further trends, due to lower interest costs, cost cutting, high
earnings, or other factors which call into question the
reasonableness of current rates and ROEs. Both PULP and CLP/COA
urge us to reject the Joint Proposal, the additional
enhancements, and the proposed acq~isi~ion.
We agree with MI that these enhancements can only be
regarded as improvements to the Joint Proposal, as they provide
additional benefits not previously proposed. The additional
year of a rate freeze represents only a commitment on the part
of Central Hudson not to file for a rate increase to take effect
prior to July 1, 2015. I~ no way does it represent a guarantee
that we would not ins~i~ute a proceeding to lower rates if such
an action appeared to be warranted at any time during the next
two years. Consequently, the assertions by PULP and CLP/COA
that this promise by Central Hudson would entitle it to overearn
during the period are inaccurate and unfounded. Our experience
29 Cases 13-E-0030, et al., Consolidated Edison -Electric, Gas
and Steam Rates, testimony of DPS Staff witness Craig E.
Henry, prefiled May 31, 2013.
30 Case 12-E-0201, Niagara Mohawk Power Corp. -Rates, Orde=
Approving Joint Proposal (issued March 15, 2013).
31 Case 13-G-0136, National Fuel Gas Distribution Corp. -Rates,
Order instituting Proceeding and to Show Cause (issued
April 19, 2013).
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leads us to conclude that Central Hudson's expenses and capital
investments during the next two years, even taking into
consideration a more current cost of capital, would likely
entitle it to some rate relief, such that Central Hudson's
forgoing a rate increase has value for consumers. Consequently,
we will accept the offered enhancements and add them as
additional conditions to our approval of the acquisition.
We accept these enhancements with two caveats with
respect to future rate-setting for Centra1 Hudson, one
clarification, and one modification. First, our ordering of the
workforce corrunitnents does not lessen our right and obligation
to closely examine Central Hudson's labor budget in future rate
proceedings and does not preclude an adjustment to workforce
estimate~ to ensure that rates are set at proper levels.
Second, we note that our ordering of the extra year oi
the rate freeze does not reflect our acceptance of Petitio~ers'
statement that Central Hudson "will spend $215 on capital
expenditures" between July 1, 2013 and June 30, 2015. We
appreciate the expression of commitment to the utility's
infrastructure in the se~vice territory and adopt it as a floor
subject to consultacion with Staff as to overdll spending levels
and priorities. We will require Central Hudson to develop its
capital expenditure plan in greater detail in coordination with
Staff.
Further, we clarify that the extension of the rate
freeze we are accepting applies to all of the terms and
conditiocs of Central Hu~son's cuLLent rate plan as modified by
the reguirements of this order. Those terms and conditions will
remain in effect until c~anged by subsequent Corrunission order.
Also, the Joint Proposal requires Central Hudson to
file a report with the Secretary within 30 days after the first
two anniversary dates of the merger's cJosing, comparing the
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numbers of union and management employees on the anniversary
date with those on the date on which the merger closed. With
our adoption of Petitioners' enhancemencs, we will require this
filing for the first four years after the merger's closing.
In addition, the Joint Proposal provides targets for
tree trimming expenditures, stray voltage testing and mitigation
costs, and net plant only for one year. Extension of the rate
freeze will require that targets be established for the second
year. Therefore, we will require Central Hudson to define such
targets in cooperation with Staff. Within 20 days following
issuance of this order, Central Hudson will submit its capital
investment plan and proposed targets for the second year of the
rate freeze to the Director, Office of Gas, Electric, and Water
for review. Forty-five days after that submission Central
Hudson and Staff will file their respective or joinc
recommendations concerning the tree trimming expenditure, stray
voltage testing and mitigation cost, and net plant targets with
the Secretary for a final Commission determination.
MOTION FOR EVIDENTIARY HEARINGS
Shortly before the RD was issued, CLP/COA was admitted
as a party to the proceeding, and it filed a motion requesting
evidentiary hearings. The RD was issued before responses
opposing the motion were due.32 Nevertheless, the judges
reviewed the motion standing alone and reconunended that we deny
it.
From a procedural standpoint, considering fairness and
efficiency, the judges found the motion inconsistent with the
rule that parties joining a proceeding already underway must
3~ CLP/COA intervened and filed its motion May 1, 2013, with
opposing responses due May 8. The RD was issued May 3.
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accept the record as developed prior to their intervention,33
inasmuch as all previous intervenors had to meet a much earlier
deadline for identifying issues allegedly requiring evidentiary
hearings.34 Moreover, the judges observed, the pre-filed
testimony and exhibits could be incorporated into the record (as
advocated by CLP/COA) without evidentiary hearings.35 Meanwhile,
in terms of substantive issues, the judges found "no factual
questio~s that could be clarified by confrontation of witnesses
and could materially affect the Commission's decision. "36
In addition to the CLP/COA motion, public comments
submitted to us or published in the news media likewise express
support for hearings.37 Responses opposing the motion have been
filed by Petitioners, Staff, and~=-PULP and IBEW have filed
responses stating that they do not oppose the mot~on but
proposing that it be held in abeyance pending our determination
at this time whether outstanding or newly identified issues
create a need for hearings. (Parties opposing the motion oppose
the PUL? and IBEW recommendation as well.)38
33 16 NYC RR 4 . 3 ( c) ( 2 ) -
34
35
The RD cites only a 2ebruary 8, 2013 deadlir.e for identifying
evidentiary issues. (RD, p. 4.) However, as we explain here,
the judges adopted that deadline after the Joint Proposal was
filed, thereby extending similar deadlines previously set for
October 5, 2012 and then November 16, 2012.
RD, p. 4.
36 5 RD, p. .
J' E.g., letters dated May 10, 2013 from Assembly Member Kevin A.
Cahill to Chairman Brown; May 6, 2013 from u.S. Representative
Sean Patrick Maloney to Chairma~ Brown; and April 30, 2013
from Shayne R. Gallo, Mayor, City of Kingston, to Acting
Secretary Cohen.
38 IBEW's response antedates its decision to support the merger
proposal, possibly implying that IBEW has abandoned its
conditional support of additional hearinqs.
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Having now had an opportunity to consider not only the
motion as presented to the judges but also the subsequent
responses and public comrr.ents on this question, we agree with
the Judges that our decision regarding the merger should be
based on the documentary evidence and public comments already in
the record without additional hearings.
As Petitioners suggest, a useful approach is to
examine {l) whether the movants cite reascns for introducing the
motion as late in the proceedings as they di~; {2) whether
granting the motion wou~d prejudice other parties or the public
interest; and, if so, (3) whether such prejudice would be
outweighed by the hearings' evidentiary value. Regarding the
last point, no party claims that evidentiary hearings are
statutorily required in this case; therefore the hearing process
already conducted suffices legally if the resulting record
constitutes substantial evidence and provides a rational basis
for decision.
On the first question, that of timing, those opposing
the motion are correct that there is no discernible reason for
its submittal as late as May 1, 2013. There can be no serious
claim that the merger proposal was esoteric or came as a
surprise late in the proceeding, having been public knowledge
since it was first announced on February 2:, 2012; nor, for
example, does CLP/COA allege a belated discovery of new facts or
issues. The present merger petitio~ was filed on April 20,
2012, fo:lowed by a May 16, 2012 procedural conference open to
all interested persons. The judges initially set an October S,
2012 deadline "for all parties to file any statements of
material factual issues they believe the [parties'] comments or
testimony raise and warrant consideration in an evide~tiary
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CASE 12-M-0192
hearing."3Y They later extended that deadline to November 16,
2012, as part of a general rescheduling designed to provide
Staff and intervenors six additional weeks for discovery and
testimony.40 Then, after Lhe Joint Proposal was negotiated and
filed, the judges issued yet another, similar invitation whereby
"any party who contends that an evidentiary hearing on the Joint
Proposal is necessary must demonstrate [by February 8, 2013]
that a material issue of fact exists that cannot be resolved
without the cross-examination of witnesses.u 41
During the entire period from the initial April 2012
filing until CLP/COA's actual intervention in May 2013,
intervention was freely authorized for every interested
applicant without opposition, so that CLP/COA's absence can only
be deemed voluntary. Thus it was procedurally appropriate for
the judges to rely on 16 NYCRR 4. 3 ( c) (2) in concluding that
CLP/COA was subject to the several deadlines it had missed for
requesting an evidentiary hearing, wholly apart from the j~dges'
substan~ive finding that CLP/COA had failed to identify reasons
for a heari:1g.
Given the lack of a juslification for the late filing
of CLP/COA's motion, technically it becomes ~nnecessary to reach
the second question, whether the delay occasioned by extending
the proceeding at this stage would prejudice the parties or the
public interest. Nevertheless, we find that it would. As the
judges slated when granting additional time (over Petitioners'
objections) for preparation of Staff and intervenor cases:
In scheduling administrative proceedings, the
B Case 12-M-0192, Ruling on Schedule and Procedure (issued
June 2 9, 1012), p. 1.
40 Case 12-M-0192, Ruling on Motion for Reconsideration (issued
July 31, 2012), p. 1.
41 Case 12-M-0192, Ruling on Schedule and Content of Comments on
Joint ?roposal (issued Jam ... ary 29, 201::.), p. 2 .
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primary concern is fairness. To the extent
possible, a schedule should be adopted that does
not prejudice the interests of any party. Here,
Petitioners have an interest in seeing their
petition determined by the Cormnission within a
cormnercially reasonable time.4~
Not only does that analysis remain valid at the
present stage; but we now are met with the additional
consideration that CLP/COA's proposed modification of the
procedural schedule to accommodate hearings wou 1 ci be 1mfair to
other parties that made efforts, including timely intervention,
to comply with the schedule previously adopted. Such unfairness
in turn would disserve the public interest by undermining the
Commiss~on's, judges', and parties' interest in securing
compliance with schedules established in future proceedings.
Finally, the third question enumerated above is
whether an otherwise prejudicial delay can be justified by the
value the evidentiary hearings would add to the record. CLP/COA
and others advocating a hearing have not satisfied that
criterion. Typically in our proceedings, the reasons for an
evidentiary hearing are that it enables parties to eJicit
information that could not be obtained through discovery, or to
test the accuracy or cogency of facts and opinions presented by
opposing parties through their witnesses.
The parties that intervened earlier than CLP/COA did
not identify issues even arguably s~itable for such procedures
despite three formal invitations to do so, as described above.
Those currently seeking ~earings likewise have not shown that
cross-examination might enhance the record regarding material
4;, Case 12-M-0192, Ruling on Motion for Rtconsideration (iss~ed
July 31, 2012), pp. 4-5, citing Case 08-E-0077, Entergy
Corporation, et al. -Reorganization, Ruling on Discovery,
Process, Schedule and Scope of Issues (issued August 14,
2008), p. 31.
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issues. Nor can they explain why the procedures actually used
in this case have been less effective than confrontation of
witnesses.
Thus, for example, CLP/COA says cross-examination is
needed "to ensure clarity [and] accuracy and to probe
credibility ,"43 begging the question what material fact is
unclear or unverified or raises an issue of credibility.
Similarly, elected officials' public comments argue that a
determination of the public interest under PSL §70 requires a
factual basis;44 that ''full and informed public input is vital" ;45
or that we must examine "[e]ach and every fact and estimate"
regarding Petitioners' "financial health, commitments to
customer service, labor contract continuation limitations, and
promises of ratepayer relief."46 Each of these premises, while
unexceptionable on its tace, stops short of explaining why a
decision should not be based on the record already compiled
through months of discovery, preparation of adversarial
testimony and exhibits by Staff and intervenors, and a
subsequent Joint Proposal negotiated over an additional two
months i n discussions open to all interested parties.
The CLP/COA motion and other comments also attempt to
characterize this case as a deviation from established
procedures, insofar as the case has included no evidentiary
hearings even though the merger proposal is momentous. This
objection not only lacks a supporting legal theory, but also
does not describe our practices accurately. To generalize about
our merger proceedings, or indeed any Commission cases where
hearings are merely disc~etionary, the most that accurately can
43
44
CLP/COA motion, p. 5.
Gallo letter, supra, p. 1.
45 Maloney letter, supra .
46 Cahill letter, supra, p. 1.
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be said is that the procedures adopted are tailored to the
nature of the facts and issues to be determined.47 For example,
among the merger cases c ited by CLP/COA to show that evidentiary
hearings are customary, three differed from this case in that
each included establi shment of a detailed rate plan,48 and the
fourth differed in that the parties did not negotiate a Joint
Proposal .49 And in none of the other cases was the evidentiary
hearing proposed belatedly as here.
In summary, the judges were correct that to grant the
motion for hearings would be improper because of the
circumstances in which CLP/COA intervened, would be prejudicial
and contrary to the public interest , and would not enhance the
record on any material issue requiring a decision.
CONCLUSION
The acquisition of CHEG by Fortis, subject to the
terms of the Joint Proposal as modified, clarified and
47 A typical criteri on in choosing between evidentiary hearings
and other procedures is whether the issues are factual. As
the judges in another proceeding explained : "we are not
excluding issues from consideration in the hearing
process , ... instead, we are distinguishing between contested
factual matters requiring adjudication and legal or policy
matters, for which no facts are in dispute, and which are
appropriately addressed by argument ." Case 10-T-0139,
Champlain Hudson Power Express Inc . -Transmission Siting,
Ruling on Issues (issued May 8, 2012), p. 3, n. 7.
48 Case 01-M-0075, Niagara Mohawk Power Corp., National Grid PLC,
et al. -Merger, Opinion and Order Authorizing Merger and
Adopting Rate Plan (issued December 3 , 2001); Case Ol-E-03591
N.Y .S. Electric & Gas Corp . -Price Protection Plan, Order
Adopting Provisions Of Joint Proposal With Modifications
(issued February 27, 2002); Case 06-M-0878, National Grid PLC
and KeySpan Corp . -Stock Acquisition, Order Authorizing
Acquisition Subject to Conditions and Making Some Revenue
Requirement Determinations (issued September 17, 2007).
49 Case 07-M-0906, Iberdrola S .A., Energy East Corp., et al.
Acquisition .
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supplemented in our discussion above, provides substantial
benefits and minimal risks. We approve it as being in the
public interest within t he meaning of PSL §70.50
As the RD explained, the clearest articulation of the
public interest analysis in a case such as this can be found in
our decision approving the acquisition of New York State
Electric and Gas Corporation and Rochester Gas & Electric
Corporation by Iberdrola.51 It starts by requiring Petitioners
to make a three-part showing : that the transaction would provide
customers positive net benefits , after considering (1) the
expected benefits properly attributable to the transaction,
offset by (2) any risks or detriments that would remain after
applying (3) reasonable mit igation measures.
Once we have gauged the net benefits by comparing the
transaction's intrinsi c benefits versus its detriments and
risks, we can assess whether the achievement of net positive
benefits requires that the intrinsic benefits be supplemented
with monetized benefits (sometimes described as "positive
benefit adjustments '' or PBAs). Then , if necessary, we establish
a quantified PBA requirement, "as an exercise of informed
judgment because there is no mathematical formula on which to
base such a decision. "52
50 In adopting the Joint Proposal 's terms, we neither reject nor
adopt the terms stated in §§VI .A. through F. of the Joint
Proposal ("Other Provisions"), as they concern only the
parties ' mutual obligations. Nothing in the Joint Proposal
would preclude reliance on our order adopting the Joint
Proposal's terms , as precedent in other cases . See
Cases 06-G-1185 a nd 06-G-1186, KeySpan Energy Delivery -
Rates, Order Adopting Gas Rate Plans (issued December 21,
2007), pp. 58-60 .
51 RD pp. 57-58.
52 Iberdrola order , p. 136.
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In this instance, the elements we called for in
Iberdrola are combined i~ a Joint Proposal whose terms include
the basic merger transaction, measures to mitigate the
transaction's risks or detriments, and supplemental, monetized
benefits. In reviewing the proposed benefits achievable only
through approval of the transaction and the Joint Proposal, we
find them sufficiently significant, and the risks sufficiently
minimized, to produce a net positive benefit for ratepayers that
justifies approval of the transaction .
As we have discussed, the benefits include $9.25
million in guaranteed rate savings, a $35 million fund to be
used for deferral write-offs and/or future rate mitigation , a
$5 million Community Benefit Fund for low-income customer
programs and economic development, and an earnings sharing
mechanism more favorable to ratepayers than the present formula.
\ As for any offsetting risks or detriments, we find that they
have been minimized sufficiently, because the Joint Proposa l 's
terms as modified and adopted establish comprehensive financial
safeguards, corporate governance requirements, employee
retention requirements, service quality and performance
mechanisms, and other risk mitigation measures. Those
provisions together with E'ortis 's "federal" business model and
an extension of Central Hudson 's current level of community
involveme nt will ensure the continuation of Central Hudson's
role in its service territory as a responsive and responsible
corporate citizen.
Based on these considerations , we find that the
proposed transaction provides a clear net benefit to Central
Hudson's ratepayers, and that the transaction therefore is in
the public interest as required by PSL §70 .
Finally, we are conditioning our approval of the
transaction on Petitioners' providing the "enhancementsn
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CASE 12-M-0192
outlined above, namely : an extension of the originally proposed
rate freeze through June 30, 2015; job security provisions
extended to four years as compared with the two years originally
proposed; continuation of Central Hudson's level of involvement
in community programs for ten years , rather than the five
originally proposed; and a provision that Central Hudson's Board
of Directors will include two independent directors residing in
the service territory, rather than one as originally proposed.
In summary, we approve the merger transaction because
it will serve the public interest as required by PSL §70; and we
adopt Petitioners ' proposed enhancements, because they provide
other advantages additional to those enumerated in the Joint
Proposal . Therefore, the motion is denied .
The Commiss ion orders:
1. In accordance with the forego ing discussion, and
subject to the determinations and understandings set forth
above , the terms of the Joint Proposal dated January 25, 2013,
which was filed in this proceeding on January 28, 2013 , are
adopted in their entirety except as otherwise noted, and are
incorporated as part of this order.
2. Fortis Inc. and CH Energy Group, Inc., on behalf
of themselves and their subsidiaries that are parties to the
petition initiating this proceeding, must submit a written
statement of complete and unconditional acceptance of this order
and its terms and conditions, signed and acknowledged by duly
authorized officers before the earlier of the closing date of
the proposed acquisition or July 8, 2013. These statements must
be filed with the Secretary and served contemporaneously on all
active parties in this proceeding . In the absence of such
acceptance, our approval of the proposed acquisition is
rescinded .
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3. Within 90 days following the closing of the
merger, Fortis Inc. shall file with the Secretary a Tax
Preparation and Sharing Agreement incorporating the provisions
described i n this order.
4. Pursuant to PSL §108, Central Hudson Gas &
Electric Corporation is authorized to amend its Certificate of
Incorporation to provide for the establishment of a class of
preferred stock havi ng one share subordinate to any existing
preferred stock , as defined by the terms of the Joint Proposal
that we are adopting by this order. Such share of stock shall
have voting rights only with respect to Central Hudson Gas &
Electric Corporation's right to commence any voluntary
bankruptcy without the consent of the holder of that share of
stock.
5. As described in the body of this order, within 20
days following the issuance of this order, Central Hudson Gas &
Electric Corporation shall file with the Secretary its capital
investment plan and proposed targets for tree trimming
expenditures, stray voltage testing and mitigation costs, and
net plant for the year ending June 30, 2015. Forty-five days
after that submission, Central Hudson and Staff shall file their
respective or joint recommendations concerning the tree trimming
expenditure, stray voltage testing and mitigation costs, and net
plant targets with the Secretary for a final Commission
determination .
6. The motion for evidentiary hearings filed by
Citizens for Local Power and the Consortium in Opposition to the
Acquisition is denied.
7. The Secretary in his sole discretion may extend
any deadlines established by this order.
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8 . This proceeding is continued but shall be closed
by the Secretary as soon as the compliance filings have been
completed, unless he finds good cause to continue it furthe r.
( SIGNED)
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JEFFREY C . COHEN
Acting Secretary
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Public Service Commission
State of New York
x---------------------------------------x
Joint Petition of Fortis Inc ., FortisUS
Inc ., Cascade Acquisition Sub Inc ., CH
Energy Group , Inc ., and Central Hudson
Gas & Electric Corporation for Approval
of the Acquisition of CH Energy Group,
Inc . by Fortis Inc . and Related
Transactions .
x---------------------------------------x
Case 12-M-0192
Joint Proposal for Commission Approval of the Acquisition of
CH Ene rgy Group, Inc . by Fortis Inc. and Related Transactions
Dated: January 25, 2013
14301984.2
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TABLE OF CONTENTS
I . INTRODUCTION .............................................. 1
II . PROCEDURAL SUMMARY ........................................ 1
I I I. APPROVAL OF TRANSACTION ...........................•....... 2
IV . TERMS OF COMMISSION APPROVAL .............. , ............... 3
A. Corporate Structure and Financial Protections ........ 3
1} Goodwi ll and Acquisition Cost Conditions ........ 3
2) Credit Quality and Dividend Restriction
Conditions ...................................... 5
3) Money Poolinq Conditions ....................... 10
4) Special Class of Preferred Stock Conditions .... 11
5) Financial Transparency and Reporting
Conditions ..................................... 14
6) Affiliate Transactions, Cost Allocations,
and Code of Conduct ............................ 18
7) Follow-On Merger Savings ....................... 20
8) Corporate Governance and Operational
Provisions ...................................•. 21
B . PERFORMANCE MECHANISMS ......................•....... 2 4
1) Customer Service ............................... 24
2) Negative Revenue Adjustments ( "NRAs 11 ) •••••••••• 25
3) Electric Reliability ........................... 2 6
4 ) Gas Safety Metrics ............................. 27
5) Infrastructure Enhancement for Leak-prone
Pipe ........................................... 30
c. RATE FREEZE PROVISIONS .............................. 31
1) Earnings Sharing a nd Calculations of Earned
Rates of Return ................................ 31
2) Distribution and Transmission Right-of-Way
Tree Tr imrning and SIR Costs .................... 32
3) Stray Voltage Te sting .......................... 33
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D. NET PLANT TARGETS ................................... 3 4
E.. LOW I NCOME ........•................................. 35
F. RETAIL ACCESS ..................•.................... 4 0
G. ECONOMIC DEVELOPMENT AND SUPPORT FOR STATE
INFRASTRUCTURE ENHANCEMENTS ......................... 42
1)
2)
Economic Development ........................... 42
State Infrastructur e Enhancements .............. 44
3) Gas Expansion Pilot Pr ogram .................... 4 4
H. NEXT RATE CASE FILING ........................... , ... 47
V. ECONOMIC BENEFI TS , INCLUDI NG SYNERGI ES AND POSITIVE
BENEFIT ADJUSTMENTS ...................................... 4 8
A. Synergy Savings/Guaranteed Rate Reductions .......... 49
B. Deferred Storm Restorati on Cost Wr i te-offs and
Future Rate Mitigation .............................. 49
1) Storm Restoration Cost Write-offs .............. 50
2) Disposition of the Remaining Balance ........... 51
C. Community Benefit Fund .............................. 52
VI . OTHER PROVISIONS ......................................... 52
A. Count erparts ........................................ 5 2
B. Pr ovisions Not Separable ............•............... 53
C. Provisions Not Pr ecedent ............................ 54
D. Submission of Proposal .............................. 54
E. Further Assurances .................................. 55
F. Entire Agreement .................................... 55
VI I . SIGNATURES ............................................... 55
ATTACHMENT I :
ATTACHMENT I I :
ATTACHMENT III :
ATTACHMENT IV :
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STANDARDS OF CONDUCT
ELECTRIC RELI ABILITY PERFORMANCE MECHANISM
PARTS 25 5/261 MATERIALS
NET PLANT TARGETS
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Public Service Conunission
State of New York
x--------------------------------~-----x
Joint Petition of Fortis Inc ., FortisUS
Inc., Cascade Acquisition Sub Inc ., CH
Energy Group , Inc., and Central Hudson
Gas & Electric Corporation for Approval
of the Acquisition of CH Energy Group,
Inc . by Fortis Inc . and Related
Transactions .
x---------------------------------------x
Case 12-M-0192
Joint Proposal for Commission Approval of
the Acquisition of CH Energy Group, Inc. by
Fortis Inc. and Related Transactions
I. INTRODUCTION
This proposal ("Joint Proposal") for the complete
resolution of the Joint Petition in this proceeding is submitted
jointly to the New York State Public Service Conunission
("Commission") by Cascade Acquisition Sub Inc. ("Cascade"), CH
Energy Group, Inc. ("CHEG"), Central Hudson Gas & Electric
Corporation ("Central Hudson''), Department of Public Service
Staff ("Staff"), Department of State Utility Intervention Unit
("UIU"), Dutchess County New York, Fortis Inc. ("Fortis "),
FortisUS Inc . ( '' FortisUS"), Multiple Intervenors, Orange County
New York, and Ulster County New York. The supporting parties
are referred to herein collectively as the "Signatories."
II. PROCEDURAL SUMMARY
Subsequent to the April 20, 2012 filing of the Joint
Petition, d irect testimony and exhibits, formal proceedings have
[ l)
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included an on-the-record technical conference, two
administrative conferences, scheduling and procedural rulings by
the Presiding Administrative Law Judges, and extensive
discovery. Twelve parties, including Staff, have been admitted.
On October 12, 2012, in accordance with the procedural schedule,
eight parties filed their initial positions . Staff filed
corrected testimony on November 5, 2012. Petitioners submitted
their reply comments and rebuttal testimony and Staff filed
their rebuttal testimony on November 27, 2012. Staff also filed
sur-rebuttal testimony on December 4, 2012. Three parties filed
their lists of Disputed Issues of Material Fact on December 4,
2012.
Pursuant to a Notice of Potential Settlement filed by
Petitioners on December 12, 2012, a series of settlement
discussions commenced on December 17, 2012 and continued on
December 18, 19 and 20 and January 2,3,4,7,8 and 11, 2013 .
Following these discussions, drafts of this Joint Proposal and
the Signatories' comments thereon were exchanged, and this Joint
Proposal was executed by the Signatories.
III. APPROVAL OF TRANSACTION
The Signatories recommend that the Commis sion approve the
indirect transfer to Forcis of the ownership of Central Hudson
through the acquisition and related transactions described in
(2)
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the Joint Petition , subject to the terms described herein .1 The
Signatories have concluded that these terms establish that the
upstream transfer of the equity interests in Central Hudson is
"in the public interest" pursuant to Public Service Law ("PSLH)
Section 70, and should be approved .
IV. TERMS OF COMMISSION APPROVAL
A. Corporate Structure and Financial Protections
1) Goodwill and Acquisition Cost Conditions
a) Cascade, CHEG, Central Hudson, Fortis and FortisUS
(referred to collectively herein as •'Petitioners'')
agree that the Goodwill and transacti on costs of
this acquisition wil l be excluded from the rate
base, expenses, and capital ization in the
determination of rates and earned returns of Central
Hudson for New York State regulatory accounting and
reporting purposes.
b) If, at any time after the closing of this
acquisition, as a result of any impairment analysis
by Fortis, FortisUS, CHEG or Central Hudson, either
Fortis or FortisUS makes a book entry reflecting
Pursuant to the February 20, 2012 Agreement and Plan of Merger, the acquisition
will be accomplished by the merger of Cascade with and into CHEG, with CHEG as the
surviving corporation that will be wholly-owned by .Fortis. Central Hudson and its
sister unregulated affiliates (Griffith Energy Services, Inc. and Central Hudson
Enterprises Corporation) will continue to be wholly-owned subsidiaries of CHEG and,
therefore, indirect, wholly-owned subsidiaries of Fortis .
[3]
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impairment of the Goodwill from this acquisition,
Central Hudson must submit the impairment analysis
to the Commission within five business days after
the entry has been made.
c) To the extent permissible under U.S. Generally
Accepted Accounting Principles ("U.S. GAAP"), no
goodwill or transaction costs associated with this
acquisition will be reflected on the books
maintained by Central Hudson after the closing of
the acquisition of CHEG by FortisUS and Fortis.
Should changes in U.S. GAAP require that the
goodwill associated with the acquisition be "pushed
downn and therefore reflected in the accounts of
Central Hudson, the goodwill will not be reflected
in the regulated accounts of Central Hudson for
purposes of determining rate base, setting rates,
establishing capital structure or other regulatory
accounting and reporting purposes.
d) Central Hudson will provide a final schedule of the
external costs to achieve the merger following
consummation of the transaction as a demonstration
that there will be no recovery requested in Central
Hudson rates, or recognition in the determination of
rate base of any legal and financial advisory fees,
[4]
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or other external costs associated with Fortis'
acquisition of CHEG, and indirectly, Central Hudson.
2) Credit Quality and Dividend Restriction Conditions
a) After the closing of this transaction , copies of all
presentations made to credit rating agencies by
Central Hudson, Fortis or any Fortis affiliate in
the line between Central Hudson and Fortis that
present or discuss the finances and credit of
Central Hudson or CHEG, will be provided to Staff
within ten business days of the presentation on a
continuing basis. These presentations will be
subject to the confidentiality and privilege
provisions of sections VI.B 32 and 33 of the
Restructuring Settlement Agreemen t ("RSA") approved
by the Commission in Case 96-E -0909, In the Matter
of Central Hudson Gas & Electric Corporacion's Plans
for Electric Rate/Restructuring Pursuant to Opinion
No . 96-121 Order Adopting Terms of Settlement
Subject to Modifications and Conditions (issued on
February 19, 1998).
b) To the extent not already in place, Fortis and
Central Hudson must register with at least two major
nationally and internationally r ecognized bond
rating agencies, such as Dominion Bond Rating
[5)
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Services (~DBRSn), Fitch Ratings ("Fitchn), Moody's
Investor Services ("Moody'sn) and Standard & Poor's
( "S&P") . Consistent with section VI. B 20 of the
RSA, Central Hudson will continue to maintain
separate debt instruments and its own corporate and
debt credit ratings with at least two of these
nationally recognized credit rating agencies.
Neither Fortis nor Central Hudson will enter into
any credit or debt instrument containing cross
default provisions that would affect Central Hudson.
c) Fortis and Central Hudson will continue to support
the objective of maintaining an "A'' credit rating
for Central Hudson, unless and until the Commission
modifies its financial integrity pol icies. In so
doing, Fortis and Central Hudson will maintain the
equity capitalization ratio of Central Hudson at the
level used by the Commission in establishing Central
Hudson's rates as follows . At each month end,
Central Hudson and Fortis agree to maintain a
minimum common equity ratio ("MER") (measured using
a trailing 13-month average) in relation to the
equity ratio used to set rates . The MER is defined
as no less than 200 basis points below the equity
ratio used to set rates . In the event that the MER
[ 6)
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is not met, no dividends are payable until such time
the MER is restored.
d) In the event the Commission establishes rates for
Central Hudson on a basis that does not recognize
Central Hudson's actual equity capitalization, or
deems or imputes for ratemaking purposes an equity
capital ization below Central Hudson's actual equity
capitalization, Central Hudson shall be free to
dividend its excess equity capitalization to match
that recognized or deemed by the Commission in
establishing Central Hudson's rates.
e) If, as a direct result of a downgrade of Fortis
Inc. 's debt within three years following the closing
of this transaction, Central Hudson is downgraded to
either S&P's or Fitch1 s BBB category (BBB+ or
lower), or the equivalent for Moody1 s (Baal or
lower) or DBRS's (BBB(high) or lower), and Central
Hudson incurs increased costs of debt, the
incremental cost of debt incurred by Central Hudson
in comparison to the cost of debt which would
otherwise have been incurred by Central Hudson under
i ts pre-downgrade credit rating will not be
reflected in Central Hudson's cost of capital or the
[7]
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determination of Central Hudson's rates in
subsequent rate cases.
If such a downgrade occurs in the time discussed and
debt is issued, then in subsequent rate cases
Mergent Bond Record data (or the equivalent, if
Mergent data is not available) for the relevant
month(s) of issue will be used to quantify the
adjustment needed to avoid reflecting the higher
interest rate expense . For each one-notch downgrade
to Central Hudson, one-third of the di£ference
between A and Baa Public Utility Bond yield averages
will be used to adjust the interest rate allowed in
rate cases . The differential will only apply for
each credit rating agency which downgrades Central
Hudson's debt due to a Fortis downgrade, For
instance, if Central Hudson is rated by two credit
rating agencies and only one downgrades them due to
a Fortis downgrade, then only 50% of the one-notch
yield difference per Mergent Bond Record data will
be used to calculate t he interest rate adjustment in
subsequent rate cases.
f) Central Hudson will continue to comply with any and
all sections of the RSA with respect to restrictions
[ 8]
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·····-·-----,:
on the payment of common divi dends related to credit
ratings.
g) Central Hudson will not lend to, guarantee or
financially support Fortis or any of its aifiliates,
or any subsidiary or other joint ventur e of Central
Hudson, except as is consistent with section VI.B 23
of the RSA or permitted by the Money Pooling
Conditions referred to below. Furthermore, Centra l
Hudson will not engage in, provide financial support
to or guarantee any non-regulated businesses, except
as authorized in the RSA or by Commission order .
h) Central Hudson shall maintain banking, committed
credit facilities and cash management arrangements
which are separate from other affiliates.
i} I n addition to the special class of preferred stock
referred to in item 4 , below, Central Hudson's
financing authorization in Case 12-M-0172 , Order
Authorizing Issuance of Securities, issued and
effective September 14, 2012 ("Financing Order") is
amended to authorize Central Hudson to use private
financing as an alternative to public debt
offerings . This authorization supersedes Ordering
Clause 5 in the Financing Order . Private financings
are subject to the conditions and requirements
[ 9]
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described in the other Ordering Clauses in the
Financing Order and, Central Hudson's proposal to
address Ordering Clause 6 in the Financing Order, as
was filed with the Commission on November 9, 2012,
is accepted and approved by the Commission 's
adoption of this Joint Proposal.
3). Money Pooling Conditions
a) Central Hudson may participate in a money pool only
if all other participants, with the exception of
Fortis and FortisUS, are regulated utilities
operating within the United States, in which case
Central Hudson may participate as either a borrower
or a lender. Fortis and FortisUS may participate
only as lenders in money pools involving Central
Hudson . Central Hudson may not participate in any
money pool in which any participant directly or
indirectly loans or transfers funds to Fortis or
FortisUS .
b) Neither Fortis nor FortisUS, nor any of their
affiliates may, at closing of the approved
acquisition of Central Hudson, have any cross
default provision that affects Central Hudson in any
manner. Neither Fortis nor FortisUS , nor any of
their affiliates may enter into any cross default
(10]
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_,. -·--· v--~---=-~--~ .. --... ----------·-
provision following the closing that affects Central
Hudson in any manner . Notwithstanding the
foregoing , to the extent that any cross default
provi sion that might affect Central Hudson already
exists, Fortis and FortisUS must use their best
efforts to eliminate that cross default provision
within six months after closing . If any cross
default provision remains in effecc ac the end of
that period , Fortis and FortisUS must obtain
i ndemnification from an investment grade entity, at
a cost not borne by Central Hudson's ratepayers,
which fully protects Central Hudson from the effects
of any cross default provision.
4) Special Class of Preferred Stock Conditions
a) Central Hudson must modify its corporate by-laws as
necessary to establish a voting right in order to
prevent a bankruptcy, liquidation, receivership , or
similar proceedings ("bankruptcy") of Central Hudson
from being caused by a bankruptcy of Fortis,
FortisUS, or any other affiliate . The Corrunission's
approval of this Joint Proposal will represent all
Corrunission authorization necessary for Central
Hudson to establish a class of preferred stock
having one share (the "golden sharen ), subordinate
[11)
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to any existing preferred stock, and to issue that
share of sto8k to a party who shall protect the
interests of New York and be independent of the
parent company and its subsidiaries. Such share of
stock shall have voting rights only with respect to
Central Hudson's right to commence any voluntary
bankruptcy without the consent of the holder of that
share of stock. Central Hudson shall notify the
Commission of the identity and qualifications of the
party to whom the share is issued and the Conunission
may, to the extent that such party is not reasonably
qualified to hold such share in the Commission's
opinion1 require that the share be reissued to a
different party within three months of receipt of
such notification. If Central Hudson has failed to
propose a shareholder that is approved by the
Commission within six months after the closing of
the acquisition, the Commission will appoint a
shareholder of its own selection. In the event that
Central Hudson is unable to meet this condition
despite good faith efforts to do so, it must
petition for relief from this condition, explaining
why the condition is impossible to meet and how it
proposes to meet an underlying requirement that a
[12]
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,-.., .. -·-_ .. ;:;;;;:;:;;;;:------· .· -···
bankruptcy involving Fortis , FortisUS, or any other
affiliate does not result in its voluntary inclusion
in such a bankruptcy .
b) In any rate proceeding in which use of Central
Hudson's capital structure is re quested, Central
Hudson will submit the most current written
evaluations from at least two rating agencies
addressing Central Hudson 's credit profile . These
credit reports shall be relied upon to the extent
that they provide written evidence that supports the
evaluation of Central Hudson and the treatment of
Central Hudson's capital structure by the Commission
primarily as a separate company, without material
adjustments to the rating based on risks related to
the capital structure and ratings of its ultimate
parent . This evidence , together with the golden
share would provide sufficient proof that the use of
Central Hudson 's capital structure should be used
for rate making purposes. In the event written
evaluations from at least two rating agencies do not
provide such evidence or are not available, Central
Hudson shall have the opportunity to meet its burden
of proof through other means. Centr al Hudson 's
capital structure will continue to be reviewed in
[13]
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14307984.2
relation to the level of risk of Central Hudson at
that time .
5) Financial Tra nsparency and Reporting Conditions
a) Cent ra l Hudson must continue to use the standards of
Gene r ally Accepted Accounting Principles applicable
to publicly-traded entities ("Public GAAP ," "U.S.
GAAP ," or simply "GAAP") for 11:s financial
account ing and financial reports. Central Hudson
wil l , for purposes of its financi al accounting and
financial reporting , continue to use the generally
accepted accounting principles which include , but
are not limited to the determinations by the
Financial Accounting Standards Board ("FASB"), or
any successor entity , for U.S . publicly accountable
enter prises ("U.S . GAAP " or simply "GAAP"). Any
future changes in U.S. GAAP , including any decision
to replace U.S. GAAP with International Financial
Reporting Standards ("IFRS "), wi ll be applied by
Central Hudson . In the event of future changes to
accounting standards, recovery by Central Hudson for
the incremental costs incurred in making such
changes will be addr essed in a future rate
proceeding .
(14]
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b) Central Hudson must continue to satisfy all
Commission reporting requirements that currently
apply to it; provided however, that nothing in this
provision is intended to preclude Central Hudson
from requesting relief from any such reporting
provision and, further, that nothing herein is
intended to require Central Hudson to continue to
make reports in the future that utilities have been
generally or generica lly excused by the Commission
from making.
c) After the closing of this acquisition, Central
Hudson shall continue to comply with the provisions
of sections 302 through 404 of the Sarbanes-Oxley
Act ("SOXn) as if Central Hudson were still bound
directly by the provisions of SOX, with the
understanding that no filings with the Securities
and Exchange Commission will be required .
Specifically, Central Hudson's periodic statutory
financial reports must continue to include
certifications provided by its officers concerning
compliance with SOX requirements, including
certifications on internal controls, as if still
bound by the provisions of SOX.
[15]
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d) Central Hudson shall remain subject to annual
attestation audits by independent auditors with
respect to its financial statements and internal
e)
controls over financial reporting.
Subject to the confidentiality and privilege
provisi ons of sections VI.B 32 and 33 of the RSA,
Fortis and Central Hudson will provide Staff access
pur.suant to section VI .B 30 of the RSA to the books
and records and Standards Pertaining To
Transactions, Conflicts Of Interest, Cost
Allocations And Sharing Of Information Between
Central Hudson Gas And Electric Corporation And
Affiliates ("Standards"), including, but not limited
to, tax returns, of Fortis and FortisUS to the
extent necessary to determine whether the rates and
charges of Central Hudson are just and reasonable
and provide Staff the opportunity to ensure that
I
costs are allocated equitably among affiliates in
accordance with the RSA, Standards and Central
Hudson code of conduct and that intercompany
transactions involving Central Hudson are priced
reasonably in accordance with the RSA, Standards and
Central Hudson code of conduct. Subject to the
confidentiality and privilege provisions of sections
[ 16)
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VI.B 32 and 33 of the RSA, that access must include,
but not be limited to, all information supporting
the underlying costs and the basis for any factor
that determines the allocation of those costs .
f) Commencing for the year in which the closing takes
place, Central Hudson must file annually with the
Commission Fortis financial statements , including
balance sheets, income statements, and cash flow
statements for Fortis, Inc. and its major regulated
and unregulated energy company subsidiaries in the
United States. U.S . business entities with annual
revenues less than ten percent of t otal Fortis
revenues may be aggregated, provided that each
entity included is fully identified. Aggregated
U.S. business entities shall be identifi ed as either
regulated or unregulated . To satisfy this filing
requirement , Fortis Inc .'s U.S. GAAP Canadian dollar
denominated quarterly and annual Financial Reports,
including Management Discussion and Analysis, which
have been filed publically with Canadian securities
regulators, will be filed by Central Hudson with the
Commission. Additionally, Central Hudson will
provide to the Commission, to the extent available
from a recognized financial reporting informat ion
[17]
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service such as SNL Financial or Bloomberg, Fortis
Inc . 's "as reported" quarterly and annual Balance
Sheet, Income Statement and Statement of Cash Flows
in U.S. dollars with the underlying currency
translation assumptions.
g) All information required by the financial
transparency and reporting requirements in
subparagraphs (a) through (f) above must be provided
in English and in U.S. dollars, with the exception
of Financial Reports and Management Discussion and
Analysis referred to in subparagraph (f), and books
and records and Canadian tax r eturns that
statutorily require Canadian dollar reporting. In
such cases, foreign exchange for U.S . dollar
translation will be provided as described in
subparagraphs (a) through (f) above and, shall be
publicly available subject to the confidentiality
and privilege provisions of sections VI.B 32 and 33
of the RSA.
6) Affiliate Transactions, Cost Allocations, and Code of
Conduct
a) Fortis shall be subject to the rules, practices, and
procedures in the RSA, Standards, and code of
[ 18]
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conduct governing relations among CHEG and Central
Hudson in the same manner as they apply to CHEG.
b) Central Hudson will not enter into transactions with
affiliates that are not in compliance with the RSA
guidelines regarding affiliate transactions,
including the updated Standards set forth in
Attachment I. Central Hudson will also not enter
into transactions with affiliates on terms less
favorable to Central Hudson than specified in the
RSA, including the updated Standards .
c) Central Hudson shall provide 180 days notice to the
Commission prior to the commencement of any planned
material (i.e ., individually or collectively
exceeding greater than 5% of Central Hudson net
income on an after tax basis) shared services
initiatives, and prior to establishment of a
services organization that would provide material
(i .e ., individually or collectively exceeding
greater than 5% of Central Hudson net income on an
after tax basis) services to Central Hudson .
Further, any such noticed shared service initiative
would require Commission approval.
d) At or prior to the time of Central Hudson's next
base rate filing it will consolidate the RSA,
[19]
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Standards and codes of conduct into one
comprehensive document and file the consolidated
document with the Commission . The intention of this
requirement is to organize the provisions into an
integrated document without alte ring the effect and
content of the provisions.
7) Follow-On Merger Savings
a) In the event tha t Fortis completes any additional
mergers or acquisitions within the United States
before the Commission adopts an order approving new
rates for Central Hudson, Fortis must share the
follow-on merger savings that are reasonably
applicable to Cent ral Hudson and its customers
between shareholders and ratepayers, on a 50/50
basis, to the extent the portions of such savi~gs
realized by Fortis are material (i .e., 5 percent or
more of Central Hudson net income on an after-tax
basis). Central Hudson .must submit , within 90 days
of the follow-on merger closing, a comprehensive and
detailed proposal to share the follow-on merger
savings , to begin on the closing date of the follow­
on merger . In addition, the proposal must include
an allocation method for sharing the synergy savings
and efficiency gains among corporate entities that
(20]
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1007984.2
addresses the time period from the receipt of the
synergy savings by Central Hudson until the
Commission approves new rates. The ratepayer sha re
shall be set aside in a defe r ral account for future
Commission disposition .
8) Corporate Governance and Operational Provisions
a) No later than one year after the closing of Forcis's
acquisition of CHEG, Fortis shall appoint a board of
directors for Central Hudson, t he majority of whom
will be independent (as defined in the Standards,
see Attachment I), wit h the majority of such
independent directors being resident in the State of
New York, with emphasis on selecting candidates who
reside , conduct business or work within the Central
Hudson service territory . At least one independent
director of Central Hudson shall be a resident of
the service territory. Except with respect to the
initial appointment of the board of directors for
Central Hudson within one year follo wing the
closing , nothing in this Joint Proposal is intended
to restrict the rights of Fortis to take any action
before the Commission , or otherwise , regarding the
appointment of directors meeting the above residency
criteria at any time , as i t sees fit .
[ 21]
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1430798 4 ,2
b ) Subject to the right of Central Hudson to petition
the Commission for approval to relocate its
co rporate headquarters outside of Central Hudson's
service ~erritory, t he corporate headquarters of
Central Hudson shall remain within Central Hudson's
service territory . Complete books and records of
Central Hudson shall be maintained at Central
Hudson 's corporate headquarters .
c ) At least 50% of Central Hudson 's officers shall
reside within Central Hudson 's service territory .
d) Central Hudson shall be governed, managed and
operated in the fashion described in Petitioners'
testimony. Specifically, the Signatories agree
that:
i) The board of directors of Central Hudson will
be responsible for management oversight
generally, including the approval of annua l
capital and operating budgets ; establishment of
dividend policy; and determination of deb~ and
equity requirements . The Central Hudson board
of directors will have an audit committee , the
majority of whom will also be independent . The
responsibility of this committee will include
the oversight of the ongoing financial
(22)
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14307984.2
integrity and effectiveness of internal
controls of Central Hudson.
ii) Central Hudson's local management will continue
to make decisions regarding staffing levels and
hiring practices; will continue to negotiate
future collective bargaining agreements; will
continue to be the direct contact and decision
making authority in regulatory matters; and,
will continue to represent Central Hudson in
all future regulatory matters.
iii) To provide continuity in the management and
staffing of Central Hud~on, and ensure that the
necessary human resources are maintained to
continue the delivery of safe, reliable service
to customers, the current employees of Central
Hudson (union and management) will be retained
for a period of two years following the closing
under their respective current conditions of
employment. Central Hudson reserves the right
to take disciplinary and any other actions it
determines necessary or appropriate within its
existing labor agreement and employee relations
practices. Central Hudson also agrees to
maintain for two years after the closing the
(23]
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level of operating employees , as defined in the
Standards , that is recognized in rates and to
file a report with the Secretary of the
Commission within 30 days after the first two
anniversary dates of the merger's closing
comparing the level of union and management
employees on the anniversary to date to the
levels on the date upon which the merger
closed .
iv) To ensure the continued active corporate and
charitable presence of Central Hudson in its
service territory , Central Hudson shall
maintain its community involvement at not less
than current (2011) levels for five years after
the closing of the acquisition (2013 through
2 017) .
B. PERFORMANCE MECHANISMS
1) Customer Service
The following targets and effective dates will apply:
Measure Value Effective
PSC Complaint Rate 1.1 -1. 6 7/1/13
CSI 85 -82 , etc . 7/1/13
structure per the
current rate plan
Keeping Scheduled $20 paid to 7/1/13
Appointments customer for
missed appt . per
current rate plan
[24]
14307 984. 2
HYDRO ONE/804
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. __ ..... ·--+ .. -. ··---. -r···-········· -~· ....... ·-· .... ······· =-······1:·
These targets wi l l continue to apply unless and until changed by
Commission Order.
2) Negative Revenue Adjustments ("NRAs")
The NRAs shown in the following table have been
doubled from those in the current rate plan .2 The NRAs
in the current rate plan shall be tripled if targets
are missed duri ng a divi dend restriction and
quadrupled if targets are missed for three years
within the next five year period.
Central Hudson Service Quality Performance Mechanism
Customer Satisfaction Index Negative Revenue Adjustment
85% or higher None
84% s CS! < 85% $475,000
83% ~ CSI < 84% $950,000
-
82% s CSI < 83% $1,425 ,000
< 82% $1,900,000
Total Amount at Risk $1,900,000
The Commission's Order Establishing Rate Plan, issued June 18, 2010, in Cases 09-
£-0588 and 09-G-0589, set forth electric and gas ra~e plans for Central Hudson for
t he period July 1, 2010 through June 30, 2013.
[25)
14307984. 2
I HYDRO ONE/804
Schmidt/Page 94 of 162
Staff_PR_039(AVA) Attachment A Page 94 of 162
HYDRO ONE/804
Schmidt/Page 95 of 162
. ·-----~ =::;·•--· --r,·.·.•c.,.;;..·.·.·.-••• :!"11=: •• • ... _..•-,.•.-..:..•-,-·· -··"'-·~--•·-=····1
PSC Annual Complaint Rate Negative Revenue Adjustment
14301984. 2
<1.1 None
1.1 $950 ,000
1.2 $1,140,000
1. 3 $1 ,330,000
1. 4 $1 ,520 ,000
1. 5 $1,710,000
1 .6 or higher $1,900,000
Total Amount at Risk $1,900 ,000
3) Electric Reliability
The electric service annual metrics for System Average
Frequency Index (SAIFI) target of 1 .45 and Customer
Average Duration Index (CAIDI) target of 2.50 continue
through 2013.
Electric Reliability Reporcing requirements , quarterly
meeting requirements , revenue adjustment source, and
exclusions are defined in Attachment II .
All Electric Reliability NRAs of the current rate plan
shall be doubled. In addition , the NRAs of the
current rate plan shall be tripled if targets are
missed during a dividend restriction and quadrupled if
targets are missed for three years within the next
five year period. All electric reliability targets
[ 2 6 J
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H307984 .2
·---·;...... --.--~-----. ----¥¥ --~-----------·---=:a--·~·
for calendar year 2013 remain in effect until modified
by a Commission order in a subsequent Central Hudson
electric rate case.
4) Gas Safety Metrics
Emergency Response Time
The gas emergency response time metrics of 75%
response within 30 minutes and 90% response within 45
minutes will be continued.
Gas Leak Backlog
The calendar year 2013 leak backlog target is 260 at
year-end. The calendar year 2013 repairable leaks
backlog target is 20 at year-end.
Damage Prevention
The calendar year 2013 total damages per 1,000 one
call tickets target is 2 .40. The calendar year 2013
rnismarks per 1,000 one call tickets target is 0 .50 .
The calendar year 2013 Company and Company Contractor
damages per 1,000 one call tickets target is 0 .25.
New Parts 255 and 261 Violation Metric
Central Hudson will incur a negative revenue
adjustment for instances of noncompliance (violations)
of certain pipeline safety regulations set forth in 16
NYCRR Parts 255 and 261, as identified during Staff's
annual field and record audits. Attachment III sets
[27 J
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..,_-_ ---·----.;:...;...-----~-.--·
forth a list of identified high risk and other risk
pipeline safety regu lations pertaining to this metric.
Central Hudson will be assessed a negative revenue
adjustment for each high risk or other risk violation,
up to a combined maximum of 100 basis points per
calendar year as follows:
High Risk Violation Occurrences Basis Points Per Violation
1-30 1/4
Calendar Year 2013
31+ 1/2
1-25 1/2
Calendar Year 2014
26+ 1
Other Risk Violation Occurrences Basis Points Per Violation
1-30 1/9
Calendar Year 2013
31+ 1 /3
1-25 1/9
Calendar Year 2014
26+ 1/3
This metric will be effective as of the start of the
Commission Order in this case , but will then be
measured on calendar years, as identified above . With
respect to violations, only documentation or act i ons
performed, or required to be performed, on or after
[ 2 8]
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143079!)4,2
---.. ---~-;:::a:;-=.·_-__ ,.. . . .
the date of the Corrunission Order in this case will
constitute an occurrence under the metric.
At the conclusion of each audit , Staff and Central
Hudson will have a compliance meeting where Staff will
present its findings to Central Hudson. Central
Hudson will have five business days from the date the
audit findings are presented to cure any identified
document deficiency. Only official Central Hudson
records, as defined in Central Hudson 's Operating and
Maintenance plan, will be considered by Staff as a
cure to a document deficiency. Staff will submit its
final audit report to the Secretary of the Commission
under Case 12-M-0192. If Central Hudson disputes any
of Staff 's final audit results, Central Hudson may
appeal Staff 's finding[s] to the Commission. Central
Hudson will not incur a negative revenue adjustment on
the contested finding until such time as the
Commission has issued a final decision on the
contested findings . Central Hudson does not waive its
right to seek an appeal of any Commission
determination regarding a violation under applicable
law.
If an alleged high risk or other risk violation set
forth in Attachment III is the subject of a separate
[ 29]
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100798~.2
--:SC:--~
penalty proceeding by the Commission under PSL 25,
that instance will not constitute an occurrence under
this performance metric.
Negative Revenue Adjustments
Other than the Parts 255 and 261 metric, all Gas
Safety NRAs of the current rate plan shall be doubled .
In addition, the NRAs of the current rate plan shall
be tripled if targets are missed during a dividend
restriction and quadrupled if targets are missed for
three years within the next five year period.
Continuation
All gas safety targets for calendar year 2013 remain
in effect until modified by a Cornmission order in a
subsequent Central Hudson gas rate case .
5) Infrastructure Enhancement for Leak-prone Pipe
A minimum capital budget of $7.7 million is
established for the r eplacement of leak-prone pipe
over calendar year 2014 . The pipe to be removed from
service shall be identified and ranked using a r i sk­
based methodology . If actual expenditures fall short
of $7 .7 mill ion , Central Hudson will defer for
ratepayer benefit the revenue requirement equival ent
of the shortfall multiplied by 0.5. Central Hudson
shall maintain the minimum pipe replacement level
[30)
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beyond 2014 at $7.7 million, until chang~d by the
Commission .
C. RATE FREEZE PROVISIONS
H3079B4, 2
The Commission's Order Establishing Rate Plan, issued
June 18, 2010, in Cases 09-E-0588 and 09-G-0589, set
forth electric and gas rate plans for Central Hudson for
the period July 1, 2010 through June 30 , 2013 . The July
1, 2013 rate reductions for S.C. li gas customers (see
Sect ion IX, Part B, and Appendix M, Sheet 4 of 5 of the
current rate plan) will go into effect as provided in the
current rate plan. In the period between July 1, 2013
and June 30, 2014 (Rate Freeze Period), the provisions of
the current rate plan applicable to "rate year 311 , except
as modified in this Joint Proposal , are continued .
1) Earnings Sharing and Calculations of Earned Rates of
Return
The Earnings Sharing Provision in Section VI.D of the
current Commission-approved rate plan will be modified
as of July 1, 2013, to read:
Actual regulatory earnings in excess of
10.00% and up to 10 .50% will be shared
equally between ratepayers and shareholders .
Actual regulatory earnings in excess of
10.50% will be shared 90/10
(ratepayer/shareholder). These earnings
sharing percentages shall be maintained
until the effective date of the succeeding
Commission rate order .
[31]
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"-----·-----· ..... ··-· --.... ----... -
14307984 . 2
·--1 --
The Company will defer for the future
benefit of ratepayers fifty percent of its
share of any actual earnings in excess of
10.50% to reduce the deferred debit
undercollections of MGP Site Investigation &
Remediat i on Costs, interest costs on
variable rate, interest costs on new
issuances of long term debt , property tax,
and stray voltage expense; provided ,
however, that such reduction in deferred
debit deferrals will be further limited so
as not to cause the resulting actual
earnings to decrease below a 10.50% return
on equity .
In calculating earned rates of return for regulatory
purposes, the $35 million of combined write-offs of
deferred regulatory assets and future rate mitigation
funds , and the one-time funding of $5 million for
economic development and low income purposes referred
to in this Joint Proposal shall be included and not
"normalized out" for purposes of determining actual
expenses for the rate year in which those benefits are
booked by Central Hudson.
2) Distribution and Transmission Right-of-Way Tree
Trimming and SIR Costs
At the end of Rate Freeze Period, the actual total
expenditures for distribution ROW tree trimming will
be compared to $11.397 million and any under-spending
will be deferred as of the end of Rate Freeze Period .
Carrying charges at the Pre-Tax Rate of Return
("PTROR") will be applied by the Company to the amount
(32]
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14307984. 2
deferred from the end of Rate Freeze Period until the
effective date of the succeeding Commission rate
order .
At the end of Rate Freeze Period , the actual total
expenditures for transmission ROW tree trimming will
be compared to $1.711 million and any under-spending
will be deferred as of the end of Rate Freeze Period .
Carrying charges at the PTROR will be applied by the
Company to the amount deferred from the end of Rate
Freeze Period until the effective date of the
succeeding Commission rate order. In addition, the
deferral for Manufact ured Gas Plant ("MGP") Site
Investigation and Remediation ("SIRu) Co sts author ized
in Paragraph V.A.l of the current rate plan will be
modified as of July 1, 2013 to apply to all
Environmental SI R costs incurred by Central Hudson
during the period from July 1, 2013 to June 30, 2014 .
This modification does not limit Staff or the
Commission's authority to review the prudence of any
SIR costs .
3) Stray Voltage Testing
Actual Stray Voltage Testing expenditures, excluding
mitigation costs , will be compared to $2 .023 million
for the twelve months ending June 30 , 2014. Any
[33]
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HYDRO ONE/804
Schmidt/Page 103 of 162
~-· ---·------·.. >.. -~ ·---.... ---·---..... -~---'\ -··· ....... _ .. ,-~_ ... _ .. .-.-
under-spending as of June 30, 2014, exclusive of
expenditures for actual mitigation costs, will be
deferred for future return to customers with carrying
charges at the PTROR.
Actual mitigation costs in the twelve months ending
June 30, 2014 will be compared to $350,000. The
differences between $350,000 and actual mitigation
expenditures will be deferred for future recovery by
the Company, or return to customers, with carrying
charges at the PTROR.
D. NET PLANT TARGETS
14101984. 2
The net plant targets for the twelve month period ending
June 30 , 2014 of $919.3 million for Electric and $252 .2
million for Gas, with associated annual depreciation
expenses of $32 .7 million and $9.0 mil lion , respectively,
will be established.
The actual average electric and gas net plant balances at
the end of the twelve month period ending June 30, 2014
will be calculated using the calculation methods
described in Attachment III. The net plant targets shown
in Attachment III limit total Common Software
construction expenditures , including Legacy Replacements,
in the Rate Freeze Period to $5.0 million .
[34]
y
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Reconciliations
The actual electric and gas net plant wil l be compared to
the electric and gas net plant target for the twelve
month period ending June 30, 2014, and the revenue
requirement difference (i.e., return and depreciation as
described in Attachment IV) will be determined .
Deferral For the Benefit of Ratepayers
If, at the end of the twelve month period ending June 30,
2014, the revenue requirement difference from net plant
additions is negative, Central Hudson will defer the
revenue requirement impact for the benefit of customers .
If, at the end of the twelve month peri od ending June 30,
2014, the revenue requirement impact is positive, no
deferral will be made . Carrying charges at the PTROR
will be applied by the Company to the amount deferred
from the end of the twelve month period ending June 30,
2014 until addressed by the Commission in a Central
Hudson rate order.
E. LOW INCOME
14 30"198 4. 2
The Signatories agree that the existing funding for low
income programs available currently in rates will be
supplemented with $500,000 from the Community Benefit
Fund being made available by the Petitioners as a result
of this transaction. In addition, the Signatories agree
[ 35]
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~4307984 .2
to the following modifications to existing low income
programs:
1. Central Hudson's current low income program is made
up of two components; the Enhanced Powerful
Opportunities Program ("EPOP"), which is a targeted
program open to selected participants, and a broad­
based bill discount program that provides a monthly
bill credit to all customers that are Home Energy
Assistance Program ("HEAP") recipients.
2. The EPOP program and its associated funding will
remain unchanged.
3 . The bill discount program currently provides a
monthly bill credit of $11 .00 to all customers who
are HEAP recipients. Data provided by Central
Hudson reflect that the program has 8,641
participants as of the twelve months ended November
30, 2012, and projected annual spending of $1,140,612
($11 X 12 X 8,641).
4. Within 30 days of a Commission order in this
proceeding, Central Hudson will modify its current
discount program, which provides dual -service
customers with one discount, by implementing the
following discount levels for single and dual service
bill discount program participants:
[ 36]
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HYDRO ONE/804
Schmidt/Page 106 of 162
~ .. ::··
Electric only Gas only Both Elec . &
Gas
Heating $17 .50 $17 .50 $23.00
Non-heating $5.50 $5.50 $11. 00
14301984. 2
5. In order to ensure that no current participant faces
a reduction in current benefit levels, any single
service non-heating customer currently receiving a
bill discount of $11.00 will continue receiving such
benefit at the $11.00 level, instead of the $5.50
level specified above.
6. The total cost of the bill discount program is
expected to be $1,662,672 . Actual expenditures may
vary based on HEAP participation levels .
7. Central Hudson will waive service reconnection fees,
no more than one time per customer until new rates go
into effect, for customers participating in either
the EPOP or bill discount programs. Funding for
reconnection fee waivers is limited to $50,000 until
new rates go into effect. Central Hudson may grant
waivers to individua l customers more than once during
this period, on a case-by-case basis and for good
cause shown, provided that the program funding
allocation for such waivers is not exceeded. Upon
notice to Staff and the UIU, Central Hudson will be
[37)
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Schmidt/Page 107 of 162
----
14301984 .2
-.-.-.---.. ;:r.: -··-·~·= J-._ ----···--·-···--· .... •. ,.--... ...:.----·-· ...
permitted, first, to limit the waiver to (SO) percent
of the total reconnection fee , if the cost of waived
reconnection fees is projected to exceed the annual
allocation, and, second to suspend the waiver program
if the budget limit is reached.
8. A sum of $500,000 of the total costs of the low­
income bill discount and reconnection fee waiver
programs is to be supplied from the Conununity Benefit
Fund . To the extent that actual expenditures exceed
the rate allowance in current rates of $1,531,200,
plus $500,000 from the Conununity Benefit Fund, any
shortfall will be supplied first, from the cumulative
unused portions of the current rate allowances for
the bill discount program, which is expected to be
approximately $500,000, and second, will be deferred
as a regulatory asset . To the extent that actual
expenditures fall short of the current rate allowance
plus the cumulative unused portions of the c urrent
rate allowances for the bill discount program plus
$500,000 from the Conununity Benefit Fund, any excess
will be deferred for use of the low-income bill
discount program and the reconnection fee waiver
program in a future rate proceeding.
(38]
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·-"·------
9. Customers enrolled in the EPOP or low income bill
discount programs will continue to be referred by
Central Hudson to the New York State Energy Research
and Development Authority 's Empower-NY program or any
successor to the Empower-NY program, for energy
efficiency services.
10 . The parties agree that these modifications justify
returning to a quarterly reporting schedule. Central
Hudson will file quarterly and annual reports on the
EPOP and bill discount programs with the Secretary
and provide copies to other parties currently
receiving copies of EPOP reports . With respect to
the bill discount program, the reports will provide :
a. The number of customers enrolled in the bill discount
program;
b. The aggregate amounts of low-income bill discounts for
the quarter and year to date; and
c . The number of reconnections of low income customers
14307984.2
for which the fee was fully or partially waived, and
the aggregate amount of reconnection fees waived to
date.
11. Nothing in this Joint Proposal is intended to
prejudge the tre atment of low income matters by the
Commission in Central Hudson's next rate case .
[39]
HYDRO ONE/804
Schmidt/Page 108 of 162
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HYDRO ONE/804
Schmidt/Page 109 of 162
... -,·-.--· --~ .. ,.....;;;:: . .-. '-""•~ ·-···· •••• -.. -~-~-i..:..--·-· ... -.~ --· ------···-__.:..:-.,:... ... -. ----.-. ..:.. ~----.:-, --
F. RETAIL ACCESS
14307984 .2
In support of the Commission 's retail market development
initiatives, Central Hudson will set forth a total bill
comparison , using the existing Central Hudson computer
program that had been previously implemented, on all
retail access residential bills using consolidated
billing issued after 90 days following closing. The
Signatories agree that this total bill comparison is to
provide information to retail access customers that
should be made available by the utility as part of the
Commission 's retail energy markets initiatives . Central
Hudson shall report quarterly to the Secretary on this
initiative so that Staff can continue to review and
supervise this initiative and report any changes deemed
desirable to the Commission on an on-going basis .
Cent ral Hudson's quarterly reports will a lso be provided
to other parties currently receiving Central Hudson's
EPOP reports.
In addition, for similar purposes of supporting the
Commission's retail market development initiatives ,
within 60 days following issuance of the Commission Order
in this case, Central Hudson will file a proposal to
provide payment-troubled (i .e ., subject to termination)
customers with bill comparison information . The type of
[40)
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Schmidt/Page 109 of 162
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14301984 .2
--.-·· .. -·---·····--·~-r
~eporting and continued monitoring appropriate for this
initiative will be developed as part of the resolution of
Central Hudson's pending proposal.
The costs of these two initiatives will be funded from
the existing Competition Education Fund (net of the
transfer of funds for economic development, as described
below). Central Hudson shall propose a use or uses for
any balance remaining in the Competition Education Fund,
after these two initiatives have been funded, in its
first rate filing following the closing. In the event
that the costs of these two initiatives exceed the
funding available from the existing Competition Education
Fund (net of the transfer of funds for economic
development), Central Hudson is authorized to defer the
excess costs for future recovery with carrying charges at
the PTROR .
The Signatories anticipate that modifications to either
initiative may become appropriate based on developments
in the ongoing generic retail access proceeding, Case 12-
M-0476.
[ 41)
I
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·-•------·=····-. -
G. ECONOMIC DEVELOPMENT AND SUPPORT FOR STATE
INFRASTRUCTURE ENHANCEMENTS
1. Economic Development
The Signatories agree that $5 million will be
al loca ted to economic development purposes to
enhance the existing Central Hudson economic
development programs. The $5 million is in addition
to the current Central Hudson rate allowance for
economic development funding . The funding for this
program will be through $4 .5 million from the
remaining balance of the $5 million Community
Benefit Fund being provided by Petitioners and
$500 ,000 from Central Hudson's Competition Education
Fund.
The parties to this proceeding will confer following
the execution and filing of this Joint Petition in
this case to seek to jointly develop consensus
modifications to the existing Central Hudson
economic development programs. Central Hudson shall
make a filing with the Commission within 15 days
following the Comrnission 1 s order in this case
proposing modifications to the existing economic
development programs that include the parties'
agreements. As part of the filing made by Central
[ 42)
14307984 ,2
HYDRO ONE/804
Schmidt/Page 111 of 162
Staff_PR_039(AVA) Attachment A Page 111 of 162
HYDRO ONE/804
Schmidt/Page 112 of 162
1430798~ .2
-· J ~-_,. I' • =----·'····--·· -..... .,. ..
Hudson, expedited consideration by the Commission
will be requested. The proposal will be for
programs that will continue to be administered by
Central Hudson pursuant to existing Commission
authorizations , with the clarifications and
modifications as follows. Central Hudson will
conti nue to hold custody of funds and administer the
programs with input from the Counties in Central
Hudson's service territory . The $5 million will not
receive carrying charges . The proposal will include
the criterion that all applications for projects
that do not have participation from Empire State
Development, a County Industrial Development Agency,
a County Community College , or local municipal
resolution pursuant to existing program requirements
will seek a letter of support from the County of
origin . In addition , the proposal will state that
Central Hudson will seek participation concerning
award notifications and announcements from the
County of origin prior to issuing such
announcements .
In addition to filing the above proposal, Central
Hudson will meet twice per year with representatives
from all of the Counties in the Central Hudson
[43]
HYDRO ONE/804
Schmidt/Page 112 of 162
Staff_PR_039(AVA) Attachment A Page 112 of 162
HYDRO ONE/804
Schmidt/Page 113 of 162
14307984.2
service territory to discuss economic development
and potential program improvements. Nothing in this
Joint Proposal is intended to prejudge the treatment
of economic development matters by the Commission in
Central Hudson's next rate case .
2) State Infrastructure Enhancements
Central Hudson shall continue to support the New
York State Transmission Assessment and Reliability
Study ("STARS "), the Energy Highway and economically
justified gas expansion . Fortis agrees to provide
equity support to the extent required by Central
Hudson for such projects as rece ive regulatory
approval and proceed to construction.
3) Gas Expansion Pilot Program
Central Hudson will conunit to actively promote its
"Simply Better" gas marketing expansion campaign in
the Rate Freeze Period, seeking gas customer
additions where Company gas faciliti es already
exist, and economic expansion of its gas system,
consistent with the Conunission's Part 230
regulations , to identified expansion target areas in
each operating district. The Company will continue
to provide requesting and targeted customers with
access to conversion calculators, third-party
[ 4 4 )
HYDRO ONE/804
Schmidt/Page 113 of 162
Staff_PR_039(AVA) Attachment A Page 113 of 162
HYDRO ONE/804
Schmidt/Page 114 of 162
14301984. 2
---=-1=~~ ···-·· ·-·-
turnkey conversion services (potentially including a
project specialist from start to finish, a licensed
heating installation professional, a detailed
cost/benefit proposal on converting their heating
equipment, removal of existing oil tank, and
coordination of the service and heating
installations), and available financing from third­
party lenders to assist customers who are seeking
gas delivery service or to convert from alternate
fuels.
In the event that adequate financial commitments can
be secured from new firm service customers and
municipal franchise approvals on reasonable
conditions are secured in locations where Central
Hudson does not currently have gas facilities or
local franchises, Central Hudson will commit to file
for expedited Commission approval to exercise such
franchises as are shown by Central Hudson's analyses
to comply with Part 230 .
Central Hudson will begin, within 90 days of an
Order in this proceeding approving this Joint
Proposal, to track all gas service requests and keep
record of: (1) applicable gas service request dates
(i.e., customer request received, Company evaluation
I 45)
HYDRO ONE/804
Schmidt/Page 114 of 162
Staff_PR_039(AVA) Attachment A Page 114 of 162
HYDRO ONE/804
Schmidt/Page 115 of 162
14 307984. 2
-~--------
or commitment made, service denied/initiated);
(2) the address of requested service including the
township and county; (3) calculated cost to install
new service lines and main extensions including
customer payment responsibility; and (4) reasons for
a service not being initiated. Customer information
will be protected consistent with the updated
Standards addressed elsewhere in this Joint
Proposal.
Central Hudson will propose applying a limited pilot
expansion program aimed at testing ideas to
economically expand gas to customers . The pilot can
be either part of a new franchise filing or a
separate filing to the Commission no later than July
1, 2013. The pilot will test all or any of the
following ideas:
(1) Piggy back on top of anchor customers to reduce
the actual need for additional pipe beyond the 100
foot rule;
(2 ) surcharge all customers or specific customers
over five years or more based on the savings from
their alternative fuel to write down assets in order
to meet the overall Rate of Return (ROR) by year 5;
[ 4 61
I
f!
HYDRO ONE/804
Schmidt/Page 115 of 162
Staff_PR_039(AVA) Attachment A Page 115 of 162
HYDRO ONE/804
Schmidt/Page 116 of 162
~·· • •.-.r: ~
(3) increase the minimum 100 fe et allowed by a
higher "average " amount for everyone in the customer
cluster to be served based on anticipated additional
revenues; and/or
(4) Trade Alliance by Central Hudson to purchase
heating equipment from manufacturers for
conversion/new customers and pass the savings to
customers.
H. NEXT RATE CASE FILING
1430"!984 , 2
The Signatories recognize that Central Hudson may fil e
new rate case applications at any time; however, the
Petitioners agree to make such filing no earlier than the
date that would be permitted for filing for rates to
become effective on or after July 1, 2014. In its next
rate case filing, Central Hudson shall provide, in a
format similar to that of Petitioners ' rebuttal
testimony, an updated comparison between the debt ratings
of Central Hudson and the regulated affiliates of Fortis
based upon the latest rating agencies ' analyses available
at that time. In the same rate case filing, Central
Hudson will include its analysis of Staff's white paper
recommendations on LAUF.
[ 4 7)
HYDRO ONE/804
Schmidt/Page 116 of 162
Staff_PR_039(AVA) Attachment A Page 116 of 162
HYDRO ONE/804
Schmidt/Page 117 of 162
V. ECONOMIC BENEFITS, INCLUDING SYNERGIES AND POSITIVE BENEFIT
ADJUSTMENTS
Petitioners have agreed to provide quantified economic
benefits comprised of the following synergy and positive
benefit adjustments : (i) synergy savings which are
guaranteed for a period of 5 years and which will provide
for future rate mitigation of $9 .25 million over the 5
years; (ii) a Lotal of $35 million of combined write-offs
of deferred regulatory assets and future rate mitigation
funds; and, (iii) one-time funding of $5 million for a
Community Benefit Fund for economic development and low
income purposes. The Signatories agree that the benefits
identified herein are sufficient to meet the Commission's
public interest criterion (PSL Section 70).
In reaching these agreements, the Signatories have
recognized a number of additional factors that demonstrate
that these quantified benefits are appropriate . The
Signatories agree that the corporate governance and
financial commitments made by Petitioners, together with
the nature of Fortis' business model and proven track
record, reduce the risks presented by this transaction and
provide additional value to Central Hudson 's ratepayers.
In addition, the Signatories agree that absent the
transaction, it is likely that Central Hudson could have
(48]
14307984,2
HYDRO ONE/804
Schmidt/Page 117 of 162
Staff_PR_039(AVA) Attachment A Page 117 of 162
HYDRO ONE/804
Schmidt/Page 118 of 162
. , __ ..,.__ ___ ..... !
demonstrated a need for a rate increase for the Rate Freeze
Period . However, as a consequence of Central Hudson opting
not to file a rate case for the Rate Freeze Period as part
of the terms of this Joint Proposal, rates will be frozen
for the full Rate Freeze Period . The parties agree these
provisions provide additional benefits.
A. Synergy Savings/Guaranteed Rate Reductions
The Signatories have agreed that t~e transaction will
produce synergy savings/guaranteed future rate mitigation
totaling $9.25 million ($1 .85 mil l ion/year for 5 years).
Petitioners have agreed to guarantee these cost savings
for a period of five years , and will begin accruing these
guaranteed cost savings in the month following closing.
The Signatories recognize t hat this accrual will provide
rate mitigation for the benefit of customers that will be
available at the start of the first rate year in the next
rate case filed by Central Hudson . The Signatories
antici pate that the forecast effect of the synergy cost
savings will also be reflected in rates in Central
Hudson 's next rate case.
B. Deferred Storm Restoration Cost Write-offs and Future
Rate Mitigation
A total of $35 million will be pr ovided to Central Hudson
by Fortis upon the closing of the transaction and will be
[ 4 9)
143019134. 2
I HYDRO ONE/804
Schmidt/Page 118 of 162
Staff_PR_039(AVA) Attachment A Page 118 of 162
HYDRO ONE/804
Schmidt/Page 119 of 162
·::::_-:.zc:·~· ·----• •.•• ~ ,.
recorded as a regulatory liability to be applied to write
off regulatory assets on the books of Central Hudson due
to storm restoration costs and to provide balance sheet
offsets and rate mitigation in Central Hudson's next rate
filing.
1) Storm Restoration Cost Write-offs
Central Hudson currently has two storm restoration
cost deferral petitions pending before the
Commission in Cases ll-E-0651 ($11 .0 million
exclusive of carrying charges) and 12-M-0204 {$1.6
million exclusive of carrying charges), for a total
of $12.6 million exclusive of carrying charges.
Additionally, Central Hudson has estimated that the
incremental storm restoration costs above the
current rate allowance resulting from Super-storm
Sandy will be approximately $10 million. The
Signatories agree that Central Hudson shall file a
formal Super-storm Sandy deferral petition as soon
as reasonably practicable.3
The Signatories agree to utilize a placeholder total
for these three events of $22 million . The
The Signatories agree that the review of the new petition will be
expedited to the extent possible.
( 50]
14307984. 2
I
HYDRO ONE/804
Schmidt/Page 119 of 162
Staff_PR_039(AVA) Attachment A Page 119 of 162
HYDRO ONE/804
Schmidt/Page 120 of 162
14307984. 2
~--•••• •• • • • -9 ·--• .-.----. -:_•-• ·.----,.~:-.•_. • • • • o t I 9..-• ~,LU,,!"~ ~, • .,_ ~ .-.. 9 -~• ••
Signatories agree that $22 million will be written
off promptly after the closing against the $35
million regulatory liability being funded by Fortis,
subject to true-up for subsequent Commission
determinations concerning the storm restoration
costs of the three storms. The Signatories agree
that the three deferral requests will be reviewed by
Staff consistent with the principles and practices
in the recent Central Hudson storm restoration
deferral petitions involving Twin Peaks (February
2010) in Case 10-M-0473 and the December 2008 ice
storm in Case 09-M-0004.
2) Disposition of the Remaining Ba lance
The difference between the $35 million being
provided by Fortis and the $22 million in
placeholder storm restoration cost write-offs is
currently estimated as a $13 mil lion placeholder .
The Signatories agree that this $13 million
difference will be reserved as a regulatory
liability with carrying charges at the pre-tax rate
of return rate. At the time of the final1 trued-up
storm restoration cost determination by the
Corruni.ssion, the reserve and associated carrying
charges will be adjusted up or down to conform to
[51]
...... ">' r
HYDRO ONE/804
Schmidt/Page 120 of 162
Staff_PR_039(AVA) Attachment A Page 120 of 162
HYDRO ONE/804
Schmidt/Page 121 of 162
the Commission's determination. The final amount
will be reserved for additional future balance sheet
write-offs or other rate moderation purposes, as
shall be determined in Central Hudson's next rate
case.
C. Community Benefit Fund
A total of $5 million will be provided by For~is for a
Community Benefit Fund to be utilized for low income and
economic development purposes as discussed in greater
detail previously in this Joint Proposal.
VI. OTHER PROVISIONS
A. Counterparts
14301984 .2
This Joint Proposal may be executed in counterparts, all
of which taken together shall constitute one and the same
instrument which shall be binding upon each signatory
when it is executed in counterpart, filed with the
Secretary of the Commission and approved by the
Commission; provided, however , that, upon execution,
filing with the Secretary and prior to approval by the
Commission, each Signatory shall be bound to support
adoption of this Joint Proposal and, to the extent
required by the context, to undertake actions necessary
for implementation of the provisions of this Joint
Proposal upon its approval by the Commission.
[52}
HYDRO ONE/804
Schmidt/Page 121 of 162
Staff_PR_039(AVA) Attachment A Page 121 of 162
HYDRO ONE/804
Schmidt/Page 122 of 162
. -··----.__. .. ................ ·----~~ ....... -~------
B. Provisions Not Separable
14307984.2
The Signatories intend this Joint Proposal to be a
complete resolution of all the issues in Case 12-M-0192
and the terms of this Joint Proposal are submitted as an
integrated whole . If the Commission does not accept this
Joint Proposal according to its terms as the basis of the
resolution of all issues addressed wi thout change or
condition, each Signatory shall have the right to
withdraw from this Joint Proposal upon written notice to
the Commission within ten days of the Commission Order .
Upon such a withdrawal , the Signatories shall be free to
pursue their respective positions in this proceeding
without prejud ice , and this Joint Proposal shall not be
used in evidence or ci ted against any such Signatory or
used for any other purpose. It is also understood that
each provision of this Joint Proposal is in consideration
and support of all the other provisions, and expressly
conditioned upon acceptance by the Commission . Except as
set forth herein, none of the Signatories is deemed to
have approved, agreed to or consented to any principle,
methodology or interpretation of law underlying or
supposed to underlie any provision herein.
[53]
HYDRO ONE/804
Schmidt/Page 122 of 162
Staff_PR_039(AVA) Attachment A Page 122 of 162
HYDRO ONE/804
Schmidt/Page 123 of 162
-~ __________ ,. __ _
C. Provisions Not Precedent
The terms and provisions of this Joint Proposal apply
solely to, and are binding only in the context of the
purposes and results of this Joint Proposal . None of the
terms or provisions of this Joint Proposal and none of
the positions taken herein by any Signatory may be
referred to, cited , or relied upon by any other party in
any fashion as precedent or otherwise in any other
proceeding before this Commission or any other regulatory
agency or before any court of law for any purpose other
than furtherance of the purposes, results, and
di sposition of matters governed by this Joint Proposal .
This Joint Proposal shall not be construed, interpreted
or otherwise deemed in any respect to constitute an
admission by any Signatory regarding any allegations,
contentions or issues raised i n this proceeding or
addressed in this Joint Proposa l .
D. Submission of Proposal
14307984 , 2
Each Signatory agrees to submit this Joint Proposal co
the Commission, to support and request its adoption by
the Commission, and not to take a position in this
proceeding contrary to the agreements set forth herein or
to assist another participant in taking such a contrary
position in these proceedings .
[54]
1'
HYDRO ONE/804
Schmidt/Page 123 of 162
Staff_PR_039(AVA) Attachment A Page 123 of 162
HYDRO ONE/804
Schmidt/Page 124 of 162
E. Further Assurances
The Signatories recognize that certain provisions of this
Joint Proposal require that actions be taken in the
future to fully effectuate this Joint Proposal .
Accordingly, the Signatories agree to cooperate with each
other in good faith in taking such actions. In the event
of any disagreement over the interpretation of this Joint
Proposal or implementation of any of the provisions of
this Joint Proposal, which cannot be resolved informally
among the Signatories, such disagreement shall be
resolved in the following manner: (a) the Signatories
shall promptly convene a conference and in good faith
attempt to resolve any such disagreement; and (b) if any
such disagreement cannot be resolved by the Signatories,
any Signatory may petition the Commission for resolution
of the disputed matter.
F. Entire Agreement
This Joint Proposal, including all attachments, exhibits
and appendices, if any, represents the entire agreement
of the Signatories with respect to the matters resolved
herein.
VII. SIGNATURES
WHEREFORE, This Joint Proposal has been agreed to as of
January 25, 2013 by and among the following, each of whom by his
[55]
HYDRO ONE/804
Schmidt/Page 124 of 162
Staff_PR_039(AVA) Attachment A Page 124 of 162
HYDRO ONE/804
Schmidt/Page 125 of 162
or her signature represents that he or she is fully authorized
tc execute this Joint Proposal and, if executing this Joint
Proposal in a representative capacity, that he or she is fully
authorized to execute it on behalf of his or her principal(s).
[SIGNATURES APPEAR ON THE FOLLOWING PAGES.)
[ 56]
1430'7984 . 2
HYDRO ONE/804
Schmidt/Page 125 of 162
Staff_PR_039(AVA) Attachment A Page 125 of 162
HYDRO ONE/804
Schmidt/Page 126 of 162
Case 12-M-0192
SIGNATURB PAGES TO JOINT PROPOSAL DATED JANUARY 25, 2013
Cascade Acquisition Sub Inc., Portis Inc. and FortisUS Inc.
By: ~2
Barry V. Pe 7
Vice President, Finance and
Chief Financial Officer of Fortis Inc.
CH Energy Group Inc.
By:
Christopher A. Capone
Executive Vice-President and Chief Financial Officer
Central Hudson Gas & Electric Corporation
By:
Michael L. Mosher
Vice-President Regulatory Affairs
Staff of N.Y.S. Department of Public Service
By:
John L. Favreau, Esq.
Assistant Counsel
Staff of N.Y.S. Department of Public Service
New York Department of State Utility Intervention Unit
By:
Robert T. Friel
Director
Dutchess County New York: Dutchess County supports the
following portions of the Joint Proposal; paragraphs IV.G,l
and v.c (Economic Development), paragraph V.A (Synergy
Savings/Guaranteed Rate Reductions), paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
Page 1 of 2
HYDRO ONE/804
Schmidt/Page 126 of 162
Staff_PR_039(AVA) Attachment A Page 126 of 162
HYDRO ONE/804
Schmidt/Page 127 of 162
•• •'•• ..s_ '-•••••• • ---a ·--==~_,_._. ___ ---------~-~-. -.-.-,---~-r
Case 12-M-0192
SIGNATURE PAGES TO JOINT PROPOSAL DATED JANUARY 25, 2013
Cascade Acquisition Sub Inc., Fortis Inc. and FortisUS Inc.
By:
Barry v. Perry
Vice President, Finance and
Chief Financial Officer of Fortis Inc .
CH Energy Group Inc.
'ci;~ist<!Je~¥
Executive Vice-President and Chief Financial Officer
Central Hudson Gas & Electric Corporation
By:
Michael L. Mosher
Vice-President Regulatory Affairs
Staff of N.Y.S. Department of Public Service
By:
John L. Favreau, Esq.
Assistant Counsel
Staff of N.Y.S. Department of Public Service
New York Department of State Utility Intervention Unit
By:
Robert T . Friel
Director
Dutchess County New York: Dutchess County supports the
following portions of the Joint Proposal: paragraphs IV.G.l
and v.c (Economic Development), paragraph V.A (Synergy
Savings /Guaranteed Rate Reductions), paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
Page 1 of 2
HYDRO ONE/804
Schmidt/Page 127 of 162
Staff_PR_039(AVA) Attachment A Page 127 of 162
HYDRO ONE/804
Schmidt/Page 128 of 162
Case 12-M-0192
SIGNATURE PAGES TO JOINT PROPOSAL DATED JANUARY 25, 2013
Cascade Acquisition Sub Inc., Fortis Inc. and FortisUS Inc.
By:
Barry V. Perry
Vice President, Finance and
Chief Financial Officer of Fortis Inc.
CH Energy Group Inc .
By:
Christopher A. Capone
Executive Vice-President and Chief Financial Officer
Central Hudson Gas & Electric Corporation
By: k.{. L. µ{, ,-4_'.:\
Michael L. Mosher
Vice-President Regulatory Affairs
Staff of N.Y.S. Department of Public Service
By:
John L. Favreau, Esq.
Assistant Counsel
Staff of N.Y.S. Department of Public Service
New York Department of State Utility Intervention Unit
By:
Robert T, Friel
Director
Dutchess County New York: Dutchess County supports the
following portions of the Joint Proposal: paragraphs IV.G.l
and v.c (Economic Development), paragraph V.A (Synergy
Savings/Guaranteed Rate Reductions), paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
Page 1 of 2
I ~ HYDRO ONE/804
Schmidt/Page 128 of 162
Staff_PR_039(AVA) Attachment A Page 128 of 162
HYDRO ONE/804
Schmidt/Page 129 of 162
--.---~-. ·--___ .._ ---
Cascade Acquisition Sub Inc ., Fortis Inc. and FortisUS Inc.
By:
Barry v. Perry
Vice President, Finance and
Chief Financial Officer of Fortis Inc.
CH Energy Group Inc .
By:
Christopher A. Capone
Bxecutive Vice-President and Chief Financial Officer
Central Hudson Gas & Electric Corporation
By :
Michael L. Mosher
Vice-President Regulatory Affairs
Staff of
By:
John L. Fa reau, Bsq .
Assistant Counsel
Staff of N.Y.S . Department of Public Service
New York Department of State Utility Intervention Unit
By:
Robert T. Friel
Director
Dutchess County New York: Dutchess County supports the
following portions of the Joint Proposal: paragraphs IV.G.l
and V.C (Economic Development), paragraph V.A (Synergy
Savings/Guaranteed Rate Reductions), paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
----,.
l
HYDRO ONE/804
Schmidt/Page 129 of 162
Staff_PR_039(AVA) Attachment A Page 129 of 162
HYDRO ONE/804
Schmidt/Page 130 of 162
-:;::--· .. ~ .. ,:-.~··· ' .......... , -..... ~-...
01/24/2013 21:07 212-417-5688 NVS DEPT OF STATE PAGE 02 .
case 12-M-0192
SIGN~'I'URE PAGES TO JOINT PRO:POSAL DATED JANUARY 25, 2013
Cascade Acquisition Sub Inc ., Fortis Inc . and FortisUS Inc.
By:
Barry v. Perry
Vice President, Finance and
Chief Financi~l Officex-of Portis Inc.
CH Bnergy Group 'Inc.
By:
Christopher A. Capone
~ecutive Vice-President and Chief Pinancial Officer
Central Hudson Gas & Electric cor.,oration
.By:
Michael L. Mosher
Vice-President Regulatory Affairs
Staff of ~.Y.S. Department of Public service
By:
John L. Favreau, Esq.
Assis t ant counsel
Staff of N.Y.S. Department of PUblic Servic e
By :
Robert T. Friel
Director
Intervention Unit
Outchess County New York: Dutchess County supports the
following portions of the Joint Proposal: paragraphs IV.G .l
and v.c (Economic Development), paragraph V.A (Synergy
Savi nas /Cuarantegd ~ate RQductiono>, paragr~ph v.e
(Defer~ed Storm Restoration cost Write-offs and Future Rate
Mitiqation), and paragraph IV.C and the portions of
Pagel of 2
HYDRO ONE/804
Schmidt/Page 130 of 162
Staff_PR_039(AVA) Attachment A Page 130 of 162
HYDRO ONE/804
Schmidt/Page 131 of 162
->--~----~----·~ .. ~--------
paragraph IV.H related to the one-year rate freeze. In
addition, Dutchess County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
Multiple Intervenors
By:
Michael B. Mager, Esq.
Couch White, L!..P
Attorneys for Multiple Intervenors
Orange County New York: Orange County supports the
following portions of the Joint Proposal: paragraphs IV.G.1
and V.C (Economic Development), paragraph V.A (Synergy
Savings/Guaranteed Rate Reductions}, paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
paragraph IV.H related to the one-year rate freeze. In
addition, Orange County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By:
Edward A. Diana
County Executive for Orange County
Ulster County New York: Ulster County supports paragraphs
IV.G and v.c of the Joint Proposal and takes no position
with respect to the matters discussed in rest of the Joint
Proposal.
By:
Mike Hein
Ulster County Executive
Page 2 of 2
HYDRO ONE/804
Schmidt/Page 131 of 162
Staff_PR_039(AVA) Attachment A Page 131 of 162
HYDRO ONE/804
Schmidt/Page 132 of 162
.... --· .. --·-, -. " ---· .. -.... .:. -.-.-.----...... -.--_, -~-~-. ~-... -... -----_------·--· ·.·.·.·.··. ········· ,~·-·.·· -... ·.·.· .... -~---· -··-· . r
paragraph IV.H related to the one-year rate freeze. In
addition, Dutchess County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By:
Marcus Molinaro
Dutchess County Executive
Multiple Intervenors
By: ~/3.~
Michael B. Mager, Esq.
Couch White, LLP
Attorneys for Multiple Intervenors
Orange County New York: Orange County supports the
following portions of the Joint Proposal: paragraphs IV.G.l.
and V.C {Economic Development), paragraph V.A (Synergy
savings/Guaranteed Rate Reductions), paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
paragraph IV,H related to the one-year rate freeze. In
addition, Orange County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By:
Edward A. Diana
County Bxecutive for Orange County
Ulster County New York: Ulster County supports paragraphs
IV.G and V.C of the Joint Proposal and takes no position
with respect to the matters discussed in rest of the Joint
ProJ?OSal .
By:
Mike Hein
Ulster County Executive
Page 2 of 2
HYDRO ONE/804
Schmidt/Page 132 of 162
Staff_PR_039(AVA) Attachment A Page 132 of 162
HYDRO ONE/804
Schmidt/Page 133 of 162
paragraph IV.H related to the one-year rate freeze. In
addition, Dutchess County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By:
Marcus Molinaro
Dutchess County Executive
Multiple Intervenors
By:
Michael B. Mager, Esq .
Couch White, LLP
Attorneys for Multiple Intervenors
Orange County New York: Orange County supports the
following portions of the Joint Proposal: paragraphs IV.G.l
and V.C (Economic Development), paragraph V.A (Synergy
Savings/Guaranteed Rate Reductions), paragraph V.B
lDeferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
paragraph IV.H related to the one-year rate freeze. In
addition, Orange County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By: Q ,_(2 M 42-
~ Edwa¢' A. Diana
.,,-· County Executive for Orange County
Ulster County New York: Ulster County supports paragraphs
IV.G and V.C of the Joint Proposal and takes no position
with respect to the matters discussed in rest of the Joint
Proposal .
By:
Mike Hein
Ulster County Executive
Page 2 of 2
HYDRO ONE/804
Schmidt/Page 133 of 162
Staff_PR_039(AVA) Attachment A Page 133 of 162
HYDRO ONE/804
Schmidt/Page 134 of 162
paragraph IV .H related to the one-year rate freeze. In
addition, Dutchess County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By:
Marcus Molinaro
Dutchess County Executive
Multiple Intervenors
By :
Michael B. Mager , Bsq.
Couch White, LLP
Attorneys for Multiple Intervenors
Orange County New York: Orange County supports the
following portions of the Joint Proposal : paragraphs IV.G.1
and V.C (Economic Development), paragraph V.A (Synergy
Savings/Guaranteed Rate Reductions), paragraph V.B
(Deferred Storm Restoration Cost Write-offs and Future Rate
Mitigation), and paragraph IV.C and the portions of
paragraph IV.H related to the one-year rate freeze. In
addition, Orange County takes no position with respect to
the matters discussed in rest of the Joint Proposal.
By :
Edward A. Diana
County Executive for Orange County
Ulster County New York: Olster County supports paragraphs
IV.G, the portions of paragraph IV.H related to the one­
year rate freeze, and V.C of the Joint Proposal and takes
no position with respect to the matters discussed in rest
of the Joi:t P~l ,
~r~~
Ulster County Executive
Page 2 of 2
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Hl07S48,I
ATTACHMENT I
STANDARDS OF CONDUCT
Case 12-M-0192
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-------•• -.. • •• _I -..;..::..,.·.· ••• - . ·.• -.... • .... ~--.r-.---. ·-.. "~ ... ·-.-=::::x:::--· .
STATE OF NEW YORK
BEFORE THE
PUBLIC SERVICE COMMISSION
Case 12-M-0192-Joint Petition of Fortis Inc. et al. and CH Energy
Group, Inc. et al. for Approval of the Acquisition of
CH Energy Group, Inc. by Fortis Inc. and Related
Transactions.
ST AND ARDS PERTAINING TO TRANSACTIONS,
CONFLICTS OF INTEREST, COST ALLOCATIONS
AND SHARING OF INFORMATION BETWEEN
CENTRAL HUDSON GAS AND ELECTRIC CORPORATION
AND AFFILIATES
L Introduction
This Standards Pertaining To Transactions, Conflicts Of Interest, Cost
Allocations And Sharing Of Information Between Central Hudson Gas And
Electric Corporation And Affiliates replaces and supersedes the Amended and
Restated Settlement Agreement As Approved by the Commission on February 19,
1998 With Modifications and Conditions ("RSA"), Case 96-E-0909 (Attachment I
Standards of Conduct) as to the language and topics addressed herein. All othe1
provisions of the RSA, including Attachments A-H, J, K, remain as approved .by
the Commission in Case 96-E-0909 unless otherwise agreed to by the Parties in
writing or ordered by the Commission. Central Hudson Gas and Electric
("Central Hudson") retains the right to manage its own affairs including the right
to amend the Standards of Conduct from time to time in a manner consistent with
the Commission's Orders and statute. Central Hudson shall provide the Secretary
and Department of Public Service Staff ("Staff') with thirty (30) days notice prior
to amending these Standards.
The following pertains to transactions, conflicts of interest, cost allocations and
the sharing of information (collectively referred to herein as the "Standards") between
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Central Hudson and a.ffiliates.1 References in these Standards to any of the foregoing
affiliates shall be deemed to include any successors. Central Hudson shall comply with
the Standards within thirty (30) days following their effective date. Nothing in these
Standards relieves Central Hudson or its affiliates from any obligation they may have
pursuant to the PSL, including Sections 70 and 110. Nothing herein serves to divest
Central Hudson or its affiliates of their legal rights under the PSL, Public Service
Commission ("Commission") Orders or otherwise.
All costs and revenues recorded on Central Hudson's books of account from all
affiliate transactions shall conform in all material respects to the Commission's
Uniform System of Accounts.
II. OrgaDizational Structure
A. Separation and Location
Central Hudson shall maintain separate books of account and other business
records from its affiliates.
Central Hudson shall petition the Commjssion for approval before it
establishes and maintains at an existing Central Hudson location separate and distinct
office and work space from any competitive affiliate operating in any energy-related
business(es) within Central Hudson's service territory.
Central Hudson shall maintain appropriate physical and technological security,
with an appropriate monitoring system, to prevent competitive affiliates from
accessing pr obtaining Central Hudson's confidential information or other information
that may provide the affiliate with a competitive advantage.
Central Hudson will not conduct competitive services, including competitive
behind-the-meter energy services, absent an application to, and approval by the
Commission, except that Central Hudson will be permitted to provide solutions to
customer reliability and deliverability issues related to electric and gas transmission
and distribution.
1 Affiliates are considered any entity as defined as such under Public Service Law ("PSL") § 110(2).
2
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Finally, any affiliate shall be established as a separate business entity from
Central Hudson.
B. Board of Directors
No later than one year after the closing of the acquisition of CH Energy Group,
[nc. ("CHEG") by Fortis Inc. ("Fortis"), Fortis will appoint a board of directors for
Central Hudson, the majority of whom will be independent2, with the majority of such
independent directors being resident in the State of New York and with emphasis on
selecting candidates who reside, conduct business or work within the Central Hudson
service territory.
III. Affiliate Transactions
A. Standards of Competitive Conduct
Central Hudson shall comply with the Commission rules governing Uniform
Business Practices:3
1. Sales Leads
Central Hudson will not provide market information or sales leads for
customers in its service territory to any affiliate, including an affiliated energy services
company and will refrain from giving any appearance that it speaks on behalf of an
affiliate.
2 Independent is as defined in Section I OA of the Securities Exchange Act of 1934. Nothing herein
prohibits an independent Central Hudson director from being elected to the board of directors of Fortis
Inc., and such appointment shall not immediately and by itself deprive the Central Hudson director of
his or her status as independent for purposes of these Standards. If, however, the election of an
independent Central Hudson board member to the Fortis Inc. board would result in a minority of
independent directors on the Central Hudson board, excluding that director, Central Hudson and/or
Fortis shall notify the Secretary of the Commission of the nomination of such director within IO days
following the issuance of the Fortis lnc. proxy materials pertaining to the election of Fortis (nc. board
members. As part of such notice, Central Hudson and/or Fortis shall describe the benefits to Central
Hudson and its customers of having such director serve on both boards. In the event that the
Commission raises concerns about such director's service on both boards, Central Hudson and Fortis
shall make reasonable business efforts to address such concerns. In the event that the Commission does
not deem the efforts or measures taken by Central Hudson and Fortis to be adequate for their intended
purpose, Fortis and Central Hudson shall, within no more than two years, ensure that the Central
Hudson board is constituted with a majority of independent directors, excluding the director previously
elected to the board of Fortis Inc ..
3FortisUS Energy Corporation, which owns four Qualifying Facilities with a combined output of
approximately 23 MW, all of which is sold under contracts with National Grid, does not operate in
Central Hudson's service territory or compete with Central Hudson.
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Central Hudson will not imply or represent to any customer, supplier or third
party that any form of advantage may accrue to such customer, supplier or third party
in the use of Central Hudson's services as a result of that customer, supplier or third
party dealing with an affiliate. No affiliate will imply or represent to any customer,
supplier or third party that any form of advantage may accrue to such customer,
supplier or third party in the use of Central Hudson's services as a result of that
customer, supplier or third party dealing with an affiliate. Central Hudson will not
purchase goods or services on preferential terms offered only by suppliers who
purchase goods or services from or sell goods or services to an affiliate of Central
Hudson.
2. Customer Inquiries
If a customer requests information about securing any competitive retail
service or product offered within Central Hudson's service territory by an affiliate,
Central Hudson must provide a list of competitive retail companies or affiliates that
are qualified and approved pursuant to Central Hudson's standards (including retail
access standards) as providers of the requested products or services within Central
Hudson's service territory. While this list may include Central Hudson affiliates, the
list must provide information by company in alphabetical order and may not place
greater emphasis on or promote any Central Hudson affiliate. A Central Hudson
employee shall not promote any competitive retail affiliate operating in Central
Hudson's service territory, other than to acknowledge, at the request of a customer,
that an affiliation exists between Central Hudson and such affiliate or provide a list of
competitive retail providers, which may include competitive retail affiliates.
3. Customer Information
Central Hudson shall not release proprietary customer information to Energy
Service Companies ("ESCOs"), including an ESCO affiliated with. Central Hudson,
without the prior authorization by the customer and subject to the customer's direction
regarding the ESCOs to whom the information may be released. 4 Central Hudson
4 It is not a release of information by Central Hudson where an ESCO accesses customer information
through Central Hudson's website, or otherwise, without Central Hudson's knowledge. Central
Hudson will act in accordance with Uniform Business Standards.
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---------------------------------------------,:·
shall maintain verifiable proof of customer authorization for two years after receipt of
the authorization. The verifiable proof shall be available to Staff at Central Hudson's
offices upon request. Under no circumstance will Central Hudson release more than
24 months of proprietary customer infonnation unless authorized to do so by the
customer or ordered to provide the infonnation by a regulatory authority or court of
competent jurisdiction. Proprietary customer information includes the customer's
name, address, telephone number, account number, social security number and credit
report. If a customer authorizes the release of information to a Central Hudson
affiliate or one or more of the affiliatets competitors, Central Hudson shall make that
information available to the affiliate and/or other competitors designated by the
customer on a non-discriminatory basis. Nothing herein shall require Central Hudson
to release customer information to its affiliate or any competitor unless such release is
authorized by the customer.
Except for purposes of complying with applicable statutes, regulations and
orders, Central Hudson will not disclose to any competitive affiliate or non-affiliate
any customer or market information about its gas or electric transmission and
distribution systems that may provide a competitive advantage in the gas and electric
markets. Customer or market information includes, but is not limited to, confidential
information that Central Hudson receives from a marketer, customer or prospective
customer, which is not available from sources other than Central Hudson, unless it
makes such information available to all competitors on a non-discriminatory basis.
Pursuant to the Commission's Order on Rehearing Granting Petition for
Rehearing issued and effective December 3, 2010 in Case 07-M-0548, Central Hudson
may also enter contracts for the benefit of customers with third party service and/or
materials providers, including affiliates, that include the transfer of proprietary
customer information or other confidential material. Central Hudson may enter a
contract with an affiliate or third party service and/or material provider that requires
the transfer of proprietary customer information or other confidential material if the
affiliate or third party executes a Confidentiality and Non-Disclosure Agreement.
5
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Under all circumstances where Central Hudson transfers proprietary customer
information _or other confidential market data to an affiliate, ESCO, or other third party
Central Hudson shall execute a Confidentiality and Non-Disclosure Agreement with
the affiliate, ESCO or other third party. The Confidentiality and Non-Disclosure
Agreement shall restrict access to the protected material to only those employees of
the recipient affiliate, ESCO or other third party whose functions require that they
have access to the subject infonnation. Such employees shall be instructed to
maintain the confidentiality of such information and execute an Individual Non­
Disclosure Agreement A copy of Central Hudson's Confidentiality and Non­
Disclosure Agreement is set forth as Code of Conduct Attachment 1. Central Hudson
shall retain executed Confidentiality and Non-Disclosure Agreements at its
headquarters for Staff's review upon its request.
Central Hudson's critical infrastructure information shall remain, in all media
formats, within the headquarters of Central Hudson, and it shall retain customer data
(i.e., names, addresses, telephone numbers, social security numbers, credit reports) in
all media fonnats, within the headquarters or customer service center of Central
Hudson unless a regulatory authority or court of competent jurisdiction requires
Central Hudson to provide the information.
4. Complaint Procedure
If any competitor or customer of Central Hudson believes that Central Hudson
has violated the Standards, such competitor or customer may file a complaint in
writing with Central Hudson. Central Hudson will respond to the complaint in writing
within twenty (20) business days after receipt of the complaint. After providing its
response to the complainant, Central Hudson and the complainant will meet, if
necessary, in an attempt to resolve the matter infonnally. If Central Hudson and the
complainant are not able to resolve the matter informally within fifteen (15) business
days after the commencement of the informal resolution process, the complainant may
refer the matter to the Commission for disposition. This provision shall not preclude
the Commission from addressing any such matter more expeditiously in the event
that exigent circumstances so require. Nothing herein shall preclude a complainant
from filing a formal complaint before the Commission without participating in the
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informal resolution process. In any instance in which a fonnal complaint is filed with
the Commission Central Hudson shall have a full and fair opportunity to be ·heard
through a process established by the Commission. The Commission may order any
such remedies to resolve the complaint as are within its statutory authority.
5. No Advantage Gained by Dealing with AffUiate
Central Hudson will refrain from giving any appearance that Central Hudson
speaks on behalf of any affiliate operating in its service territory. Central Hudson will
not participate in any joint promotion or marketing with any affiliate operating in its
service territory. Concerning competitive retail electric or natural gas services offered
in the market, Central Hudson will not represent to any customer, supplier or third­
party that an advantage may accrue to such customer, supplier or third-party in the use
of the Company's tariffed services as a result of that customer, supplier or third-party
dealing with a competitive affiliate. A competitive affiliate operating in any energy­
related business(es) within Central Hudson's service territory may not use the name
"Central Hudson" to market its competitive product. No non-Central Hudson
company will be allowed by Central Hudson or Fortis to use the Central Hudson
name, trade names, trademarks, service markets or a derivative of a name of Central
Hudson in any manner. s
6. No Rate Discrimination
All similarly-situated customers, including ESCOs and customers of
ESCOs, whether affiliated or unaffiliated, will pay the same rates for Central
Hudson's tariffed utility services. If there is discretion in the application of any
tariff provision, Central Hudson must not offer its affiliate more favorable terms
and conditions than it has offered to all similarly-situated competitors of the
affiliate. In particular, Central Hudson shall process all requests for similar
service in the same manner, within similar time periods, and without any
preferential treatment for customers seeking tariffed services from Central
Hudson affiliates. Central Hudson shall not give preference to a customer of an
affiliate, or to an affiliate, regarding repairs or maintenance, or operation of its
5 ''Non-Central Hudson company" means an entity that is not controlled by Central Hudson or Fortis
and that is not an affiliate of Central Hudson or Fortis Inc.
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system.
Central Hudson shall, pursuant to Public Service law Section 66(12)(d), charge
all tariff customers the rates and charges specified in its schedule filed and in effect.
Central Hudson may provide non-tariffed service to customers, including
affiliates, by contract or other similar arrangement. Contract service provided by
Central Hudson shall not affect the rate paid by tariffed customers. Central Hudson
shall maintain executed contracts or other arrangements on file at its corporate
headquarters available for review by Staff upon request.
B. Training and Certification
Central Hudson and any affiliate operating in its service territory, shall conduct
training on these Standards for its officers and directors (including employee directors)
and Shared Employees. Central Hudson's officers and directors, Shared Employees
and affiliates operating in Central Hudson's service territory shall certify familiarity
with these Standards within ninety (90) days following their effective date. Central
Hudson shall certify that it has provided training regarding the Standards to any new
officers, directors and Shared Employees within ninety (90) days after the start date
for each new officer, director, or Shared Employee.
C. Adherence to Standards
On an annual basis Central Hudson's General Counsel and Vice President
Human Resources and Health & Safety, or their successors, shall provide certification
to the Commission of Central Hudson's adherence to the Standards. If, after an
investigation by an independent auditor and hearing, the Commission finds that
Central Hudson is not in substantial compliance6 with the Standards, the Commission
can order Central Hudson to pay for the cost of the independent auditor. If Central
Hudson is in substantial compliance with the Standards it may petition to defer and
recover the costs of the independent auditor without regard to the Commission's three­
part test for deferral accounting. As part of the independent auditor's investigation it
shall review the transactions and cost allocations necessary to determine Central
Hudson's substantial compliance or lack thereof
6 Substantial compliance shall be detennined by the Commission.
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;;.. -,r
IV. Ethics
All Central Hudson employees, officers and directors must adhere to Central
Hudson's Code of Business Conduct and Ethics ("Ethics Code") as it may be amended
from time to time. Central Hudson will maintain its Ethics Code at its headquarters in
a manner available to Staff upon request. Central Hudson will make the Ethics Code
available to its employees, officers and directors electronically at all times.
A. Corporate Governance
Central Hudson directors, officers and employees shall adhere to the applicable
CHEG Governance Guidelines as they may be amended from time to time.
Governance Guidelines set forth Central Hudson's principles and requirements for
conflict of interest, recusal from participation in decision making and other corporate
governance issues. Central Hudson will maintain its Governance Guidelines at its
headquarters in a manner available to Staff upon request. Central Hudson will make
its Governance Guidelines available to its employees, officerS and directors
electronically at all times.
V. Cost Allocations
Central Hudson will continue to follow the cost allocation procedures
approved by the Commission as the Guidelines for Transactions Between Central
Hudson and its Affiliates approved by the Commission in Case 96-E-0909 as set forth
in Attachment H Cost Allocation Guidelines of the Amended and Restated Settlement
Agreement as Approved by the Commission on February 19, 1998. In the event that
Central Hudson's affiliate transactions exceed $7.5 million, as measured by the
transactions in the immediately preceding rate year excluding transactions with an
affiliated Transmission Company ("Transco") and dividend payments, Central Hudson
and Staff will discuss appropriate modifications to the Cost Allocation Guidelines set
forth in the RSA at Attachment H. If such discussions do not lead to a resolution of
cost allocation issues within ninety (90) days Central Hudson shall notify the
Commission's Secretary and convene a collaborative to resolve cost allocation issues.
Adherence to the Guidelines will assure that Central Hudson maintains proper cost
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·-·--.......... -.~
allocation procedures regarding transactions between Central Hudson and its affiliates.
Central Hudson will meet annually with Staff on or before April 1 of each year to
review its cost allocations and their application. If at any time Central Hudson
becomes aware of events likely to cause a reconsideration of or material change to its
ownership or cost allocations, Central Hudson will advise Staff and arrange a meeting
in order to consider cost allocation issues. Central Hudson may seek to amend the
Cost Allocation Guidelines from time to time and will file with the Secretary of the
Commission all proposed amendments and supplemems to the guidelines at least
thirty (60) days prior to their proposed effective date. These procedures apply to
Paragraphs V (A-D) set forth below.
A. Tran sf er of Assets
Public Service Law Section 70 applies to certain transfers of assets from
Central Hudson to any affiliate. Central Hudson will continue to abide by the
Guidelines for Transactions Between Central Hudson and its Affiliates approved by
the Commission in Case 96-E-0909 as set forth in Attachment H of the Amended and
Restated Settlement Agreement as Approved by the Commission on February 19,
1998. Central Hudson will maintain its affiliate transaction guidelines at its
headquarters in a manner available to Staff upon request. Central Hudson will make
its affiliate transaction guidelines available to its employees, officers and directors
electronically at all times. Any affiliate receiving goods or services from Central
Hudson will compensate Central Hudson in a timely fashion. Standard commercial
terms for payments wiU apply to transactions between Central Hudson and its
affiliates. If the Commission determines that the commercial terms applicable to a
transaction between Central Hudson and an affiliate are unreasonable it may issue an
appropriate remedy.
B. Transfer of Services
Central Hudson wilJ continue to abide by the Guidelines for Transactions
Between Central Hudson and its Affiliates approved by the Commission in Case 96-E-
0909 as set forth in Attachment H of the Amended and Restated Settlement
Agreement as Approved by the Commission on February 19, 1998. Central Hudson
will maintain its affiliate transaction guidelines at its headquarters in a manner
10
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·---.--T ~· .. -.. ---~ . .,;...:_-___ .
available to Staff upon request. Central Hudson will make its affiliate transaction
guidelines available to its employees, officers and directors electronically at all times.
Any affiliate receiving goods or services from Central Hudson will compensate
Central Hudson in a timely fashion.
C. Insurance
Central Hudson and any affiliate may be covered by common property,
casualty and other business insurance policies. Such policies shall provide Central
Hudson with commercially reasonable protections against liability. Central Hudson
and its affiliates shall maintain a corporate structure sufficient to protect it from the
liabilities of its affiliates, as well as any increases in Central Hudson's insurance
costs resulting from the inclusion of property or assets held by an a.ffiliate(s) in
such insurance policies. Central Hudson shall, to the extent that market information
is available, submit with each rate case petition. a market survey to determine whether
it could obtain insurance separately from its affiliates on financial and other terms and
conditions superior to the common policies maintained with its affiliates and report to
the Staff the results of its survey. The costs of such policies shall be allocated
among Central Hudson and any affiliate in an equitable manner.
D. Personnel
1. Sharing of Employees, Officers and Directors
Central Hudson and its affiliates may have Shared Employees. Operating
employees, defined as non-management employees, shalJ not be shared except
for purposes of training or emergencies-including mutual assistance. A Shared
Employee is a Central Hudson employee assigned to perform work for Central
Hudson and one or more affiliate(s) for a period of more than six months.
Central Hudson shall maintain a list of Shared Employees by position and
employee number updated every six months at its offices and available for
inspection by Staff upon request.
Operating officers (i.e., those officers providing other than corporate
services) of Central Hudson will not be operating officers of any of its affiliates.
An officer or director of Central Hudson may not serve as an officer or
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director of a competitive affiliate operating in Central Hudson's service territory.
Corporate employees may be provided by Central Hudson on a fully
loaded cost-basis. During its provision of any such shared services, such
individual shall be subject to all requirements in these Standards pertaining to
information obtained about/from Central Hudson. Nothing herein shall limit the
Commission's authority to determine ratemaking issues arising out of such
transactions.
Central Hudson shall allocate the costs of employees performing work for
Central Hudson and an affiliate pursuant to Attachment H of the Amended and
Restated Settlement Agreement as Approved by the Commission on February 19,
1998.
Officers and directors of Central Hudson may not use any of the Company•s
marketing, sales, advertising, public relations, and/or energy purchasing expertise to
provide services to any affiliate that competes with Central Hudson in any energy­
related business within Central Hudson's service territory. Before any Central Hudson
employee performs work for an affiliate, whether such employee is a Shared
Employee or not, Central Hudson shall ensure that such employees are familiar with
the Standards. Nothing herein shall limit the Commission's authority over ratemaking
issues arising out of such transactions.
Affiliates may provide services to Central Hudson and may have
separate contracts and billings for such services. Nothing in this section shall
authorize Central Hudson to engage in a transaction with any affiliate if such
transaction would otherwise be prohibited under these Standards, or authorize
Central Hudson to tender preferential treatment to any affiliate. Any
management, construction, engineering or similar contract between Central
Hudson and any affiliate and any contract for the purchase by Central Hudson
from an affiliate shall be governed by PSL § 110.
2. Transfer of Employees
If a Central Hudson employee accepts a position with any affiliate, he or she
will be required to resign from Central Hudson, unless there is a conflict with the
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... . . --··· .. 1
collective bargaining agreement in which case the collective bargaining agreement
shall control. Any such employee shall be prohibited from copying or taking any non­
public customer or competitively sensitive market information from Central Hudson.
3. Compensation for Employee Transfers
Employees may be transferred from Central Hudson to an affiliate or an
affiliate to Central Hudson. Employees transferred by Central Hudson to an
affiliate competing with Central Hudson in Central Hudson's service territory
may not be reemployed by Central Hudson for a minimum of one year after such
transfer. Central Hudson will file annual reports with the Commission showing
transfers between Central Hudson and any affiliates by employee number, former
company, former position and salary and new company, new position and salary
or annualized base compensation. If the Commission determines that employee
transfers inappropriately harm Central Hudson and its customers the Commission
may order an appropriate remedy.
4. Employee Loans in an Emergency
The foregoing provisions in no way restrict any affiliate from loaning
employees to Central Hudson to respond to an emergency that threatens the safety or
reliability of service to customers; nor shall such provisions restrict Central Hudson
from loaning employees to other regulated utilities, whether affiliated or unaffiliated,
to respond to an emergency that threatens such safety or reliability of service to
consumers. Central Hudson shall allocate the costs of employees loaned to, or from, a
Central Hudson affiliate pursuant to Attachment H of the Amended and Restated
Settlement Agreement as Approved by the Commission on February 19, 1998.
5. Compensation and Benefits
The compensation of Central Hudson's operating employees, officers and
directors (including employee directors) may not be tied directly to the perfonnance of
any affiliates; provided, however, that this provision shall not preclude such
compensation based upon aggregate performance of Central Hudson and any affiliate,
including compensation based on Fortis's stock performance. The employees of
Central Hudson and any affiliate may participate in common pension and benefit
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plans, and the cost shall be allocated pursuant to Attachment H of the Amended and
Restated Settlement Agreement as Approved by the Commission on February 19,
1998.
6. Legal Representation
Central Hudson shall have its own internal and/or external counsel whose
primary responsibility is Central Hudson. Central Hudson shall not provide counsel
for a competitive affiliate operating in Central Hudson's service territory in any matter
between the two affiliates where the interest of the competitive affiliate is adverse to
that of Central Hudson. Regarding any matter Central Hudson will take appropriate
steps to ensure that Central Hudson's interests are vigorously and independently
protected. Outside counsel shall adhere to the same standards as are required of
Central Hudson to protect Central Hudson's confidential information that may be
available to them in the course of their representation.
VI. Audits
A. Access to Books, Records and Reports
The following provisions govern the access by Start: and are not intended to supersede
or otherwise limit or expand the applicability of the PSL, to all books and records
related to all transactions for goods and services and cost allocations that occur
between Central Hudson and any affiliates:
1. Access to Information
Staff will have access, upon reasonable notice and subject to appropriate
resolution of any issues pertaining to applicable privileges and protections against
disclosure, including the attorney/client privilege, and confidentiality, to the books and
records of any affiliate, controlled by Central Hudson, with which Central Hudson has
transactions. Staff will have access to the extent necessary to verify the reasonableness
of the charges associated with the transactions, to confirm that the terms and
conditions of the transactions do not discriminate against entities competing with
Central Hudson in its service territory. and as necessary for ratemaking purposes. 7 For
7 The provisions of the RSA at 70-73, titled 32. Privileged Information and 33. Confidentiality of
Record shall govern and control the resolution of privilege and confidentiality issues that may arise.
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-=-=---•--.. •-•r .. ., _____________ .,.,.
any affiliate over which Central Hudson does not have sufficient control to require
such access, Central Hudson shall nevertheless employ its best efforts to provide such
access and, in the event Central Hudson is unable to do so, it shall provide an
explanation of the reasons therefor. These Standards will not be interpreted as
restricting Staff in obtaining any affiliate infonnation pursuant to PSL § 110. Nothing
herein shall limit the Commission•s authority over ratemaking issues arising out of
such transactions.
2-. Location of Audit Information
AU access to Central Hudson's books and records and the books and records of
affiliates controlled by Central Hudson shall be provided at Central Hudson's
headquarters and shall be available to Staff upon request and in no event shall these
provisions unreasonably delay Staffs ability to perfonn its audit functions. Central
Hudson will use its best efforts to provide access to the books and records of affiliates
it does not control at its headquarters and will provide Staff with an explanation if it
cannot do so. Any information provided shall be subject to applicable privileges and
protections against disclosure pursuant to Civil Procedure Law and Rules§§ 3101 and
4503 and as provided for in the PSL and the Commission's regulations at 16 NYCRR
Parts 3 through 5 including resoJution of confidentiality issues pursuant to the
Commission's regulations on confidential infonnation at 16 NYCRR Part 6, with due
regard to the regulations of any other commission that may have jurisdiction over the
information.
3. Company Liaison
A senior officer of Central Hudson will designate an employee, as well as an
alternate to act in the absence of such designee ("Liaisons"), to act as liaison between
Central Hudson and Staff. The Liaisons will facilitate the production of information to
Staff. If Central Hudson believes that information requested by Staff should not be
provided Central Hudson will provide the reason for its belief through the Liaisons.
Nothing herein shall deprive Central Hudson, or its affiliates, of the ability to claim privilege or
confidentiality as set forth in the RSA.
15
I
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I
[
HYDRO ONE/804
Schmidt/Page 150 of 162
Staff_PR_039(AVA) Attachment A Page 150 of 162
HYDRO ONE/804
Schmidt/Page 151 of 162
····--· .. -,.-.. ---=---=cc ·cc ,.-.-cc.--. -.-.·.·r
B. Reporting
Commencing with the period ending December 31, 2013, Central Hudson shall
file, by April 1 of each year, a joint annual report to the Commission, summarizing,
for the prior year, any asset transfers, shared employees, employee transfers, employee
loans for emergencies, contracts, cost allocations, affiliate transactions and competitor
or customer complaints concerning the course of conduct between Central Hudson and
any affiliate that is related to these Standards. .Further, any management employee
transfers shall be reported to the Commission on a quarterly basis beginning on April
1 of each year.
Employee transfers between Central Hudson and an affiliate shall be reported
by employee number, former company, former position, new company and new
position. Employee loans from an affiliate to Central Hudson to respond to an
emergency that threatens the safety or reliability of service to consumers shall be
reported by employee number, companies involved and length of loan period.
C. Confidentiality of Records
Central Hudson and, as applicable, any affiliate shall designate as confidential
any non-public information to or of which Staff requests access or disclosure, and
which such_ entity believes is entitled to be treated as a trade secret, and may submit
information to the Commission or Staff subject to the Commission's regulations on
confidential information at 16 NYCRR Part 6.
16
HYDRO ONE/804
Schmidt/Page 151 of 162
Staff_PR_039(AVA) Attachment A Page 151 of 162
HYDRO ONE/804
Schmidt/Page 152 of 162
Case 12-M-0192
ATTACHMENT II
ELECTRIC RELIABILITY PERFORMANCE MECHANISM
14307548.1
HYDRO ONE/804
Schmidt/Page 152 of 162
Staff_PR_039(AVA) Attachment A Page 152 of 162
HYDRO ONE/804
Schmidt/Page 153 of 162
·-·------·· -.. ~---. -·-..:;a:;;;....__=
Joint Proposal Case 12-M-0192
Electric Reliability
Operation of Mechanism
. ~,-. ~-·····~ ... -~· 1
Attachment II
Page 1 of 3
This electric service Reliability Performance Mechanism
("reliability mechanism") has been in effect for Central Hudson
Gas & Electric Corporation beginning on June 18, 2010 and will
remain in effect until reset by the Commission . The measurement
periods for the reliability mechanism metrics will be on a
calendar year basis.
The reliability mechanism establishes the following
performance metrics:
(a) threshold standards, consisting of system-wide performance
targets for frequency and duration of electric service
interruption defined as:
1 . CAIDI -Customer Average Interruption Duration Index .
The average interruption duration time (customers-hours
interrupted) for those customers that experience ah
interruption during the year.
2. SAIFI -System Average Interruption Frequency Index. It
is the average number of times that a customer is
interrupted per 1,000 customers served during the year .
The electric service annual metrics for System Average
Frequency Index (SAIFI) and Customer Average Duration Index
(CAIDI) shall be a 15 basis point (electric, pre-tax) potential
negative revenue adjustment for failure to achieve an annual
HYDRO ONE/804
Schmidt/Page 153 of 162
Staff_PR_039(AVA) Attachment A Page 153 of 162
HYDRO ONE/804
Schmidt/Page 154 of 162
·-·-.... -
SAIFI target of 1.45, and a 15 basis point (electric , pre-tax)
potential negative revenue adjustment for failure to achieve an
annual CAIDI of 2 .50. These index targets are the same as
approved in the 2009 Rate Order in Case 09-E-0588 (2009 Rate
Order). After the merger, the revenue adjustment will double
where the Company does not satisfy a performance target.
(b) The Quarterly Meeting process will be continued per the 2009
Rate Order.
All revenue adjustments related to this reliability
mechanism will come from shareholder funds and will be deferred
for the benefit of ratepayers.
Exclusions
The following exclusions will be appl icable to operating
performance under this reliability mechanism:
(a) Any outages resulting from a major storm, as defined in
16 NYCRR Part 97 (i .e ., at least 10% of the customers
interrupted within an operating area or customers out of
service for at least 24 hours ), except as otherwise
noted.
(b ) Any incident resulting from a catastrophic event beyond
the control of the Company, including but not limited to
plane crash, water main break, or natural disasters
(e.g., hurricanes, floods, earthquakes).
HYDRO ONE/804
Schmidt/Page 154 of 162
Staff_PR_039(AVA) Attachment A Page 154 of 162
HYDRO ONE/804
Schmidt/Page 155 of 162
=----:~ -·:,;_--_., .. --._ .... .--.... --. . --·--:r;
(c) Any incident where problems beyond the Company's control
involving generation or the bulk transmission system is
the key factor in the outage, including, but not limited
to, NYISO mandated load shedding . This criterion is not
intended to exclude incidents that occur as a result of
unsatisfactory performance by the Company.
Reporting
The Company will prepare an annual report{s) on its
performance under this reliability mechanism . The annual
report{s) will be filed by March 31st of each year to the
Secretary.
The reports will state the:
{a) Company 's annual system-wide performance under the RPM
and identify whether a revenue adjustment is
applicable and, if so , the amount of the revenue
adjustment;
{b) Company's performance under the other metrics and
identify whether a revenue adjustment is applicable
and, if so, the amount of the revenue adjustment ; and
{c) Basis for requesting and provide adequate support for
all exclusions .
HYDRO ONE/804
Schmidt/Page 155 of 162
Staff_PR_039(AVA) Attachment A Page 155 of 162
HYDRO ONE/804
Schmidt/Page 156 of 162
-•• -.-•• -. -'I :-• --.-.. --·•\ ..... ·.A,;y-·-
14307.548.1
ATTACHMENT III
PARTS 2SS/261 MATERIALS
Case 12-M-0192
HYDRO ONE/804
Schmidt/Page 156 of 162
Staff_PR_039(AVA) Attachment A Page 156 of 162
HYDRO ONE/804
Schmidt/Page 157 of 162
12-M-0192
PARTS 2551261 MATERIALS
HIGH RISK SECTIONS PART 255
ACTIVITY TITI.£
Material • General
,:ra....,,,fllllion of Pioc
Pioe De1i11n • General
De1ia:n of ComD<>nenlJ • General Renuiremonts
Oesi1m of Comnonents. Flex.ioilitv
De1ilm ofComooocnts • S•-otts and anchors
Conmrenor Stations! Emar11enc:v 1hutdowo
Cosn-ior Stalionsr Prenurc limitin11 devices
Com.,..,,so, Station,: Ventilation
Va1"t1 on pil>Clinc1 to onente al 125 nsio or more
Dillrib11tion line valvos
Vaults: Structural Dai"" remtlrements
Vauks: Orai.,aae and wa....,_,Oi;""
Protection uainst accidental ovcmreuurin11
Control ofthe onouure of 11u delivered fn>m hi11h pressure dimoution ""•tems
Reouimnentr for de1icm of-•noro relief end lnnilina devices
R ... uired caoacitv of nressure rolievfoa and limitino: station•
ln.,a(ificalion ofwddin1t-durot
10.,alilication of Welders
Ptotection from we.aher
Mitar Jointt
Prooararion fnr wcldiDR
111..,..ction and test ofwcldt
NondeslJUcrive re1rina-Pinelinc to ........ ,. at 125 PSIG IX moro
Weldina in.-tor
l~ilir or remo~a! of defects
Joinina Of Materials Otl1cr Than Bv Weldin11 • General
Joining Of Material, Other Than Bv Weldin11 • Con-Pioe
Joinin11 Of Material, Other Than Bv W eJd;..., • Plutic Pioe
Plutic 1>ioc: Oualifvin1t oersona to make ioin11
Notification ,.,..uiremenrs
Compliance with coRSlrllction mndarch
ln•"""•ion: General
ln,.....,,tion of mllfetiw
Renair ofstccl oiPC
Rm>ai: ofola.rtic: oipe
Bends and elbows
Wrinkle bends i.ri ,reel nine
Installation ofolutic nine
Undcnzround clearance
CU1tomer meters and service ruulaton: Installation
Service lines: lnstalladon
Servi« lines: Location ofvalvt1
External corrosion control: Buried or1t1brnerired nioelinn installed after Julv 31 1971
Exie.ma! connsion contrOI: Buried or aubmened oioelinca inltallod before Au•ult I 1971
External corrosion control: Prolectivc collin11
External co1T01ion control: Cathodic orotection
Sx.lCm&I corrotion CC11trol: Monltorin11
hllcmal comision control: Deai1m and amstruction oftrammiaion line
Remedial measure,: General
Retnedial meuura: rnn.uiillion Jine1
SIN!ftvth lei! roaulremen11 for steel oioelincs 10 oocrate at 125 PSIG or more
Gcnml reauiremenr, ru PORAOES)
Uncrrading to I nrouure of 125 PSIG or more in steel oine[ines
U-dina 10 a orcasure leu than 12S PSIG
Conversion to aervice sub""" to !his Part
General orovisions
ODeralOr Qualification
Euenrial1 of ooenirin« and main1cnancc ow,
Ch•n-in class location: Reouired abidv
Da,nuc orovmtion oro .... m
Em..-n01 Plan•
Curtomereduoarion and information nmim,m
Maximum allowable --,.;M measure: Steel or olutic nioelinca
Maximum allowable o-tina -uure, Hiah ornsuro dillribution sv1tcmt
Maximum and minimum allowable ooenti1111 oressurc: Low orcssure distribution svtlcms
Odocization ohaa
A TI ACHMENT Ill
Page 1 of 4
cnoE S""TlnN RISKFACTOA
2SS.S31a' ""' 1c\ HIGH
255.65 HIGH
25S.103 HIGH
25S.143 HIGH
25S.159 HIGH
2SS.l61 HIGH
255.167 HIGH
25S.169 HIGH
2SS.173 HIGH
155.179 HIGH
2SU81 HIGH
255.183 HIGH
2SS.189 HIGH
2SS.19S HIGH
2SS.J97 K!GH
255.199 HIGH
255.201 HIGH
2SS.225 HIGH
2SS.227 HIGH
2SU31 HIGH
2SS.233 HIGH
2SS.23S HIGH
2SS.24 tra' II,\ HJOH
25S.243ia\./c\ HIGH
2SS.244f a\ ii.He\ HIGH
255.24S HIGH
255.273 HIGH
255.279 KIGEI
2SS.281 HIGH
255.285(1\ /1,\ Id\ HIGH
25S.302 HIGH
25S.303 HlGH
2$5.305 HIGH
2SS 307 HIGH
255.309 HIGH
2SS-.31 l HIGH
2S5.3J3fa' """c' HIGH
2SS.31S HIGH
2SS.321 HIGH
2SS.32S HIGH
2SHS7<d) HIGH
255.36Jf e\ m ,_,,.., 'i\ HIGH
2S5.3651b\ HIGH
25S.4SS/dVol HIGH
2SS.457 HIGH
255.461/cl HIGH
2SS.463 HIGH
2SS.46Va\ le) HIGH
2SS.476'8Vc\ HIGH
2SS.483 HIGFI
255.48511\.lb\ HIGH
2SS.S0Sla lib\./ cl.Id\ HIGH
2SS.SS3 ta\ fl,\lc' HIGH
2SS.SSS HIGH
2SS.SS7 HIGH
2SS.S591a\ HIGH
255.603 HIGH
255.604 HIGH
2SS.60S HIGH
lSS.609 HIGH
2SS.614 HIGH
2SS.61S HIGH
2SS.616 HJOH
2S5.619 HIGH
2SS.621 HIGH
2SS.62J HIGH
2SS.62SlalJbl HIGH
1,
HYDRO ONE/804
Schmidt/Page 157 of 162
Staff_PR_039(AVA) Attachment A Page 157 of 162
HYDRO ONE/804
Schmidt/Page 158 of 162
PARTS 255 / 261 MATERIALS
Ta,,nina oit>Olinu w,dcr nreuurc
Pllnrin11 of pindiDCS
ConlrOI Room M-e111
Trumuaion lince: Pall'olliu
Leak•"" Survcv1 • Traumisaion
Tranamiai on Ii-. Cla1Cral rcQUlremenu for rmair proccdutta
Tranamiuion lina: Permanc:nr field repair of im""'1ec:tiona and dam111a
Tr.,amiufan lines: Pmnaoem field -air of weld.
Transmi11ion tinet: Penn-I field rcoair of leaks
Tranismiuian lines: Tesiin1. ofrrnain
Di1tribulion 1Y1tem1: Leak lllt'VCVI and oroccdl6C1
Com-...or trlbOM: nmccdUIU
Com11ttUOr 1t11:iom: lnmeclion and 1e11ina relief devicn
Comlltftlllr 11111ionr. Additional inmec:lion,
Comorwor Ntiom: Ou delcction
Ptemare limilina and •••aulalin1.11111ion1: lnmecrion and ellim
Rcaulator Station Ovm,reulft Prolc:ction
Tnumniuion line Valves
~veation ofaccidcnbll ianition
ProleclinJr cut iron oiocTina
Rmlacement of exoosed or undennincd cast iron ninina
Rmlacement of CUI iron maina -... Jlelin1. excavarion.o
Leaks: Records
Leaka: lnllNmmr 11e111irlvi1Y verificarion
Leaks: Tvne I
Leaks: Tv,...lA
Leab:Tv ..... l
Leu Follow-uu
Histh ConaCGuence Areu
Reauircd Elementa HMPJ
Knowledac IIJld Tralnina UMP)
Identification of Potential Threau 10 PineHne lntco1irv 111d Uac of the Threat Jdcnli6cation in ao lntt"""' Pmo.. ... /IMPl
Baaeline Aueumcnt "Plillll lMPl
Conduc:tin11 • Buclino Auaancol /IMP)
Direct AJ-cN (IMP)
EincmAl Conoslon Direct Asscumenl IECDA) OMP)
lnttmal Corrosion Direct Auc11men1 IICDA) CIMP)
Con6rmalorv Direct Aueumcnl lCDA \ llMPI
Adchasifta IDie"""' lauca UMP\
Prcvcndvc and Mirialtivo Meutre1 to Protw the Hi11h Con"""'c:nee Aral OMPJ
Continual Procas or Evaluation and A1acmnent OMP)
buaeaament ln1erval1 OMP)
Ocncnl l'C(luiremcnll or• GDPIM plan
lnmlemen111tion reauiremenr, or a ODPIM nlan.
Reaulred clement, of I GDPIM nlan.
Reouircd......,. when comareuion counlinaa fail.
R,,,,uirmu,m. a unall lia11e6od oetroleum 11as (LPG} onenu,r nw,t utllfy lo implema111 OOPlM 01111
HIGH RISKSt.CTIONS PART 261
Oneration and mairtenance olan
leakue Survcv
Carbon monoxide irevenrion
WamilUI 1111 PtOCCCU'Cl
HEFP A LiailOII
W1111iMT111 lnaoecrion
Wamin11 .. _ Clau A condition
Wamirur •-: Class B coadirion
ATIACHMENT Ill
Page2 of4
:m.627 HIGH
255,629 HlGH
l55.631(a\ HlGH
255.705 HIGH
2SS.706 HIGH
25S.711 HlGH
25S.713 HIGH
255.715 HlGlf
255.717 HIGH
25S.719 HIOH
25S.72l HIGH
255.729 HIGH
255.731 HIGH
255.732 HIOH
255.736 HIGH
2S5.739<a\n.\ HIGH
255.743(1\1'1,\ HIOH
25S.745 HIOH
25S.7$ I HIOH
255.7H HIOH
25"756 HIOH
25'-757 HIOH
255.807{d) HJOH
255.809 HIOH
2SS.SI 1/b\.lc},(dl.lcl HIGH
2.1Ulllb\Jc\.ldl HIGH
2,S,815 HIGH
2SS.SJ9la) HIGH
255.905 HIGH
25S.911 HIGH
2SS.91 S tuGH
2S5.917 HIGH
2S5.919 HIGH
2S5.9ll HIOff
2S5.923 HIGH
255.925 HIGH
l5S.927 HIGH
25$.931 HIGH
255.933 HIGH
25S.93S HlGH
l5S.937 HIGH
255.939 HIGH
2SS.1003 HIGH
lSS.1005 HIOH
255.1007 HJGH
255.1009 HIGH
25$.IOIS HIGH
261.lS HIGH
261.17(1}.(cl HIGH
261.21 HIGH
261.SI HIGH
261 .Sl HJOH
261.5S HIOH
261.57 HIGH
261.59 HIGH
r HYDRO ONE/804
Schmidt/Page 158 of 162
Staff_PR_039(AVA) Attachment A Page 158 of 162
HYDRO ONE/804
Schmidt/Page 159 of 162
12-M-0192
PARTS 255 / 261 MATERIALS
OTHER RISK SECTIONS PART lSS
ACTIVITY mLE
Preservation of records
Comoressor station: Desil!ll and construction
Comoressor station: Liauid removal
Compressor stations: Additional safetv c,quipmenl
Vaults: Accessibilitv
Vaults: ScalinR, ventina. and ventilation
Calorimeter or calorimeter structures
Desi11;n pressure of plastic fittings
Valve installtion in olastic oioe
Instrument control and samPlin11. 1>ioin11. and comoonenli
LimitarionsOn Welders
Oualitv assurance oroamm
Preheating
Stress rd ievin11.
lnsoection and test of welds
Nondestructive testing-Pipeline to ODCrate st 125 PSIG or more
Plastic oir>c: Oualifvimz ioinin11. orocedurcs
Plastic oioe: Oualifvin11. =ns to make ioints
Plaslic oioe: lnscection ofioints
Bends and elbows
Protection from hazards
Installation of oioe in a ditch
Cesi11a
Cover
Customer meters and regulato11: Location
Customer meters .and reirulators: Protection from damage
Cust0mer meters and SCfVice rc:11.ulators: Installation
Customer meter installations: Ooerating pressure
Service lines: Installation
Service lines: valve reQuircments
Service lines: Location of valves
Service lines: Geneml reQuirements for connections to m11in oioin2
Service lines: Connections to cast iron or ductile iron mains
Service lines: Steel
Service lines: Cast iron and ductile iron
Service lines: Plastic
Service lines: Cooner
New service lines not in use
Service lines: excess flow valve perfonnance standards
External com>sion control: Buried or submer2cd oioeline:s installed after Julv 31 1971
External com>sion control: Examination of buried oiocline whm ~osed
External corrosion control: Protective coatin11.
Rectifier lnsr,cct!on
External com>sion cootrol: Electrical isolation
External corrosion control: Test siations
External corrosion control; Test lead
External corrosion control: Interference currents
Internal corrosion control: General
Atmosohcric corrosion control: General
Atmosoheric corrosion control: Monitorin2
Remedial measures: transmission lines
Remedial measures: Pi""'1incs lines other than cast iron or ductile iron lines
Remedial measures: Cast iron and ductile iron oiDClines
Direct Assessment
Corrosion control records
General reauircments (TESTING)
Strcn11.th test mlUirements for steel oiDClines to ODmlte at 125 PSIG 01 more
ATTACHMENT Ill
Page3of 4
RISK
CODE SECTION FACTOR
2SS.17 0TH
lSS.163 0TH
2SS.16S 0TH
255.171 om
2S5.l8S 0TH
25S.187 om
255.190 om
255.191 0TH
255.193 0TH
255.203 0TH
255.229 0TH
255.230 0TH
25S.237 om
2S5.239 0TH
2S5.24l(c) 0TH
25S.243(f) 0TH
2SS.283 0TH
255.28S(c).(e) om
2SS.287 0TH
2SS.313(d) 0TH
2SS.317 0TH
2SS.319 0TH
2SS.323 0TH
2SS.327 0TH
255.353 0TH
25S.35S 0TH
2SS.3S7(a).(b).(c) 0TH
2SS.3S9 om
255.361 (a).(b).( c).(d) 0TH
2SS.363 0TH
255.36Sla),(c) om
255.361 0TH
255,369 0TH
25S.371 om
255.373 0TH
2S5.375 0TH
255.377 Olli
25S.379 Olli
25S.381 0TH
255.455fa) om
25S.459 0TH
25S.46 I <a ).(b).{d).let m .< 11.l 0TH
2SS.46S (bHc).<n orn
25S.467 0TH
255.469 0TH
255.471 om
255.473 0TH
255.47S(al.(b) 0TH
25S.479 0TH
25S.48l 0TH
25S.48S(c) om
25S.487 0TH
255.489 orn
255.490 0TH
255.491 0TH
25S.S03 om
2SS.S05(e).(h).(i) 0TH
I HYDRO ONE/804
Schmidt/Page 159 of 162
Staff_PR_039(AVA) Attachment A Page 159 of 162
HYDRO ONE/804
Schmidt/Page 160 of 162
--~-~--~-............. __ .... _ ....... -...... ~ --..... -.
12-M-0192
PARTS 255 / 261 MATERIALS
Test """Uircments for oiDClincs to oocrale at less than 125 PSIG
Test n,nuirements for service lines
Enviro!,mei,tal or-ole(;tion and safetv reauirem~IS
Records ITESTINOl
Notlficalion ""'uimncnts (UPGRADES\
General reouiremcnts tl tK,RAOES)
Conversion to service subicct to this Part
Chanac in class location: Confinnation or revision of maximum allowable ooeratin11 orcssurc
Continuina surveillance
Odorization
Pi Del inc Marlee rs
Transmission lines: Record keeDing
Distribution svstems: Patrollina
Test reouirements for reinstatina service Jines
Inactive Servic:es
Abandonment or inactivation of facilities
ComDrcSSOr stations: storaae of combustible materials
Pressure limitina and rNU!ating stations: Jnsnection and !estina
Pressure limiting and rcaulatina stations: Telemeterina or recordin11 uuacs
RellUlator Station MAOP
Service Reaulator • Min,& OM.r. Load
Distribution Line Valves
Valve maintenance: Service line valves
Re1tulator Station Vaults
C11ulkcd bell and S11i11ot ioints
Reoorts ofaccidcnts
Eme.mencv lists of On£n1tor llff!lOnnel
Leaks General
Leaks: Records
Tvne2
Tv-oe3
lntemn,tions of service
Loa Irina and analvsis of au emcraencv r~rts
AMualRl!t>lln
Rcoonin11. safetv-rclated conditions
General (IMP)
Chan11.es ID an lnteiuitv Man&Jtement Prooram <IMP)
Low Stress Rnssessment CIMP)
Mcasurin11 Protzram Effectiveness OMP)
Records llMP)
Records an ooerator must keco
OTHER RISK SECTIONS PART 261
Hiah PrcsSIR Piping -Annual Notice
Wl!(1linR taa: Class C condition
Wamina tall: Action and follow-up
Wamin11 Tag Records
A TI ACHMENT Ill
Page4 of 4
255.507 0TH
255.511 0TH
255,515 0TH
255.517 0TH
255.552 0TH
255.553(d J,, e) 0TH
255.5591 b) 0TH
255.61 l(a d) 0TH
255.613 0TH
2SS.62S(eHO 0TH
255. 707(a).<1Md).(c) 0TH
2S5.709 0TH
25s.n1lhl OTII
25S.725 0TH
255.n6 0TH
25S.727lb\.l11l 0TH
25S.73S 0TH
255.739(c).(d) 0TH
25S.741 0TH
255.743 (c) 0TH
255.744 (d).(e) 0TH
255.747 0TH
255,748 0TH
255.749 0TH
2S5.7S3 0TH
2S5.801 0TH
2SS.803 0TH
255.805(1).(b ),(e 11Hh) 0TH
2SS.807(a ).(b ),I c) 0TH
25S.8J5(b ).(c ).Id) 0TH
2SS.817 0TH
25S.823(a).(b) 0TH
2SS.82S 0TH
25S.829 0TH
2S5.831 0TH
2SS.901 0TH
2S5.909 0TH
2S5.941 0TH
255.945 0TH
255.947 0TH
2S5.1011 0TH
261.19 0TH
261.61 0TH
261.63(a\..(h) 0TH
261.65 0TH
HYDRO ONE/804
Schmidt/Page 160 of 162
Staff_PR_039(AVA) Attachment A Page 160 of 162
HYDRO ONE/804
Schmidt/Page 161 of 162
..... -.. -~------~.,.,---
14307548.I
···-· --=-= ...... _.,.,. ..... ., .... --:-~·. --=-.. ~, .. ·.7-=->.~l
A IT ACHMENT IV
NET PLANT TARGETS
Case 12-M-0192
I HYDRO ONE/804
Schmidt/Page 161 of 162
Staff_PR_039(AVA) Attachment A Page 161 of 162
HYDRO ONE/804
Schmidt/Page 162 of 162
12-M-0192 Attachment IV
Central Hudson Gas & Electric Corporation
Net Plant Targets for TME 6/30/2014
($000)
1:1ectnc Net t11am I arger:
Plant In Service
Accumulated Reserve
Net Plant
NIBCWIP
Net Electric Plant Target
Depreciation Expen1t Target:
Transportation Depreciation 3
~as Net t11ant I arq•Ci
Plant In Service
Accumulated Reserve
Net Plant
NIBCWIP
Net Gas Plant Target
Depreciation Expense Target:
Transportation Depreciation 3
Depreciation Expense 3
Gas Depreciation Expense Target
Electrjc1
TME 6/30/2014
1,262,196
(360,501)
901 ,695
17,638
919.3331 4
1,991
32 710
34 701 4
Gas1
TME 6/30/2014
361,146
(117,428)
243,718
8 438
2s2, 1sa j •
417
8,999
9,4161"
1 -Electric and Gas amounts include allocation of Common Plant.
2 -Electric and Gas Plant, Reserves and NIBCWIP are from Staff Exhibits ARP-3
and ARP-4, Schedule 7.
3 -Electric and Gas Depreciation are from Staff Exhibits ARP-3 and ARP-4, Schedule 1.
4 -Net Plant and Depreciation Target.
HYDRO ONE/804
Schmidt/Page 162 of 162
Staff_PR_039(AVA) Attachment A Page 162 of 162