NHPUC considers PSNH divestiture auction format

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.

FERC approves Maryland LNG project

A proposed Maryland natural gas liquefaction facility won a key federal approval yesterday, as the Federal Energy Regulatory Commission authorized Dominion Cove Point LNG, LP to build the Cove Point Liquefaction Project in Calvert County, Maryland, and related facilities at an existing compressor station and at metering and regulating sites in Virginia.

Natural gas is an important fuel used globally for electric power generation and heating.  While pipelines offer the most efficient way to transport large volumes of natural gas, liquefied natural gas or LNG can more easily be transported by ship to distant markets.  As US natural gas production has increased in recent years, so too has interest in building facilities to liquefy gas for export or other use.

Under Section 3 of the Natural Gas Act, the Federal Energy Regulatory Commission or FERC authorizes the siting and construction of onshore and near-shore LNG import or export facilities. Section 7 of the Natural Gas Act authorizes FERC to issue certificates of public convenience and necessity for LNG facilities engaged in interstate natural gas transportation by pipeline.

On April 1, 2013, Dominion applied to the FERC for approval under Section 3 of the Natural Gas Act to site, construct, and operate the Cove Point Liquefaction Project for the liquefaction and export of domestically-produced natural gas at Dominion’s existing LNG import terminal in Calvert County, Maryland.  Dominion also requested authority under section 7(c) of the Natural Gas Act to construct and operate facilities at its existing compressor station and metering and regulating sites in Virginia.  Collectively, the project will enable Dominion to transport up to 860,000 dekatherms per day of natural gas form existing pipeline interconnects near the west end of the Cove Point Pipeline to the Cove Point terminal for the export of up to 5.75 metric tons of liquefied natural gas per year.

Dominion's requests triggered a case that stretched for over two years of consideration.  During this time, the FERC heard from more than 140 speakers at three public meetings related to an assessment of the project's environmental impacts, and received more than 650 comments from the public and federal, state and local agencies on the application.  In the end, the FERC determined that Dominion’s proposal, as approved with 79 specific conditions required by the Commission’sauthorization, will minimize potential adverse impacts on landowners and the environment.

According to the FERC, Dominion proposes to complete construction of the liquefaction project so that facilities may start service in June 2017.  Notably, the U.S. Department of Energy has already approved Dominion Cove Point’s export of gas to both Free Trade Agreement and non-Free Trade Agreement countries.

The same economic forces motivating the Dominion project support other proposed LNG export projects.  Indeed, FERC has approved three other LNG export projects, all in the Gulf of Mexico -- the Sabine Pass Liquefaction Project, the Freeport LNG Project, and the Cameron LNG Project -- and 14 more LNG export proposals remain pending.