Elizabeth J. Austin Elliott B. Pollack Christian G. Beltz
Raymond E. Baldwin, Jr. Michael G. Proctor M. Juliet Bonazzoli
Collin P. Baron Thomas A. Rouse Katherine E. Caulfield
Debpraj S. Breck Katharine B. Sacks Alan J. Cohen
Charles K. Campbell, Jr. Alan I. Scheer Katherine Dowd
Frank B. Cleary Gregory F. Servodidio Scott E. Gottlieb
Sheila Anne Denton Ronald Case Sharp Holly G. Gydus
Colin M. Gershon James T. Shearin Matthew M. Hausman
Lawrence J. Golden H. William Shure Matthew P. Lundy
Irve J. Goldman Randall M. Skigen Norma R. Mandulak
Nancy A. D. Hancock Christopher J. Smith Jennifer T. McGrath
David O. Jackson John F. Stafstrom, Jr. Julie A. Morgan
George J. Kasper James B. Stewart Peter S. Olson
Michael A. Kurs Grove W. Stoddard Gerald C. Pia, Jr.
Nancy DeFonce Lapera Marshall J. Touponse Mary Beth Kasper Rapice
Michael N. LaVelle James W. Venman Brian C. Roche
Joseph M. Lodato John R. Ward Joseph P. Sargent
Thomas E. Maxwell, III William J. Wenzel Marci J. Silverman
Edward P. McCreery, III James P. White, Jr. Patricia Squires
Andrew J. McDonald Marjorie Wilder Lori L. Underberger
Herbert H. Moorin _______ Aimee J. Wood
D. Robert Morris
Marie V. Phelan Samuel A. Gilliland
(1930-1994)
_______
PULLMAN & COMLEY, LLC
Attorneys at Law
March 26, 2001
Connecticut RRB Special Purpose Trust CL&P-1
c/o First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King Street
Wilmington, DE 19801
RE: CONNECTICUT RRB SPECIAL PURPOSE TRUST CL&P-1
RATE REDUCTION CERTIFICATES
Ladies and Gentlemen:
We have acted as special counsel to Connecticut RRB Special Purpose
Trust CL&P-1 (the "Trust"), a business trust established under the Delaware
Business Trust Act (Chapter 38 of Title 12 of the Delaware Code, 12 DEL. C., ss.
3801 ET SEQ.) pursuant to a Declaration of Trust (the "Declaration of Trust") to
be executed hereafter, in connection with the proposed issuance by the Trust of
up to $1,550,000,000 principal amount of its Rate Reduction Certificates (the
"Certificates"). The Certificates will be issued pursuant to a Certificate
Indenture (the "Certificate Indenture") to be executed hereafter by and between
the Trust and First Union Trust Company, National Association, as Certificate
Trustee (the "Certificate Trustee"). Upon issuance, the Certificates will
represent fractional undivided beneficial interests in corresponding Notes (the
"Notes") purchased by the Trust from CL&P Funding LLC (the "SPE"), together with
all payments on the Notes, and, with respect to floating rate certificates, a
swap agreement. The Notes will be secured by a security interest in transition
property (as described below), together with certain other property of the SPE.
Transition property is a property right created under Connecticut Public Act No
98-28 (the "Restructuring Legislation") representing the irrevocable right of
Connecticut Light & Power or its assignee to receive a certain nonbypassable
charge (as adjusted from time to time) (the "RRB Charge") from certain retail
customers of Connecticut Light and Power's distribution system. Pursuant to the
Restructuring Legislation and the decision of the Connecticut Department of
Public Utility Control in Docket No. 00-05-01 "Application of the Connecticut
Light and Power Company for Approval of the Issuance of Rate Reduction Bonds and
Related Transactions", November 8, 2000, and supplemented December 12, 2000
(collectively the "Financing Order"), the owner of the transition property is
entitled to
850 MAIN STREET P.O. BOX 7006 BRIDGEPORT, CT 06601-7006 (203) 330-2000
FAX (203) 576-8888
200 PEQUOT AVENUE P.O. BOX 510 SOUTHPORT, CT 06490-0510 (203) 254-5000
FAX (203) 254-5070
ONE CENTURY TOWER 265 CHURCH STREET NEW HAVEN, CT 06510-7000 (203) 773-3006
FAX (203) 776-7075
90 STATE HOUSE SQUARE HARTFORD, CT 06103-3702 (860) 424-4300
FAX (860) 424-4370
50 BEDFORD STREET, STAMFORD, CT 06901-1743 (203) 324-5000
FAX (203) 363-8659
assess the charge until it has received payments from customers sufficient to
retire all Outstanding Notes and Certificates and to pay fees and expenses of
servicing and retiring the Notes and Certificates. We have also acted as special
counsel to the Treasurer of the State of Connecticut (the "Treasurer") as
settlor of the Trust in connection with the issuance of the Certificates. The
Trust has been designated a "financing entity" by the Treasurer acting as the
finance authority pursuant to the Restructuring Legislation and the Certificates
constitute "rate reduction bonds" under the Restructuring Legislation. The
holders of beneficial interests of the Trust will be the Certificateholders.
Capitalized terms used herein that are not otherwise defined shall have the
meanings assigned to them in the Certificate Indenture.
We have assumed for the purposes of this opinion that the
Certificates and related documents are executed in substantially the form we
have examined and the transactions contemplated to occur under the Registration
Statement (referred to below) in fact occur in accordance with the terms
thereof.
We have been asked whether the legislature or the voters of the
State of Connecticut (the "State"), could amend the Restructuring Legislation or
otherwise enact legislation that would have the effect of substantially
impairing the rights of the owners of the Certificates. For the reasons and
subject to the limitations set forth below, we do not believe that the
legislature or voters could do so.
The Restructuring Legislation provides, in pertinent part, that:
Except as otherwise provided in this subsection, the
State of Connecticut does hereby pledge and agree with
the owners of transition property and holders of rate
reduction bonds that the state shall neither limit nor
alter the competitive transition assessment,
transition property, financing orders, and all rights
thereunder until the obligations, together with the
interest thereon, are fully met and discharged,
provided nothing contained in this subsection shall
preclude the limitation or alteration if and when
adequate provision shall be made by law for the
protection of the owners and holders. The finance
authority as agent for the state is authorized to
include this pledge and undertaking for the state in
these obligations.
CGS Section 16-245j(b).
Section 10 of Article I of the United States Constitution provides,
in part, that "no state shall . . . pass any . . . law impairing the obligation
of contracts" (the "Contract Clause"). The Contract Clause protects contractual
obligations from impairment by enactment of state law, including State
constitutional amendments. ALLIED STRUCTURAL STEEL CO. V. SPANNAUS, 438 U.S. 234
(1978); UNITED STATES TRUST CO. V. NEW JERSEY, 431 U.S. 1 (1977). Case law makes
clear that the principle precluding impairment of private contractual rights
applies equally to the state legislatures and to the electorate in the exercise
of its direct legislative powers. CONTINENTAL ILL.
NAT'L BANK & TRUST CO. OF CHICAGO V. WASHINGTON, 696 F.2d 692 (9th Cir. 1983).
It is our opinion that, upon issuance of the Certificates, by virtue of the
statutory language quoted above, the Restructuring Legislation will give rise to
enforceable contractual obligations for the benefit of the Certificateholders.
Accordingly, any attempt by the State to repeal or amend the Restructuring
Legislation or enact other legislation that affects the transition property in a
manner that prevents the payment of the Certificates on a timely basis in our
opinion would constitute a substantial impairment of the contractual rights of
the Certificateholders.
The courts, however, have held that the provisions of the Contract
Clause would not apply to state laws, the enactment of which constitutes a
reasonable and necessary exercise of a state's sovereign power to serve an
important public purpose. SEE, E.G., UNITED STATES TRUST CO., SUPRA, 431 U.S. at
15, 19-20. There have been numerous cases in which legislative or popular
concerns with the burden of taxation or governmental charges have led to the
adoption of legislation reducing or eliminating taxes or charges that supported
bonds or other contractual obligations entered into by public instrumentalities.
Such concerns by themselves have not, however, been considered sufficient
justification for a substantial impairment of the security of such bonds or
obligations provided by the taxes or governmental charges involved. Instead,
case law demonstrates that the complete impairment of a municipal bond
obligation will not be tolerated, although a narrowly-tailored impairment may be
upheld if it can be shown to be necessary to advance an important public
interest, such as addressing the concerns of a "great public calamity." SEE,
E.G., HOME BLDG. & LOAN ASS'N V. BLAISDELL, 290 U.S. 398, 439-41 (1934). The
United States Supreme Court has consistently refused to permit the complete
destruction of a governmental entity's obligation to repay a debt. As one
commentator has noted: "Despite the Supreme Court's general disinterest in the
Contract Clause, the Court has invalidated virtually every legislative
impairment of municipal or local indebtedness that has come before it in the
last fifty years." SEE Barton H. Thompson, Jr., "The History of the Judicial
Impairment `Doctrine' and Its Lessons for the Contract Clause," 44 Stan. L. Rev.
1373, 1463 (1992). Although the Certificates have certain characteristics not
found in more traditional municipal obligations, impairments of the Certificates
should nonetheless be viewed by the courts with the same critical scrutiny
applied in the past.
Based upon such case law, absent a demonstration by the State that an
impairment is narrowly-tailored and is necessary to advance an important public
interest, such as responding to the concerns of a "great public calamity," it is
our opinion that the State could not repeal or amend the Restructuring
Legislation or take any action, or refuse to take any action required by the
State under its pledge and agreement with the Certificateholders (described
above), if such repeal or amendment, or such action or inaction, would
substantially impair the rights of the Certificateholders. Under Connecticut
law, the voters of the state do not have referendum or initiative powers.
We have been asked whether, under either the Takings Clause of the
United States Constitution or the Connecticut Constitution, the State of
Connecticut, in the exercise of its executive or legislative powers, could
repeal or amend the Restructuring Legislation or the Financing Order or take any
action in contravention of its pledge described above, without paying just
compensation to the Certificateholders.
The Fifth Amendment of the United States Constitution states, "nor
shall private property be taken for public use, without just compensation." In a
similar fashion, article first,ss.11 of the Connecticut Constitution provides
that "[t]he property of no person shall be taken for public use, without just
compensation therefor." "Both the Connecticut and the federal constitutional
provisions limit the right to compensation to those instances in which there has
been a taking of private property." LUF V. TOWN OF SOUTHBURY, 188 Conn. 336, 342
n.4 (1982); SEE BRECCIAROLI V. CONNECTICUT COMMISSIONER OF ENVIRONMENTAL
PROTECTION, 168 Conn. 349, 354 (1975). The Connecticut Supreme Court has stated
that it has "never interpreted the two provisions to require different
analysis." BAUER V. WASTE MANAGEMENT OF CONNECTICUT, INC., 234 Conn. 221, 250
n.16 (1995).
The purpose of the Takings Clause "is to prevent the government from
forcing some people alone to bear public burdens which, in all fairness and
justice, should be borne by the public as a whole." EASTERN ENTERPRISES V.
APFEL, 524 U.S. 498, 522 (1998). The Fifth Amendment is made applicable to state
action via the Fourteenth Amendment. WEBB'S FABULOUS PHARMACIES, INC. V.
BECKWITH, 449 U.S. 155, 160 (1980). The Takings Clause covers both tangible and
intangible property. RUCKELSHAUS V. MONSANTO CO., 467 U.S. 986, 1000-1004
(1984). Challenges to legislation pursuant to the Takings Clause are essentially
decided on an ad hoc factual basis. PENN CENTRAL TRANSP. CO. V. CITY OF NEW
YORK, 438 U.S. 104, 124 (1978). The courts have recognized the power of a
governmental entity to take property, which may be exercised even if it results
in an impairment of a contract of such governmental entity, provided just
compensation is paid. CONTRIBUTORS TO THE PENNSYLVANIA HOSPITAL V. CITY OF
PHILADELPHIA, 245 U.S. 20, 23-24 (1917).
Generally, a regulation constitutes a taking if it denies a property
owner economically viable use of that property, which is determined by three
factors: (i) the character of the governmental action; (ii) the "economic impact
of the regulation on the claimant"; and (iii) "the extent to which the
regulation has interfered with distinct investment-backed expectations." PENN
CENTRAL, 438 U.S. at 124.
The first factor requires the court to examine "the purpose and
importance of the public interest reflected in the regulatory imposition" and
"to balance the liberty interest of the private property owner against the
Government's need to protect the public interest through imposition of the
restraint." LOVELADIES HARBOR, INC. V. U.S., 28 F.3d 1171, 1176 (Fed. Cir.
1994); SEE KEYSTONE BITUMINOUS COAL ASS'N V. DEBENEDICTIS, 480 U.S. 470 (1987).
The second factor incorporates the principle enunciated by Justice
Holmes: "Government hardly could go on if to some extent values incident to
property could not be diminished without paying for every such change in the
general law." PENNSYLVANIA COAL CO. V. MAHON, 260 U.S. 393, 413 (1922);
LOVELADIES, 28 F.3d at 1176-77. "[N]ot every destruction or injury to property
by governmental action has been held to be a 'taking' in the constitutional
sense." ARMSTRONG V. U.S., 364 U.S. 40, 48 (1960). Diminution in property value
alone, thus, does not constitute a taking; there must be serious economic harm.
The third factor is "a way of limiting takings recoveries to owners
who could demonstrate that they bought their property in reliance on a state of
affairs that did not include the challenged regulatory regime." LOVELADIES, 28
F.3d at 1177. The burden of showing such interference is a heavy one. KEYSTONE,
480 U.S. at 493. Thus, a reasonable investment-backed expectation "must be more
than a 'unilateral expectation or an abstract need.'" RUCKELSHAUS, 467 U.S. at
1005. Further, "legislation readjusting rights and burdens is not unlawful
solely because it upsets otherwise settled expectations." USERY V. TURNER
ELKHORN MINING CO., 428 U.S. 1, 16 (1976). "[T]he fact that legislation
disregards or destroys existing contractual rights does not always transform the
regulation into an illegal taking....This is not to say that contractual rights
are never property rights or that the Government may always take them for its
own benefit without compensation." CONNOLLY V. PENSION BENEFIT GUARANTY CORP.,
475 U.S. 211, 224 (1986). In order to sustain a claim under the Takings Clause,
the private party must show that it had a "reasonable expectation" at the time
the contract was entered that it "would proceed without possible hindrance"
arising from changes in government policy. CHANG V. U.S., 859 F.2d 893, 897
(Fed. Cir. 1988).
The outcome of any claim that interference by the State of
Connecticut with the value of the transition property without just compensation
is unconstitutional, would likely depend on factors such as the state interest
furthered by that interference, the extent of financial loss to
Certificateholders caused by that interference and the extent to which courts
would consider that Certificateholders had a reasonable expectation that changes
in government policy and regulation would not interfere with their investment.
In our opinion, under either the Takings Clause of the United States
Constitution or the Connecticut Constitution, the State of Connecticut, in the
exercise of its executive or legislative powers, could not repeal or amend the
Restructuring Legislation or the Financing Order or take any other action in
contravention of its pledge quoted above without paying just compensation to the
Certificateholders, as determined by a court of competent jurisdiction, if doing
so would constitute a permanent appropriation of a substantial property interest
of the Certificateholders in the transition property and deprive the
Certificateholders of their reasonable expectations arising from their
investments in the Certificates. There is no assurance, however, that even if a
court were to award just compensation it would be sufficient to pay the full
amount of principal of and interest on the Certificates.
The opinions expressed above are based upon existing case law (none
of which addresses the specific facts presented herein), and do not constitute a
guarantee of the outcome of any particular litigation. Moreover, there can be no
assurance that, through the legislative or executive process, a repeal or an
amendment of the Restructuring Legislation, the Financing Order or other action
in contravention of the pledge described above would not be approved. In such an
event, costly and time consuming litigation may ensue, adversely affecting, at
least temporarily, the price and liquidity of the Certificates.
We consent to the filing of this opinion as an exhibit to the SPE's
Registration Statement on Form S-3 (Registration No. 333-53866), to the use of
our name wherever appearing in such Registration Statement and any amendment
thereto with respect to such opinion and to the
disclosure regarding this opinion in the related prospectus and any related
prospectus supplement. In giving the foregoing consent, however, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
We disclaim any obligation to update this opinion letter for events
occurring or coming to our attention after the date hereof.
Very truly yours,
/s/ Pullman & Comley, LLC