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THE COMMONWEALTH OF MASSACHUSETTS
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DEPARTMENT OF
TELECOMMUNICATIONS AND ENERGY
April 2, 1999
D.T.E. 98-118
Application of Boston Edison Company, an electric company under G.L. c. 164,
Section
1, for Approval of Rate Reduction Bonds under the terms of the Electric
Restructuring Act, St. 1997, c. 164.
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APPEARANCES: William S. Stowe, Esq.
Catherine J. Keuthen, Esq.
Boston Edison Company
800 Boylston Street
Boston Massachusetts 02199
and
Robert K. Gad, Esq.
Colleen M. Granahan, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
FOR: BOSTON EDISON COMPANY
Petitioner
Thomas J. Reilly, Attorney General
BY: Joseph W. Rogers
Rebecca Perez
Assistant Attorneys General
Regulated Industries Division
200 Portland Street, 4th Floor
Boston, Massachusetts 02114
Intervenor
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Robert F. Sydney, Esq.
Vincent DeVito, Esq.
Division of Energy Resources
100 Cambridge Street, Room 1500
Boston, Massachusetts 02202
FOR: COMMONWEALTH OF MASSACHUSETTS
DIVISION OF ENERGY RESOURCES
Intervenor
Paul R. Gauron, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
FOR: ENTERGY NUCLEAR GENERATION COMPANY
Intervenor
Burton E. Rosenthal, Esq.
Segal, Roitman & Coleman
11 Beacon Street, Suite 500
Boston, MA 02108
FOR: LOCALS 369 and 387, AFL-CIO
Intervenor
Maria Krokidas, Esq.
Krokidas & Bluestein
141 Tremont Street
Boston, MA 02111-1209
FOR: MASSACHUSETTS DEVELOPMENT FINANCE AGENCY
and
FOR: MASSACHUSETTS HEALTH &
EDUCATIONAL FACILITIES AUTHORITY
Intervenors
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Michael B. Meyer, Esq.
Meyer, Connolly, Sloman & MacDonald, LLP
12 Post Office Square
Boston, MA 02109
FOR: TOWN OF PLYMOUTH
Intervenor
David S. Rosenzweig, Esq.
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, MA 02110
and
John Cope-Flanagan, Esq.
COM/Energy Services Company
One Main Street
P.O. Box 9150
Cambridge, MA 02142-9150
FOR: COMMONWEALTH ELECTRIC COMPANY
Limited Participant
Laura S. Olton, Esq.
McDermott, Will & Emery
28 State Street
Boston, MA 02109
FOR: MONTAUP ELECTRIC COMPANY
and
FOR: EASTERN EDISON COMPANY
Limited Participants
Stephen Klionsky, Esq.
260 Franklin Street, 21st Floor
Boston, MA 02110
FOR: WESTERN MASSACHUSETTS ELECTRIC
COMPANY
Limited Participant
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TABLE OF CONTENTS
I. INTRODUCTION..........................................................................................1
II. STANDARD OF REVIEW....................................................................................3
III. BOSTON EDISON'S SECURITIZATION PROPOSAL...............................................................6
A. Introduction...............................................................................6
1. Boston Edison...................................................................10
2. Attorney General................................................................10
3. The Agencies....................................................................11
4. Plymouth........................................................................11
C. Analysis and Findings.....................................................................11
1. Introduction....................................................................11
a. Mitigation of Transition Costs........................................12
b. Savings to Ratepayers.................................................14
c. Employee Commitments..................................................16
d. Order of Preference for Use of Proceeds...............................17
e. Tax Agreement.........................................................17
IV. AMOUNTS TO BE SECURITIZED............................................................................19
A. Introduction..............................................................................19
B. Positions of the Parties..................................................................21
1. Attorney General................................................................21
2. Agencies........................................................................23
3. Boston Edison...................................................................23
C. Analysis and Findings.....................................................................25
V. PROPOSED FINANCING ORDER.............................................................................28
A. Standards Governing Third Party Suppliers.................................................31
1. Introduction....................................................................31
2. Positions of the Parties........................................................32
a. Attorney General......................................................32
b. The Agencies..........................................................33
c. Boston Edison.........................................................33
3. Analysis and Findings...........................................................34
B. Statement Regarding Reimbursable Transition Costs on Customers' Bills.....................35
1. Introduction....................................................................35
2. Positions of the Parties........................................................35
a. The Agencies..........................................................35
b. Boston Edison.........................................................36
3. Analysis and Findings...........................................................36
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C. Ancillary Agreements......................................................................37
1. Boston Edison=s Proposal........................................................37
2. Positions of the Parties........................................................37
a. Attorney General......................................................37
b. Boston Edison.........................................................38
3. Analysis and Findings...........................................................38
D. Adjustments to the RTC Charge.............................................................39
1. Introduction....................................................................39
2. Positions of the Parties........................................................39
a. Agencies..............................................................39
b. Boston Edison.........................................................40
3. Analysis and Findings...........................................................40
VI. EXEMPTIONS...........................................................................................42
A. Exemption from Competitive Bidding Requirements...........................................42
1. Introduction....................................................................42
2. Analysis and Findings...........................................................42
B. Exemption from Par Value Debt Issuance Requirements.......................................44
1. Introduction....................................................................44
2. Analysis and Findings...........................................................44
VII. ORDER................................................................................................45
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I. INTRODUCTION
On December 3, 1998, Boston Edison Company ("Boston Edison" or "Company")
filed an application for approval of rate reduction bonds ("RRBs") pursuant to
G.L. c. 164, Section 1H(b). Boston Edison proposes to securitize approximately
$805 million of transition costs, the majority of which are associated with the
sale of its Pilgrim Nuclear Power Station and related assets ("Pilgrim"), to
Entergy Nuclear Generation Company ("Entergy"). This application was docketed as
D.T.E. 98-118. Boston Edison also submitted a proposed financing order (Exh.
BE-1) for issuance by the Department.
Pursuant to notice duly published, public hearings were held in Plymouth,
Massachusetts on December 21, 1998, and January 5, 1999, and at the Department's
offices in Boston on December 22, 1998. The Attorney General of the Commonwealth
("Attorney General") filed a notice of intervention pursuant to G.L. c. 12,
Section 11E. The Department allowed the petitions to intervene of the
Commonwealth of Massachusetts Division of Energy Resources ("DOER"), Entergy,
Locals 369 and 387 of the Utility Workers Union of America - American Federation
of Labor/Congress of Industrial Organizations (UWUA, AFL-CIO) ("Locals 369 and
387"), and the Massachusetts Development Finance Agency and Massachusetts Health
and Educational Facilities Authority (collectively, the "Agencies"). The
petition of the town of Plymouth ("Plymouth") to intervene was allowed, but
limited to the issue of whether a tax agreement between Boston Edison and
Plymouth had been executed pursuant to the provisions of G.L. c. 59, Section
38(H)(c). The petitions to intervene of Commonwealth Electric Company
("Commonwealth Electric"), Montaup Electric Company ("Montaup") and Eastern
Edison
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Company ("Eastern") were denied, but each was allowed limited participant
status. Western Massachusetts Electric Company ("WMECo") was also allowed
limited participant status.(1)
The Department granted a motion to consolidate Boston Edison=s petition for
approval of the Pilgrim divestiture transaction, D.T.E. 98-119, and Commonwealth
Electric=s petition for approval of the termination and buyout of its
Pilgrim-related purchase power agreement ("PPA"), D.T.E. 98-126, and denied a
motion to consolidate D.T.E. 98-118 with D.T.E. 98-119/126.(2) The Department
coordinated hearings for the purposes of establishing an evidentiary record
common to both proceedings (Tr. 1, at 5).
Evidentiary hearings were held on January 20, 21, 22, 25, and 26, and
February 12, 1999. In support of its petition, Boston Edison presented the
testimony of Geoffrey Lubbock, the director of generation divestiture for Boston
Edison; Emilie O=Neil, the manager of corporate finance for Boston Edison; and
Elliot Alchek, the managing director and co-head of the
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(1) The petitions to intervene of Citizens Urging Responsible Energy
("CURE"), John T. O'Connor, and Massachusetts Citizens for Safe Energy
("MCSE") were denied (Hearing Officer's Ruling on Petitions to
Intervene (December 23, 1998)). MCSE's and CURE's appeals of the
hearing officer ruling were also denied. D.T.E. 98-118, Interlocutory
Order on Appeal of Hearing Officer Rulings Regarding Petitions to
Intervene) (March 19, 1999).
(2) On March 22, 1999, in a consolidation proceeding in D.T.E. 98-119-126,
the Department approved (1) the sale of Pilgrim to Entergy; (2) the
adjustment of Boston Edison's transition charge after the divestiture
to reflect the proceeds of the sale through a residual value credit;
and (3) the purchase of Pilgrim-generated power by Boston Edison from
Entergy under two purchase power agreements and the recovery of any
above-market costs associated therewith in the transition charge.
Boston Edison Company, D.T.E. 98-119/126 (1999). The Department also
approved (1) the termination and buyout of Commonwealth Electric
Company's existing obligation with Boston Edison to purchase power from
Pilgrim; (2) the inclusion of the buyout amount as an adjustment to
Commonwealth Electric Company's transition charge; (3) the purchase by
Commonwealth Electric Company of power from Pilgrim under a new
purchase power agreement with Entergy; and (4) the recovery of any
above-market costs of the purchase power agreement with Entergy as an
adjustment to its transition charge. Id.
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asset-backed securities group at Goldman, Sachs & Co. The Attorney General
presented the testimony of Timothy Newhard, a financial analyst with the
Regulated Industries Division of the Office of the Attorney General. Briefs were
filed by Boston Edison, Commonwealth Electric, DOER, the Agencies, Entergy,
Plymouth, and the Attorney General. Reply briefs were filed by Boston Edison,
Entergy, the Attorney General, the Agencies and Commonwealth Electric. The
record consists of 346 exhibits and the responses to 75 record requests.(3)
II. STANDARD OF REVIEW
The Legislature has vested broad authority in the Department to regulate
the ownership and operation of electric utilities in the Commonwealth. See,
e.g., G.L. c. 164, Section 76. The Department's authority was most recently
amended by the Acts of 1997, c. 164 (the "Restructuring Act" or "Act").(4)
Boston Edison Company, D.P.U./D.T.E. 96-23, at 9 (1998). The Act authorizes the
Department to issue a financing order allowing a company to securitize its
reimbursable transition costs amounts (both debt and equity) through the
issuance of electric
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(3) On March 18, Boston Edison Filed a motion for the Department to update
the record in D.T.E. 98-118 and D.T.E. 98-119/126, reopen the
evidentiary record, and admit two additional exhibits. The motion was
granted in D.T.E. 98-119/126 and the exhibits (the Fourth Amendment to
the Pilgrim Power Sale Agreement between Boston Edison and Montaup and
the Agreement between Boston Edison and Plymouth concerning property
taxes were marked as BE-5B, Tab 11R and BE-17, respectively. The
Department notes that Exh. BE-17 already existed and on its own motion
now changes the number of Exh. BE-17 to BE-18.
(4) An Act relative to Restructuring the Electric Utility Industry in the
Commonwealth, Regulating the Provisions of Electricity and Other
Services, and Promoting Enhanced Consumer Protections Therein, signed
by the governor on November 25, 1997. St. 1997, c. 164.
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RRBs. (5) A financing order may be issued by the Department to facilitate the
provision, recovery, financing or refinancing of transition costs. G.L. c. 164,
Section 1H(b)(1).
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(5) "Electric rate reduction bonds" are defined as, "bonds, notes,
certificates of participation or beneficial interest, or other
evidences of indebtedness or ownership, issued pursuant to an executed
indenture, financing document, or other agreement of the financing
entity, secured by or payable from transition property, the proceeds of
which are used to provide recover, finance or refinance transition
costs or to acquire transition property and that are secured by or
payable from transition property." G.L. c.164, Section 1(H)(a).
"Financing order" is defined as, "an order of the Department. . .
approving a plan, which shall include, without limitation, a procedure
to review and approve periodic adjustments to transition charges to
include recovery of principal and interest and the costs of issuing,
servicing, and retiring electric rate reduction bonds contemplated by
the financing order." G.L. c. 164, Section 1(H)(a).
"Reimbursable transition costs amounts" are defined as, "the total
amount authorized by the Department in a financing order to be
collected through the transition charge, as defined pursuant to G.L. c.
164, Section 1, and allocated to an electric company in accordance with
a financing." G.L. c. 164, Section 1(H)(a).
"Securitization" is defined as, the use of rate reduction bonds to
refinance debt and equity associated with transition costs pursuant to
G.L. c. 164, Section 1H.
"Transition costs" are defined as, "the costs determined pursuant to
G.L. c. 164, Section 1G which remain after accounting for maximum
possible mitigation, subject to determination by the Department."
G.L. c. 164, Section 1(H)(a).
"Transition charge" is defined as, "the charge to the customers which
provides the mechanism for the recovery of an electric company's
transition costs." G.L. c. 164, Section 1(H)(a).
"Transition property" is defined as, "the property right created
pursuant to this section, including, without limitation, the right,
title and interest of an electric company or a financing entity to all
revenues, collections, claims, payments, money, or proceeds of or
arising from or constituting reimbursable transition costs amounts
which are the subject of a financing order, including those
non-bypassable rates and other charges that are authorized by the
department in the financing order to recover transitions costs and the
costs of providing, recovering, financing, or refinancing the
transition costs, including the costs of issuing, servicing and
retiring electric rate reduction bonds." G.L. c. 164, Section 1(H)(a).
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Prior to issuing a financing order, the Department must have approved an
electric company=s restructuring plan.(6) G.L. c. 164, Section 1(A)(a). The
restructuring plan must include, among other things, a company's strategy to
mitigate the transition costs it seeks to recover through a non-bypassable
transition charge. In order to issue a financing order, the Department must find
that a company has demonstrated that the issuance of electric RRBs to refinance
reimbursable transition costs will reduce the rates that a company's customers
would have paid without the issuance of electric RRBs, and that the reduction in
rates to customers equals the savings obtained by the company. G.L. c. 164,
Section 1(H)(b)(2). The company must establish, and the Department must approve,
an order of preference for use of bond proceeds such that transition costs
having the greatest impact on customer rates will be the first to be reduced by
those proceeds. G.L. c. 164, Section 1G(d)(4).
In order to approve an application for a financing order, the Department
must also be satisfied that a company has (1) fully mitigated the related
transition costs (including, but not limited to, as applicable, divestiture of
its non-nuclear generation assets,(7) renegotiation of
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(6) The Act requires that a company's restructuring plan or settlement
contain the following key features: (1) an estimate and detailed
accounting of total transition costs eligible for recover; (2) a
description of the strategy to mitigate transition costs; (3)
unbundled prices or rates for generation, distribution transmission
and other services; (4) proposed charges for the recovery of
transition costs; (5) proposed programs to provide universal service
for all customers' (6) proposed programs and recovery mechanisms to
promote energy conservation and demand-side management; (7)
procedures for ensuring direct retail access to all communities
served by the company; and (8) a discussion of the impact of the plan
on the company's employees and the communities served by the company.
G.L. c. 164 Section 1A9a). See Boston Edison Company, D.P.U./D.T.E.
96-23, at 10-11 (1998).
(7) The Act prescribes that a company that fails to divest its
non-nuclear generation assets is not eligible to benefit from
securitization and the issuance of electric RRBs. G.L. c. 164 Section
1(G)(d)(3). However, the Act also provides that an electric company
that has not divested its non-nuclear generation facilities may be
able to securitize its transition costs if it is not able to meet the
15 percent rate reduction required by the Act. G.L. c. 164,
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existing power purchase contracts, and the valuation of assets of the company);
and (2) obtained written commitments that purchasers of divested assets will
offer employment to any affected non-managerial employees who were employed at
any time during the three-month period prior to the divestiture, at levels of
wages and overall compensation no lower than the employees' prior levels. G.L.
c. 164, Section 1G(d)(4). In addition, the Department cannot approve a company's
application for securitization if the company owns, in whole or in part as of
July 1, 1997, a nuclear-powered generation facility located in the Commonwealth
that exceeds 250 megawatts in size, unless the company has executed a tax
agreement with the plant's host community. G.L. c. 59, Section 38H(c).
III. BOSTON EDISON'S SECURITIZATION PROPOSAL
A. Introduction
Securitization is a method for a company to refinance transition costs. The
Restructuring Act authorizes an electric company to securitize its transition
costs by issuing RRBs to investors that will be repaid through a portion of the
transition charge. G.L. c. 164, Section 1H. The RRBs, if assigned a high credit
rating(8), will have an interest rate lower than the carrying charge paid by
ratepayers as part of the transition charge, thereby generating savings to
ratepayers.
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Section 1(G)(c)(2).
(8) The rating of bonds relates to the likelihood of timely payment of
interest and ultimate repayment of principle by the final legal
maturity date. Credit enhancements are intended to reinforce the
likelihood that payments on the SPE debt securities will be made in
accordance with the expected amortization schedule. Typical examples
of credit enhancements include true-up adjustments,
overcollateralization, capital accounts (equity contribution), and
reserve accounts. Other forms of credit enhancement may include
additional reserve accounts, sureties, guarantees, letters of credit,
liquidity reserves, repurchase obligations, cash collateral accounts,
third party supports, or other similar arrangements.
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Boston Edison ratepayers currently pay a carrying charge of 10.88 percent
for all unrecovered transition costs (Exh. BE-1 ("Settlement Agreement") at Att.
3, Sch.1, at 14). Boston Edison proposes to securitize approximately $805
million of transition costs (and related costs of issuance) by issuing RRBs
(Boston Edison Reply Brief at 21-22). The proposed estimated principal amount of
the RRBs is composed of (1) approximately $691 million representing the net
present value of the fixed component of Boston Edison's transition charge after
all Pilgrim divestiture related adjustments have been made, (2) $68 million for
the L'Energia contract buyout (Boston Edison Company, D.T.E. 99-16, now pending
before the Department), (3) approximately $36 million in transaction costs, and
(4) $10 million for delivery requirements related to materials contracts with
General Electric (Boston Edison Reply Brief at 22). The amount to be securitized
is discussed in section IV, below.
After the enactment of the Restructuring Act, the Department, the Agencies,
the Massachusetts-based electric companies and other interested parties, such as
investment bankers and statistical rating organizations ("rating
organizations"), developed a structure for an RRB transaction (Boston Edison
Brief at 3-4). As part of its application, Boston Edison submitted a proposed
financing order prepared in consultation with the Agencies, Lehman Brothers, and
Goldman, Sachs & Co. ("the Underwriters"), the Commonwealth of Massachusetts
Executive Office for Administration and Finance, and three rating organizations
(Boston Edison Brief at 4, citing RR-DTE-29).(9)
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(9) Boston Edison submitted a revised proposed financing order with its
initial brief, arguing that it has been revised to reflect the
discussion, comments and concerns raised during the course of this
investigation (Boston Edison Brief at 4. Tab 1).
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Boston Edison seeks to recover through the RRBs, a portion of its
transition costs, together with the transaction costs of issuing RRBs, ongoing
transaction costs, and the costs of providing credit enhancement. Boston Edison
also seeks an exemption from the competitive bidding requirements of G.L. c.
164, Section 15 in connection with the sale of the RRBs, and from the par value
debt issuance requirements of G.L. c. 164, Section 15A. The request for these
exemptions is discussed below. If approved by the Department, the amounts Boston
Edison seeks to recover will constitute reimbursable transition costs amounts
and will be financed through the issuance of RRBs, and a portion of Boston
Edison's transition charge, the reimbursable transition cost ("RTC") charge,
will be used to repay these amounts. The RRBs will be backed by collateral,
including the right to all collections or proceeds arising from (1) recoverable
transition costs, (2) RTC charge, and (3) adjustments to the RTC charge
(collectively, the "Transition Property") as set forth in the financing order
(Boston Edison Brief at 65).
Boston Edison will sell the Transition Property to a special purpose entity
("SPE") (id.). The SPE will be a bankruptcy-remote entity owned and initially
capitalized by Boston Edison (id.). To raise the funds to buy the Transition
Property from Boston Edison, the SPE will issue and sell SPE debt securities to
a special purpose trust established by the Agencies (id.). This special purpose
trust will then issue RRBs, the proceeds of which will be remitted to the SPE
and ultimately to Boston Edison (id.). Once a financing order is issued, neither
the Department nor the Commonwealth of Massachusetts (pursuant to G.L. c. 164,
Section 1H(b)(3)) can alter or revoke the transfer of Transition Property, or
the RTC Charges.
In order to maximize the savings obtainable from securitization, the RRBs
must achieve the highest possible rating. The RRBs will receive ratings from
national rating organizations. The
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rating of debt instruments backed by regulatory assets such as the RRBs is not
tied to the rating of the distribution company; instead, it is based on an
analysis of the underlying collateral and the specific transaction structure. A
credit rating analysis takes into account elements that are customary in an
asset securitization and combines them with a detailed analysis of the
regulatory and legal foundation of the asset account and the collection
mechanisms. Rating organizations will consider the following characteristics of
RRBs (1) bankruptcy-remoteness of seller, (2) predictability and
nonbypassability of the RTC charge, (3) standards governing a third party
supplier ("TPS"), (4) credit enhancement, and (5) the Commonwealth's assurance
of irrevocability; and other statutory safeguards (Exh. BE-2, at 4).
The Restructuring Act establishes the Agencies as a financing entity for
RRBs. In this capacity, the goal of the Agencies is to protect the interests of
Boston Edison's ratepayers by (1) ensuring the lowest all-in cost pricing
reasonably obtainable for RRBs,(10) (2) streamlining the administrative
processes and thereby minimizing the costs of issuing the RRBs, and
(3) providing consulting services to the Department (G.L. c. 164,
Section 1H(b)(2)). The Agencies also have a number of other responsibilities
under the Act, including the issuance of the RRBs. The Agencies also will
approve the final terms and conditions of the RRBs, including structure,
pricing, credit enhancement, relevant issuance costs and manner of sale. In
addition, in order to minimize the all-in costs of the RRBs and associated
administrative expenses, the Agencies will coordinate with Boston Edison on the
marketing of the RRBs, the procurement of bond trustees
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(10) The all-in cost of the RRBs is an effective interest rate that
includes the stated interest rate of the RRBs, i.e., the interest rate
paid to investors, and the transaction costs of the securitization
(Exh. BE-3, at 13).
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and related services, and the selection of rating organizations and the
underwriting syndicate
(Agencies' Brief at 3).
B. Positions of the Parties
1. Boston Edison
Boston Edison argues that the structure of the RRB transaction, as
described above, satisfies all statutory and rating organizations requirements,
as well as the requirements of the Agencies (Boston Edison Brief at 61, 93).
Boston Edison argues that the proposed financing order complies with the
relevant provisions of the Restructuring Act, as well as other provisions
governing the operation of electric companies (id. at 62, citing G.L. c. 164,
Sections 1G and 1H). Finally, Boston Edison argues that it has drafted the
proposed financing order to obtain the "lowest pricing for the RRBs and the most
efficient cost structure for the transaction as a whole" (id. at 62). For these
reasons, Boston Edison argues that the issuance of RRBs is in the public
interest and should be approved by the Department (id. at 93).
2. Attorney General
The Attorney General does not disagree about whether the issuance of RRBs
by Boston Edison is in the public interest and should be approved by the
Department. However, the Attorney General urges that the Department's approval
of Boston Edison's application should incorporate certain changes to the
financing order. The Attorney General's proposed changes, together with findings
thereon, are discussed below.
3. The Agencies
The Agencies urge the Department to approve the proposed financing order
and argue that, in general, it incorporates all of the characteristics
considered significant by rating
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organizations in establishing the highest possible credit rating of the RRBs
(Agencies Brief at 4). However, the Agencies suggest some changes to the
proposed financing order which are discussed in section V, below.
4. Plymouth
The town of Plymouth argues that Boston Edison cannot securitize unless and
until Boston Edison has executed an agreement to make payments in addition to
and payments in lieu of taxes to Pilgrim's host community, the town of Plymouth.
The status of the host community tax agreement is discussed below.
C. Analysis and Findings
1. Introduction
The Act requires the Department to find that specific conditions have been
met in order for a company to be eligible to issue electric RRBs. Consistent
with the standard of review, the Department's analysis of Boston Edison's
proposed securitization transaction will focus on (1) mitigation of transition
costs, (2) savings to ratepayers, (3) employee commitments, (4) order of
preference for use of proceeds, and (5) host community tax agreement.
a. Mitigation of Transition Costs
An electric company seeking to recover transition costs must mitigate such
costs. G.L. c. 164, Section 1G(d)(1). Before approving the recovery of
transition costs through the transition charge, the Department must find that a
company has taken all reasonable steps to mitigate to the maximum extent
possible, the total amount of transition costs that will be recovered from
ratepayers. G.L. c. 164, Section 1G(d)(1).
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The Act requires a company to have an approved restructuring plan that
establishes its overall mitigation strategy and to divest it non-nuclear
generation assets in order to be able to securitize its reimbursable transition
costs. G.L. c. 164, Sections 1A(a), 1(G)(d)(3). Boston Edison filed a
restructuring Settlement Agreement with the Department on July 8, 1997, which
contained a detailed accounting of Boston Edison's transition costs and
mitigation strategy (Settlement Agreement at Att. 3). The Department approved
the mitigation strategy proposed in the Settlement Agreement and authorized
Boston Edison to recover its associated transition costs. Boston Edison Company,
D.P.U./D.T.E. 96-23, at 46-47 (1998).
The Settlement Agreement required Boston Edison to divest its non-nuclear
generation business, to endeavor to sell, assign or otherwise dispose of its
PPAs, and to file a market valuation plan for Pilgrim on or before January 1,
1999.(11) In May, 1998, Boston Edison divested its non-nuclear generation
assets, as required by the Settlement Agreement. With respect to PPAs, in Boston
Edison Company, D.T.E. 98-119/126, at 49 (1999), the Department found that
Boston Edison "has made and continues to make a reasonable attempt to mitigate
the costs related to the municipal contracts through attempted renegotiations of
the PPAs and through seeking recovery through its ongoing filing at FERC." In
addition, in a letter order issued on February 19, 1999, in D.T.E. 98-62, the
Department found that Boston Edison made a good faith effort to renegotiate its
above-market PPAs within the meaning of G.L. c. 164, Section 1G(d)(2)(i).
Boston Edison has received Department approval to divest Pilgrim pursuant
to D.T.E. 98-119/126 (1999), although such divestiture is not required by either
the Act or the Settlement Agreement. In approving the proposed sale, the
Department found that the divestiture transaction
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(11) Settlement Agreement at Section V.C.
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provided both direct and indirect benefits to Boston Edison ratepayers through
the mitigation of Pilgrim-related transition costs. Further, the Department
found that the divestiture of Pilgrim is consistent with the mitigation
requirements of the Act. D.T.E. 98-119/126, at 24 (1999).
Boston Edison contends that, because the Department has approved or will
approve the recovery of all transition costs (including the renegotiated PPAs)
that the Company seeks to securitize in the RRB transaction, it has mitigated
its transition costs (Boston Edison Brief at 94, citing D.P.U./D.T.E. 96-23, at
73; D.T.E. 97-113 (non-nuclear generating asset divestiture approval); D.T.E.
98-119 (Pilgrim divestiture); and D.T.E. 99-16 (L'Energia buyout)). The
Department approved recovery of transition costs through Boston Edison's
transition charge in (1) the Settlement Agreement approved by the Department in
D.T.E. 96-23, (2) the approval of Boston Edison's non-nuclear generation asset
divestiture in D.P.U./D.T.E. 97-113, and (3) the approval of Boston Edison's
Pilgrim divestiture in D.T.E. 98-119/126. In each case, the Department found
that Boston Edison had taken all reasonable steps to mitigate, to the maximum
extent possible, such transition costs. G.L. c. 164, Section 1G(d)(1).
Accordingly, the Department finds that Boston Edison has met its obligation to
mitigate the transition costs it seeks to securitize as approved in
D.P.U./D.T.E. 96-23, D.P.U./D.T.E. 97-113 and D.T.E. 98-119/126 for the purposes
of G.L. c. 164, Section 1G(d)(4)(i). The Department has not yet issued a
decision regarding the L'Energia contract buyout; therefore, the Department
makes no finding regarding mitigation related to the L'Energia contract buyout.
The exact costs, including the L'Energia buyout, are discussed in Section IV,
below.(12)
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(12) The Attorney General argues that approximately $50 million in costs
the company seeks to securitize have not been mitigated and are
therefore not eligible to be securitized. The specific costs are
discussed in section IV below.
19
b. Savings to Ratepayers
Before approving a financing order, the Department must find that savings
to ratepayers will result from securitization and that all such savings derived
from securitization will inure to the benefit of ratepayers. G.L. c. 164,
Sections 1G(d)(4)(ii)-(iii). Under the Settlement Agreement, Boston Edison's
ratepayers pay a carrying charge of 10.88 percent for all unrecovered transition
costs (Settlement Agreement at Att. 3, Sch. 1, at 14). Boston Edison argues that
its ratepayers will benefit from securitization if the effective all-in cost of
the approved transition costs is lower than the current 10.88 percent carrying
charge. Based on current market conditions, Boston Edison anticipates that the
carrying charge rate of 10.88 percent will be reduced to approximately 7.50
percent through securitization (Tr. 3, at 283-284). Boston Edison estimates that
the total net present value of savings to its ratepayers, as a result of
securitization, will be $89 million (Boston Edison Brief at 95).(13)
Although no party disputed the conclusion that securitization will yield
ratepayer savings as long as the interest rate on the RRBs is less than 10.88
percent, the Attorney General cautions that "the bonds must, of course, result
in savings" and the Agencies must "ensure the lowest all-in cost pricing
reasonably obtainable on the RRBs" (Attorney General Reply Brief at 9). The
Agencies support approval of Boston Edison's request to securitize its
transition costs stating that, in their capacity as the "financing entity,"
their goal is to protect the interests of Boston Edison's ratepayers by ensuring
the lowest all-in cost pricing reasonably obtainable for the RRBs (Agencies
Brief at 2). The Agencies state that in approving specified transaction costs,
they
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(13) Boston Edison's savings estimate assumes a reduction in the interest
rate paid by Boston Edison to 7.50 percent. The actual interest rate
will be determined upon issuance of the RRBs.
20
would seek to avoid unnecessary or excessive costs in order to obtain maximum
ratepayer savings, while at the same time obtaining the highest possible bond
ratings (id. at 13).
Neither Boston Edison nor the Agencies, as the financing entity, will
authorize a bond issuance unless there will be demonstrated ratepayer savings
(Exh. BE-4, at 14-15; Agencies Brief at 2). Boston Edison states that it will
not issue RRBs unless the all-in cost of issuance of the RRBs results in a
carrying charge of less than the current carrying charge of 10.88 percent
(Exh. BE-4, at 14-19). Because securitizing at an all-in cost of less than
10.88 percent will result in Boston Edison's ratepayers paying a transition
charge that is lower than what they would have paid without securitization, the
Department finds that savings to ratepayers will result from securitization.
Therefore, Boston Edison should proceed with securitization and ensure that all
such savings will inure to the benefit of ratepayers, in accordance with
G.L. c. 164, Sections 1G(d)(4)(ii)-(iii). While Boston Edison anticipates that
securitization will result in savings to ratepayers of approximately
$89 million, the Department notes that the amount of ratepayer savings is
predicated on market conditions at the time of bond issuance. Upon issuance, a
financing order is irrevocable and may not be altered by the Department.
G.L. c. 164, Section 1H(b)(3). The Department must, therefore, rely on the
Agencies, as the financing entity, to ensure that the maximum possible level of
ratepayer savings is obtained.
c. Employee Commitments
Before the Department may approve a financing order, the Department must be
satisfied that Boston Edison has obtained a written commitment from Entergy
which provides that Entergy, as the purchaser of Pilgrim, will offer employment
to any affected non-managerial employees who were employed at any time during
the three-month period prior to the divestiture,
21
at levels of wages and overall compensation no lower than the employees' prior
levels. G.L. c. 164, Section 1G (d)(4)(iv).
The Purchase and Sale Agreement between Boston Edison and Entergy contains
a written commitment stating that Entergy, as the buyer, "is required to
offer employment to those employees of [Boston Edison] who were employed in
non-managerial positions and whose employment relates primarily to providing
services for operation of [Pilgrim] at any time during the three-month period
prior to the closing date, at levels of wages and overall compensation not lower
than the employees' prior levels, for a period of six months beginning at the
section closing date" (Exh. BE-5A, Tab 1, at Section 5.7(a)).
Accordingly, the Department finds that Boston Edison has satisfied the
requirements of G.L. c. 164, Section 1(g)(d)(4)(iv) relating to employee
commitments.
d. Order of Preference for Use of Proceeds
In its application, Boston Edison states that it expects to use the
proceeds from the sale of transition property, net of transaction costs, for the
following purposes: (1) to return the securitized portion of the Pilgrim and
non-nuclear unrecovered plant balances and related regulatory assets; (2) to
fund the unrecovered prefunded balance of the securitized portion of the
decommissioning fund and any additional transition costs arising in connection
with the Pilgrim divestiture; and (3) to provide any credit enhancement required
for the RRBs (Exh. BE-4, at 12). Before the Department may approve a financing
order, Boston Edison must show that it has established an order of preference
for use of the RRB proceeds that first reduces transition costs having the
greatest effect on customer rates. G.L. c. 164, Section 1G(d)(4)(v). Boston
Edison states that the order of preference for the use of RRB proceeds meets the
requirements of the Act because all of its transition costs have the same
carrying charge of 10.88 percent and, therefore,
22
have the same effect on customer rates (Boston Edison Brief at 97). Because all
of Boston Edison's reimbursable transition costs have the same carrying charge,
the reduction of any cost has the same customer rate impact. The Department
therefore finds that Boston Edison's proposal satisfies the requirements of the
Act relative to the order of preference for use of the bond proceeds, and thus
complies with G.L. c. 164, Section 1G(d)(4)(v).
e. Tax Agreement
The Department cannot approve an electric company's plan to securitize its
transition costs without an executed tax agreement if the electric company owns
a nuclear-powered generation facility in the Commonwealth that exceeds 250
megawatts and that was owned in whole or in part by said company as of July 1,
1997. G.L. c. 59, Section 38H(c). Boston Edison owned Pilgrim (whose output
exceeds 250 megawatts) as of July 1, 1997; therefore, Boston Edison must
demonstrate to the Department that it has executed an agreement with the town of
Plymouth (Pilgrim's host community) to make payments in addition to and payments
in lieu of taxes before the Department can approve its securitization plan. G.L.
c. 59, Section 38H(c).
On March 18, 1999, Boston Edison and the town of Plymouth presented to the
Department an executed agreement (Exh. BE-17) which requires Boston Edison to
make payments in addition to and payments in lieu of taxes to the town of
Plymouth. There are additional requirements that are conditions of the executed
agreement.(14) Because Boston Edison
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(14) The Department notes that the agreement, although executed by Boston
Edison and the town of Plymouth, is conditioned upon (1) the
enactment of legislation which "authorizes, ratifies, validates and
confirms" that Boston Edison has satisfied all of its tax
requirements and (2) findings by the Department that (1) [the]
Agreement constitutes an agreement with respect to property taxes
which satisfies the requirements of M.G.L. c. 59, Section 38H(c) with
respect to agreements relating to property taxes, payments in
addition to property taxes and payments in lieu of property taxes for
Pilgrim Nuclear Power Stations and which is (i) sufficient to find
Boston Edison to be eligible to collect the full
23
has executed an agreement pursuant to G.L. c. 59, Section 38H(c), these
requirements do not prohibit the Department from approving a plan submitted
by Boston Edison to utilize the provisions of securitization pursuant to
G.L. c. 164, Section 1H.(15) Therefore, the Department finds that Boston
Edison has complied with the requirements of the Restructuring Act relative
to executing an agreement to make payments in addition to and payments in
lieu of taxes pursuant to G.L. c. 59, Section 38H(c).
IV. AMOUNTS TO BE SECURITIZED
A. Introduction
After the divestiture of Pilgrim, Boston Edison will credit customers with
the sale proceeds after making adjustments for several items, such as materials
and supplies, nuclear refueling outage costs, and other costs. D.T.E.
98-119/126, at 40-69. The Company will also reduce the sale proceeds by $466
million for the Decommissioning Trust being transferred to Entergy, the
purchaser of Pilgrim, less the amount already paid by ratepayers for
decommissioning. D.T.E. 98-119/126, at 69. After providing for these
adjustments, Boston Edison estimates that customers will have a liability of
$264 million, based on a closing date of
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amount of transition costs as approved by the DTE pursuant to
M.G.L. c. 164 Section 1G, and (ii) sufficient to permit Boston Edison
to securitize its transition costs, and (2) that the amounts to be
paid hereunder are transition costs recoverable from Boston Edison's
retail customers under applicable laws and precedent, including
M.G.L. c. 164, Section 1G(b)(2)(ii) and the DTE order in DPU/DTE
96-23." Boston Edison Company and Town of Plymouth Joint Motion to
Approve the Tax Agreement, D.T.E. 98-53, and D.T.E. 99-33.
(15) On March 22, 1999, Boston Edison and the town of Plymouth filed a
Joint Motion To Approve The Tax Agreement. D.T.E. 98-53, and D.T.E.
99-33. Approval of the Agreement is under review by the Department.
24
March 31, 1999, for the sale. (16) D.T.E. 98-119/126, at 69, n.39. This
liability of $264 million results in a Pilgrim residual value credit ("RVC")
annualized at $29 million per year(17) (Exh. BE-7, Att. GOL-3, at 2).
Subtracting the $29 million annual payments from the $57 million for the
non-nuclear units' divestiture annual RVC credit, Boston Edison calculates a net
annual RVC of $27 million. D.T.E. 98-119/126, at 69, n.39. Boston Edison
estimates that after the implementation of this net RVC, the fixed component of
its transition charge will be $692 million, on a net present value basis,
assuming a closing date of March 31, 1999 (Exh. BE-7, Att. GOL-3, at 2).
Similarly, for closing dates of June 30, 1999, and December 31, 1999, Boston
Edison estimates the fixed component of the transition charge will be $653
million and $611 million, respectively (Exh. BE-7, Att. GOL-4, at 2, GOL-5,
at 2).
Boston Edison proposes to securitize the following costs: (1) the updated
fixed component of its transition charge (approximately $692 million, assuming a
March 31, 1999 closing, less the $800,000 balance for the LaGrange Street
Property);(18) (2) transaction costs of
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(16) While the ratepayers have a liability of $264 million for the
divestiture of Pilgrim, the sale reduces the transition charge paid
by them. On a net present value basis, Boston Edison calculates that
the Pilgrim divestiture would serve to reduce its total transition
charge by $15 million to $29 million, depending on the closing date.
D.T.E. 119/126, at 70.
(17) The annual RVC credit represents a yearly credit to ratepayers that
is calculated as an annuity based on the amortization and the pre-tax
carrying charge of 10.88 percent on the credit balance. In this case,
the net balance of negative $264 million results in an annual amount
of $29 million that ratepayers will pay Boston Edison over the period
from 1999 to 2009.
(18) In its initial filing, Boston Edison included $800,000 for the
LaGrange Street Property, a large tract of land in Newton owned by
the Company that it states was never used for the utility business
(Tr. 3, at 405-406). Boston Edison has withdrawn its request to
include the $800,000 amount with respect to the LaGrange Street
property as a reimbursable transition costs amount in response to
objections raised by the Attorney General and DOER (Boston Edison
Reply Brief at 20, n.16).
25
approximately $36 million; (3) a $10 million delivery requirement related to a
materials contract with General Electric; and (4) $68 million for the buyout of
the contract with L'Energia Limited Partnership(19) upon a favorable ruling by
the Department in Boston Edison Company, D.T.E. 99-16 (Exh. BE-3, Sch. BEB3B;
Boston Edison Reply Brief at 22, n.17). The amounts the Company proposes to
securitize total $805 million, and might be increased by any credit enhancement
included upon issuance (Boston Edison Reply Brief at 22, n.17).
B. Positions of the Parties
1. Attorney General
The Attorney General argues that Boston Edison is seeking to securitize
costs that are not eligible for recovery or have not been fully mitigated
(Attorney General Brief at 22). Further, the Attorney General argues that Boston
Edison seeks to securitize costs that are not yet sufficiently final to permit
any determination that they are eligible for recovery or fully mitigated (id.).
The Attorney General recommends that the Department limit the amount to be
securitized to those costs that have been shown to be both recoverable and fully
mitigated (id.). To this end, the Attorney General recommends that the amount to
be securitized be capped at $710 million (id.).(20)
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(19) Boston Edison has a purchase power agreement pursuant to which Boston
Edison purchases 73 percent of the capacity and associated electric
energy produced by the L'Energia generation facility. Boston Edison
states that the cost of capacity and associated energy under the
L'Energia Agreement is now above the market price for power. In
D.T.E. 99-16, Boston Edison requests that the Department approve the
buyout of all obligations of Boston Edison under the L'Energia
agreement. In addition, in D.T.E. 99-16, Boston Edison requests that
the Department approve the full recovery of the buyout amount in its
retail rates through the fixed component of Boston Edison's
transition charge.
(20) The cap of $710 million recommended by the Attorney General assumes
that the total securitization amount requested by the Company is $730
million per Boston Edison's initial filing.
26
The Attorney General argues that the amount that Boston Edison proposes
to securitize includes approximately $50 million of costs that are not
transition property because they have not been shown to be both recoverable and
fully mitigated (id. at 22-23). This $50 million in costs includes the
following: (1) $800,000 in costs for the LaGrange Street property; (2) $15
million in capital additions related to Pilgrim that have not been shown to be
prudently incurred; (3) $5 million of estimated transaction costs(21) related to
the Pilgrim divestiture; and (4) $26 million of estimated refinancing costs(22)
(id. at 23). The Attorney General argues that the Agencies "have not reviewed,
much less offered any opinion on the costs" that Boston Edison estimates it will
incur to refinance existing securities, and thus argues that there is no
evidence that these estimates are reasonable (Attorney General Reply Brief at
8-9).
The Attorney General acknowledges that even though the Company has not
yet shown that these costs are recoverable and fully mitigated, ultimately more
than half of these contested or unknown costs will be found to be appropriately
included in transition property for the purposes of securitization (Attorney
General Brief at 23). The Attorney General does not wish to
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(21) There are two types of transaction costs that are discussed in this
proceeding. The first type of transaction costs, which is the one
referred to here, represents those costs associated with the
divestiture of Pilgrim, and which the Company estimates to be $5
million. These transaction costs consist primarily of legal and
consulting fees (Exh. DTE-BECo 49). The second type of transaction
costs are those associated with securitization and consist of
underwriting fees, rating agency fees, accounting fees, SEC
registration fees, Department filing fees, printing and marketing
fees, trustees' fees, legal fees and expenses, the Agencies' fees,
servicing set-up costs and SPE set-up costs, original issue discount,
and refinancing costs (Exh. BE-3, at 22). The Company estimates these
transaction costs associated with the securitization to be about $35
million (Exh. BE-3, Sch. BE-3B).
(22) Refinancing costs refer to expenses that Boston Edison is expected to
incur to reduce its capitalization, including payment of call
premiums and prepayments (Exh. BE-3, Sch. BE-3B).
27
forego cost savings that result from securitization (id.). Therefore, the
Attorney General recommends that the Department approve all but $20 million of
the amounts Boston Edison proposes to securitize, but further recommends that
the Department not specify which costs make up the $20 million (id.). According
to the Attorney General, as long as the amount approved by the Department does
not exceed the amount that will ultimately be found to be securitizable, his
recommendation is consistent with the Restructuring Act (id. at 23-24). The
Attorney General states that the Department can defer the specification of which
costs are included in the transition property for securitization until after the
closing date when any reconciliation and other necessary proceedings take place
(id. at 24).
2. Agencies
The Agencies do not make a recommendation on the size of the RTC
amounts (Agencies Reply Brief at 3). However, the Agencies recommend that the
Department "make clear that any limitation relates to the transition costs to be
securitized and not to credit enhancement or costs of issuance to be funded with
bond proceeds" (id. at 3).
3. Boston Edison
Boston Edison agrees with the Attorney General=s argument that only
costs that have been shown to be both recoverable and fully mitigated can be
securitized (Boston Edison Reply Brief at 19). However, Boston Edison argues
that it proposes to securitize only those transition costs that have been
determined by the Department to be reimbursable transition costs (id.).
Boston Edison argues that all the costs objected to by the Attorney
General are indeed reimbursable transition costs, with the exception of the
LaGrange Street Property (id.).(23) Boston
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(23) As noted above, Boston Edison withdrew the LaGrange Street property
from consideration for securitization.
28
Edison asserts that refinancing costs are not transition costs that need to be
mitigated (id.). Boston Edison states that the Restructuring Act permits
recovery of refinancing costs as transition property (id. at 20, citing G.L. c.
164, Section 1H(a)). Furthermore, Boston Edison maintains that the recovery of
call premiums is provided for in the Settlement Agreement (id. at 20).
Boston Edison claims that any imposition of a cap on the securitizable
amount will unnecessarily deprive ratepayers of savings that can be achieved by
securitizing at an interest rate lower than the 10.88 percent carrying charge
rate (id. at 21). Boston Edison asserts that the higher the principal amount of
the RRBs, the greater the savings to ratepayers (id.).
Boston Edison argues that the Attorney General's method of setting a
cap is "imprecise to the point of being arbitrary" (id.). Boston Edison states
that if the Department ultimately determines in D.T.E. 99-16 that the L'Energia
buyout costs can be included in the transition charge, then the amount Boston
Edison proposes to securitize would exceed the cap recommended by the Attorney
General and would deprive ratepayers of additional savings (id. at 21-22).
In addition, Boston Edison argues that the proposed cap would not
accommodate any additional credit enhancement required by the rating
organizations in order to obtain the highest rating for the RRBs (id. at 22).
While Boston Edison does not anticipate that the rating organizations will
require additional credit enhancement, it cannot precisely predict the magnitude
of these costs if further enhancement is required. Boston Edison states that
certain forms of credit enhancement could increase the principal amount of the
RRBs substantially (id. at 22).(24)
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(24) For example, if the rating organizations were to require liquidity
reserves representing six months of debt service, Boston Edison
argues that this would add about $75 million to
29
C. Analysis and Findings
Because the bonds issued pursuant to this order will be without
recourse to the credit of Boston Edison or any assets of Boston Edison, and will
constitute irrevocable obligations of the ratepayers of Boston Edison, the
Department must scrutinize all amounts that will be included in the
securitization total to ensure that only those costs that have been shown to be
both recoverable and mitigated are securitized. The Attorney General identifies
approximately $50 million in costs that he argues have not been shown to be both
recoverable and mitigated. The components of this $50 million include capital
additions, transaction costs related to the divestiture transaction, and
refinancing costs.
The Attorney General opposes the inclusion of certain capital addition
costs related to Pilgrim, arguing that they have not been shown to be prudently
incurred.(25) In D.T.E. 98-119/126, at 62-64, the Department allowed the capital
additions questioned by the Attorney General. Therefore, consistent with the
earlier finding in D.T.E. 98-119/126, at 62-64, the Department finds these costs
are recoverable, and can be included in the transition costs to be securitized.
The Attorney General objects to the inclusion of the transaction costs
related to the Pilgrim divestiture because they are estimates. Although the
transaction costs in question are estimated, Boston Edison will update the
estimates based on the actual closing statements, and, therefore, the Department
expects that the transaction costs for the divestiture transaction that Boston
Edison includes in the securitization amount will more closely approximate the
actual amounts. Furthermore, in D.T.E. 98-119/126, the Department directed
Boston Edison to file the
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the RRB principal amount (Boston Edison Reply Brief at 22-23).
(25) The Attorney General's arguments regarding prudence are discussed in
detail in D.T.E. 98-119/126, at 60-64.
30
actual transaction costs, which will then be reconciled in the next transition
charge reconciliation proceeding. Therefore, the Department approves the
inclusion of the transaction costs estimates in the securitization amount, but
directs Boston Edison to use the most current estimates available for these
costs at the time of securitization.
The refinancing costs, which Boston Edison estimates to be about $26
million, constitute the largest component of the $50 million of costs that the
Attorney General objects to being included in the securitization amount.(26) The
Attorney General argues that these costs are estimates and that there is no
evidence that these estimates are reasonable (Attorney General Reply Brief at
8-9). The Act allows the inclusion of refinancing costs in the transition
property. G.L. c. 164, Section 1H(a). In addition, the Settlement Agreement
contemplated the inclusion of refinancing costs in the transition property, as
it requires that net savings from securitization be calculated using all
transaction costs including refinancing costs. Settlement Agreement at Att. 3
Section 1.7(a). Because refinancing will occur after securitization, the amount
included for refinancing costs in the securitization amount must necessarily be
an estimate.
Regarding the Attorney General's argument about the reasonableness of the
estimate for the refinancing costs, the Department acknowledges that while the
Agencies will approve most of the other transaction costs of the securitization,
they will not monitor the refinancing costs. Because the refinancing costs form
the largest component of the transaction costs, it is particularly important
that the Department ensure that the refinancing costs ultimately paid by
ratepayers are reasonable.
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(26) The refinancing costs also form the largest component of the total
transaction costs for securitization, estimated to be $35 million
(Exh. BE-3, Sch. BE-3B).
31
Because the Restructuring Act permits recovery of refinancing costs as
Transition Property, the Department will allow Boston Edison to securitize the
refinancing costs associated with the securitization. However, the Department
will review the reasonableness of these costs in Boston Edison's next transition
charge reconciliation proceeding, and may, at that time, disallow the recovery
of any costs that are found to be unreasonable. (27) Furthermore, if Boston
Edison's actual refinancing costs are lower than the securitized amount, the
Department directs Boston Edison to return to ratepayers any amounts in excess
of its actual costs. Any such disallowance or return to ratepayers of an
overcollection will be carried out through a RVC established at the Company's
next transition charge reconciliation proceeding.
Regarding the Attorney General's recommendation for the imposition of a
cap, the Department notes that the imposition of an arbitrary cap on the amounts
to be securitized would prohibit Boston Edison from securitizing other costs,
such as the L'Energia buyout costs, if the Department approves the inclusion of
those costs as a transition charge. In addition, the imposition of a cap might
prevent Boston Edison from meeting any additional credit enhancement
requirements that the rating organizations may impose.
Although we will not impose a cap on the total amounts to be securitized,
the Department will specify which costs Boston Edison may securitize. Boston
Edison may include any amount from the L'Energia buyout in the amounts to be
securitized only if and when such amounts are
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(27) Any disallowance of the refunancing costs will not affect the RTC
charge. Boston Edison states that if the transition costs included in
the financing order exceed the correct amount, it will provide
ratepayers with a uniform rate credit using a RVC established during
a transition charge reconciliation proceeding (Exh. BE-4, at 11).
Further, the Company states that such a uniform rate credit will not
diminish the right to collect the RTC charge, and will not affect the
status of the transfer of the Transition Property as a true sale
(id. at 11-12).
32
approved by the Department as transition costs in D.T.E. 99-16. Further, Boston
Edison may securitize amounts associated with the General Electric materials
contract or other costs not approved in the Divestiture Order only upon a
finding by the Department that such costs are a) reasonable and necessary costs
incurred in order to finalize the Pilgrim divestiture transaction, and
b) qualify as transition costs. See D.T.E. 98-119/126, at 67-69.
Based on the foregoing analysis and findings, the Department will allow
Boston Edison to securitize the following costs: (1) costs representing the
fixed component of the transition charge, which include the net balance of the
unrecovered plant balances for Pilgrim and related regulatory assets and the
unrecovered prefunded balance of Boston Edison's portion of the decommissioning
fund being transferred to Energy, and the municipal contract customers' portion
of such balances, less the investment in the LaGrange Street property; (2) the
transaction costs of approximately $35 million for issuing RRBs, providing any
credit enhancement, and including refinancing costs; (3) the costs of the buyout
of the L'Energia contract to the extent these costs are approved as transition
costs in D.T.E. 99-16; and (4) the costs associated with the General Electric
materials contracts, or other costs necessary to finalize the divestiture
transaction, to the extent they are approved by the Department as transition
costs. See D.T.E. 98-119/126 at 67-69.
V. PROPOSED FINANCING ORDER
As discussed above, Boston Edison, in consultation with the Agencies,
submitted a proposed financing order for the Department's consideration with its
petition and a revised proposed financing order with its initial brief
(Exh. BE-1; Boston Edison Brief, App. 1). The Department has reviewed the
proposed financing order as modified by the recommended
33
revisions. The revisions resulted from discussions with certain rating agencies
as well as input from underwriters' bankruptcy and bond counsel. In addition,
the Department has incorporated Boston Edison's recommendation to add a
provision to the Financing Order (See Appendix 1, Paragraph 45) to protect the
RTC revenue stream if Boston Edison, as the initial servicer, seeks to resign
voluntarily as the servicer (Exh. BE-2 at 12). The revisions do not change the
structure or nature of the original application. The following is a summary of
changes in the proposed financing order:
* Revised the amount to be securitized including potential adjustments,
Paragraphs 3, 56, 59;
* Revised for clarification of RTC charges and Boston Edison's
capitalization of each SPE, Paragraphs 3, 22;
* Revised for inclusion of costs associated with the L'Energia PPA
buyout and a reference to its separate proceeding, Paragraphs 4, 56;
* Revised for clarification of the collection of RTC charges from all
classes of retail users, Paragraph 5;
* Revised for clarification of credit enhancement, Paragraphs 11, 16,
41;
* Revised for clarification of contingent indemnity obligations,
Paragraphs 4, 5, 8;
* Revised to reflect proper use of the terms "Transition Property" and
"Reimbursable Transition Costs," Paragraphs 17, 60;
* Revised for clarification of accounting of amounts in the reserve
account to be credited to ratepayers, Paragraph 62;
34
* Revised to add that synthetic floating rate bonds will not be issued
unless it will result in a lower net interest cost on the RRBs,
Paragraph 64.
The Agencies contend that the proposed financing order meets the legal
requirements to issue the RRBs (Exh. BE-15, at 2). In addition, the Agencies
state that the proposed financing order incorporates the requisite provisions
necessary to achieve the highest possible credit rating and thus the lowest
possible interest rate for the RRBs (Agencies Brief at 4). The Agencies are not
aware of any provision in the proposed financing order, as revised, "beyond
that required for the necessary legal opinions or which exceeds the requirements
of the rating organizations in prior RRB transactions" (RR-DTE-29).(28)
Certain issues regarding the provisions contained in the proposed financing
order were raised during the proceeding and are discussed below.
The Department has included an attachment (Appendix 1) to this order which
incorporates the Department's findings herein. Appendix 1, which is part of the
Department's financing order, contains additional terms for the issuance of
bonds, which we adopt here today. Appendix 1 also includes reporting forms
(Appendix A, Attachments 1-4, and Appendix B) which shall be filed by the
Agencies with the Department upon bond issuance. In the following sections, the
Department reviews and analyzes the following provisions in the proposed
financing order: (1) standards governing TPS; (2) a statement regarding
reimbursable transition costs on customers' bills; (3) Ancillary Agreements and
(4) adjustments to the RTC charge. Pursuant to such review, the Department
approves the proposed financing order attached hereto as Appendix 1.
A. Standards Governing Third Party Suppliers
- -------------------------
(28) The cirteria and concerns of rating organizations are from previously
offered RRBs in other states including California and Illinois (Tr. 4,
at 464-466, 478-479).
35
1. Introduction
Boston Edison defines a TPS as an entity that will provide electric
generation service to a customer and that could bill and collect from a customer
(1) all charges for transmission, distribution and transition charges, including
the RTC, (2) transmission and distribution charges, but not transition charges,
or (3) no charges, as Boston Edison would bill and collect all charges directly
from the customer even though a customer has chosen a TPS as its electric
supplier (Tr. 4, at 509). The standards governing the TPS collection and
remittance procedures are viewed by rating organizations as major criteria in
evaluating the creditworthiness of the RRBs (Exh. BE-2, at 4). Therefore, both
Boston Edison and the Agencies strongly recommend that the Department include
specific standards in the financing order to govern TPS collection and
remittance procedures.
Boston Edison included the following standards governing TPS collection and
remittance procedures in the proposed financing order: (1) a TPS will remit
reimbursable transition costs charges, regardless of whether payments are
received from end users, within 15 days of Boston Edison's, or any successor
servicer's,(29) bill for such charges; (2) a TPS will provide Boston Edison, or
any successor servicer, with total monthly KWH usage information, as such
information serves as the basis of RTC remittance;(30) (3) Boston Edison, or any
successor servicer, will be entitled, within seven days after default by a TPS
in remitting RTC charges
- -------------------------
(29) Servicer is defined as an entity acting as servicer of the Transition
Property, responsible for customer KWH billing and usage data, and
for billing, collecting and remitting RTC charges.
(30) This provision is required in the event an entity other than Boston
Edison performs metering services. RTC charges are assessed on a per
KWH basis usage and therefore the information is needed to forecast
any necessary RTC adjustment.
36
billed, to assume responsibility for billing all charges for services provided,
or to switch responsibility to a third party; and (4) if a TPS does not maintain
at least a "BBB" long term unsecured credit rating, such TPS shall maintain,
with the servicer, a cash deposit or comparable security equal to one month's
maximum estimated collection of RTC charges, as agreed upon by Boston Edison, or
any successor servicer, and the TPS (Exh. BE-1, at 52).
2. Positions of the Parties
a. Attorney General
The Attorney General initially argued that the Department should not
approve policies or procedures regarding TPS billing, collection and remittance
procedures as they have not been reviewed by interested parties, or the
Department (Attorney General Brief at 25). In addition, the Attorney General
asserted that the Department should not delegate to any private entity its
authority over terms and conditions relative to third party billing (id. at 25).
The Attorney General acknowledged that the legislative scheme does not
contemplate that the Department approve TPS procedures, and that the Agencies
will have final approval over such procedures for purposes of securitization
(Attorney General Reply Brief at 9).
b. The Agencies
The Agencies argue that to obtain the highest possible bond rating, a
financing order must establish (1) stringent credit requirements to reduce risk
of TPS insolvency, (2) provisions to permit swift assumption of billing and
collection responsibilities by the servicer if the TPS fails to perform its
duties, and (3) requirements for sufficient information to be provided to the
servicer by the TPS to enable the servicer to calculate necessary adjustments to
the RTC charge and to perform other relevant functions (Agencies Brief at 9). In
addition, the Agencies claim
37
that at least one rating organization has publicly stated that minimum standards
for TPS billing should be imposed in a financing order if a TPS is contemplated
in a state's restructuring statute (DTE-RR-20; Agencies Brief at 9). The
Agencies argue that the establishment of standards for TPS in documents other
than the proposed financing order would be an insufficient alternative because
only a financing order incorporates standards of finality and incontestability
(Agencies Brief at 9). The Agencies contend that failure to include TPS billing
standards in the proposed financing order would likely result in a lower rating
or require greater credit enhancement to compensate for any potential TPS
deficiencies (id. at 8). Based on TPS standards in other states in which the
highest ratings were obtained for similar bonds, the Agencies argue that the TPS
standards included in the proposed financing order are necessary as they include
the minimum requirements sufficient to achieve the highest ratings for the RRBs
(id. at 8-9).
c. Boston Edison
Boston Edison maintains that rating organizations view TPS standards as
major criteria in evaluating the creditworthiness of the RRBs (Boston Edison
Brief at 108). To achieve the highest possible credit rating and thereby
maximize the benefit to ratepayers, Boston Edison argues that the proposed
financing order requires a TPS to comply with specified billing, collection and
remittance procedures and credit requirements for the collection of RTC charges
(Boston Edison Brief at 108). Boston Edison contends that the approval of these
TPS standards is appropriate as the standards are designed to reduce risks of
delays or non-payment of RTC charges and the costs of TPS default, which would
ultimately be passed on to ratepayers (Exh. BE-1, at 52, Paragraphs 39, 40;
Boston Edison Brief at 108).
3. Analysis and Findings
38
The record contains sufficient evidence to show that billing, collection,
remittance provisions, and creditworthiness criteria may affect the RRB credit
rating and that TPS provisions are critical to the way credit rating
organizations view the securities (DTE-RR-19; Tr. 4, at 509-513). Billing,
collection and remittance of RTC charges by a TPS may increase the risk of
shortfalls in the RTC charge collections by exposing the cash flow to potential
interruption due to the default, bankruptcy or insolvency of the TPS. The risk
of interruption increases risks to investors, potentially reducing the credit
rating and increasing the rate of interest on the RRBs. The Department
recognizes that the absence of TPS standards would reduce savings from
securitization by diminishing the creditworthiness of the RRBs. Lack of
standards would disadvantage ratepayers as the savings from securitization may
be diminished. Accordingly, the Department finds that the proposed standards
governing TPS in this instance should be included in the financing order.
B. Statement Regarding Reimbursable Transition Costs on Customers' Bills
1. Introduction
Boston Edison initially proposed to include on each customer's bill, a
statement that the "...RTC charge as a component of the transition charge is
being collected on behalf of an SPE, as owner of the transition property" (Exh.
BE-1, at 54). Boston Edison revised its proposal so that the bill statement
would read "a portion of [the transition charge] has been sold to the SPE"
(Boston Edison Brief at 79).
2. Positions of the Parties
a. The Agencies
39
The Agencies argue that a statement regarding the RTC charge is needed on
each customer's bill in order for a "true sale" opinion of the transition
property.(31) Absent such a statement, the Agencies argue that the credit risk
of the transaction as perceived by rating organizations would be adversely
affected (Agencies Brief at 11). Furthermore, the Agencies assert that in the
event of a bankruptcy, a court will consider whether steps were taken to assure
that creditors were not misled as to the separate existence of the company and
the SPE with respect to the transition property (RR-DTE-22). The Agencies argue
that an RTC statement, as part of the tariff filing alone and not on a
customer's bill, is insufficient to render a "true sale" opinion because it is
unlikely that it would be seen by creditors of Boston Edison (id.).
b. Boston Edison
Boston Edison argues that a bill statement regarding the RTC charge is
necessary for bankruptcy counsel to render a true sale opinion of the transition
property (Tr. 4, at 529-533). Boston Edison maintains that it is necessary to
highlight publicly that the RTC charges are not owned by Boston Edison, but are
instead the property of the SPE (Boston Edison Brief at 79, n.94). Boston Edison
argues that the proposed wording appearing in a footnote to the existing
transition charge line item is the least obtrusive method to identify the
ownership interest of the SPE (Boston Edison Reply Brief at 79).
3. Analysis and Findings
- ------------------------
(31) The Agencies contend that the sale of the property right by Boston Edison
to a bankruptcy-remote SPE must be treated as a "true-sale". A
"true-sale" is the transfer of transition property and not a secured
borrowing. A "true-sale" designation prevents the assets from becoming
part of any bankruptcy of Boston Edison. It is this feature of the
transaction that permits the RRBs to be assigned a credit rating above
that of Boston Edison's. Without this designation, the transactino could
be viewed as a general collateralized borrowing.
40
The evidentiary record, which was uncontradicted, shows that the notation
on each customer's bill of the SPE's interest in the transition property is
necessary to achieve the highest possible credit rating of the bonds. When
reviewing proposed wording for inclusion as a statement on customer bills, the
Department seeks to minimize any potential customer confusion. Boston Edison has
revised the proposed wording in response to the Department's concern about
clarity. However, the Department finds the original wording to be more
understandable. Therefore, the Department directs the Company to include the
following statement in a footnote on customers' bills: "The reimbursable
transition cost ("RTC") charge as a component of the transition charge is being
collected on behalf of a special purpose entity ("SPE"), as the owner of the
transition property."
C. Ancillary Agreements
1. Boston Edison's Proposal
Boston Edison seeks Department approval to enter into a Servicing
Agreement, an Administration Agreement and other RRB Transaction documents with
one or more SPEs (collectively "Ancillary Agreements") (Exh. BE-1, at 58). (32)
While Boston Edison has provided
- -----------------------
(32) According to Boston Edison, the Administration Agreement is "[t]he
agreement that each SPE is anticipated to enter into with Boston
Edison pursuant to which Boston Edison shall perform ministerial
services and provide facilities for each SPE to enable each SPE to
perform such day-to-day operations as are necessary to maintain its
existence and perform its obligations under the RRB Transaction
documents" (Boston Edison Brief, App. 3 at 1).
The Servicing Agreement is the agreement under which an entity will
act as servicer of the Transition Property and be responsible for
customer billing and usage information, and for billing, collecting,
and remitting the RTC charges (See Boston Edison Brief, App. 3 at 3).
41
drafts of these documents, it states that the documents cannot be finalized
until after the Department approves the proposed financing order (Tr. 5, at
635-636).
2. Positions of the Parties
a. Attorney General
The Attorney General advocates that the Department include language in the
proposed financing order requiring that the terms of any Ancillary Agreement
shall be consistent with the financing order and terms of the Restructuring Act
(Attorney General Reply Brief at 9). The Attorney General argues, however, that
the Act does not contemplate that the Department will approve such ancillary
documents and therefore Boston Edison is incorrectly seeking Department approval
of such Ancillary Agreements (Attorney General Reply Brief at 9, n.3, citing
Exh. BE-1, Paragraph 61).
b. Boston Edison
Boston Edison states that it seeks Department approval of the proposed
financing order and its ability to enter into the proposed various agreements,
but that it is not seeking Department approval of the agreements themselves
(Boston Edison Reply Brief at 26, n.22, citing Exh. BE-1, Paragraph 61).
3. Analysis and Findings
The Restructuring Act provides that if a company securitizes its transition
costs, the Department shall require an electric company to contract with a
financing entity (the SPE in this case) to collect the RTC charges, and that any
contract with the SPE "shall not impair or negate the characterization of the
sale, assignment or pledge as an absolute transfer, a true sale, or security
interest, as applicable" G.L. c. 164, Section 1H(c)(3). The Act does not require
Department
42
approval of such contracts, only that the Department require such contracts and
ensure such contracts do not change the nature of the proposed financing order.
The Agencies will approve the final Ancillary Agreements after review of
the financing order and all Ancillary Agreements by the rating organizations,
the Internal Revenue Service and the Securities and Exchange Commission (Tr. 4,
at 505; Agencies Brief at 11). The proposed financing order does not ensure that
the Ancillary Agreements comply with the proposed financing order and are
consistent with the Act. Accordingly, the Department adds the following language
to the financing order at Paragraph 62: "Such Agreements and RRB Transaction
documents shall comply with this financing order and the Act and shall not
impair or negate the characterization of the sale, assignment or pledge as an
absolute transfer, a true sale, or security interest, as applicable."
Consistent with the Act, the Department approves the ability of Boston
Edison to enter into a Servicing Agreement. The Department need not approve the
actual Ancillary Agreements, except to direct that such agreements shall be
consistent with the financing order and the Act.
D. Adjustments to the RTC Charge
1. Introduction
Boston Edison proposes to periodically adjust the RTC charge to ensure that
it remains sufficient to generate an amount equal to the sum of the periodic RRB
payment requirements for the upcoming year (Boston Edison Brief at 12). Further,
in the proposed financing order, Boston Edison includes a requirement that in no
event shall the RTC charge exceed the transition charge, as approved by the
Department pursuant to the Settlement Agreement, and as may be in effect from
time to time (Exh. BE-1, at 56).
43
2. Positions of the Parties
a. Agencies
The Agencies state that they must be able to represent to the rating
organizations and investors that more stringent limits on the RTC Charge
adjustment mechanism will not be imposed after the time of pricing the RRBs
(Agencies Reply Brief at 5). The Agencies contend that without such assurance,
the value of the true-up mechanism, which is an essential basis for the highest
bond rating for the RRBs, will be in doubt (Agencies Reply Brief at 5).
Therefore, the Agencies propose in their Reply Brief the following revision to
the wording of the section of the financing order that deals with the
relationship between the RTC charge and the transition charge:
In no event shall the RTC Charge exceed the transition charge from time to
time in effect as approved by the Department in accordance with the
Settlement Agreement's methodology and as may be revised by this Financing
Order, the Pilgrim Order, or in an order arising from a Separate Proceeding
(Agencies Reply Brief at 5).
On March 29, 1999, the Agencies filed a Motion for Leave to Make
Supplemental Filing and a Supplemental Filing.(33) The Supplemental Filing
includes proposed additions to the financing order to address "circumstances
where the RTC Charge, which is a component of the transition charge, would
exceed the then current transition charge until an adjustment of the transition
charge is made" (Supplemental Filing at 2). The Agencies offer two alternative
mechanisms to apply in the above described circumstances. The first alternative
would provide
- -----------------------
(33) The Motion for Leave to Make Supplemental Filing is approved.
44
that the statutory rate reduction cap would be increased to permit an RTC charge
adjustment (id. at 3-4). The second alternative would not affect the statutory
rate reduction cap, but would provide that the Company would defer collection of
the increase in the standard offer rate so long as the deferred amount earns a
carrying charge of 10.88% (id. at 4-5).
b. Boston Edison
Boston Edison argues that the periodic adjustment mechanism is an important
aspect of credit enhancement necessary for the RRBs to receive the highest
possible credit rating from the rating organizations (Boston Edison Brief at
82). On March 31, 1999, the Company filed comments in support of the Agencies'
Supplemental Filing.
3. Analysis and Findings
The Department recognizes that the RTC charge adjustment mechanism is an
essential feature of the proposed securitization. The rating organizations will
expect the RTC charge to be sufficient to cover the expected amortization of the
principal amount and interest of the RRBs, together with fees and expenses. If
the RTC charge initially established is not sufficient to cover these payments,
then the rating organizations will expect to see a true-up mechanism that would
adjust the RTC charge on a timely basis. Under all circumstances, the Department
will ensure that the RTC charge is sufficient to cover the expected amortization
of the principal amount and interest of the RRBs, together with fees and
expenses, in order to protect the credit-worthiness of the RRBs. Therefore, the
Department will include the Agencies suggested revision for Paragraph 55 of the
financing order, as modified below.
The Agencies correctly note in their Supplemental Filing that there could
be circumstances where changes in other rate components cause the RTC charge to
exceed the
45
transition charge. However, the Department cannot approve the Agencies'
proposed first alternative to address such circumstances because it may violate
the statutory requirements pertaining to rate reductions. Instead, in such
circumstances, the Department will adjust other components of the Company's
rates. The Department does not approve the Agencies' second alternative because
it would be premature to determine here exactly which component of the Company's
rates to adjust. As noted, the Department will include the Agencies' suggested
revision for Paragraph 55 of the financing order, but with modifications that
should address the Agencies' concerns expressed in their Supplemental Filing:
In no event shall the transition charge from time to time in effect as
approved by the Department in accordance with the Settlement Agreement's
methodology and as may be revised by this Financing Order, the Pilgrim
Order, or in an order arising from a Separate Proceeding be adjusted below
the RTC. If adjustments to the transition charge to meet the required rate
reduction would cause the transition charge to fall below the RTC charge,
the Department shall adjust other components of the Company's rates.
Conversely, if the RTC charge, as adjusted, would exceed the then current
transition charge, the Department also shall adjust other components of the
Company's rates.
VI. EXEMPTIONS
A. Exemption from Competitive Bidding Requirements
1. Introduction
Boston Edison requests an exemption from the competitive bidding
requirements of G.L. c. 164, Section 15 (Exh. BE-1, at 10). Boston Edison states
that competitive bidding would not be
46
feasible for a complicated securitization transaction, and it considers a
negotiated process to be more cost effective than a competitive bid
(Exh. AG-2-17; Tr. 4, at 477). Boston Edison argues that the main advantage of a
negotiated process comes from the use of an underwriter (Tr. 4, at 477). Boston
Edison also argues that, without an underwriter, the effective cost of the
transaction would be higher in light of the complicated securitization
transaction (id.). Boston Edison relies on the underwriters' expertise developed
through prior securitizations to achieve the lowest all-in financing cost for
the securitized bonds and thus produce the greatest possible savings for
ratepayers (Exh. AG-2-17; Tr. 4, at 477).
2. Analysis and Findings
An electric or gas company offering long-term bonds or notes with a face
amount in excess of $1 million and payable at periods of more than five years
after the date thereof must invite purchase proposals through newspaper
advertisements. G.L. c. 164, Section 15. The Department may grant an exemption
from this competitive bidding requirement if the Department finds that an
exemption is in the public interest. G.L. c. 164, Section 15.
The Department has allowed an exemption from the advertising requirement
where there has been a measure of competition in private placement. See, e.g.,
Western Massachusetts Electric Company, D.P.U. 88-32, at 5 (1988); Eastern
Edison Company, D.P.U. 97-76 D.P.U. 88-127, at 11-12 (1988); Berkshire Gas
Company, D.P.U. 89-12, at 11 (1989). The Department also has found that it is in
the public interest to grant an exemption from the advertising requirement when
a measure of flexibility is necessary in order for a company to enter the bond
market in a timely manner. See, e.g., Western Massachusetts Electric Company,
D.P.U. 88-32, at
47
5 (1988). However, G.L. c. 164, Section 15 requires advertising as the general
rule; and waiver cannot be automatic but must be justified whenever requested.
The Department recognizes that this securitization transaction is
complicated and that this is the first electric RRB transaction in the
Commonwealth. The ability to obtain services at the most competitive prices and
from able, experienced entities is limited. Other securitizations will follow
both in the Commonwealth and in other states and for now, at least, a negotiated
placement is a sufficient substitute for a competitive sale for these
securities.
With the flexibility offered by a negotiated process, Boston Edison can
take advantage of the knowledge and experience of the underwriters and
individuals in the utility asset-backed securities group to achieve the lowest
all-in financing cost for the securitized bonds. Use of a negotiated process
will produce the greatest possible savings for ratepayers and is therefore in
the public interest. Accordingly, the Department allows Boston Edison's request
for an exemption from the advertisement and competitive bidding requirements of
G.L. c. 164, Section 15.
B. Exemption from Par Value Debt Issuance Requirements
1. Introduction
Boston Edison requests an exemption from the par value debt issuance
requirements of G.L. 164, Section 15(a) (Exh. BE-1, at 10). Boston Edison states
that the bonds may be sold to investors at original issue discount, in
accordance with normal financial practices relating to market pricing mechanics
(Tr.4, at 480-481).(34)
2. Analysis and Findings
- -------------------------
(34) The discount is the difference between the par value of a bond, note,
or other debt security and the actual issue price when the actual issue
price is less than par value.
48
An electric or gas company offering long-term bonds, debentures, notes, or
other evidences of indebtedness may not issue these securities at less than par
value. The Department may grant an exemption from this par value requirement if
the Department finds that an exemption is in the public interest. G.L. c. 164,
Section 15A.
The Department has found that it is in the public interest to grant an
exemption from the par value requirement where market conditions make it
difficult at times for a company to price a particular issue at par value and
simultaneously offer an acceptable coupon rate to prospective buyers. Bay State
Gas Company, D.P.U. 91-25, at 10 (1991).
The Department also found that it is in the public interest to authorize
the issuance of securities below par value where this technique offers a company
enhanced flexibility in entering the market quickly to take advantage of
prevailing interest rates, particularly if this benefits the company's
ratepayers in the form of lower interest rates and a lower cost of capital
(id.). See also, Boston Gas Company, D.P.U. 92-127, at 8 (1992); Boston Edison
Company, D.P.U. 91-47, at 12-13 (1991).
The Department finds that the ability to issue debt securities below par
value offers Boston Edison increased flexibility in placing its issuances with
the prospective investors. We find that this increased flexibility translates
into an ability to issue debt securities in a timely manner to take advantage of
favorable market conditions. The Department finds that Boston Edison's request
for an exemption from G.L. c. 164, Section 15A is in the public interest and
approves it.
VII. ORDER
Accordingly, after due notice, hearing and consideration, it is hereby
49
ORDERED: That the issuance of rate reduction bonds by Boston Edison Company to
securitize reimbursable transition costs amounts pursuant to this Financing
Order and Appendix 1, which contains additional terms for the issuance of bonds,
is hereby approved; and it is
FURTHER ORDERED: That the amount which Boston Edison may securitize is comprised
of the costs associated with (1) the fixed component of the transition charge
(including the net balance of the unrecovered plant balances for Pilgrim and
related regulatory assets) and the unrecovered prefunded balance of Boston
Edison's portion of the decommissioning fund being transferred to Entergy and
the municipal contract customers' portion of such balances, (2) the transaction
costs (approximately $35 million) of issuing the RRBs and providing credit
enhancement, (3) the L'Energia contract buyout costs to the extent that the
Department may later approve these costs for inclusion as transition costs in
D.T.E. 99-16, (4) the General Electric materials contract costs to the extent
that the Department may later approve these costs for inclusion as transition
costs, and (5) other costs necessary to finalize the Pilgrim divestiture
transaction, to the extent that the Department may later approve these costs for
inclusion as transition costs; and it is
FURTHER ORDERED: That Boston Edison's request for an exemption from the
competitive bidding requirements of G.L. c. 164, Section 15 is approved; and
it is
FURTHER ORDERED: That Boston Edison's request for an exemption from the par
value debt issuance requirements of G.L. c. 164, Section 15(a) is approved;
and it is
50
FURTHER ORDERED: That Boston Edison Company comply with all other orders and
directives contained herein.
By Order of the Department,
------------------------------
Janet Gail Besser, Chair
------------------------------
James Connelly, Commissioner
------------------------------
A true copy Paul B. Vasington, Commissioner
Attest:
------------------------------
MARY L. COTTRELL Eugene J. Sullivan, Jr., Commissioner
Secretary
51
Appeal as to matters of law from any final decision, order or ruling of the
Commission may be taken to the Supreme Judicial Court by an aggrieved party in
interest by the filing of a written petition praying that the Order of the
Commission be modified or set aside in whole or in part.
Such petition for appeal shall be filed with the Secretary of the Commission
within twenty days after the date of service of the decision, order or ruling of
the Commission or within such further time as the Commission may allow upon
request filed prior to the expiration of twenty days after the date of service
of said decision, order or ruling. Within ten days after such petition is filed,
the appealing party shall enter the appeal in the Supreme Judicial Court sitting
in Suffolk County by filing a copy thereof with the Clerk of said Court. (Sed.
5, Chapter 25, G.L. Ter. Ed., as most recently amended by Chapter 485 of the
Acts of 1971).
52
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53
APPENDIX 1
THE COMMONWEALTH OF MASSACHUSETTS
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY
- ------------------------
)
BOSTON EDISON COMPANY ) D.T.E. 98-118
)
- ------------------------
APPENDIX TO FINANCING ORDER
The Department has considered the proposed issuance of electric rate
reduction bonds ("RRBs") by Boston Edison Company (together with any legal
successors thereto, "Boston Edison") to securitize (as such term is used in G.L.
c. 164, Sections 1G and 1H) reimbursable transition costs amounts of
approximately $800 million (the "RRB Transaction") represented by the fixed
component, net as of the date of issuance of RRBs, of the transition charge
(which includes the net balance of its Pilgrim unrecovered plant balances and
related regulatory assets and the unrecovered prefunded balance of its portion
of the decommissioning fund being transferred to the buyer in connection with
the divestiture of Pilgrim Nuclear Power Station and associated generation
assets ("Pilgrim")), the municipal contract customers' portion of such balances,
any additional transition costs arising in connection with the Pilgrim
divestiture or approved pursuant to any other proceeding in an order that
becomes final and no longer subject to appeal prior to the filing with the
Securities Exchange Commission ("SEC") of the preliminary prospectus to be
distributed to prospective investors (a "Separate Proceeding"), and the
transaction costs of issuing RRBs and providing any credit enhancement as
described below (other than approximately 0.50% of the initial principal balance
of RRBs to be contributed by the Company
54
as the initial capitalization of each SPE (as defined below)). The principal
amount of RRBs is subject to adjustment (which may be significant) based on the
timing of the Pilgrim divestiture, additional transition costs in connection
with the Pilgrim divestiture or approved pursuant to a Separate Proceeding,
prevailing market conditions, input on credit enhancement from nationally
recognized statistical rating organizations (the "rating agencies") selected by
Boston Edison with the approval of the Massachusetts Development Finance Agency
and Massachusetts Health and Educational Facilities Authority (together, the
"Agencies") to rate the RRBs, tax authorities and underwriters, or changes in
the proposed transaction not now anticipated by Boston Edison. The Department
finds the RRB Transaction will result in net savings for the benefit of Boston
Edison's customers reflected in lower transition charges than would be required
to recover the approved transition costs if this Financing Order was not adopted
and otherwise satisfies the requirements of G.L. c. 164, Sections 1G and 1H.
Therefore, pursuant to this Financing Order, the Department authorizes the RRB
Transaction as described in Boston Edison's Application.
55
TABLE OF CONTENTS
I. STATUTORY AND REGULATORY OVERVIEW .................................................................................1
II. RRB TRANSACTION ...................................................................................................2
A. Proposed Structure ............................................................................2
B. Recovery of Transition Costs...................................................................5
C. Ongoing Transaction Costs .....................................................................8
D. RTC Charge ....................................................................................8
E. Periodic Adjustments to the RTC Charge .......................................................12
F. Formation of SPE .............................................................................13
G. Transition Property ..........................................................................15
H. Sale of Transition Property to SPE ...........................................................16
I. Issuance and Transfer of SPE Debt Securities and Issuance of RRBs.............................16
J. Nonbypassable RTC Charge .....................................................................18
III. RATEPAYER BENEFITS ...............................................................................................18
IV. USE OF PROCEEDS ..................................................................................................19
V. RELATED ISSUES ...................................................................................................19
A. Tax Considerations ...........................................................................19
B. Accounting and Financial Reporting ...........................................................21
C. Rating Agency Considerations .................................................................21
D. Allocation of Collection Shortfalls ..........................................................25
E. Servicing ....................................................................................27
F. Accounting for Certain Benefits. .............................................................28
G. SPE Administration and Other Transactions with each SPE. ....................................29
FINDINGS....................................................................................................................30
ORDERS......................................................................................................................40
Appendix A ISSUANCE ADVICE LETTER..........................................................................................A-1
Appendix B ROUTINE TRUE-UP LETTER..........................................................................................B-1
i
56
1. STATUTORY AND REGULATORY OVERVIEW
On November 25, 1997, Governor Cellucci signed into law a comprehensive
electric industry restructuring law, Chapter 164 of the Acts of 1997 (the
"Act"), which authorizes electric companies to securitize all or a portion of
their transition costs through the issuance of RRBs to provide savings to
ratepayers.
In the Restructuring Settlement Agreement approved by the Department in
D.P.U. Docket No. 96-23 and subsequent filings pursuant thereto (collectively,
the "Settlement Agreement"), the Department approved Boston Edison's retail
distribution rates, including its transition charge to recover on a fully
reconciling basis all of Boston Edison's transition costs which include the
reimbursable transition costs amounts being securitized. In either an order
issued pursuant to D.T.E. 98-119 (the "Pilgrim Order") or in another Separate
Proceeding, the Department has approved Boston Edison's divestiture of Pilgrim,
the recovery of the prefunded decommissioning fund being transferred to the
buyer in connection with the divestiture, additional transition costs arising in
connection with the divestiture transaction or approved pursuant to a Separate
Proceeding, and the costs associated with the L'Energia, Limited Partnership
power purchase agreement ("L'Energia") to the extent the Department approves
these costs as transition costs in D.T.E 99-16. In accordance with G.L. c. 164,
Section 1G(d)(3), Boston Edison has completed the divestiture of its non-nuclear
generation assets and thus is eligible to benefit from securitization.
Subsequent to the enactment of the Act, Boston Edison, together with other
electric companies, has been working with the staffs of the Agencies to develop
the structure for the RRB Transaction and the process for approval by the
Department. The Agencies have reviewed
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and commented on the Application, the exhibits thereto and this proposed
Financing Order, as updated from the draft Financing Order submitted with the
Application as Exhibit BE-1. The Agencies have indicated that the proposed
transaction satisfies all statutory and rating agency requirements and that the
transaction costs are reasonable.
II. RRB TRANSACTION
A. Proposed Structure
Boston Edison has provided a general description of the RRB Transaction
structure in its testimony and discovery conducted during the proceedings. This
proposed structure is subject to modification, depending upon marketing of RRBs
and negotiations with the rating agencies selected by Boston Edison (subject to
approval by the Agencies) to assign credit ratings to the RRBs. The final
structure will be determined by Boston Edison at the time RRBs are priced, with
the approval of the Agencies as provided herein, and after input from the rating
agencies, tax authorities and the underwriters.
Pursuant to this Financing Order, Boston Edison will securitize a portion
of its transition costs (as defined in G.L. c. 164, Sections 1G and 1H),
together with the transaction costs of issuing RRBs and providing credit
enhancement (including an overcollateralization account, additional
capitalization and liquidity reserves, if any). These amounts constitute
reimbursable transition costs amounts (as defined in G.L. c. 164, Section 1H(a))
and shall be financed through the issuance of notes (the "SPE Debt Securities")
and RRBs. The repayment of such amounts shall be effected through the assessment
and collection of a portion of Boston Edison's transition charge (the "RTC
Charge") from which SPE Debt Securities and RRBs to be issued will be repaid.
The transition charge, a component of which will be the RTC Charge, is a
separate, nonbypassable
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charge assessed and collected from all classes of retail users of Boston
Edison's distribution system within the geographic service territory as in
effect on July 1, 1997, whether or not energy is purchased from Boston Edison or
any third party supplier (each, a "TPS"), and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The transition charge, including the RTC Charge, is a usage-based tariff on each
retail user's monthly bill and may include in the future any exit fee collected
pursuant to G.L. c. 164, Section 1G(g) until the Total RRB Payment Requirements
(as defined below) are discharged in full.
As described in the Application, the principal asset to be used to support
RRBs is transition property (the "Transition Property"). The Transition Property
represents a continuously existing property right created pursuant to G.L. c.
164, Section 1H, including, without limitation, the right, title, and interest
in and to all revenues, collections, claims, payments, money, or proceeds of or
arising from or constituting (a) the reimbursable transition costs amounts
established by this Financing Order, including such amounts established in an
issuance advice letter (the "Issuance Advice Letter"), (b) the RTC Charge
authorized by this Financing Order, including the initial RTC Charge set forth
in the Issuance Advice Letter, as may be adjusted from time to time in order to
generate amounts sufficient to discharge an amount equal to the sum of the
Periodic RRB Payment Requirements for the upcoming year, and (c) all rights to
obtain periodic adjustments and non-routine adjustments to the RTC Charge.
Pursuant to this Financing Order, the Transition Property and the RTC Charges
are irrevocable, and cannot be reduced, rescinded, altered, amended or impaired
by either the Department (or any successor entity) or The Commonwealth of
Massachusetts through its pledge contained in G.L. c. 164, Section 1H(b)(3).
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Boston Edison will form one or more special purpose entities (each, an
"SPE"), each a bankruptcy-remote entity, wholly owned by Boston Edison, and
provide the initial capitalization of each SPE (currently estimated to be
approximately 0.50% of the initial RRB principal balance). Any other credit
enhancement is either part of the periodic adjustment to the RTC Charge or will
be included in the principal balance of RRBs. Boston Edison will sell the
Transition Property to one or more SPEs in transactions, each of which, under
G.L. c. 164, Section 1H(f)(1) will be intended and treated, as a legal true sale
and absolute transfer to such SPE. Each such SPE will constitute a financing
entity for purposes of G.L. c. 164, Section 1H.
To raise the funds to pay the purchase price of the Transition Property to
Boston Edison, such SPE will issue and sell SPE Debt Securities to a special
purpose trust established by the Agencies. Such special purpose trust, which
will constitute a financing entity for purposes of G.L. c. 164, Section 1H, will
sell interests in the SPE Debt Securities by issuing and selling RRBs, the
proceeds of which will be remitted to such SPE and ultimately to Boston Edison.
All of the assets of such SPE, including, without limitation, the Transition
Property and the other collateral of the SPE (the "Other SPE Collateral"), will
be pledged as collateral to secure SPE Debt Securities. The Other SPE Collateral
will include without limitation, the rights of each SPE under the RRB
Transaction documents including the purchase agreement by which each SPE
acquires the Transition Property, the servicing agreement (the "Servicing
Agreement") by which Boston Edison acts as initial servicer of the Transition
Property (the "Servicer") or any successor Servicer, acts as Servicer of the
Transition Property, the Administration Agreement (as defined below), the
collection account and any other accounts of such SPE contained in such SPE's
collection account including the overcollateralization account and the reserve
account, any
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investment earnings on amounts (other than the earnings on the initial capital
contributed by Boston Edison, which earnings are to be returned as a
distribution of capital by such SPE to Boston Edison) held by such SPE and the
capital of such SPE.
RRBs sold to investors will take the form of pass-through certificates
representing undivided beneficial interests in SPE Debt Securities in the manner
permitted by G.L. c. 164, Section 1H(c). SPE Debt Securities will take the form
of notes secured by a first priority statutory lien on all Transition Property
as provided in G.L. c. 164, Section 1H(e), together with a pledge of the Other
SPE Collateral.
It is anticipated that RRBs may be issued in multiple series or classes
depending upon market conditions. The longest term RRBs will have expected
repayment terms of approximately 11 years, with legal maturities up to 2 years
beyond the longest expected repayment term or longer if required by the rating
agencies, in accordance with 1H(b)(4)(vi).
B. RECOVERY OF TRANSITION COSTS
G.L. c. 164, Section 1H(b)(1) provides that the Department may issue a
financing order "to facilitate the provision, recovery, financing, or
refinancing of transition costs." Transition costs are "the embedded costs"
which are determined to be recoverable through a transition charge pursuant to
G.L. c. 164, Section 1. In the Settlement Agreement, the Department approved
Boston Edison's transition costs and transition charges (referred to as access
charges in the Settlement Agreement) which Boston Edison may collect. The
Department has further approved, under G.L. c. 164, Sections 1G(e) and H(b)(2),
that these transition charges be nonbypassable by ratepayers. The Department can
authorize an electric company to securitize reimbursable transition costs
amounts, as provided in G.L. c. 164, Section 1H. Pursuant to this Financing
Order, the Department
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authorizes Boston Edison's securitization through the RRB Transaction of the
reimbursable transition costs amounts recoverable through RTC Charges. Boston
Edison currently estimates that the principal amount of RRBs to be issued will
be approximately $800 million as described below subject to adjustment based on
the timing of the closing of the Pilgrim divestiture, the actual transaction
costs (including any credit enhancement), additional transition costs arising in
connection with the Pilgrim divestiture, prevailing market conditions, input
from rating agencies, tax authorities and underwriters, or changes in the
proposed RRB Transaction not now anticipated by Boston Edison.
1. Fixed Component Transition Costs
The Department has approved as transition costs in the Settlement
Agreement, the Pilgrim Order or pursuant to a Separate Proceeding, the fixed
component of Boston Edison's transition charge (which includes the Pilgrim
unrecovered balances, as defined below), the municipal contract customers'
portion of such balances, other transition costs, and may approve as additional
transition costs the cost of the buyout of the L'Energia power purchase contract
(collectively, the "Fixed Component Transition Costs"), presently considered by
the Department in D.T.E. 99-16. The "Pilgrim unrecovered balances" include the
net balance of the Pilgrim unrecovered plant balances and related regulatory
assets and the unrecovered prefunded balance of the decommissioning fund being
transferred to the buyer in connection with the Pilgrim divestiture. Pursuant to
this Financing Order, the Department approves the Fixed Component Transition
Costs as reimbursable transition costs amounts and the right to recover such
amounts shall constitute Transition Property.
2. Transaction Costs of Issuance
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In order to issue RRBs to achieve net savings for the benefit of its
customers, Boston Edison will incur transaction costs related to issuance of
RRBs. G.L. c. 164, Section 1H(a) specifically provides that a financing order
shall include recovery of the costs of issuing RRBs and defines transition
property to include the costs of issuing, servicing and retiring RRBs. Based on
the currently estimated initial offering of $800 million of RRBs, Boston Edison
estimates that such amount will include the transaction costs to be
approximately $36 million which may vary, in part, based on the factors
described below. These transaction costs will include, among other items, the
underwriting spread, rating agency fees, accounting fees, Securities and
Exchange Commission registration fees ("SEC fees"), Department registration
fees, printing and marketing expenses, trustees' fees, legal fees, the Agencies'
fees, the servicing set-up fee and the administrative cost to set up each SPE.
The costs may also include original issue discount and redemption costs
including call provisions and prepayments required to reduce existing
capitalization of Boston Edison. Certain fees, such as underwriters' spread,
rating agency fees, SEC fees, Department registration fees, trustees' fees,
Agencies' fees, original issue discount and redemption costs will vary,
depending on the actual principal amount of RRBs to be issued, market conditions
and the amount of securities to be repurchased to be determined at the time of
RRB pricing or the reduction of capitalization. Other fees are based on market
rates charged for similar transactions.
The Department authorizes Boston Edison, with approval of the Agencies to
the extent provided in the testimony, to recover the transaction costs of
issuing RRBs described above out of the proceeds of the RRB Transaction and to
include such costs as reimbursable transition costs
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amounts and the right to recover such amounts shall constitute Transition
Property. To the extent prior payment is required, such costs will be paid by
Boston Edison and reimbursed from the proceeds of the RRB Transaction.
C. Ongoing Transaction Costs
The Department approves Boston Edison's recovery of ongoing transaction
costs through the RTC Charge. The primary ongoing transaction costs will be the
servicing fee (the "Servicing Fee") paid to Boston Edison, as initial servicer
(the "Servicer") of the Transition Property, or any successor Servicer and the
ongoing cost of credit enhancement.
It is anticipated that there will be additional, ongoing costs associated
with the RRB Transaction, such as the Administration Fee (as defined below),
legal and accounting fees, directors fees, rating agency fees, fees for the
trustees, and any indemnity obligations of the SPE in the RRB Transaction
documents for SPE officers and directors, trustee fees, liabilities of the
special purpose trust, and liabilities to the underwriters related to the
underwriting of the RRBs. These costs will also be reimbursable transition costs
amounts and will be recovered through the RTC Charge in accordance with G.L. c.
164, Section 1H and the right to recover these costs as reimbursable transition
costs amounts will constitute Transition Property.
D. RTC Charge
To facilitate the RRB Transaction, this Financing Order provides a
procedure to establish the RTC Charges necessary to amortize SPE Debt Securities
and RRBs in accordance with the expected amortization schedule, and provide for
the payment of all ongoing transaction costs associated with the RRB
Transaction. The Department understands that the RTC Charge will vary over the
life of the RRB Transaction as a result of several factors, including, without
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limitation, changes in the principal balance of RRBs, changes in the weighted
average interest cost of RRBs as the relative principal balance outstanding
changes, the impact of the variability of energy sales and changes in payment
and charge-off patterns, and changes in ongoing costs of RRBs. Prior to the
issuance of RRBs, Boston Edison is authorized to file the Issuance Advice Letter
with the Department. The Issuance Advice Letter will confirm the final structure
and repayment terms of the RRB Transaction, the total principal amount and
pricing of RRBs, and the actual transaction costs. Such filing will also
describe the initial RTC Charge associated with the RRB Transaction which will
be calculated using the methodology described in Boston Edison's testimony and
adopted in this Financing Order. The transition charge will also be adjusted in
revised tariffs to reflect the divestiture of Pilgrim and the issuance of RRBs.
To confirm that the actual terms of the RRB Transaction will result in
savings for ratepayers, the Department will require Boston Edison to provide in
the Issuance Advice Letter a calculation of projected savings to ratepayers,
using the methodology contained in Boston Edison's testimony, applied to the
actual structure and terms of RRBs. So long as the terms and structure result in
net savings to Boston Edison's customers in accordance with this approved
methodology, Boston Edison is authorized to undertake the RRB Transaction.
The RTC Charge for customers established by this Financing Order and
calculated using the methodology contained in Boston Edison's testimony, shall
become effective automatically when the Issuance Advice Letter is filed. The RTC
Charge calculations have been examined and found reasonable and Boston Edison
will use the Issuance Advice Letter substantially in the form of Appendix A to
this Financing Order.
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As more fully described in the testimony, Boston Edison, or any successor
Servicer, is expected to remit to the trustee of the SPE on a daily basis an
amount equal to the actual RTC Charges billed, less an allowance for estimated
charge-offs as more fully described in the testimony, on or about the day such
amounts are deemed to be collected. The deemed collection date of such amounts
will be the weighted average number of days, based on Boston Edison's historical
collections experience, that a monthly bill for services remains outstanding
before payment. On the basis of these remittances on or about the deemed
collection date, collections of RTC Charges will be deemed paid within one
calendar month of collection for purposes of G.L. c. 164, Section 1H(b)(8). The
Servicer then will reconcile such remittances at least once annually for all
remittances made in the previous year as more fully described in the testimony.
Boston Edison's establishment of the deemed collection date, based on its
historical collections experience, and its remittance and reconciliation
procedure is an economical and cost effective method of identifying to a useful
degree of certainty the actual RTC Charge collections in accordance with the
provisions of G.L. c. 164, Section 1H(b)(8), given Boston Edison's current
accounting and billing information systems capabilities. On each semi-annual
payment date for the RRBs, or more frequently depending on market conditions at
the time of RRB pricing, the trustee for the SPE will release money from the
collection account to a trustee for the special purpose trust appointed under an
indenture in connection with the RRB Transaction who will pay interest and
principal on RRBs to RRB holders.
RTC Charges will be set at a level intended to recover the principal
balance of (in accordance with the expected amortization schedule), and interest
on, SPE Debt Securities authorized under this Financing Order, together with the
costs of servicing SPE Debt Securities
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and RRBs, including the Servicing Fee, the Administration Fee (as defined
below), fees for the trustees, rating agency fees, legal and accounting fees,
directors' fees, contingent indemnity obligations in the RRB Transaction
documents, other fees and expenses and the cost of creating and maintaining any
credit enhancement required for SPE Debt Securities and RRBs (the required
periodic payment of such, including deficiencies on past due principal and
interest for any reason, the "Periodic RRB Payment Requirement" and
collectively, the "Total RRB Payment Requirements"), based on assumptions set
forth in the testimony including sales forecasts, payment and charge-off
patterns, and lags between RTC Charge billing and collection. RTC Charges shall
remain in effect until the owner of the Transition Property has received RTC
Charges sufficient to discharge the Total RRB Payment Requirements as described
in G.L. c. 164, Section 1H(b)(2). Payments on the SPE Debt Securities and RRBs
will be semi-annual or more frequent, depending upon market conditions at the
time of RRB pricing.
Under G.L. c. 164, Section 1H(b)(6), the right to collect these RTC Charges
becomes Transition Property when and to the extent that the Financing Order is
entered authorizing such RTC Charges. The amounts of the reimbursable transition
costs amounts determined
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hereby are irrevocable, and the Department or any successor entity does not have
authority to, and shall not, rescind, reduce, alter, amend or impair this
Financing Order, determine that the reimbursable transition costs amounts or the
RTC Charges established hereby are unjust or unreasonable or in any way reduce
or impair the value of the Transition Property by taking reimbursable transition
costs amounts into account in setting other rates of Boston Edison. Nor shall
the amounts of revenues under the RTC Charges be subject to reduction,
impairment, postponement or termination. See G.L. c. 164, Section 1H(b)(3).
While not separately identified on each retail user's monthly bill, each
monthly bill will note that the RTC Charge, as a component of the transition
charge, is being collected on behalf of an SPE, as owner of the Transition
Property.
E. Periodic Adjustments to the RTC Charge
Although this Financing Order, the Transition Property and the RTC Charges
are each irrevocable, the Department or any successor entity must approve
adjustments to the RTC Charge as necessary to ensure timely recovery of all
reimbursable transition costs amounts that are the subject of this Financing
Order, including the ongoing costs of the RRB Transaction. The Department must
establish a procedure for the expeditious approval of periodic adjustments to
the RTC Charge. See G.L. c. 164, Section 1H(b)(5).
Boston Edison will establish an adjustment mechanism (the "RTC Charge
True-Up Mechanism") to periodically adjust the RTC Charge, up or down, to ensure
that it remains sufficient to generate an amount equal to the sum of the
Periodic RRB Payment Requirements for the upcoming year. Adjustments to the RTC
Charge pursuant to the RTC Charge True-Up Mechanism shall include, without
limitation, the effect of under estimates of required collections,
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customer defaults, any contingent obligations of the SPE arising from indemnity
provisions in the transaction documents, customers exiting Boston Edison's
distribution system and defaults by Servicers in the remittance of collections.
Boston Edison proposes to adjust the RTC Charge by the RTC Charge True-Up
Mechanism, at least annually, to keep actual principal amortization in line with
the expected amortization schedule which is established after the RRBs are
priced. The forms of advice letters for periodic RTC Charge True-Ups are
substantially in the form of Appendix B to this Financing Order.
Boston Edison shall file periodic RTC Charge True-Up advice letters
("Routine True-Up Letters") annually, prior to the anniversary of this Financing
Order, and if necessary, more frequently. In either case, the resulting upward
or downward adjustments to the RTC Charge will be effective on the first day of
the succeeding calendar month, or such date as may be specified in the Routine
True-Up Letter, as long as such effective date is at least 15 days after the
filing of such Routine True-Up Letter. For these adjustments, the adjusted RTC
Charge will be calculated using the methodology set forth in Boston Edison's
testimony.
Whenever Boston Edison determines that the RTC Charge True-Up Mechanism
used to calculate RTC Charge adjustments requires modification to more
accurately project and generate adequate revenues, a non-routine RTC Charge
True-Up advice letter ("Non-Routine True-Up Letter") may be filed with the
resulting adjustments to the RTC Charge (reflecting such modification to the
methodology or model) to be effective upon review and approval by the Department
within 60 days of such filing.
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F. Formation of SPE
The Department authorizes Boston Edison to form and capitalize one or more
SPEs to engage in the RRB transaction as described herein. The Department hereby
determines that each SPE constitutes a financing entity, as defined in G.L. c.
164, Section 1H(a), which is authorized to acquire the Transition Property. Each
SPE will be a Delaware limited liability company, wholly owned by Boston Edison
and, if so, may constitute an "affiliated company" under G.L. c. 164, Section
85, clause (a) or (b), subject to supervision of the Department in certain
respects under G.L. c. 164, Sections 17A and 76A by reason thereof. The
Department finds that each SPE is not an "affiliated company" for purposes of
clause (c) of the said Section 85.
The fundamental organizational documents of each SPE will impose
significant limitations upon the activities of such SPE and the ability of
Boston Edison to take actions as the holder of the equity interest therein. For
example, each SPE will be formed for the limited purpose of acquiring the
Transition Property and Other SPE Collateral and issuing and selling the SPE
Debt Securities. It will not be permitted to engage in any other activities, and
will have no assets other than the Transition Property and Other SPE Collateral.
Each SPE will be managed by a Management Committee, which will have rights
and authority similar to that of a board of directors for a corporation. As long
as the SPE Debt Securities and the RRBs remain outstanding, Boston Edison shall
be required to cause each SPE to have at least two independent directors.
Without the consent of these independent directors, each SPE will be unable (a)
to amend provisions of fundamental organizational documents which ensure the
bankruptcy-remoteness of such SPE, (b) to institute bankruptcy or insolvency
proceedings or to consent to the institution of bankruptcy or insolvency
proceedings against it, or
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(c) to dissolve, liquidate or wind up the Company. Other provisions may also be
included to support the bankruptcy-remote character of each SPE as required by
the rating agencies.
G. Transition Property
Under G.L. c. 164, Section 1H(a) of the Act, Transition Property is
"the property right created pursuant to G.L. c. 164, Section 1H,
including, without limitation, the right, title and interest of an
electric company or a financing entity to all revenues, collections,
payments, money, or proceeds or arising from or constituting
reimbursable transition costs amounts which are the subject of a
financing order, including those nonbypassable rates and other charges
that are authorized by the department in the financing order to
recover the transition costs and the costs of providing, recovering,
financing, or refinancing the transition costs, including the costs of
issuing, servicing, and retiring electric rate reduction bonds."
The Transition Property thereafter continuously exists as property for all
purposes as provided in this Financing Order, but in any event until any RRBs
issued and sold in the RRB Transaction are paid in full. G.L. c. 164, Section
1H(b)(6). Transition Property shall constitute property for all purposes whether
or not the revenues or proceeds with respect to RTC Charges have accrued. See
G.L. c. 164, Section 1H(d)(3).
The foregoing structural elements, including, without limitation, the legal
true sale and absolute transfer of the Transition Property by Boston Edison to
an SPE, and the bankruptcy-remote status of such SPE, should enable RRBs to
receive a credit rating superior to that of Boston Edison. The Department finds
that upon the filing of the Issuance Advice Letter,
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automatically effective as of such filing, all of the Transition Property
identified in the Issuance Advice Letter constitutes a property right and shall
thereafter continuously exist as property for all purposes.
H. Sale of Transition Property to SPE
The Department approves the sale by Boston Edison of the Transition
Property identified in the Issuance Advice Letter to one or more SPEs in one or
more transactions which, under G.L. c. 164, Section 1H(f)(1), will be intended,
and treated, as a legal true sale and absolute transfer to each SPE,
notwithstanding any other characterization for tax, accounting or other
purposes. Upon the sale of the Transition Property identified in the Issuance
Advice Letter to such SPE, such SPE will have all of the rights originally held
by Boston Edison with respect to the Transition Property and Other SPE
Collateral, including without limitation, the right to exercise any and all
rights and remedies to collect any amounts payable by any customer in respect of
the Transition Property and Other SPE Collateral, including the right to
authorize the Servicer to shut-off electric power to the extent permitted in
accordance with G.L. c. 164, Sections 116, 124-124I and any applicable
regulations. Any payment by any such customer to any SPE shall discharge the
customer's obligations in respect of such Transition Property to the extent of
the payment, notwithstanding any objection or direction to the contrary by
Boston Edison, as initial Servicer, or any successor Servicer.
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I. Issuance and Transfer of SPE Debt Securities and Issuance of RRBs
The Department approves the issuance by one or more SPEs of SPE Debt
Securities with the terms to mirror substantially the terms of RRBs, to one or
more special purpose trusts formed or otherwise approved by the Agencies and
identified in the Issuance Advice Letter. The Department also approves each
SPE's pledge of its right, title and interest in and to the Transition Property
and Other SPE Collateral as security for SPE Debt Securities. The SPE Debt
Securities and RRBs (being undivided beneficial interests in the SPE Debt
Securities) will, by their terms, be non-recourse to Boston Edison or its
assets, but will be secured by a pledge of all of the right, title and interest
of each SPE in its Transition Property and Other SPE Collateral. The Department
approves the issuance by such special purpose trust of RRBs on terms
substantially described herein and finalized by Boston Edison in the Issuance
Advice Letter. To the extent provided in this Financing Order, the final terms
and conditions of the SPE Debt Securities and RRBs shall be approved by the
Agencies.
Pursuant to G.L. c. 164, Section 1H(e), upon the effective date of this
Financing Order there shall exist a statutory first priority lien on all
Transition Property then existing or thereafter arising pursuant to the terms of
this Financing Order. Such lien shall secure all obligations, then existing or
subsequently arising, to the holders of RRBs, the trustee or representative for
such holders, and each special purpose trust and shall arise by operation of law
automatically without any action on the part of Boston Edison or any other
person. Such lien shall be valid, perfected, and enforceable upon the
effectiveness of the Financing Order without any further public notice. Boston
Edison does expect to file a financing statement with respect to the Transition
Property which will constitute a protective filing pursuant to G.L. c. 164,
Section 1H(e).
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If the Transition Property subject to this Financing Order is transferred
and sold to more than one SPE, any collections in respect of the undivided
beneficial interests in RTC Charges related to such Transition Property will be
allocated pro rata among such undivided beneficial interests to give effect to
the pari passu first priority statutory liens on each SPE's portion of the
Transition Property subject to this Financing Order.
J. Nonbypassable RTC Charge
To ensure credit risks are minimized, it is necessary that the RTC Charge
be nonbypassable. Under G.L. c. 164, Section 1H(b)(2), "nonbypassable" means the
RTC Charge will be assessed and collected from all classes of retail users of
Boston Edison's distribution system within the geographic service territory as
in effect on July 1, 1997, whether or not energy is purchased from Boston Edison
or any TPS, and whether or not such distribution system is being operated by
Boston Edison or a successor distribution company. The RTC Charge is a
usage-based component of the transition charge on each retail user's monthly
bill and may in the future include a pro rata component of any exit fee
collected pursuant to G.L. c. 164, Section 1G(g) by Boston Edison and any
successor distribution company, including any TPS, until the Total RRB Payment
Requirements are discharged in full.
III. RATEPAYER BENEFITS
Boston Edison evaluated whether the RRB Transaction would result in net
savings to its customers. Based upon the methodology established and approved by
the Department in the Settlement Agreement and assumptions set forth in the
testimony, Boston Edison estimates the RRB Transaction to result in net savings
reflected in lower transition charges to its customers than would be required to
recover the approved transition costs if this Financing Order were not
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adopted. The actual savings and lower transition charges resulting from the RRB
Transaction will depend upon the actual amount of RRBs issued, market conditions
at the time of RRB pricing, the actual amount of transition costs, the actual
amount of transaction costs and the amount of credit enhancement.
Based on this evidence, the Department finds that the RRB Transaction will
result in savings for customers as is contemplated by the Settlement Agreement
and G.L. c. 164, Sections 1G(d)(4) and 1H(b)(2). To confirm this finding after
RRB pricing, the Issuance Advice Letter shall include a calculation in
accordance with Boston Edison's testimony indicating that, based on the actual
structure and pricing terms, the RRB Transaction is expected to result in net
savings and such savings will inure to the benefit of Boston Edison's customers.
IV. USE OF PROCEEDS
The proceeds from the sale of RRBs will ultimately be remitted to Boston
Edison in consideration of Boston Edison's sale of the Transition Property.
Boston Edison expects to use such proceeds, net of transaction costs, for one or
more of the following purposes: (a) to return the securitized portion of the
Pilgrim and fossil unrecovered plant balances and related regulatory assets; (b)
to fund the unrecovered prefunded balance of the securitized portion of the
decommissioning fund and additional transition costs arising in connection with
the Pilgrim divestiture or approved pursuant to another Separate Proceeding; and
(c) to provide any credit enhancement required for the RRBs. Boston Edison may
apply such proceeds to the reduction of its capitalization and for general
corporate purposes.
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V. RELATED ISSUES
As Boston Edison describes in its testimony, there are several related
issues that have a potentially significant impact on the RRB transaction as
described below.
A. Tax Considerations
The possibility that the Internal Revenue Service ("IRS") would assess
income taxes when this Financing Order is issued or when Boston Edison receives
the initial proceeds from SPE Debt Securities, rather than when RTC Charge
revenues are collected, is an issue to Boston Edison associated with financing
the reimbursable transition costs amounts. In addition to having tax
consequences, this would also affect the economics of issuing SPE Debt
Securities and RRBs, as the benefits of the RRB Transaction depend in large part
on recognizing taxable income in respect of reimbursable transition costs
amounts as RTC Charges are paid by customers, rather than it being accelerated
into current income upon issuance of SPE Debt Securities.
As a result, on January 19, 1999, Boston Edison submitted a ruling request
to the IRS seeking confirmation that (a) the issuance of this Financing Order by
the Department will not result in gross income to Boston Edison; (b) the
issuance of the SPE Debt Securities and the issuance of RRBs will not result in
gross income to Boston Edison; and (c) SPE Debt Securities will be treated as
obligations of Boston Edison for tax purposes. An IRS ruling is expected within
one month after the issuance of this Financing Order.
If the RRB Transaction results in current income taxation of the proceeds
of such transaction, the benefits of the RRB Transaction would be substantially
reduced. Should the IRS
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choose not to provide a ruling, or rule adversely, Boston Edison would have to
reassess the RRB Transaction and, if possible, modify it to eliminate the risk
of current taxation.
The interest paid to holders of RRBs will be exempt from income taxes
imposed in The Commonwealth of Massachusetts but will not be exempt from federal
income taxes or taxes imposed in any other state. See G.L. c. 164, Section
1H(b)(4)(iii).
B. Accounting and Financial Reporting
The amount financed is expected to be recorded in accordance with generally
accepted accounting principles ("GAAP") as long term debt on the balance sheet
of each SPE for financial reporting purposes. Boston Edison, each SPE, each
special purpose trust and the holders of RRBs will expressly agree pursuant to
the terms of the applicable documents to treat SPE Debt Securities as debt of
such SPE secured by, among other things, the Transition Property and the Other
SPE Collateral for this purpose. Because such SPE will be a wholly owned
subsidiary of Boston Edison, it is required that such SPE be consolidated with
Boston Edison for financial reporting purposes under GAAP. Therefore, such SPE's
debt will appear on the consolidated balance sheet of Boston Edison in its
annual and quarterly financial filings to the Securities and Exchange
Commission. For purposes of financial reporting to the Department, Boston Edison
will exclude such SPE's debt from its capital structure. The RRB Transaction is
not expected to impact Boston Edison's credit ratings, as it is expected that
the rating agencies will determine that RRBs, which are not supported by Boston
Edison's general revenue stream, and not collateralized by the assets of Boston
Edison, do not affect Boston Edison's creditworthiness. Therefore, it is
anticipated that the rating agencies will exclude the RRBs as debt for purposes
of calculating financial ratios.
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C. Rating Agency Considerations
1. True-sale Opinion
Rating agencies will require acceptable opinions of bankruptcy counsel at
the time SPE Debt Securities and RRBs are issued for assurance that the
Transition Property will be bankruptcy-remote from Boston Edison. To obtain such
opinions, the transfer of the Transition Property from Boston Edison to an SPE
must constitute a legal "true sale" such that if Boston Edison were to become
the subject of a bankruptcy or insolvency case, the Transition Property would
not be part of Boston Edison's bankruptcy estate and therefore would not be
subject to the claims of Boston Edison's creditors.
G.L. c. 164, Section 1H(f)(1) expressly provides that certain transfers of
Transition Property as described in G.L. c. 164, Section 1H(f)(1) approved in a
financing order shall be so treated for all purposes as an absolute transfer and
true sale, other than for federal and state income tax purposes. In addition,
SPE Debt Securities and RRBs will be non-recourse to Boston Edison and its
assets, other than the Transition Property sold to an SPE and the Other SPE
Collateral. See G.L. c. 164, Section 1H(c)(1).
Another element of the bankruptcy analysis focuses on the separate legal
status of Boston Edison and each SPE. Although Boston Edison will wholly own
each SPE, the RRB Transaction will be structured so that, in the event of a
bankruptcy of Boston Edison, each SPE's separate legal existence would be
respected and the assets and liabilities of each SPE would remain separate from
the estate of Boston Edison. The structural elements supporting such separate
existence include, without limitation, requirements that each SPE be adequately
capitalized, that Boston Edison be adequately compensated on an arms-length
basis for the servicing functions it
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performs in billing, collecting and remitting the RTC Charges and that Boston
Edison and each SPE take certain steps to ensure that creditors are not mislead
as to their separate existence. These structural protections are very important
because, without such protections, a bankruptcy court might invoke the doctrine
of "substantive consolidation" and disregard each SPE's separate existence.
Substantive consolidation is an equitable doctrine in bankruptcy cases that
allows courts to disregard the separate existence of two or more affiliated
entities to ensure the equitable treatment of all creditors and to maximize
creditor recoveries. When entities are "substantively consolidated" in a
bankruptcy proceeding, their assets and liabilities are pooled, thereby
eliminating intercompany claims, and claims of third-party creditors against any
of those entities are generally treated as claims against the common pool of
assets created by consolidation.
2. Credit Enhancement
Credit enhancements are mechanisms that provide investors with added
assurance that they will recover their investment. Examples of credit
enhancement provided by the seller of transition property or from proceeds of
the RRBs include the initial capitalization of each SPE, true-up mechanisms,
overcollateralization amounts and liquidity reserves. It is expected that the
RRB Transaction will incorporate the RTC Charge True-Up Mechanism authorized by
G.L. c. 164, Section 1H(b)(5) as described above and overcollateralization
amounts or other means of credit enhancement as required by the rating agencies
or taxing authorities.
The purpose of the overcollateralization amount is to provide security to
investors and to enhance the credit rating of RRBs by providing an additional
amount to cover shortfalls in RTC Charge collections. As a result, the RTC
Charge will be set to collect an overcollateralization amount over time in
addition to the principal balance of (in accordance with the expected
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amortization schedule), and interest on (including deficiencies on past due
principal and interest for any reason), SPE Debt Securities authorized under
this Financing Order, together with the costs of servicing SPE Debt Securities
and RRBs, including the Servicing Fee, the Administration Fee, fees for the
trustees, rating agency fees, legal and accounting fees, directors' fees,
contingent liabilities of the SPE arising from indemnity obligations in the RRB
Transaction documents, other fees and expenses required for SPE Debt Securities
and RRBs. The overcollateralization amount needed to satisfy the rating agencies
will be determined by Boston Edison, subject to approval by the Agencies, with
input from the rating agencies and tax authorities prior to the time RRBs are
priced. As with other components of the RTC Charge, the overcollateralization
component, any deficiencies in the capital account and any excess in the reserve
account will be incorporated into each periodic adjustment to the extent
necessary using the RTC Charge True-Up Mechanism adopted in this Financing
Order, in accordance with Section 1H(b)(7).
Retail customers obligated to pay the RTC Charge in their rates should
receive credit equal to the amount of any overcollateralization and any
investment earnings thereon (other than the earnings on the initial capital
contributed by Boston Edison to the SPE, which earnings will be returned as a
distribution of capital by the SPE to Boston Edison) not used to discharge the
Total RRB Payment Requirements. As a result, overcollateralization will not
reduce customer benefits from the RRB Transaction.
3. Sequestration
The Department agrees that, in the event of a default by Boston Edison or
any successor Servicer in payment of the RTC Charges to an SPE, the Department
will, upon application by (1)
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the holders of RRBs or the trustee for the special purpose trust, (2) such SPE
or its assignees or (3) pledgees or transferees of the Transition Property and
Other SPE Collateral, order the sequestration and payment to or for the benefit
of such SPE or such other party of revenues arising with respect to the
Transition Property and Other SPE Collateral. This will provide additional
certainty that the RTC Charges will benefit the owner of the Transition
Property, and should serve to enhance the credit quality of RRBs.
4. Third Party Supplier Concerns
Each TPS, if any, shall comply with the billing, collection and remittance
procedures and information access requirements set forth in Boston Edison's
testimony, or such other policies or procedures as the rating agencies may
require. Billing, collection and remittance of RTC Charges by a TPS may increase
the risk of shortfalls in RTC Charge collections by exposing the cashflow to
potential interruption due to the default, bankruptcy or insolvency of the TPS.
This risk of interruption will increase risks to investors, potentially reducing
the credit rating and increasing the rate of interest on RRBs that would be
required by investors. Such TPS billing may increase the RTC Charge component of
the transition charge resulting from such interruption or delay in payment.
Therefore, the Department approves such procedures.
D. Allocation of Collection Shortfalls
In order to preserve the bankruptcy-remote status of the Transition
Property and Other SPE Collateral once it is transferred to each SPE, Boston
Edison cannot have any claim on the RTC Charges. In its capacity as Servicer,
Boston Edison will bill RTC Charges along with other charges for services
rendered to customers obligated to pay such charges. If Boston Edison collects
less than the full amount that is billed to such customers, it is not permitted
to favor itself
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over each SPE, as owner of the Transition Property. In accordance with M.G.L.
c. 164, Section 1H(b)(1), this Financing Order requires that upon the issuance
of RRBs, transition charges collected shall be allocated first to transition
property and second to transition charges, if any, that are not subject to this
or any other financing order.
In the event that more than one SPE issues SPE Debt Securities in respect
of transition property created under this Financing Order or subsequent
financing orders, any payment which is not sufficient to pay all RTC Charges
imposed on the ratepayer will be allocated pro rata among each SPE based on the
relative size of each SPE's undivided beneficial interest in the transition
property. The Department approves of such allocation because such proceeds of
the transition property created by this Financing Order and subsequent financing
orders constitute a fungible fund consisting of non-identifiable proceeds of
such portions of the transition property, each of which has the benefit of first
priority contractual and statutory liens. A pro rata allocation among these pari
passu interests and liens on each SPE's portion of such transition property is
therefore appropriate.
As described earlier, it is expected that Boston Edison, or any successor
Servicer, will remit to the SPE trustee on a daily basis, an amount equal to the
actual RTC Charges billed, less an allowance for estimated charge-offs, on or
about the day such amounts are deemed to be collected. Boston Edison's allowance
for estimated RTC Charge charge-offs is its system-wide allowance for
charge-offs, adjusted to take into consideration estimates of partially paid
bills. Given the relative size of the RTC Charge to the overall tariff rates for
services, partially paid bills are deemed to have satisfied the RTC Charge
amount in full. Boston Edison will reconcile such remittances at least once
annually for all remittances made in the previous year with the
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SPE trustee to more accurately reflect the amount of RTC Charges that should
have been remitted, based on the actual system-wide charge-off percentage, which
is adjusted again for estimates of partially paid bills. The Department approves
Boston Edison's remittance procedure, with estimated charge-offs relating to RTC
Charges and reconciliation of remittances, and finds that such remittance
procedure, based on Boston Edison's accounting and billing information systems
capabilities, is an economical and cost effective method of identifying to a
useful degree of certainty the actual RTC Charge collections and complies with
the provisions of G.L. c. 164, Section 1H(b)(1).
E. Servicing
To the extent that any interest in Transition Property is transferred by
Boston Edison to one or more SPEs, the Department authorizes Boston Edison to
enter into a Servicing Agreement, in accordance with G.L. c. 164, Section 1H(c)
(3), with one or more SPEs to perform servicing functions on behalf of each SPE.
Pursuant to the Servicing Agreement with each SPE, Boston Edison will act
as Servicer of the Transition Property. Boston Edison will be responsible for
customer kWh billing and usage information, and for billing, collecting and
remitting the RTC Charges as described earlier and in the testimony. The
Department authorizes Boston Edison to contract with each SPE to collect amounts
in respect of the RTC Charges for the benefit and account of such SPE, and to
account for and remit these amounts to or for the account of such SPE. The
Servicing Agreement will provide that Boston Edison, as initial Servicer, may
not voluntarily resign its duties as Servicer without obtaining the prior
approval of the Department, or if such resignation will result in the reduction
or withdrawal of the credit ratings of RRBs.
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In order to support each SPE's legal status separate and apart from Boston
Edison, the Servicing Fee paid to Boston Edison must be market-based. The annual
Servicing Fee, payable semi-annually or more frequently, will be a part of the
Servicing Agreement and will be based upon a percentage of the initial principal
balance of RRBs and will be included in the reimbursable transition costs
constituting Transition Property that is sold to an SPE. The Servicing Fee
represents a reasonable good faith estimate of an arm's length, market-based fee
for servicing RRBs. Such servicing responsibilities include without limitation,
billing, monitoring, collecting and remitting RTC Charges, systems modifications
to bill, monitor, collect and remit RTC Charges, reporting requirements imposed
by the Servicing Agreement, procedures required to coordinate with each TPS,
required audits related to Boston Edison's role as Servicer, and legal and
accounting functions related to the servicing obligation. The Servicing Fee paid
to Boston Edison will be lower than the Servicing Fee paid to a successor
Servicer that does not concurrently bill the RTC Charge with charges for other
services to reflect the higher costs related thereto.
F. Accounting for Certain Benefits.
Any amounts accounted for in the reserve account, which represents
collections in excess of the fully funded credit enhancement reserves, at the
time that Boston Edison calculates a periodic RTC Charge adjustment will be
incorporated in such adjustment, in accordance with G.L. c. 164, Section
1H(b)(7). Boston Edison, as initial Servicer (or any successor Servicer)
intends, through a separate non-cash memorandum account, to account for, and
ultimately credit to ratepayers, any amounts remaining in the collection account
after the RRBs are paid in full, such as any overcollateralization amounts,
including interest earnings thereon, or RTC Charge
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collections that remain after the Total RRB Payment Requirements have been
discharged. Such amounts will be released to the SPE in accordance with G.L. c.
164, Section 1H(b)(7), upon retirement of the RRBs and discharge of the Total
RRB Payment Requirements. These benefits will inure to the benefit of ratepayers
through a credit to their transition charge, or if there is no transition
charge, through a credit to other rates.
G. SPE Administration and Other Transactions with each SPE.
Because each SPE will be a special-purpose, bankruptcy-remote entity with
limited business activities, it is anticipated that each SPE will need to enter
into an administration agreement (the "Administration Agreement") with Boston
Edison pursuant to which Boston Edison shall perform ministerial services and
provide facilities for each SPE to ensure that it is able to perform such
day-to-day operations as are necessary to maintain its existence and perform its
obligations under the RRB Transaction documents. The Administration Agreement
incorporates provisions to ensure that Boston Edison will be paid a fee (the
"Administration Fee") in an amount commensurate with its costs of performing
such services and providing such facilities.
The Department authorizes Boston Edison to enter into the Administration
Agreement and other agreements as well as any other transactions with one or
more SPEs as may be necessary to carry out the RRB Transaction.
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FINDINGS
1. In the Settlement Agreement and subsequent filings pursuant thereto,
the Department approved Boston Edison's retail distribution rates, including its
transition charge, to recover on a fully reconciling basis all of Boston
Edison's transition costs, including the reimbursable transition costs amounts
being securitized.
2. Boston Edison currently has a carrying charge of 10.88% as approved in
the Settlement Agreement, Section 1.7(b) of Attachment 3 (adjusted for changes
in the federal and state tax rates) and applicable to all of Boston Edison's
transition costs that are subject to a carrying charge.
3. The actual amounts of the Fixed Component Transition Costs were
approved as transition costs by the Department either in the Pilgrim Order,
pursuant to the Settlement Agreement or approved pursuant to any other
proceeding in an order that becomes final and no longer subject to appeal
prior to the filing, with the Securities Exchange Commission ("SEC"), of the
preliminary prospectus to be distributed to prospective investors (a "Separate
Proceeding").
4. Pursuant to the Settlement Agreement and the Pilgrim Order, the actual
amounts of the Pilgrim and fossil unrecovered plant balances, generation related
regulatory asset balances, Pilgrim decommissioning funding, the cost associated
with the buyout of the L'Energia, Limited Partnership ("L'Energia") power
purchase agreement (to the extent approved by the Department in D.T.E. 99-16)
and any additional transition costs arising in connection with the Pilgrim
divestiture or approved pursuant to a Separate Proceeding have been approved by
the Department and determined to be actual and fully mitigated for purposes of
G.L. c. 164, Section 1G(a). No audit of such amounts for purposes of G.L. c.
164, Section 1G(a) is necessary. Pursuant to this Financing Order, the actual
amounts of the transaction costs of issuance (other than the costs of reducing
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capitalization) and ongoing transaction costs (other than legal and accounting
fees and other miscellaneous fees), each of which will be set forth in the
Issuance Advice Letter and fixed at the time of RRB pricing, are hereby approved
by the Department and determined as actual for purposes of G.L. c. 164, Section
1G(a), and no audit of such amounts for purposes of G.L. c. 164, Section 1G(a)
is necessary.
5. This Financing Order approves as reimbursable transition costs amounts
the Fixed Component Transition Costs, any transition costs approved in a
Separate Proceeding including the buyout of the L'Energia power purchase
contract, the transaction costs of issuance, the ongoing transaction costs and
the cost of any credit enhancement associated with the RRB Transaction.
6. Boston Edison has or will have proved to the Department's satisfaction
that it has fully mitigated the transition costs sought to be securitized by
Boston Edison pursuant to this Financing Order for purposes of G.L. c. 164,
Section 1G(d)(4)(i). Boston Edison has complied with G.L. c. 164, Section
1G(d)(1), which requires an electric company to take all reasonable steps to
mitigate to the maximum extent possible the total amount of transition costs the
Company seeks to recover through securitization.
7. The amount of SPE Debt Securities and RRBs to be issued as described in
Boston Edison's Application and testimony is reasonable. 1.
8. The amount of necessary credit enhancement and any necessary
adjustments thereto as described in Boston Edison's testimony or required by
the rating agencies or tax authorities is reasonable.
9. So long as the effective all-in-cost of RRBs is less than 10.88%, the
RRB Transaction approved by this Financing Order will result in net savings to
Boston Edison's customers in
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compliance with G.L. c. 164, Section 1G(d)(4)(ii). The net savings will be
reflected in lower transition charges to Boston Edison's customers than would
otherwise be required to recover the approved transition costs if the RRB
Transaction did not occur in accordance with G.L. c. 164, Section 1H(b)(2). The
methodology to calculate savings described in the testimony implements Section
1.7(b) of Attachment 3 to the Settlement Agreement. All such savings will inure
to the benefit of its ratepayers as demonstrated in such testimony in compliance
with G.L. c. 164, Section 1G(d)(4)(iii). Such savings to ratepayers will result
regardless of the amount of reimbursable transition costs amounts being
securitized or the initial principal balance of RRBs.
10. Boston Edison, to the satisfaction and approval of the Department, has
established an order of preference as described in its testimony such that the
transition costs having the greatest impact on customer rates will be the first
to be reduced by securitization in compliance with G.L. c. 164, Section
1G(d)(4)(iv).
11. In the event one or more SPEs issues SPE Debt Securities in respect of
transition property created under this Financing Order or subsequent financing
orders, such proceeds of the transition property created by this Financing Order
and any subsequent financing orders constitutes a fungible fund consisting of
non-identifiable proceeds of such portions of the transition property, each of
which has the benefit of first priority contractual and statutory liens. A pro
rata allocation among these pari passu interests and liens on each SPE's portion
of such transition property is reasonable in accordance with G.L. c. 164,
Section 1H(b)(1).
12. The proposed structure of the RRB Transaction contemplates that RTC
Charge remittances will be paid over to the SPE trustee daily, on or about the
deemed collection date.
13. The Department finds that Boston Edison's methodology for calculating
the deemed collection date of RTC Charges is an economical and cost effective
method of identifying to a
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useful degree of certainty the actual RTC Charge collections in accordance with
the provisions of G.L. c. 164, Section 1H(b)(8) based upon Boston Edison's
accounting and billing information systems capabilities and finds that RTC
Charges are deemed to be paid within one calendar month of collection.
14. Boston Edison's procedure of remitting to the SPE trustee actual RTC
Charges billed less an allowance for estimated charge-offs as described in the
testimony, along with a periodic reconciliation of such remittances as described
in the testimony, is an economical and cost effective method of identifying to a
useful degree of certainty the actual RTC Charge collections and complying with
G.L. c. 164, Sections 1H(b)(1) and 1H(b)(8).
15. The RTC Charge billing, collection and remittance procedures imposed
upon any successor Servicer and any TPS as set forth in Boston Edison's
testimony are reasonable.
16. In accordance with G.L. c. 164, Section 1H(b)(2), the owner of the
Transition Property will have the right to recover an aggregate amount equal to
the Total RRB Payment Requirements until such amounts have been discharged in
full through continued assessment, collection and remittance of RTC Charges from
all classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge will be a usage-based component of retail users' monthly
transition charge and may in the future include a pro rata component of any exit
fee collected pursuant to G.L c.164, Section 1G(g).
17. The methodology used to calculate the RTC Charge associated with the
RRB Transaction and the periodic adjustments thereto as described in Boston
Edison's testimony is reasonable and complies with G.L. c. 164,
Section 1H(b)(5).
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18. Boston Edison's plan to account through a non-cash memorandum
account, and ultimately credit ratepayers, for amounts remaining in the
collection account after the RRBs are paid in full is reasonable and in
compliance with G.L. c. 164, Section 1H(b)(7).
19. The sale of the Transition Property by Boston Edison to an SPE shall
be treated as an absolute transfer of all of Boston Edison's right, title, and
interest, as in a legal true sale, and not as a pledge or other financing, of
the Transition Property, in each case notwithstanding the following, which are
hereby determined not to effect such absolute transfer and legal true sale: (i)
any contrary treatment of such transfer for accounting, tax or other purposes,
(ii) certain indemnities (including mandatory redemption or repurchase
obligations related thereto) provided for in SPE Debt Securities or in the
transaction documents which do not constitute recourse in violation of G.L. c.
164, Section 1H(c)(1), (iii) Boston Edison's continued collection of RTC Charges
pursuant to the Servicing Agreement authorized by this Financing Order, or (iv)
Boston Edison's providing any credit enhancement to such SPE as described in the
testimony. 1.
20. SPE Debt Securities and RRBs will be non-recourse to Boston Edison
and its assets, but will be secured by a pledge of all right, title and interest
of each SPE in its Transition Property and Other SPE Collateral in accordance
with G.L. c. 164, Section 1H(c)(1), (2).
21. The formation of one or more SPEs by Boston Edison, the
capitalization of each SPE by Boston Edison with an amount equal to
approximately 0.50% of the initial principal balance of the RRBs, and entering
into the Servicing Agreement, the Administration Agreement, other agreements and
transactions by Boston Edison and each SPE are necessary for the consummation of
the RRB Transaction.
22. Pursuant to G.L. c. 164, Section 1H(b)(3), the Commonwealth has
pledged and agreed that it shall not: (i) alter the provisions of G.L. c. 164
which make the RTC Charge imposed by
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this Financing Order irrevocable and binding or (ii) limit or alter the
reimbursable transition costs amounts, Transition Property, Financing Order, and
all rights thereunder until the RRBs, together with the interest thereon, are
fully discharged.
23. Pursuant to G.L. Section 1H(b)(3), the Transition Property created by
and subject to this Financing Order, and the RTC Charge authorized hereby shall
be irrevocable, and the Department (or any successor thereto) does not have
authority to revalue or revise for ratemaking purposes the reimbursable
transition costs amounts, or determine that the reimbursable transition costs
amounts or the RTC Charge is unjust or unreasonable, or in any way reduce or
impair the value of the Transition Property either directly or indirectly by
taking into account the RTC Charge when setting rates for Boston Edison, nor
should the amount of revenues arising with respect thereto be subject to
reduction, impairment, postponement, or termination.
24. Except to the extent that such matters are provided for in collective
bargaining agreements or asset purchase agreements negotiated prior to the
effective date of the Restructuring Act, or amendments to such previously
negotiated asset purchase agreements, Boston Edison has obtained written
commitments that purchasers of its divested operations will offer employment to
the impacted employees who were employed in non-managerial positions to provide
services for the divested operations at any time during the three month period
prior to the divestiture, at levels of wages and overall compensation no lower
than the employees' prior levels in compliance with G.L. c. 164,
Section 1G(d)(4)(iv).
25. The Department has received full and satisfactory documentation that
with respect to this Financing Order, Boston Edison has proved to the
Department's satisfaction that it has complied with each requirement of G.L. c.
164, Section 1G(d)(4) and each other requirement of G.L. c. 164, Sections 1G
and 1H.
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26. Boston Edison has satisfied the requirements of G.L. c. 59,
Section 38H(c).(1)
27. The annual Servicing Fee, payable semi-annually or more frequently,
is a reasonable good faith estimate of an arms-length, market-based fee for
servicing RRBs pursuant to the Servicing Agreement, as described in Boston
Edison's testimony.
28. The Department finds that each SPE formed by Boston Edison in
connection with the RRB Transaction is not an "affiliated company" for purposes
of clause (c) of G.L. c. 164, Section 85.
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(1) This provision has been satisfied by an executed property tax
agreement between Boston Edison and the Town of Plymouth pursuant to
G.L. c. 59, Section 38H(c).
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29. The Settlement Agreement in Section 2.9(g) of Attachment 3 provides
that Boston Edison's transition charge shall not exceed 3.51 cents/kWh in 1998
or 3.35 cents/kWh in later years.
30. The Department finds that in the event that an audit pursuant to G.L.
c. 164, Section 1G(a)(2) results in excess reimbursable transition costs
amounts, Boston Edison's providing a uniform rate credit through a residual
value credit to its ratepayers rather than remitting payment to a financing
entity with respect to such excess is reasonable.
31. The Department finds an exemption from the competitive bidding
requirements of G.L. c. 164, Section 15 in connection with the sale of RRBs is
in the public interest.
32. The Department finds an exemption from the par value debt issuance
requirements of G.L. c. 164, Section 15A is in the public interest.
33. The Department finds that to the extent that Boston Edison
securitizes more than 75% of the decommissioning trust fund being transferred to
Entergy at closing pursuant to this Financing Order, the securitization of such
amount does not constitute a subsidy or benefit to any electric company or the
customers thereof other than Boston Edison and its customers.
34. The Department's review and approval of the Settlement Agreement in
D.P.U. Docket No. 96-23 satisfies the audit requirement under G.L. c. 164,
Section 1G(a)(1).
35. Upon completion of the fossil divestiture, Boston Edison completed
the divestiture of all non-nuclear generation assets as required by G.L. c. 164,
Section 1G(d)(3). 1.
36. The RRBs will be used to pay for mitigated transition costs related
to G.L. c. 164, Section 1G(b), in accordance with G.L. c. 164, Section
1H(b)(4)(iv). To the extent the Department has approved or will approve the
recovery of any transition costs, including the Fixed Component
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Transition Costs and the buyout of the L'Energia power purchase contract, these
costs constitute mitigated transition costs.
37. The Agencies have reviewed the Company's Application and this
Financing Order and have indicated that the RRB Transaction satisfies all
statutory requirements and contains provisions that should permit the RRBs to
achieve the highest feasible credit ratings. The Agencies have indicated that
they are not aware of any provision in the revised Financing Order beyond that
required for the necessary legal opinions or which exceeds the requirements of
the rating agencies in prior RRB transactions. The Agencies have also indicated
that the estimated transaction costs as described in Boston Edison's testimony
are reasonable and that they will also approve certain costs incurred after
issuance of the Financing Order, but before the pricing of the RRBs.
38. The final terms and conditions of SPE Debt Securities and RRBs,
including the schedule of principal amortization, credit enhancement, the
frequency of principal or interest payments, the interest rates on SPE Debt
Securities and RRBs, and manner of setting such interest rates (fixed or
variable), the manner of sale of the RRBs, the number and determination of
credit ratings and the approval of final transaction documents, will, to the
extent consistent with the provisions of this Financing Order, be determined by
Boston Edison and approved by the Agencies on behalf of the special purpose
trust at the time RRBs are priced and after input from the rating agencies, tax
authorities and the underwriters.
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ORDERS
1. The Application of Boston Edison Company (together with any legal
successors thereto, "Boston Edison") for this Financing Order pursuant to G.L.
c. 164, Section 1H is approved subject to the terms and conditions stated in the
following paragraphs.
2. The findings included in the introduction to this Financing Order are
adopted as findings by the Department and made a part of this Financing Order.
Creation of Transition Property and Reimbursable Transition Costs Amounts
3. Boston Edison is authorized to finance an aggregate total principal
amount equal to the amount required to provide, recover, finance or refinance a
portion of Boston Edison's transition costs (as defined in G.L. c. 164, Sections
1G and 1H) represented by the fixed component, net as of the date of issuance of
RRBs, of Boston Edison's transition charge (which includes the net balance of
its Pilgrim unrecovered plant balances and related regulatory assets and the
unrecovered prefunded balance of its portion of the decommissioning fund being
transferred to the buyer in connection with the divestiture of Pilgrim Nuclear
Power Station and associated generation assets ("Pilgrim")), the municipal
contract customers' portion of such balances, any additional transition costs
arising in connection with the Pilgrim divestiture or approved pursuant to any
other proceeding in an order by the Department that becomes final and no longer
subject to appeal prior to the filing with the Securities Exchange Commission
("SEC") of the preliminary prospectus to be distributed to prospective investors
(a "Separate Proceeding"), the transaction costs of issuing (as described in the
testimony) the notes ("SPE Debt Securities") of one or more SPEs (as defined
below) and the electric rate reduction bonds ("RRBs") and providing credit
enhancement (as hereinafter described, other than approximately 0.50% of the
initial principal balance of RRBs to be contributed by Boston Edison as the
initial capitalization of each SPE (as
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defined below)). These amounts constitute reimbursable transition costs amounts
(as defined in G.L. c. 164, Section 1H(a)) and shall be financed through the
issuance of SPE Debt Securities and RRBs (the "RRB Transaction"). Boston Edison
currently estimates that the principal amount of RRBs to be issued will be $800
million, subject to adjustment (which may be significant) based on the timing of
the Pilgrim divestiture, additional transition costs in connection with the
Pilgrim divestiture or approved pursuant to a Separate Proceeding, prevailing
market conditions, input on credit enhancement from nationally recognized
statistical rating organizations (the "rating agencies") selected by Boston
Edison with the approval of the Massachusetts Development Finance Agency and
Massachusetts Health and Educational Facilities Authority (together, the
"Agencies") to rate the RRBs, tax authorities and underwriters, or changes in
the proposed transaction not now anticipated by Boston Edison. The repayment of
such amounts shall be effected through the assessment and collection of a
portion of Boston Edison's transition charge (the "RTC Charge") from which SPE
Debt Securities and RRBs to be issued will be repaid.
4. The actual amounts of the fixed component of Boston Edison's transition
charge (which includes the Pilgrim unrecovered balances, as defined below), the
municipal contract customers' portion of such balances and other transition
costs (collectively, the "Fixed Component Transition Costs"), have been approved
by the Department as transition costs in Boston Edison's Restructuring
Settlement Agreement, D.P.U. Docket No. 96-23 and subsequent filings with the
Department pursuant thereto (collectively, the "Settlement Agreement"), an order
issued in connection with D.T.E. 98-119 (the "Pilgrim Order"), or in any other
Separate Proceeding and the costs associated with the L'Energia, Limited
Partnership power purchase agreement ("L'Energia") to the extent the Department
approves these costs as transition costs in D.T.E 99-16. Such transition costs,
together with the transaction costs of issuing RRBs, the
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ongoing transaction costs and the provision of credit enhancement (other than
Boston Edison's initial capital contribution), represent the reimbursable
transition costs amounts subject to this Financing Order. The "Pilgrim
unrecovered balances" include the net balance of Pilgrim unrecovered plant
balances and related regulatory assets and the unrecovered prefunded balance of
the decommissioning fund in connection with the divestiture of Pilgrim.
5. In the Settlement Agreement, the Department previously approved Boston
Edison's retail distribution rates, including its transition charge (referred to
as an "access charge" in the Settlement Agreement) to recover on a fully
reconciling basis all of Boston Edison's transition costs (including the
reimbursable transition costs amounts being securitized), the methodology to
determine if savings will result from the RRB Transaction, the application of a
carrying charge of 10.88% to all unrecovered transition costs and the amount of
Boston Edison's transition charge, and such approval is hereby reaffirmed by the
Department.
6. The transition charge, a component of which will be the RTC Charge,
shall be assessed and collected from all classes of retail users of Boston
Edison's distribution system within the geographic service territory as in
effect on July 1, 1997, whether or not energy is purchased from Boston Edison or
any TPS, and whether or not such distribution system is being operated by Boston
Edison or a successor distribution company. The transition charge, including the
RTC Charge, is a usage-based tariff on each retail user's monthly bill and may
in the future include any exit fee collected pursuant to G.L. c. 164, Section
1G(g). The RTC Charge will be sufficient in the aggregate to pay the principal
balance of (in accordance with the expected amortization schedule), and interest
on, SPE Debt Securities authorized for issuance pursuant to this Financing
Order, together with the costs of servicing SPE Debt Securities and RRBs
(including the Servicing Fee, trustee fees, rating agency fees, administration
fees, contingent
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indemnity obligations in the RRB Transaction documents (as described below) and
other fees and expenses) and the cost to Boston Edison of creating and
maintaining any credit enhancement required for SPE Debt Securities and RRBs
(the required periodic payment of such, including deficiencies on past due
principal and interest for any reason, a "Periodic RRB Payment Requirement" and
collectively, the "Total RRB Payment Requirements").
7. As of the effective date of this Financing Order, there is created and
established for the benefit of Boston Edison (or any assignee in accordance with
the terms hereof) Transition Property which represents a continuously existing
property right created pursuant to G.L. c. 164, Section 1H, including, without
limitation, the right, title, and interest in and to all revenues, collections,
claims, payments, money, or proceeds of or arising from or constituting (a) the
reimbursable transition costs amounts established by this Financing Order
including such amounts established in the Issuance Advice Letter, (b) the RTC
Charge authorized by this Financing Order including the initial RTC Charge set
forth in the Issuance Advice Letter as may be adjusted from time to time in
order to generate amounts sufficient to discharge an amount equal to the sum of
the Periodic RRB Payment Requirements for the upcoming year as authorized by
paragraph 6 of this Financing Order, and (c) all rights to obtain periodic
adjustments and non-routine adjustments to the RTC Charge.
8. The RRB Transaction will result in net savings for Boston Edison
customers reflected in lower transition charges than Boston Edison's customers
would have paid if this Financing Order were not adopted, in accordance with
G.L. c. 164, Section 1H(b)(2).
9. Boston Edison has proved to the Department's satisfaction that in
accordance with G.L. c. 164, Section 1G(d)(4): (i) Boston Edison has fully
mitigated the transition costs related to this Financing Order; (ii) savings to
Boston Edison's customers will result from the RRB
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Transaction; (iii) all such savings derived from the RRB Transaction shall
inure to the benefit of Boston Edison's customers; (iv) Boston Edison has
obtained written commitments that purchasers of divested operations will offer
employment to impacted employees; and (v) Boston Edison has established, with
the approval of the Department, an order of preference such that transition
costs having the greatest impact on customer rates will be the first to be
provided, recovered, financed or refinanced by the RRB Transaction.
Establishment of SPE
10. The establishment by Boston Edison of one or more wholly owned special
purpose entities (each, an "SPE") described in the testimony to which the
Transition Property subject to this Financing Order is to be sold is authorized
pursuant to G.L. c. 164, Sections 17A and 76A, and in accordance with all
applicable Massachusetts law, rules and regulations.
11. The capitalization by Boston Edison of each SPE with approximately
0.50% of the initial principal balance of RRBs, subject to prevailing market
conditions at the time of RRB pricing, is authorized pursuant to G.L. c. 164,
Sections 17A and 76A, and in accordance with all applicable Massachusetts law,
rules and regulations. Any other credit enhancement is either part of the
periodic adjustment to the RTC Charge or will be included in the principal
balance of RRBs.
Sale of Transition Property
12. In accordance with G.L. c. 164, Section 1H(c)(2), Boston Edison is
authorized to sell or assign all of its interest in Transition Property that
arises from this Financing Order to one or more SPEs. Each SPE is authorized to
acquire the Transition Property and is designated as a "financing entity" (as
defined in G.L. c. 164, Section 1H(a)) for such purpose, and for the purpose of
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pledging such Transition Property (and such other assets of such SPE as are
pledged under the transaction documents) to the payment of SPE Debt Securities
and RRBs.
13. Upon the sale by Boston Edison of the Transition Property to each SPE
as described in paragraph 15 of this Financing Order, (i) such SPE shall have
all of the rights originally held by Boston Edison with respect to such
Transition Property, including, without limitation, the right to exercise any
and all rights and remedies, including the right to authorize the Servicer to
shut-off electric power to the extent permitted by G.L. c. 164, Sections 116,
124-124I and applicable regulations, to assess and collect any amounts payable
by any customer in respect of such Transition Property, notwithstanding any
objection or direction to the contrary by Boston Edison, as initial servicer
(the "Servicer"), or any successor Servicer, and (ii) any payment by any
customer to such SPE shall discharge such customer's obligations in respect of
such Transition Property to the extent of such payment, notwithstanding any
objection or direction to the contrary by the Servicer. 1.
14. Upon the sale by Boston Edison of the Transition Property to an SPE,
Boston Edison or any successor Servicer shall not be entitled to recover RTC
Charges other than for the benefit of the holders of SPE Debt Securities and the
related RRBs in accordance with Boston Edison's duties as Servicer of such
Transition Property as authorized in paragraphs 33 et seq. of this Financing
Order.
15. The sale by Boston Edison of the Transition Property to an SPE in
accordance with G.L. c. 164, Section 1H(f)(1) and in a manner described in such
section shall be treated as an absolute transfer of all of Boston Edison's
rights, title and interest, as a legal true sale, and not as a pledge or other
financing, of the Transition Property, in each case notwithstanding the
following, which are hereby determined not to effect such absolute transfer and
legal true sale: (i) any contrary
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treatment of such transfer for accounting, tax or other purposes, (ii) certain
indemnities (including mandatory redemption or repurchase obligations related
thereto) provided for in SPE Debt Securities or in the transaction documents
which do not constitute recourse in violation of G.L. c. 164, Section 1H(c)(1),
(iii) Boston Edison's continued collection of the RTC Charge pursuant to a
servicing agreement (the "Servicing Agreement") authorized in paragraphs 33 et
seq. of this Financing Order, or (iv) Boston Edison's providing any credit
enhancement to such SPE as described in the testimony.
16. In accordance with G.L. c. 164, Section 1H(b)(2) and paragraph 6 of
this Financing Order, the RTC Charge and its imposition, collection and payment
as provided in this Financing Order shall be assessed and collected from all
classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition charge on each
retail user's monthly bill and may in the future include a pro rata component of
any exit fee collected pursuant to G.L. c. 164, Section 1G(g) until the Total
RRB Payment Requirements are discharged in full.
17. In accordance with G.L. c. 164, Section 1H(b)(3), this Financing
Order, the reimbursable transition costs amounts arising from this Financing
Order, and the RTC Charge authorized shall be irrevocable, and the Department
(or any successor entity) shall not have authority to revalue or revise for
ratemaking purposes the reimbursable transition costs amounts, or determine that
such reimbursable transition costs amounts or the RTC Charge associated
therewith is unjust or unreasonable, or in any way reduce or impair the value of
Transition Property either directly or indirectly by taking into account the
reimbursable transition costs amounts when setting rates for
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Boston Edison, nor shall the amount of revenues arising with respect thereto be
subject to reduction, impairment, postponement, or termination.
18. Each SPE, as owner of the Transition Property, and the holders of SPE
Debt Securities and RRBs, or any trustee acting therefor, shall be entitled to
the benefit of the pledge and agreement of the Commonwealth contained in G.L. c.
164, Section 1H(b)(3), and each special purpose trust referred to in paragraph
23 hereof, as a financing entity under G.L. c. 164, Section 1H, and as agent for
the Commonwealth, is authorized to include this pledge and undertaking in any
contracts with the holders of RRBs, or any trustees acting therefor.
19. In accordance with G.L. c. 164, Section 1H(d)(3) and paragraph 7 of
this Financing Order, the Transition Property created and established by this
Financing Order shall constitute property from the effective date of this
Financing Order for all purposes, including for the purpose of contracts
relating to or securing SPE Debt Securities and RRBs, whether or not the
revenues and proceeds arising with respect to RTC Charges have accrued at the
time of this Financing Order.
20. In accordance with G.L. c. 164, Section 1H(b)(6) and paragraph 7 of
this Financing Order, the Transition Property created and established by this
Financing Order shall constitute a current property right of the owner thereof
or its assignee or transferee, which continuously exists for all purposes with
all of the rights and privileges as provided in G.L. c. 164, Section 1H, from
the effective date of this Financing Order until the owner or its assignee or
transferee has received RTC Charges sufficient to discharge the Total RRB
Payment Requirements in full. In accordance with G.L. c. 164, Section 1H(b)(3),
such property right may not be limited, altered, impaired or reduced or
otherwise terminated by any subsequent actions of Boston Edison or any third
party and shall, to the fullest extent permitted by law, be enforceable against
Boston Edison, its successors and
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assigns, and all other third parties, including judicial lien creditors,
claiming an interest therein by or through Boston Edison or its successors or
assigns.
21. Pursuant to G.L. c. 164, Section 1H(e), upon the effective date of
this Financing Order there shall exist a statutory first priority lien on all
Transition Property then existing or thereafter arising pursuant to the terms of
this Financing Order. Such lien shall secure all obligations, then existing or
subsequently arising, to the holders of RRBs, the trustee or representative for
such holders, each SPE and special purpose trust and shall arise by operation of
law automatically without any action on the part of Boston Edison or any other
person. Such lien shall be valid, perfected, and enforceable upon the
effectiveness of the Financing Order without any further public notice. Boston
Edison does expect to file a financing statement with respect to the Transition
Property which will constitute a protective filing pursuant to G.L. c. 164,
Section 1H(e). If the Transition Property subject to this Financing Order is
transferred and sold to more than one SPE, any collections in respect of the
undivided beneficial interests in RTC Charges related to such Transition
Property will be allocated pro rata among such undivided beneficial interests to
give effect to the pari passu first priority statutory liens on each SPE's
portion of the Transition Property subject to this Financing Order.
SPE Debt Securities and RRBs
22. Each SPE is authorized to issue SPE Debt Securities and to pledge (i)
all of its interest in Transition Property, and (ii) any other contract rights,
other assets or collateral of the SPE (the "Other SPE Collateral") which shall
include without limitation, the rights of each SPE under the RRB Transaction
documents including the purchase agreement by which each SPE acquires the
Transition Property, and the Servicing Agreement by which Boston Edison or any
successor Servicer, acts as Servicer of the Transition Property, the collection
account and any
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other account of such SPE contained in such SPE's collection account including
the overcollateralization account and the reserve account, any investment
earnings on amounts (other than earnings on the initial capital provided by
Boston Edison, which earnings are to be returned as a distribution of capital by
such SPE to Boston Edison) held by such SPE, and the capital of such SPE, to
secure RRBs or SPE Debt Securities that are not themselves RRBs, but
substantially are mirrored by the financial terms and conditions of the RRBs
issued in connection with such pledge.
23. Each SPE and one or more special purpose trusts authorized and created
by the Agencies are each determined to be a financing entity for the purposes of
G.L. c. 164, Section 1H, and each special purpose trust is authorized to issue
RRBs evidencing undivided beneficial interests in SPE Debt Securities, the
expected and final legal maturity of the RRBs are expected to be 11 and 13
years, respectively (or longer, if required) in accordance with G.L. c. 164,
Section 1H(b)(4)(vi), the principal of the RRBs will be paid in substantially
equal annual amounts. The effective all-in-cost of the RRBs, as described in the
testimony, will not exceed the Carrying Charge of 10.88% (as defined in the
Settlement Agreement).
24. The final terms and conditions of SPE Debt Securities and RRBs
authorized by this Financing Order, including, without limiting the foregoing,
the schedule of principal amortization, credit enhancement, frequency of
principal or interest payments, the interest rates on SPE Debt Securities and
RRBs and manner of setting such interest rates (fixed or variable), the manner
of sale of the RRBs, the number and determination of credit ratings, the
approval of final transaction documents and certain transaction costs as set
forth in the testimony, shall, to the extent consistent with the provisions of
this Financing Order, be determined by Boston
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Edison and approved by the Agencies on behalf of the special purpose trust at
the time RRBs are priced and after input from the rating agencies, tax
authorities and the underwriters.
25. The amount of SPE Debt Securities and RRBs to be issued shall be
determined as described in Boston Edison's testimony; and the net proceeds of
SPE Debt Securities or RRBs shall be used to pay for mitigated transition costs,
in accordance with G.L. c. 164, Section 1H(b)(4)(iv).
26. A special purpose trust shall remit the proceeds from the issuance of
the RRBs authorized by this Financing Order, less underwriters' discount and
original issue discount, to an SPE, which shall, in turn, remit such net
proceeds, less certain transaction costs of issuing SPE Debt Securities and RRBs
to Boston Edison.
27. Boston Edison may apply the net proceeds of RRBs as described in the
testimony (and as set forth in paragraphs 60 et seq. of this Financing Order).
28. The amounts necessary for credit enhancement for SPE Debt Securities
and RRBs and any subsequent adjustments thereto should be determined as
described in Boston Edison's testimony, subject to the requirements of rating
agencies and tax authorities and approval by the Agencies on behalf of the
special purpose trust.
29. The net savings and lower transition charges resulting from the RRB
Transaction should be calculated in accordance with the methodology set forth in
Boston Edison's testimony and such savings will inure to the benefit of
ratepayers, directly or indirectly as described in the testimony. 1.
30. In accordance with G.L. c. 164, Section 1H(c)(1), RRBs and SPE Debt
Securities shall be non-recourse to Boston Edison and its assets, other than the
Transition Property sold to the SPE and Other SPE Collateral subject to this
Financing Order, provided nothing herein shall prevent
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Boston Edison or its successors or assigns from (a) entering into the Servicing
Agreement authorized pursuant to G.L. c. 164, Section 1H(c)(3) and paragraphs 33
and 62 of this Financing Order, which arrangements may include the making of
representations, warranties and agreements and the providing of covenants and
indemnities, not amounting to recourse, for the benefit of the holders of RRBs
and SPE Debt Securities, and the making of remittances of amounts representing
deemed collections of RTC Charges, (b) entering into agreements in connection
with the sale and transfer of the Transition Property to an SPE and sale of the
SPE Debt Securities, which agreements may include representations and warranties
with respect to, among other things, the validity of the Transition Property and
the title thereto, and providing specific covenants, indemnities and repurchase
obligations, not amounting to recourse, in connection with such transfer for the
benefit of the holders of RRBs and SPE Debt Securities, (c) entering into an
administration agreement (the "Administration Agreement") with each SPE as
further described in the testimony and authorized in paragraph 62 of this
Financing Order and (d) capitalizing each SPE as described in paragraph 11 of
this Financing Order.
Reports
31. Upon the issuance of RRBs and SPE Debt Securities, Boston Edison shall
file with the Department, for informational purposes, an issuance advice letter,
substantially in the form of Appendix A hereto (the "Issuance Advice Letter"),
setting forth the final structural details of RRBs and SPE Debt Securities,
including the repayment terms (in accordance with the expected amortization
schedule), the initial RTC Charge, the amount necessary for credit enhancement,
the identification of each SPE and a special purpose trust, the transaction
costs of issuance and a calculation confirming net savings to ratepayers as a
result of the RRB Transaction. Such filing
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shall not be a condition to the effectiveness of this Financing Order or the
issuance of RRBs or SPE Debt Securities and shall be automatically effective
upon filing. 1.
32. Within 90 days following the closing of the RRB Transaction, and
within 60 days of the end of each fiscal quarter thereafter until the proceeds
have been applied in full, Boston Edison shall file with the Department a report
showing the use of RRB proceeds in compliance with paragraphs 60 et seq. of this
Financing Order. Such filing shall not be a condition to the effectiveness of
this Financing Order or the issuance of RRBs or SPE Debt Securities.
Servicing of SPE Debt Securities and RRBs
33. Boston Edison, as Servicer, or any successor Servicer is required, in
accordance with G.L. c. 164, Section 1H(c)(3), to enter into a servicing
agreement (the "Servicing Agreement") with an SPE pursuant to which it agrees to
continue to operate its distribution system to provide service to its customers,
to bill and collect RTC Charges for the benefit and account of such SPE or its
assigns, and to account for and remit these amounts to or for the account of
such SPE or its assigns. These components of the Servicing Agreement as further
described in the testimony are authorized and approved.
34. Given Boston Edison's current accounting and billing information
systems capabilities, Boston Edison's establishment of the deemed collection
date, based on its historical collections experience, and its remittance and
reconciliation procedure as more fully described in the testimony is in
compliance with the provisions of G.L. c. 164, Sections 1H(b)(1), (8).
35. In the event of a default by a Servicer in remittance of RTC Charges,
the Department will, in accordance with G.L. c. 164, Sections 1H(d)(5) and (e),
upon application by (i) the holders of SPE Debt Securities or RRBs, or the
trustees or representatives therefor as beneficiaries of any statutory lien
provided by G.L. c. 164, Section 1H(e), (ii) an SPE or its assignees,
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(iii) a special purpose trust, or (iv) other pledgees or transferees of the
Transition Property and Other SPE Collateral, order the sequestration and
payment to or for the benefit of the pledgees or transferees of the revenues
arising with respect to the Transition Property.
36. In the event of a default by a Servicer under any Servicing Agreement
with respect to RRBs, each special purpose trust or the trustees or
representatives of the holders of SPE Debt Securities or RRBs, may immediately
appoint a successor Servicer for the Transition Property, subject to the
approval of the Department, who shall promptly assume billing responsibilities
for RTC Charges. The Department shall act on an expedited basis within 30 days
to approve such successor Servicer. Such successor Servicer shall assume all
rights and obligations under G.L. c. 164, Section 1H and this Financing Order as
though it were the Servicer at the time such SPE Debt Securities and RRBs were
issued.
37. In accordance with G.L. c. 164, Section 1H(b)(1), amounts collected
from a customer of Boston Edison shall be allocated first, pro rata based on the
relative size of applicable RTC Charges, to the RTC Charges and other portions
of the transition charge subject to other subsequent financing orders, and
second, to any remaining portion of the transition charge not the subject of a
financing order, provided, however, as set forth in G.L. c. 164, Section
1H(f)(1), such preferred right to revenues of Boston Edison shall not impair or
negate the characterization of the transfer of the Transition Property as a
legal true sale as set forth in paragraph 15 of this Financing Order. The
Department approves Boston Edison's remittance procedure, with estimated
charge-offs relating to RTC Charges and reconciliation of remittances, as more
fully described in the testimony and finds that such remittance procedure based
on Boston Edison's accounting and billing information systems capabilities is in
compliance with G.L. c. 164, Section 1H(b)(1).
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38. The Department will not approve or require any Servicer to replace
Boston Edison as Servicer in any of its servicing functions with respect to the
RTC Charges and the Transition Property authorized by this Financing Order
without determining that approving or requiring such successor Servicer will not
cause the then current credit ratings on RRBs to be withdrawn or downgraded.
39. Any TPS that proposes to collect RTC Charges shall (i) meet the
creditworthiness criteria to be established by the Department, and at a minimum,
the criteria set forth and approved in paragraph 40 of this Financing Order; and
(ii) comply with the billing, collection and remittance procedures and
information access requirements set forth in the testimony, or such other
procedures as the rating agencies may require.
40. The Department will not authorize a TPS to bill and collect the RTC
Charge for remittance to Boston Edison as Servicer (or any successor Servicer),
unless (i) such TPS agrees to remit the full amount of RTC Charges it bills to
retail end-users, regardless of whether payments are received from such
end-users, within 15 days of Boston Edison's (or any successor Servicer's) bill
for such charges, (ii) such TPS shall provide Boston Edison (or any successor
Servicer) with total monthly kWh usage information in a timely manner for the
Servicer to fulfill its obligations, as such information is the basis of such
remittance and (iii) Boston Edison (or any successor Servicer) will be entitled,
within seven days after a default by the TPS in remitting any RTC Charges
billed, to assume responsibility for billing all charges for services provided
by Boston Edison (or any successor Servicer), including the RTC Charges, or to
switch responsibility to a third party. In addition, if and so long as such TPS
does not maintain at least a 'BBB' (or the equivalent) long term unsecured
credit rating from Moody's Investors Service or Standard & Poor's Rating
Services, such TPS shall maintain, with the Servicer or as directed by
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the Servicer, a cash deposit or comparable security equal to one months'
maximum estimated collections of RTC Charges, as agreed upon by Boston Edison
(or any successor Servicer) and the TPS. In the event of a default in the
remittance of RTC charges by a TPS, such amount will be included in the periodic
adjustment of the RTC Charge as described in the testimony.
41. Regardless of who is responsible for billing of the transition charge,
such transition charge, a component of which will be the RTC Charge, will be
assessed and collected from all classes of retail users of Boston Edison's
distribution system within the geographic service territory as in effect on July
1, 1997 whether or not energy is purchased from Boston Edison or any TPS, and
whether or not such distribution system is being operated by Boston Edison or a
successor distribution company. Such users will continue to be responsible for
payment of the transition charge, a component of which will be the RTC Charge,
billed, but not yet remitted, to the Servicer to the extent such user has not
paid RTC Charges billed to it.
42. In the event of a failure of any retail user to pay the RTC Charge,
the Servicer is authorized to shut-off power of such retail user in accordance
with G.L. c. 164, Sections 116, 124-124I and applicable regulations, at the
direction of Boston Edison or any successor Servicer.
43. The Servicer is authorized to implement the rate collection methods
described in the testimony to ensure that the RTC Charge is nonbypassable
pursuant to G.L. c. 164, Section 1H(b)(2).
44. The Servicer shall be entitled to a servicing fee (the "Servicing
Fee"). The Department approves the Servicing Fee as follows: A Servicer which
bills the RTC Charge concurrently with other service charges is entitled to
receive an annual Servicing Fee, payable semi-annually or more frequently, of
approximately 0.05% of the initial principal balance of RRBs and a Servicer that
does not concurrently bill the RTC Charge with other service charges is
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entitled to receive a higher Servicing Fee of up to approximately 1.25% of such
initial principal balance.
45. Boston Edison, as initial Servicer, may not voluntarily resign its
duties as Servicer without prior written approval of the Department. Boston
Edison shall remain as Servicer if such resignation will result in the reduction
or withdrawal of the credit rating of the RRBs.
The RTC Charge: Establishment and Adjustment
46. The methodology used to calculate the RTC Charge associated with SPE
Debt Securities and RRBs, and to periodically adjust such RTC Charge, was
described in the testimony, which methodology is approved.
47. The RTC Charge, which will constitute Transition Property, will be
filed initially with the Department in the Issuance Advice Letter and adjusted
up or down, as necessary, in Routine True-Up Letters or Non-Routine True-Up
Letters (each, as defined below). While not separately identified on each retail
user's monthly bill, each monthly bill will indicate in a footnote that the
reimbursable transition cost ("RTC") Charge, as a component of the transition
charge, is being collected on behalf of a special purpose entity ("SPE"), as
owner of the Transition Property.
48. The initial RTC Charge shall be filed in the Issuance Advice Letter,
as provided in paragraph 31 of this Financing Order, which RTC Charge shall be
effective upon filing.
49. In accordance with G.L. c. 164, Section 1H(b)(5), Boston Edison, or a
successor Servicer, on behalf of the pledgees or transferees of the Transition
Property, is authorized to file periodic RTC Charge adjustments to the extent
necessary to ensure the timely recovery of revenues sufficient to provide for
the payment of an amount equal to the sum of the Periodic RRB Payment
Requirements for the upcoming year, which may include indemnity obligations of
the
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SPE in the RRB transaction documents for SPE officers and directors, trustee
fees, liabilities of the special purpose trust and liabilities to the
underwriters related to the underwriting of the RRBs. The Transition Property
includes the right to obtain such adjustments.
50. Periodic RTC true-up advice letters ("Routine True-Up Letters"), shall
be filed in substantially the form attached to this Financing Order as Appendix
B and shall be completed in accordance with the methodology described in the
testimony, which methodology is approved.
51. Annual RTC Charge adjustments shall be filed with the Department in
Routine True-Up Letters. Adjustments to the RTC Charge proposed by Routine
True-Up Letters shall be filed with the Department each year prior to the
anniversary of the date of effectiveness of this Financing Order, and resulting
adjustments to the RTC Charge shall become effective the first day of the
succeeding month, or such date as may be specified in the Routine True-Up
Letter, as long as such effective date is at least 15 days after the filing of
such Routine True-Up Letter.
52. Routine True-Up Letters may also be filed more frequently before the
end of any calendar quarter or payment date (as defined in the RRB Transaction
documents) and the resulting adjustments to RTC Charges will be effective the
first day of the succeeding month, or such date as may be specified in the
Routine True-Up Letter, as long as such effective date is at least 15 days after
the filing of such Routine True-Up Letter.
53. So long as Routine True-Up Letters are filed in accordance with the
adjustment calculation methodology approved in this Financing Order and use the
Routine True-Up Letters attached substantially in the form of Appendix B to this
Financing Order, no hearing or other action by the Department regarding such
Routine True-Up Letter filings shall be required, and the resulting RTC Charge
adjustments will be effective as provided herein and in such filings.
56
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54. In the event that Boston Edison determines that the methodology used
to calculate the RTC Charge described in the testimony requires adjustment to
more accurately project and generate adequate RTC Charge revenues, a non-routine
RTC true-up advice letter ("Non-Routine True-Up Letter") may be filed. Any
Non-Routine RTC True-Up Letter and resulting adjustments to RTC Charges shall be
effective within 60 days of such filing. Non-Routine True-Up Letters are subject
to the review and approval of the Department.
55. In no event shall the transition charge from time to time in effect as
approved by the Department in accordance with the Settlement Agreement's
methodology and as may be revised by this Financing Order, the Pilgrim Order, or
in an order arising from a Separate Proceeding be adjusted below the RTC. If
adjustments to the transition charge to meet the required rate reduction would
cause the transition charge to fall below the RTC charge, the Department shall
adjust other components of the Company's rates. Conversely, if the RTC charge,
as adjusted, would exceed the then current transition charge, the Department
also shall adjust other components of the Company's rates.
Advice Filings for Tariff Language
56. Boston Edison is authorized to establish by the Issuance Advice Letter
filing the initial RTC Charge and by the true-up letter filings, subsequent
adjustments, up or down, to the RTC Charge. The RTC Charge will represent a
component of the transition charge.
Reconciliation of the RTC Charge
57. As required by G.L. c. 164, Section 1G(a)(2), Boston Edison shall
permit the Department, at Boston Edison's expense, to audit, review and
reconcile the difference, if any, between assumed reimbursable transition costs
amounts, with the actual reimbursable transition costs amounts not less often
than once during each 18 month period following the effective date of this
57
113
Financing Order. Such audit, review and reconciliation shall not include the
actual amounts approved in the findings of this Financing Order and known at the
time of pricing of the RRBs and filing of the Issuance Advice Letter. Through
the Settlement Agreement, the subsequent filings pursuant thereto, the Pilgrim
Order or a Separate Proceeding, the Department has established and authorized as
actual and fully mitigated for purposes of G.L. c. 164, Section 1G(a)(2), the
amounts of the Pilgrim and fossil unrecovered plant balances, generation related
regulatory assets balances, Pilgrim decommissioning funding and any additional
costs arising in connection with the Pilgrim divestiture or approved pursuant to
a Separate Proceeding. In this Financing Order, the Department has established
and authorized as actual for purposes of G.L. c. 164, Section 1G(a)(2), the
transaction costs of issuance (other than the costs of reducing capitalization),
ongoing transaction costs (other than legal and accounting fees and other
miscellaneous fees) and any credit enhancement (collectively with the above
transition costs, the "actual reimbursable transition costs amounts"). No audit
of Boston Edison pursuant to G.L. c. 164, Section 1G(a)(2) is necessary with
respect to such actual reimbursable transition costs amounts and the Department
shall not conduct or require any audit of such amounts.
58. To the extent that an audit under G.L. c. 164, Section 1G(a)(2) is
required subject to paragraph 57 of this Financing Order, if the amount of
reimbursable transition costs amounts, other than actual reimbursable transition
costs amounts (as defined in paragraph 57 of this Financing Order), exceeds the
actual amount of such reimbursable transition costs amounts as shown by the
audit, then Boston Edison, upon order of the Department, shall provide
ratepayers with a uniform rate credit through the mechanism of its residual
value credit and annual transition charge update as described in the Settlement
Agreement.
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59. No such uniform rate credit shall in any way diminish or affect the
right of Boston Edison or its assignee or pledgee to collect RTC Charges in
amounts necessary to provide for the payment of an amount equal to the sum of
the Periodic RRB Payment Requirements for the upcoming year as the same become
due, nor shall any such rate credit impair or negate the characterization of the
transfer of the Transition Property as a true sale as set forth in paragraph 15
of this Financing Order nor shall any such rate credit reduce or impair the
value of the Transition Property as proscribed by paragraph 17 of this Financing
Order.
Use of RRB Proceeds
60. Boston Edison expects to use such proceeds, net of transaction costs
described in paragraph 3 of this Financing Order, for the following purposes:
(a) to return the securitized portion of the Pilgrim and fossil unrecovered
plant balances and related regulatory assets; (b) to fund the unrecovered
prefunded balance of the securitized portion of the decommissioning fund and
recover other transition costs arising in connection with the Pilgrim
divestiture or approved pursuant to a Separate Proceeding; and (c) to provide
any credit enhancement required for the RRBs. Boston Edison may also apply such
proceeds to the reduction of its capitalization and for general corporate
purposes.
61. Boston Edison's use of the net RRB proceeds is authorized and
approved. Boston Edison has proved to the Department's satisfaction that it has
established an order of preference such that the transition costs having the
greatest impact on customer rates will be the first to be provided, recovered,
financed or refinanced by the RRB Transaction in accordance with G.L. c. 164,
Section 1G(d)(4)(v).
Approval of Servicing Agreement, Administration Agreement and Other
Agreements or Transactions
59
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62. Boston Edison's entering into the Servicing Agreement, the
Administration Agreement and other RRB Transaction documents with one or more
SPEs as described herein and other transaction documents and other dealings
between Boston Edison and each SPE contemplated by the RRB Transaction are
authorized pursuant to G.L. c. 164, Sections 17A and 76A and in accordance with
all applicable Massachusetts law, rules and regulations. Such Agreements and RRB
Transaction documents shall comply with this Financing Order and shall not
impair or negate the characterization of the sale, assignment or pledge as an
absolute transfer, a true sale, or security interest as applicable.
Accounting for Certain Benefits
63. Any amounts accounted for in the reserve account, which represents
collections in excess of the fully funded credit enhancement reserves, at the
time that Boston Edison calculates a periodic RTC Charge adjustment will be
incorporated in such adjustment, in accordance with G.L. c. 164, Section
1H(b)(7). Boston Edison, as initial Servicer (or any successor Servicer)
intends, through a separate non-cash memorandum account, to account for, and
ultimately credit to ratepayers, any amounts remaining in the collection account
after the RRBs are paid in full, such as any overcollateralization amounts,
including interest earnings thereon, or RTC Charge collections that remain after
the Total RRB Payment Requirements have been discharged. Such amounts will be
released to the SPE in accordance with G.L. c. 164, Section 1H(b)(7), upon
retirement of the RRBs and discharge of the Total RRB Payment Requirements.
These benefits will inure to the benefit of ratepayers through a credit to their
transition charge or if there is no transition charge, through a credit to other
rates.
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116
64. The Department confirms that as provided in the Settlement Agreement,
Boston Edison's transition charge shall not exceed 3.51 cents/kWh in 1998 or
3.35 cents/kWh thereafter and that this cap is not subject to reduction.
65. Synthetic floating rate RRBs (RRBs representing an interest in fixed
rate SPE Debt Securities and the floating rate side of a swap transaction) will
not be issued unless such issuance, as determined by the Company and approved by
the Agencies, on behalf of the special purpose trust will result in a lower net
interest cost on the RRBs.
66. The Department grants an exemption from the competitive bidding
requirements of G.L. c. 164, Section 15 in connection with the sale of RRBs.
67. The Department grants an exemption from the par value debt issuance
requirements of G.L. c. 164, Section 15.
68. This order hereby incorporates those findings and determinations that
transition costs are securitizable as defined in G.L. c. 164, as reached by the
Department in an order, including D.T.E. 98-119 and 99-16, that becomes final
and no longer subject to appeal prior to the filing with the SEC of the
preliminary prospectus to be distributed to prospective investors.
61
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Appendix A
ISSUANCE ADVICE LETTER
[date]
ADVICE______
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE
"DEPARTMENT") OF THE COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Issuance Advice Letter for Electric Rate Reduction Bonds ("RRBs")
Pursuant to D.T.E. Docket No. 98-118 (the "Financing Order"), Boston Edison
Company ("Boston Edison") hereby transmits for filing, on the pricing date of
this series of RRBs, the initial RTC Charge for such series. This Issuance
Advice Letter is for the RRB series _______ class(es)_________. Any capitalized
terms not defined herein shall have the meanings ascribed thereto in the
Financing Order.
PURPOSE
This filing establishes the following:
(a) the actual terms of the RRBs being issued;
(b) confirmation of ratepayer savings;
(c) the initial RTC Charge for retail users;
(d) the identification of the Transition Property to be sold to a special
purpose entity (the "SPE"); and
(e) the identification of the SPE;
BACKGROUND
In the Financing Order, the Department authorized Boston Edison to file an
Issuance Advice Letter when pricing terms for a series of RRBs have been
established. This Issuance Advice Letter filing incorporates the methodology for
determining the RTC Charge approved and authorized by the Department in the
Financing Order to establish the initial RTC Charge for a series of RRBs and
establishes the initial RTC Charge to be assessed and collected from all classes
of retail users of Boston Edison's distribution system within the geographic
service territory as in effect on July 1, 1997, whether or not energy is
purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition
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charge on each retail user's monthly bill, and may include in the future a
component of any exit fee collected pursuant to G.L. c. 164, Section 1G(g) until
the Total RRB Payment Requirements are discharged in full.
ACTUAL TERMS OF ISSUANCE
RRB Name:_________
RRB Issuer:_________
Trustee(s):_________
Closing Date:_________
Bond Rating:________
Amount Issued:_________
Transaction costs of issuance: See Attachment 1
Ongoing transaction costs: See Attachment 2
Coupon Rate(s):_________
Call Features:_________
Massachusetts Tax Exempt (yes/no):_________
Expected Principal Amortization Schedule: See Attachment 3
Expected Final Maturity:_________
Legal Final Maturity:_________
Distributions to Investors (quarterly or semi-annually):_________
Annual Servicing Fee as a percent of the initial RRB principal
balance:_________
Overcollateralization amount for the RRBs:_________
Confirmation of Ratepayer Savings
The Financing Order requires Boston Edison to demonstrate, using the savings
methodology approved in that Docket, that the actual terms of the RRB
Transaction result in net savings. Attached to this Issuance Advice Letter is a
spreadsheet calculation which shows expected net savings of $___ million for
this series of RRBs. See Attachment 4.
A-2
119
Initial RTC Charge
Table I below shows the current assumptions for each of the variables used in
the RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGES
Forecasted annual retail kWh sales
Percent of billed amounts expected to be charged-off:________
Weighted average days sales outstanding:_____
(calculated as follows)
Percent of billed amounts collected in current month:_____
Percent of billed amounts collected in second month after billing:_____
Percent of billed amounts collected in third month after billing:_____
Percent of billed amounts collected in fourth month after billing:_____
Percent of billed amounts collected in fifth month after billing:_____
Forecasted annual ongoing transaction expenses:_____
Required annual overcollateralization amount:_____
Current RRB outstanding balance:_____
Expected RRB outstanding balance as of ___/___/___:_____
The initial RTC Charge calculated for retail users is as follows:
_____cent/kWh
Transition Property
Transition Property is the property described in G.L. c. 164, Section 1H(a)
relating to the RTC Charge set forth herein, including, without limitation, the
right, title, and interest in and to all revenues, collections, claims,
payments, money, or proceeds of or arising from or constituting (a) the
reimbursable transition costs amounts established by the Financing Order
including such amounts established in the Issuance Advice Letter, (b) the RTC
Charge authorized by the Financing Order including the initial RTC Charge set
forth in the Issuance Advice Letter, as may be adjusted from time to time in
order to generate amounts sufficient to discharge the Total RRB Payment
Requirements, and (c) all rights to obtain periodic adjustments and non-routine
adjustments to the RTC Charge.
This RTC Charge, as adjusted from time to time, shall remain in place until the
Total RRB Payment Requirements are discharged in full.
Identification of SPE
The owner of the Transition Property (the "SPE") will be: ____________________.
The SPE shall be considered a financing entity for purposes of G.L. c. 164,
Section 1H.
A-3
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EFFECTIVE DATE
In accordance with the Financing Order, the RTC Charge shall be automatically
effective when filed and will continue to be effective, unless it is changed by
subsequent Issuance Advice Letter, Routine True-Up Letter, or Non Routine
True-Up Letter.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at the Company's corporate headquarters.
Enclosures
A-4
121
ATTACHMENT 1
TRANSACTION COSTS OF ISSUANCE
Amount
------
Underwriting spread
Rating agency fees
Accounting fees
SEC registration fee (.0278%)
D.T.E. filing fee ($750 for first million plus $150
for each additional million)
Printing and marketing expenses
Trustee fees and counsel
Company legal fees and expenses
Underwriters' legal fees and expenses
Bond counsel legal fees and expenses
Mass Development/HEFA fees
Original issue discount
Servicing set-up costs
SPE set-up costs
Miscellaneous costs
Expenses in connection with reducing capitalization
(including call provisions and prepayments) ----------
Total transaction costs of issuance $
==========
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122
ATTACHMENT 2
ONGOING TRANSACTION COSTS
Ongoing Costs Amount
- ------------- ------
Administration fee
Rating agency fees
Accounting, legal and trustees' fees
Servicing fee (approximately .05% of initial
principal balance)(2)
Overcollateralization amount
Miscellaneous(3)
------
Total estimated costs $
======
- ----------------------
(2) These costs will include:
- Billing, collecting and remitting the RTC Charges;
- Calculate daily amount of remittances to the SPE trustee;
- Wire transfer daily remittances to the SPE trustee;
- Prepare monthly servicer report for trustee and rating agencies;
- Prepare semi-annual servicer report for trustee;
- Manage and invest the various SPE cash accounts;
- Reflect all transactions on the financial statements;
- Perform periodic reconciliations with the trustee;
- Perform annual true-up and adjust RTC Charge, as necessary; and
- Maintain memorandum account, if any.
(3) These costs would include any contingent liabilities arising in
connection with indemnity provisions in the RRB Transaction documents.
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ATTACHMENT 3
EXPECTED AMORTIZATION SCHEDULE
SERIES_______, CLASS_______
A-7
124
ATTACHMENT 4
RATEPAYER SAVINGS
A-8
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Appendix B
ROUTINE TRUE-UP LETTER
[date]
ADVICE________
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY (THE "DEPARTMENT") OF THE
COMMONWEALTH OF MASSACHUSETTS
SUBJECT: Periodic RTC Charge True-Up Mechanism Advice Filing
Pursuant to D.T.E. Docket No. 98-118 (the "Financing Order"), Boston Edison
Company ("Boston Edison") as servicer of the RRBs or any successor Servicer and
on behalf of the trustee as assignee of the special purpose entity (the "SPE")
may apply for adjustment to the RTC Charge on each anniversary of the date of
the Financing Order and at such additional intervals as may be provided for in
the Financing Order. Any capitalized terms not defined herein shall have the
meanings ascribed thereto in the Financing Order.
PURPOSE
This filing establishes the revised RTC Charge to be assessed and collected from
all classes of retail users of Boston Edison's distribution system within the
geographic service territory as in effect on July 1, 1997, whether or not energy
is purchased from Boston Edison or any TPS, and whether or not such distribution
system is being operated by Boston Edison or a successor distribution company.
The RTC Charge is a usage-based component of the transition charge on each
retail user's monthly bill and may include in the future a component of any exit
fee collected pursuant to G.L. c. 164, Section 1G(g) until the Total RRB Payment
Requirements are discharged in full. In the Financing Order, the Department
authorized Boston Edison to file Routine True-Up Letters prior to each
anniversary of the date of the Financing Order and at such additional intervals,
if necessary, as provided for in the Financing Order. Boston Edison, or a
successor Servicer, is authorized to file periodic RTC Charge adjustments to the
extent necessary to ensure the timely recovery of revenues sufficient to provide
for the payment of an amount equal to the sum of the Periodic RRB Payment
Requirements (as defined in the Financing Order for the upcoming year, which may
include indemnity obligations of the SPE in the RRB transaction documents for
SPE officers and directors, trustee fees, liabilities of the special purpose
trust and liabilities to the underwriters related to the underwriting of the
RRBs.
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Routine True-Up Letter filings are those where Boston Edison uses the
methodology approved by the Department in the Financing Order to adjust upward
or downward the existing RTC Charge.
Using the methodology approved by the Department in the Financing Order, this
filing modifies the variables used in the RTC Charge calculation and provides
the resulting modified RTC Charge. Table I shows the revised assumptions for
each of the variables used in calculating the RTC Charge for retail users. The
assumptions underlying the current RTC Charges were filed in an Issuance Advice
Letter, dated _____________.
Table I below shows the current assumptions for each of the variables used in
the RTC Charge calculation.
TABLE I
INPUT VALUES FOR RTC CHARGE
Forecasted annual retail kWh sales:_____
Forecasted percent of retail users' billed amounts charged-off:_____
Percent of retail users' billed amounts charged-off:_____
Weighted average days sales outstanding:_____
(calculated as follows)
Percent of billed amounts collected in current month:_____
Percent of billed amounts collected in second month after billing:_____
Percent of billed amounts collected in third month after billing:_____
Percent of billed amounts collected in fourth month after
billing:_____
Percent of billed amounts collected in fifth month after billing:_____
Annual ongoing transaction expenses:_____
Current RRB outstanding balance:_____
Expected RRB outstanding balance as of ___/___/___:_____
Deferred unpaid RRB principal:_____
Accrued but unpaid RRB interest:_____
Unpaid ongoing transaction costs:_____
Required annual overcollateralization amount:_____
Deficiency in capital account:_____
Deficiency in overcollateralization account:_____
Amount in reserve account:_____
The adjusted RTC Charge calculated for retail users is as follows: _____cent/kWh
EFFECTIVE DATE
In accordance with the Financing Order, Routine True-Up Letters for annual RTC
Charge adjustments shall be filed prior to the anniversary of the Financing
Order or more frequently, if necessary, with the resulting changes to be
effective no sooner than 15 days after the filing of this
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Routine True-Up Letter. No resolution by the Department is required. Therefore,
these RTC Charges shall be effective as of __________.
NOTICE
Copies of this filing are being furnished to the parties on the attached service
list. Notice to the public is hereby given by filing and keeping this filing
open for public inspection at Boston Edison's corporate headquarters.
Enclosures
B-3
128
THE COMMONWEALTH OF MASSACHUSETTS
----------
DEPARTMENT OF
TELECOMMUNICATIONS AND ENERGY
May 21, 1999
D.T.E. 98-118-A
Application of Boston Edison Company, an electric company under G.L. c. 164,
Section 1, for Approval of Rate Reduction Bonds under the terms of the Electric
Restructuring Act, St. 1997, c. 164.
- --------------------------------------------------------------------------------
APPEARANCES: William S. Stowe, Esq.
Catherine J. Keuthen, Esq.
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
and
Robert K. Gad, Esq.
Colleen M. Granahan, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
FOR: BOSTON EDISON COMPANY
Petitioner
Thomas J. Reilly, Attorney General
BY: Joseph W. Rogers
Rebecca Perez
Assistant Attorneys General
Regulated Industries Division
200 Portland Street, 4th Floor
Boston, Massachusetts 02114
Intervenor
129
Robert F. Sydney, Esq.
Vincent DeVito, Esq.
Division of Energy
Resources 100 Cambridge Street, Room 1500
Boston, Massachusetts 02202
FOR: COMMONWEALTH OF MASSACHUSETTS
DIVISION OF ENERGY RESOURCES
Intervenor
Paul R. Gauron, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
FOR: ENTERGY NUCLEAR GENERATION
COMPANY
Intervenor
Burton E. Rosenthal, Esq.
Segal, Roitman & Coleman
11 Beacon Street, Suite 500
Boston, MA 02108
FOR: LOCALS 369 and 387, AFL-CIO
Intervenor
Maria Krokidas, Esq.
Krokidas & Bluestein
141 Tremont Street
Boston, MA 02111-1209
FOR: MASSACHUSETTS DEVELOPMENT
FINANCE AGENCY
and
FOR: MASSACHUSETTS HEALTH &
EDUCATIONAL FACILITIES AUTHORITY
Intervenors
Michael B. Meyer, Esq.
Meyer, Connolly, Sloman & MacDonald, LLP
12 Post Office Square
Boston, MA 02109
FOR: TOWN OF PLYMOUTH
Intervenor
130
David S. Rosenzweig, Esq.
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, MA 02110
and
John Cope-Flanagan, Esq.
COM/Energy Services Company
One Main Street
P.O. Box 9150
Cambridge, MA 02142-9150
FOR: COMMONWEALTH ELECTRIC COMPANY
Limited Participant
Laura S. Olton, Esq.
McDermott, Will & Emery
28 State Street
Boston, MA 02109
FOR: MONTAUP ELECTRIC COMPANY
and
FOR: EASTERN EDISON COMPANY
Limited Participants
Stephen Klionsky, Esq.
260 Franklin Street, 21st Floor
Boston, MA 02110
FOR: WESTERN MASSACHUSETTS ELECTRIC
COMPANY
Limited Participant
131
ORDER ON MASSACHUSETTS DEVELOPMENT FINANCE AGENCY'S AND
MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITY AUTHORITY'S
MOTION FOR CLARIFICATION
1. INTRODUCTION
On December 3, 1998, Boston Edison Company ("Boston Edison" or "Company")
filed with the Department of Telecommunications and Energy ("Department") an
application to issue rate reduction bonds ("RRBs") pursuant to G.L. c. 164,
Section 1.H(b). On April 2, 1999, the Department issued an order approving
Boston Edison's application. Boston Edison Company, D.T.E. 98-118 ("D.T.E.
98-118"). On March 29, 1999, the Massachusetts Development Finance Agency and
Massachusetts Health and Educational Facilities Authority (collectively, the
"Agencies") requested that the Department include language in the Order to
address "circumstances where the [reimbursable transition cost charge ("RTC
Charge")], which is a component of the transition charge, would exceed the then
current transition charge until an adjustment of the transition charge is made"
(Supplemental Filing of the Agencies at 2 (March 29, 1999) "Supplemental
Filing"). The Agencies requested this change to satisfy the bond rating agencies
that the RTC Charge will be sufficient to cover the payments on the bonds (id.).
In their Supplemental Filing, the Agencies offered two alternative mechanisms to
satisfy their concern in the above described circumstances. The first
alternative would provide an increase in the statutory rate reduction cap to
permit an RTC Charge adjustment (id. at 3-4). The second alternative would not
affect the statutory rate reduction cap, but would provide that the Company
would defer collection of the increase in the standard offer rate so long as the
deferred amount earns a carrying charge of 10.88% (id. at 4-5). On March 31,
1999, Boston Edison filed comments in support of the Agencies' Supplemental
Filing.
132
In D.T.E. 98-118, the Department acknowledged that there could be
circumstances where changes in other rate components would cause the transition
charge to go below the RTC Charge. D.T.E. 98-118 at 40. However, the Department
did not adopt the Agencies' first proposed alternative stating "it may violate
the statutory requirements pertaining to rate reductions." Id. Instead, the
Department stated that in such circumstances, it will adjust other components of
the Company's rates. Id. The Department also did not adopt the Agencies' second
proposed alternative stating "it would be premature to determine here exactly
which component of the Company's rates to adjust." Id. Instead, to address the
Agencies concerns, the Department did include the following language in D.T.E.
98-118:
In no event shall the transition charge from time to time in effect as
approved by the Department in accordance with the Settlement Agreement's
methodology and as may be revised by this Financing Order, the Pilgrim
Order, or in an order arising from a Separate Proceeding be adjusted below
the RTC. If adjustments to the transition charge to meet the required rate
reduction would cause the transition charge to fall below the RTC Charge,
the Department shall adjust other components of the Company's rates.
Conversely, if the RTC Charge, as adjusted, would exceed the then current
transition charge, the Department also shall adjust other components of the
Company's rates. D.T.E. 98-118, at 40-41, Appendix 1 at Paragraph 55.
On April 16, 1999, the Agencies filed a Motion for Clarification of D.T.E.
98-118 ("Motion"). The Agencies seek to clarify what adjustments would happen in
the event the transition charge is increased to cover the RTC Charge as well as
the timing of any such adjustments (Motion at 2-3). Specifically, the Agencies
seek to clarify whether other rates would be deferred and if so, at what
carrying charge rate (id.). In addition, the Agencies request some minor
clarification edits, and a small change to the language that would be required
on the
133
customers' bills regarding the RTC Charge.(1) On May 3, 1999, Boston Edison
filed comments in support of the Motion ("Company Comments").
II. POSITION OF THE PARTIES
A. Agencies
1. RTC Charge Adjustment
The Agencies state that in D.T.E. 98-118 the Department recognized that
there may be circumstances when the RTC Charge would exceed the transition
charge and that under such circumstances the transition charge would have to be
increased (Motion at 2). According to the Agencies, D.T.E. 98-118 recognizes
that under such circumstances, adjustments to the other rates may be necessary
to provide the legislatively mandated rate reductions (Motion at 2). However,
the Agencies state that the Department's order does not make clear that
adjustments to the other rate components would result in deferrals in the
collection of those rate components (Motion at 2). Further the Agencies state
that D.T.E. 98-118 does not identify the carrying charge rate that would apply
if such deferrals occur (Motion at 2).
The Agencies argue that clarification of these RTC Charge issues is
necessary to ensure the nonrecourse nature of the RRBs, and will help in
providing the opinions on true sale and non-consolidation that are necessary to
achieve the highest possible rating for the RRBs (Motion at 2-3). According to
the Agencies, if Boston Edison's revenues are reduced to support the RTC Charge
without the payment of an appropriate carrying charge, then there is a link
between
- ------------------------
(1) Although not characterized in this way by the Agencies,
many of the requested "clarification edits" are more
properly treated as requests for reconsideration.
134
Boston Edison and the separate special purpose entity set up to own the
transition property. In case of a bankruptcy of the Company, resources of the
post-petition bankruptcy estate would be subject to depletion to support the RTC
Charge (Motion at 2-3, n. 2). The Agencies contend that such depletion could
create significant difficulties for bankruptcy counsel in the issuance of
true-sale and non-consolidation opinions (Motion at 2-3, n. 2).
To clarify these issues, the Agencies ask the Department to substitute the
following language for the language currently contained in Paragraph 55 of
D.T.E.98-118:
If, as a result of a true-up calculation, the RTC Charge would be increased
above the transition charge then in effect, the transition charge shall, on
the effective date of the RTC Charge adjustment, be increased to the amount
of the RTC Charge, as so adjusted, subject to the 3.35 cents/kWh cap on the
transition charge. If adjustments to the transition charge necessary to
meet the required rate reduction in effect through December 31, 2004 would
cause the transition charge to fall below the required RTC Charge, the
Department shall instead, effective as of the time of the RTC Charge
adjustment, adjust components of Boston Edison's rates and charges, other
than the RTC Charge, as necessary to satisfy such rate reduction
requirement. If, as a result of such adjustment, Boston Edison is not
allowed to collect on a current basis any rate or charge which it would be
allowed to collect but for the adjustment of such rate or charge required
to maintain the RTC Charge, the portion of such other rate or charge that
is not collected on a current basis shall be deferred at the carrying
charge from time to time in effect applicable to that portion of the
transition charge not constituting the RTC Charge; provided, however, that
this provision for deferral of uncollected rates or charges shall apply
solely to adjustments required to maintain the RTC Charge as provided
herein and nothing in this Order 55 shall affect the Department's legal
authority to make a separate determination to adjust Boston Edison's rates
and charges on any other basis (Motion at 3-4).
2. Minor Clarification Edits
The Agencies provide an appendix to their motion that contains an "errata
sheet" with proposed corrections to D.T.E. 98-118 (Motion at 4; Appendix A).
Eight of these proposed
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corrections are to update the approximate amount of transactions costs and
total securitization amounts, which the Agencies argue is necessary for
"accuracy" (Motion, Appendix A). Two corrections are proposed to clarify that
the estimated amounts for transaction costs do not include any amount for any
additional credit enhancements which may be necessary (id.). In addition, the
Agencies propose to modify a finding and the corresponding ordering clause to
clarify that the Department may change the otherwise irrevocable value of the
transition property in the event the transition charge goes above the transition
charge cap in Boston Edison's Settlement Agreement. Finally, the Agencies
propose to substitute the word "affect" for "effect" in one paragraph of the
Order to prevent an "unintended meaning" (id.).
In addition, the Agencies propose a change to the text that is to be placed
on the customers' bills regarding ownership of the transition charge. Pursuant
to the Department's order in D.T.E. 98-118, the text is to read, "The
reimbursable transition cost ("RTC") charge as a component of the transition
charge is being collected on behalf of a special purpose entity (SPE), as the
owner of the transition property" (Motion at 4, citing D.T.E. 98-118, at 36).
The Agencies propose to replace this text with "Therefore, the Department
directs the Company to include the following statement (or, alternatively,
language of substantially the same effect as shall be approved by the
Department's Consumer Division) in a footnote on customers' bills: 'The
reimbursable transition cost ("RTC") charge as a component of the transition
charge is being collected on behalf of a special purpose entity ("SPE"), as the
owner of the transition property.'" (Motion at 4-5, n. 3) The Agencies assert
that this proposed change clarifies the instruction, and leaves open the
possibility of minor changes to the wording subject to the approval of the
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Department's Consumer Division (Motion at 4). According to the Agencies, these
changes may be necessary to provide the legal name of the special purpose entity
or to accommodate bill formatting issues faced by Boston Edison (Motion at 4-5).
The Agencies state that in any case, all modifications to the language will
reflect the substance of the Department's proposed language, seek to minimize
customer confusion, and be subject to the approval of the Department's Consumer
Division (Motion at 5). The Agencies state that they have "consulted with Boston
Edison with respect to this filing and it has authorized the Agencies to
indicate that Boston Edison has no objection to the clarifications and
corrections requested herein" (Motion at 1).
B. Boston Edison
1. RTC Charge Adjustment
Boston Edison argues that the requested clarification is necessary in order
for bankruptcy counsel to issue the appropriate opinions critical to the overall
securitization transaction (Company Comments at 1). Boston Edison states that
the Agencies' request ensures that the future operations of the Company,
especially during a hypothetical bankruptcy case, will not be "burdened by
reductions in rates and charges for future services or other impacts imposed on
Boston Edison's assets (other than access charges that have been sold) to
provide a stream of revenue to pay the RTC Charge" (id. at 2). Boston Edison
argues that this clarification is necessary to ensure that the bonds receive the
highest feasible credit rating which will, in turn, translate into greater
savings for Company ratepayers (id.).
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2. Minor Clarification Edits
With respect to the footnote to be included on customers' bills, the
Company argues that space limitations on the front of the bill necessitate a
minor change in the language (id.). The Company proposes that the following
language be included on the bills:
"Part of the transition charge which we collect is owned by BEC Funding
LLC." Boston Edison states that this proposed language has been approved by its
bankruptcy counsel and will satisfy any bankruptcy opinion considerations
(id. at 2-3). Boston Edison's position on this issue is slightly different from
the Agencies' who propose to leave open the possibility of minor changes to the
quoted language which would be subject to approval by the Department's Consumer
Division. Boston Edison states that the Agencies approach would also be
acceptable provided that the final language is also approved by bankruptcy
counsel.
III. STANDARD OF REVIEW
Clarification of previously issued orders may be granted when an order is
silent as to the disposition of a specific issue requiring determination in the
order, or when the order contains language that is so ambiguous so as to leave
doubt as to its meaning. Boston Edison Company, D.P.U. 92-1A-B at 4 (1993);
Whitinsville Water Company, D.P.U. 89-67-A at 1-2 (1989). Clarification does not
involve reexamining the record for the purpose of substantively modifying a
decision. Boston Edison Company, D.P.U. 90-335-A at 3 (1992), citing Fitchburg
Gas & Electric Light Company, D.P.U. 18296/18297, at 2 (1976).
The Department's policy on reconsideration is well settled. Reconsideration
of previously decided issues is granted only when extraordinary circumstances
dictate that we take a
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fresh look at the record for the express purpose of substantively modifying a
decision reached after review and deliberation. North Attleboro Gas Company,
D.P.U. 94-130-B at 2 (1995); Boston Edison Company, D.P.U. 90-270-A at 2-3
(1991); Western Massachusetts Electric Company, D.P.U. 558-A at 2 (1987).
A motion for reconsideration should bring to light previously unknown or
undisclosed facts that would have a significant impact upon the decision already
rendered. It should not attempt to reargue issues considered and decided in the
main case. Commonwealth Electric Company, D.P.U. 92-3C-1A at 3-6 (1995); Boston
Edison Company, D.P.U. 90-270-A at 3 (1991); Boston Edison Company, D.P.U.
1350-A at 4 (1983). The Department has denied reconsideration when the request
rests on an issue or updated information presented for the first time in the
motion for reconsideration. Western Massachusetts Electric Company, D.P.U.
85-270-C at 18-20 (1987); but see Western Massachusetts Electric Company, D.P.U.
86-280-A at 16-18 (1987). Alternatively, a motion for reconsideration may be
based on the argument that the Department's treatment of an issue was the result
of mistake or inadvertence. Massachusetts Electric Company, D.P.U. 90-261-B at 7
(1991); New England Telephone and Telegraph Company, D.P.U. 86-33-J at 2 (1989);
Boston Edison Company, D.P.U. 1350-A at 5 (1983).
IV. ANALYSIS AND FINDINGS
A. RTC Charge Adjustment
In response to the Agencies' Motion for Clarification, we first assess
whether the Department's order was, in fact, silent on a central issue and
whether that issue "requir[es] determination" in accordance with our standard of
review. The Agencies argue that D.T.E. 98-
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118 is ambiguous as to whether, in circumstances when adjustments to the other
rate components are necessary, deferrals in the collection of those rate
components would result. Further, the Agencies argue that D.T.E. 98-118 is
silent as to the carrying charge rate that would apply if such deferrals occur.
Both the Agencies and Boston Edison argue that determination of these issues is
required to provide the opinions on true sale and non-consolidation that are
necessary to achieve the highest possible rating for the RRBs. The Department's
Order in D.T.E. 98-118 is silent on this issue and determination is necessary to
effect the true-sale opinion and ultimately the rating of the RRBs.
Despite the Order's silence, if Boston Edison is not allowed to collect on
a current basis any rate or charge which it would be allowed to collect but for
the adjustment of such rate or charge required to maintain the RTC Charge, such
amounts would necessarily be deferred at an appropriate carrying charge.
Deferral at an appropriate carrying charge is necessary to ensure that the
Company neither gains nor loses from the deferrals. While the language proposed
by the Agencies appropriately clarifies the necessity of deferrals when
adjustments to rate components are necessary, we do not agree that the
appropriate carrying charge for all costs deferred to protect the RTC Charge is
"the carrying charge rate from time to time in effect applicable to that portion
of the transition charge not constituting the RTC Charge" which is currently
10.88 percent. The actual costs of deferral may be different from 10.88 percent
depending on which rates are reduced. As we stated in D.T.E. 98-118, it is
premature to determine here exactly which component of the Company's rates to
adjust. The Agencies proposed clarification specifies the same carrying charge
rate without regard to which rate is reduced. Under this proposal, Boston
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Edison may potentially gain (or lose) depending on what rate the Department
later selects for reduction.
To remedy the Department's silence with respect to the deferrals and
carrying charge, we will adopt the Agencies' proposed clarification, modified to
link the carrying charge rate for the deferred amounts should to the rate that
is being reduced.(2)
If, as a result of a true-up calculation, the RTC Charge would be increased
above the transition charge then in effect, the transition charge shall, on
the effective date of the RTC Charge adjustment, be increased to the amount
of the RTC Charge, as so adjusted, subject to the 3.35 cents/kWh cap on
the transition charge. If adjustments to the transition charge necessary to
meet the required rate reduction in effect through December 31, 2004, would
cause the transition charge to fall below the required RTC Charge, the
Department shall instead, effective as of the time of the RTC Charge
adjustment, adjust components of Boston Edison's rates and charges, other
than the RTC Charge, as necessary to satisfy such rate reduction
requirement. If, as a result of such adjustment, Boston Edison is not
allowed to collect on a current basis any rate or charge which it would be
allowed to collect but for the adjustment of such rate or charge required
to maintain the RTC Charge, the portion of such other rate or charge that
is not collected on a current basis shall be deferred at the carrying
charge from time to time in effect applicable to that rate or charge which
is being reduced; provided, however, that this provision for deferral of
uncollected rates or charges shall apply solely to adjustments required to
maintain the RTC Charge as provided herein and nothing in this Order 55
shall affect the Department's legal authority to make a separate
determination to adjust Boston Edison's rates and charges on any other
basis.
- --------------------------
(2) On May 20, 1999, the Department requested comment on this modified
language. On May 21, 1999, the Agencies' responded that the language
is satisfactory as it: (a) should be sufficient to permit bankruptcy
counsel to issue the appropriate opinions on true sale and
non-consolidation; (b) will address the concerns of the bond rating
agencies so as to enable the RRBs to achieve the highest ratings; and
(c) is consistent with the non-recourse provisions of G.L. c. 164,
Section 1H (Agencies' Response to Request for Comments, May 21, 1999,
at 1).
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B. Minor Clarification Edits
Both the Agencies and the Company request that the Department change the
language to be included on the customer bills regarding the ownership of the RTC
Charge due to space limitations on the front of the bill. The change in billing
language is a request for reconsideration rather than clarification as the
parties are asking the Department to reconsider an earlier finding based on
previously unknown concerns of bill formatting. Because the language adopted by
the Department in D.T.E. 98-118 will not fit the format of the Company's current
customer bills we reconsider our earlier finding and direct the Company to
include the following statement on customer bills: "Part of the transition
charge which we collect is owned by BEC Funding LLC." This language will satisfy
any bill formatting and bankruptcy opinion considerations as well as minimize
any potential customer confusion.
The other clarification (or reconsideration) edits fall into four
categories: 1) word and punctuation changes, 2) modifications to one finding and
a corresponding ordering clause regarding the irrevocable value of the
transition property, 3) clarification of what amounts are included in
transaction costs, and 4) corrections to estimated numbers. The Department
allows the Agencies' motion to change the word "effect" to "affect" (Appendix at
35, Paragraph 19, line 4) and the addition of a comma after the word "documents"
(Appendix at 36, Paragraph 19, line 7), finding that our treatment these issues
was the result of inadvertence. Making these corrections will prevent unintended
meaning. The Department also allows the Agencies' motion to modify a finding and
the corresponding ordering clause to clarify that the Department may change the
otherwise irrevocable value of the transition property in the event the
transition charge goes above the
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transition charge cap in Boston Edison's Settlement Agreement (Appendix at 36,
last line, at 47, line 10). Without this clarification, the Order may
incorrectly imply that the RTC Charge can exceed the transition charge cap
imposed by the Settlement Agreement. The Department also approves the Agencies'
motion to clarify that any amount for additional credit enhancements which may
be necessary are in addition to estimated transaction costs (D.T.E. 98-118 at
28, line 6; at 44, last line). As currently written, the language incorrectly
implies that the estimated transaction costs includes amounts for credit
enhancements.
Finally, the Department rejects the Agencies' proposed corrections to the
estimated transaction costs and total amount to be securitized. In each case the
numbers cited are clearly approximations which were taken from the Company's
prefiled testimony or draft financing order proposed by the Company. Updating
these numbers to reflect more recent estimates would have no effect on the
transaction costs or final amounts to be securitized.
V. ORDER
Accordingly, after due notice, hearing and consideration, it is hereby
ORDERED: That the Massachusetts Development Finance Agency's and the
Massachusetts Health and Educational Facility Authority's Motion for
Clarification is APPROVED in part and DENIED in part as described herein; and it
is
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FURTHER ORDERED: That the Department's Order of April 2, 1999, in Boston
Edison Company, D.T.E. 98-118, be and hereby is supplemented by, and clarified
in accordance with the terms set forth herein.
By Order of the Department,
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Janet Gail Besser, Chair
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James Connelly, Commissioner
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W. Robert Keating, Commissioner
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Paul B. Vasington, Commissioner
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Eugene J. Sullivan, Jr., Commissioner