ࡱ> _a`#` %\bjbj\.\. 1`>D>D]0da.$   $$$8$DB%4w,%%%%%%%%+++++++$i-h/|+9 4(%%4(4(+  %%1,B*B*B*4(^ % %+B*4(+B*B*:+,  B+%v% ~p@4$(^.+ +G,0w,8+ M0(M0B+M0 B+|%F&|B*&d&'%%%++)^%%%w,4(4(4(4(       SUBJECT TO CONFIDENTIAL TREATMENT UNTIL January 23, 2007 STATE OF MAINE PUBLIC UTILITIES COMMISSION January 9, 2007 Order Designating Standard Offer Provider and Directing Utility to Enter Entitlements Agreement MAINE PUBLIC UTILITIES COMMISSION Docket No. 2005-591 Standard Offer Bidding Process For Residential and Small Business Customers BANGO HYDRO-ELECTRIC COMPANY Docket No. 2006-614 Request for Approval of Request for Bids Pursuant to Chapter 307 and Associated Waivers ADAMS, Chairman; REISHUS, Commissioner I. SUMMARY Through this Order, we designate FPL Energy Power Marketing (FPL) as a standard offer provider for the residential and small non-residential class in the Bangor Hydro-Electric Company (BHE) service territory. FPL is designated to provide standard offer service to one-third of the load for a three-year period beginning March1, 2007. The resulting overall price for standard offer service for the one-year period beginning March 1, 2007 will be $0.090110 per kilowatt-hour. The FPL standard offer bid was linked to its bid to purchase certain of BHEs non-divested entitlements to energy and capacity. BHE is directed to sell these entitlements to FPL for a three-year period beginning March 1, 2007, as specified in the FPL linked bid. II. BACKGROUND Pursuant to fb88s Restructuring Act, the Commission periodically administers a competitive bid process to select providers of standard offer service. 35-A M.R.S.A. 212(2). The Commission is also required by the Act to oversee the sale by utilities of the rights to energy and capacity from their non-divested entitlements and other non-divested generation-related assets. 35-A M.R.S.A. 3204(4). At the conclusion of an Inquiry conducted in 2004, the Commission decided that it would segment the small class standard offer load as a means to reduce the potential for large price swings. This would occur by a procurement schedule in which a supply for a third of the load would be obtained each year pursuant to three-year arrangements. The Commission also stated that it would allow bids for segments of standard offer load to be linked to obtaining the output of pre-specified groups utility entitlement contracts. Report on Standard Offer Procurement for Residential and Small Commercial Customers, Docket No. 2004-147 (Aug. 3, 2004). The Commission has followed this procedure for the CMP and BHE small classes since the standard offer procurement and entitlement sale process that concluded in December 2004. During its 2006 session, the Legislature enacted an Act to Enhance fb88s Energy Independence and Security (Act), P.L. 2005, ch. 677, that, among other things, added two new provisions to the standard offer section of the Restructuring Act, 35-A M.R.S.A. 3212. The first provision, new subsection 4-B, allows the Commission to incorporate cost-effective demand response and energy efficiency into standard offer supply and the second provision, new subsection 4-C, explicitly recognizes the Commissions authority to establish standard offer supply arrangements of differing length and terms. In response to this legislation, the Commission requested bids that include demand response and energy efficiency (collectively referred to as demand-side resources) and bids of varying lengths in the solicitation of standard offer for service beginning March 1 2007. Specifically, we solicited standard offer bids that bundled supply and demand-side resources for one, three, six and nine years. We also sought traditional supply-only bids. See, Order Approving Request for Standard Offer Bids, Docket No. 2006-591 (Oct. 20, 2006). To allow for standard offer bids to be linked to bids for utility entitlements, the Commission asked BHE to coordinate its solicitation pursuant to Chapter307 with the Commissions standard offer bid process. To accommodate the Commissions request, BHE filed its bid package for Commission approval as required by Chapter 307. On October 20, 2006, the Commissions Director of Technical Analysis approved BHEs entitlement bid package. Order Approving RFB and Granting Waivers, Docket No. 2006-614 (Oct. 20, 2006). On the same day, the Commission approved the request for standard offer bids (RFP). Order Approving Request for Standard Offer Bids, Docket No. 2006-591 (Oct. 20, 2006). Both the standard offer and entitlement bid packages were released on October 20, 2006 with initial proposals and indicative pricing due on November 16, 2006. Based on the indicative pricing, a subset of bidders was selected for discussions on non-price items and such discussions have occurred among our staff, BHE and the selected bidders. Upon the conclusion of these discussions, bidders were requested to present final, binding bids on January 9, 2007. III. DISCUSSION We note at the outset that both the standard offer and entitlement sale bid processes were very competitive with the result being that standard offer prices and sale prices for utility entitlements have been established by a competitive market as contemplated by the Restructuring Act. Upon review of all the bids and the selection criteria in Chapter 301, we conclude that the FPL linked bids provide the greatest value for ratepayers. We, accordingly, designate FPL as the standard offer provider for one-third of the BHE residential and small non-residential classes for a three-year period beginning March 1, 2007 and direct BHE to enter into entitlement agreements according to the FPL linked bid. Based on our decision today, the overall standard offer price for the BHE small class for the one-year period beginning March 1, 2007 will be $0.090110. This represents a blended price of this years winning bid for one-third of the load and the winning bids for one-third of the load in the prior two years. The average standard offer price for this years winning bid over the three-year period for one-third of the load is $0.09355 per kilowatt-hour. The average entitlement sales price for the hydro entitlements over the three-year period is approximately $0.06003 per kilowatt-hour. We decided not to pursue the longer term bids (six and nine years) because our analysis showed that these bids contained a substantial risk premium. Thus, acceptance of the longer-term bids would be inconsistent with the goal of providing the lowest cost over time.  The three year bids, however, were consistent with forward prices. Accordingly, we will continue with our three-year segmentation approach. As mentioned above, we sought standard offer supply bids that included demandside resources. The bid we select today does not have a demand-side component. However, we are continuing to consider demand-side proposals that are independent of and can co-exist with the existing supply arrangements. In designating FPL as a standard offer provider, we accept its statement of commitment and bidder conditions. Both documents are attached to and incorporated into this Order. We find that these documents provide useful clarifications as to precise nature of the standard offer provider obligations, as well as reasonable protections for the provider with respect to actions of the fb88 Legislature, this Commission or the utility. We understand all conditions of the winning bidder are satisfied or will be shortly after the issuance of this Order. We are informed that the modified Standard Offer Provider Service Agreement that was attached to winning bid is acceptable to BHE and we concur that the changes from the standard form are reasonable. We also find that the security presented by FPL as part of the linked standard offer proposal is reasonable and consistent with our rules and the RFP. The security covers both the standard offer and entitlement obligations and includes an initial corporate guarantee. To the extent customer exposure increases above a specified threshold amount as a result of changes in market prices, FPL is required to post additional security in the form of a letter of credit or cash. A letter of credit or cash could also be required if the credit rating of the guarantor decreases. Finally, we recognize that the linked standard offer and entitlement arrangements approved in this Order create certain obligations and risks for BHE that should be properly borne by customers rather than shareholders. We are informed by our staff that BHE agrees to accept the obligations and risks as long as it is compensated for the financial consequences of satisfying those obligations. Therefore, we explicitly find that any direct or indirect costs, obligations, expenses or damages reasonably incurred by BHE, including administrative and security costs, in fulfilling its obligations or exercising its rights under the various contracts and arrangements authorized by this Order shall be deferred on the utilitys books of account as regulatory assets and shall be fully recovered, with carrying costs, from customers either through transmission and distribution rates or standard offer rates. These risks include, but are not limited to: The costs of any performance assurance that BHE may be required to provide a counterparty under the arrangements; Any provision that allows for a decrease or offset to the entitlement sale price, such that BHE collects from buyer any amount less than the entitlement sales price approved in this Order, including such decreases or offsets arising from actual or alleged changes in law or regulation; Any additional costs or losses that BHE may incur as a result of tolling any termination rights under any agreement pending the outcome of an arbitration proceeding; Any costs caused by contractually fixing any fees applicable to the standard offer provider for any period time, where such fees are otherwise subject to change; Any incremental costs attributable to the execution of the linked standard offer arrangements, including those related to the solicitation, evaluation, and negotiation of those arrangements; and Any costs or losses that BHE incurs as a result of a default by FPL on any of their contractual or other obligations and the consequential termination of any contract or obligation associated with the linked standard offer and entitlement arrangements authorized in this Order for which BHE is not compensated by associated security. This Order will be treated as designated confidential information pursuant to the Protective Order issued in this proceeding for a two-week period. After that, the confidential treatment of this Order will be removed. Dated at Augusta, fb88, this 9th day of January, 2007. BY ORDER OF THE COMMISSION _______________________________ Karen Geraghty Administrative Director COMMISSIONERS VOTING FOR: Adams Reishus NOTICE OF RIGHTS TO REVIEW OR APPEAL 5 M.R.S.A. 9061 requires the Public Utilities Commission to give each party to an adjudicatory proceeding written notice of the party's rights to review or appeal of its decision made at the conclusion of the adjudicatory proceeding. The methods of review or appeal of PUC decisions at the conclusion of an adjudicatory proceeding are as follows: 1. Reconsideration of the Commission's Order may be requested under Section 1004 of the Commission's Rules of Practice and Procedure (65-407 C.M.R.110) within 20 days of the date of the Order by filing a petition with the Commission stating the grounds upon which reconsideration is sought. 2. Appeal of a final decision of the Commission may be taken to the Law Court by filing, within 21 days of the date of the Order, a Notice of Appeal with the Administrative Director of the Commission, pursuant to 35-A M.R.S.A. 1320(1)-(4) and the fb88 Rules of Appellate Procedure. 3. Additional court review of constitutional issues or issues involving the justness or reasonableness of rates may be had by the filing of an appeal with the Law Court, pursuant to 35-A M.R.S.A. 1320(5). Note: The attachment of this Notice to a document does not indicate the Commission's view that the particular document may be subject to review or appeal. Similarly, the failure of the Commission to attach a copy of this Notice to a document does not indicate the Commission's view that the document is not subject to review or appeal.  Before determining how to proceed in response to the new legislation, the Commission sought the input of interested parties. Incorporation of Efficiency Into Standard Offer Supply, Docket No. 2006-411 (July 26, 2006); Inquiry into Long-Term and Resource Adequacy, Docket No. 2006-314 (June 7, 2006).  The entitlement prices in the accepted linked bid are comparable to the stand-alone entitlement bids. Thus, the choice of the winning linked bid does not provide any significant advantage to the small class customers over utility customers more generally and does not significantly impact stranded costs for all of BHE ratepayers.  To the extent necessary, we waive the procedural requirements of Chapter 307 (pursuant to section 11 of the rule) so as to allow the utilities to enter into the entitlement agreements as directed.  This represents a 3% increase in standard offer prices. Because energy prices have decreased, the newly implemented federal capacity requirement accounts for this standard offer price increase.  The standard offer winning bid for each of the years is as follows: 03/07-02/08 $0.091251; 03/08-02/09 $0.095586; 03/09-02/10 $0.093798.  The winning bid for each of the years is as follows: 03/07-02/08 $0.05847; 03/08-02/09 $0.06179; 03/09-02/10 $0.05984.  The language added by the Act to the standard offer section of the statute specifies that the Commission should consider arrangements of various lengths and terms to provide over a reasonable time period the lowest price for standard offer service to residential and small commercial customers. . . . 35-A M.R.S.A. 3212(4B).     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