NHPUC considers PSNH divestiture auction format

Thursday, September 15, 2016

As the New Hampshire Public Utilities Commission prepares for an auction of the state's largest utility’s generating assets, its auction advisor J.P. Morgan has recommended a broad public auction of the assets, using a two phase structure.

At issue are the generation facilities owned by Public Service Company of New Hampshire d/b/a Eversource Energy (Eversource).  Following a legislative finding that divestiture is in the public interest at the present time, on July 1, 2016, the Commission issued Order No. 25,920 approving the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement and the Partial Litigation Settlement Agreement. Those settlement agreements called for the Commission to open an expedited proceeding to oversee the process of auctioning the Eversource generation facilities.

On September 7, 2016, the Commission opened a proceeding to implement the divestiture process for the generation facilities of Eversource as approved in Order 25,920. In its Order of Notice opening the auction process docket, the Commission noted a primary objective of obtaining the highest possible sale value of the generation facilities in order to minimize the level of stranded costs ultimately paid by Eversource customers. It also noted a secondary objective, to the extent not inconsistent with the primary objective, to accommodate the participation of municipalities that host generation assets and to fairly allocate among individual assets the sale price of any assets that are sold as a group.

A report recently filed in the docket by Commission staff presents recommendations from its advisor J.P. Morgan on the auction design and process.  According to the report, these recommendations were designed to maximize the overall value of the transaction and the likelihood of the successful sale of each asset.

In Phase I, Eversource, the Commission, and its advisor would develop of a list of potential bidders who would be invited to respond to a Request for Qualifications (RFQ). Parties satisfying the requirements of the RFQ would be asked to execute a confidentiality agreement, after which they could review a Confidential Information Memorandum. This document would provide certain limited information about the assets, to let bidders develop a preliminary non-binding indication of interest. The report suggests this phase could take six weeks from launch to the submission of preliminary, non-binding proposals – potentially spanning from November 2016 into January 2017.

In Phase II, bidder indications of interest would be used to identify potential bidders likely to transact on terms most favorable to the seller. These “second round” bidders would have access to full due diligence. The report suggests allowing about 8 weeks for Phase II parties to conduct due diligence, mark up a draft purchase and sale agreement, and submit a final, binding proposal. The report suggests Phase II might run from January 2017 into March 2017.

Following the submission of final bids, the report suggests that the Commission select one or two parties per asset or group of assets for final negotiations, depending on the level of interest.

Written comments on the auction design and process are due by September 30, 2016. The Commission has said that the proceeding will culminate in a decision on auction results, and if necessary, a financing order authorizing securitization of stranded costs and stranded cost rates.

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