recommended decision: fortis application for acquisition of ch energy/central hudson

7/30/2019 Recommended decision: Fortis application for acquisition of CH Energy/Central Hudson

1/71

STATE OF NEW YORKPUBLI C SERVI CE COMMI SSI ON

CASE 12- M- 0192 - J oi nt Pet i t i on of For t i s I nc. , For t i s US I nc. ,Cascade Acqui si t i on Sub I nc. , CH Energy Gr oup,I nc. , and Cent r al Hudson Gas & El ect r i cCor por at i on f or Appr oval of t he Acqui si t i on of

CH Ener gy Gr oup, I nc. by For t i s I nc. andRel at ed Transact i ons.

NOTI CE OF SCHEDULE FOR FI LI NG EXCEPTI ONS

( I ssued May 3, 2013)

At t ached i s t he Recommended Deci si on of Admi ni st r at i ve

Law J udges Raf ael A. Epst ei n and Davi d L. Prest emon i n t hi spr oceedi ng. Br i ef s on except i ons ar e due el ect r oni cal l y t o t he

Secr et ar y at secr etary@dps. ny. gov and t o al l act i ve par t i es by

4: 00 p. m. on May 17, 2013.

Br i ef s opposi ng except i ons ar e due by 4: 00 p. m. on

May 24, 2013, f ol l owi ng t he same pr ocedur es. The part i es

br i ef s shoul d adher e t o the gui del i nes f or f i l i ng document s wi t h

t he Secr et ar y (www. dps. ny. gov) .

( SI GNED) J EFFREY C. COHENAct i ng Secr et ar y


2/71

STATE OF NEW YORK

PUBLI C SERVI CE COMMI SSI ON

CASE 12- M- 0192 - J oi nt Pet i t i on of For t i s I nc. , For t i s US I nc. ,Cascade Acqui si t i on Sub I nc. , CH Energy Gr oup,I nc. , and Cent r al Hudson Gas & El ect r i c

Cor por at i on f or Appr oval of t he Acqui si t i on ofCH Ener gy Gr oup, I nc. by For t i s I nc. andRel at ed Transact i ons.

RECOMMENDED DECI SI ON

BY

ADMI NI STRATI VE LAW J UDGES

RAFAEL A. EPSTEI N AND DAVI D L. PRESTEMON


3/71

Tabl e of Cont ents

BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1PUBLI C COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5DESCRI PTI ON OF J OI NT PROPOSAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

A. Ri sk Mi t i gat i on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1. Corporat e St r uct ur e, Gover nance and Fi nanci alPr ot ect i ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

a. Goodwi l l and Acqui si t i on Cost s . . . . . . . . . . . . . . . . . . . . . 12b. Credi t Qual i t y and Di vi dend Restr i ct i ons . . . . . . . . . . . 13c. Money Pool i ng . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16d. Speci al Cl ass of Pr ef er r ed St ock . . . . . . . . . . . . . . . . . . . 17e.

Fi nanci al Transparency and Report i ng . . . . . . . . . . . . . . . 17

f . Af f i l i at e St andar ds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18g. Fol l ow- On Mer ger Savi ngs . . . . . . . . . . . . . . . . . . . . . . . . . . . 19h. Cor por at e Gover nance and Oper at i onal Pr ovi si ons . . . . 19

2. Per f or mance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21a. Per f or mance Mechani sms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

i . Ser vi ce Qual i t y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21i i .El ect r i c Rel i abi l i t y . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22i i i . Gas Saf et y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22i v.Leak- Pr one Pi pe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

b. Expendi t ur e Requi r ement s . . . . . . . . . . . . . . . . . . . . . . . . . . . 23i . Ri ght - of - Way Tree Tr i mmi ng . . . . . . . . . . . . . . . . . . . . . . 23i i .St r ay Vol t age Test i ng . . . . . . . . . . . . . . . . . . . . . . . . . . . 23i i i . I nf r ast r uct ur e I nvest ment . . . . . . . . . . . . . . . . . . . . . 24

B. I ncr ement al Benef i t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241. Rat e Fr eeze . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242. Ear ni ngs Shar i ng . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253. Syner gy Savi ngs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254. Def er r al Wr i t e- Of f s and Fut ur e Rat e Mi t i gat i on . . . . . . . 265. Communi t y Benef i t Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

a. Low I ncome Pr ogr am Enhancement s . . . . . . . . . . . . . . . . . . . . 26b. Economi c Devel opment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6. St at e I nf rast ruct ure Enhancement s . . . . . . . . . . . . . . . . . . . . 28


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CASE 12- M- 0192

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7. Gas Expansi on Pi l ot Pr ogr am. . . . . . . . . . . . . . . . . . . . . . . . . . 288. Ret ai l Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

PARTY OPPOSI TI ON TO THE J OI NT PROPOSAL. . . . . . . . . . . . . . . . . . . . . . . . 29A. RESA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29B. I BEW Local 320 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32C. PULP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33D. At hens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ASSESSMENT OF OBJ ECTI ONS TO THE J OI NT PROPOSAL. . . . . . . . . . . . . . . . 39A. Qual i t y of t he Economi c Benef i t s . . . . . . . . . . . . . . . . . . . . . . . . 39B. Labor I ssues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41C. NAFTA Thr eat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43D. Provi s i ons f or Low I ncome Customers . . . . . . . . . . . . . . . . . . . . . 47E. For ei gn Owner shi p . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50F. Loss of Local Focus and I nvol vement . . . . . . . . . . . . . . . . . . . . . 51G. Fi nanci al Concer ns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53H. Envi r onment al Concer ns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54I . Expansi on of Gas Ser vi ce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55J . Ret ai l Access Pr ovi si ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

DI SCUSSI ON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57A. St andar d of Revi ew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57B. Benef i t s I nt r i nsi c t o t he Mer ger . . . . . . . . . . . . . . . . . . . . . . . . 60C. Benef i t s f r om the J oi nt Proposal s Terms . . . . . . . . . . . . . . . . 63D. Ri sks and Mi t i gat i on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

CONCLUSI ON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66


5/71

STATE OF NEW YORK

PUBLI C SERVI CE COMMI SSI ON

CASE 12- M- 0192 - J oi nt Pet i t i on of For t i s I nc. , For t i s US I nc. ,Cascade Acqui si t i on Sub I nc. , CH Energy Gr oup,I nc. , and Cent r al Hudson Gas & El ect r i c

Cor por at i on f or Appr oval of t he Acqui si t i on ofCH Ener gy Gr oup, I nc. by For t i s I nc. andRel at ed Transact i ons.

RECOMMENDED DECI SI ON

RAFAEL A. EPSTEI N and DAVI D L. PRESTEMON,Admi ni st r at i ve Law J udges:

BACKGROUNDOn Februar y 20, 2012, CH Energy Gr oup, I nc. ( CHEG) ,

t he parent company of Cent r al Hudson Gas & El ect r i c Corporat i on

( Cent r al Hudson) , ent ered i nt o an Agr eement and Pl an of Merger

( Mer ger Agr eement ) wi t h For t i s I nc. ( For t i s) , a Canadi an hol di ng

company; For t i sUS I nc. ( For t i sUS) , a whol l y- owned subsi di ar y of

For t i s; and Cascade Acqui si t i on Sub I nc. ( Cascade) , a whol l y-

owned subsi di ary of For t i sUS. Under t he t er ms of t he Mer ger

Agreement , CHEG woul d mer ge wi t h Cascade, wi t h CHEG as t he

sur vi vi ng ent i t y. As a r esul t , Cent r al Hudson, a r egul at ed New

Yor k el ect r i c and gas cor porat i on, woul d become i ndi r ect l y a

whol l y- owned subsi di ar y of For t i s.

Under 70 of t he Publ i c Ser vi ce Law ( PSL) , t he

t r ansf er of owner shi p of al l or any par t of t he f r anchi se, wor ks

or syst em of any gas or el ect r i c cor por at i on i s pr ohi bi t ed

wi t hout t he consent of t he Commi ss i on. That consent may be

gi ven onl y i f t he Commi ssi on det er mi nes t hat t he pr oposed

acqui si t i on, wi t h such t er ms and condi t i ons as t he Commi ssi on

may f i x and i mpose, i s i n t he publ i c i nt er est . Consequent l y,

on Apr i l 20, 2012, For t i s, For t i sUS, Cascade, CHEG and Cent r al


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CASE 12- M- 0192

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Hudson ( col l ect i vel y, Pet i t i oner s) sought such consent by

f i l i ng t he pet i t i on t hat i s t he subj ect of t hi s pr oceedi ng.

Subsequent t o t he f i l i ng, t he mat t er was assi gned t o

Admi ni st r at i ve Law J udges, and a Not i ce of Proposed Rul emaki ng

was publ i shed. 1 On May 16, 2012 the J udges conduct ed an i ni t i al

pr ocedur al conf er ence. Par t i ci pant s at t he conf er ence i n

addi t i on t o Pet i t i oner s and st af f of t he Depar t ment of Publ i c

Ser vi ce ( St af f ) wer e t he Ut i l i t y I nt er vent i on Uni t of t he New

Yor k Depart ment of St at e s Di vi si on of Consumer Pr ot ect i on

( UI U) ; t he I nt er nat i onal Br ot her hood of El ect r i cal Wor ker s

Local 320 ( I BEW Local 320) ; t he Ret ai l Ener gy Suppl y Associ at i on

( RESA) ; Mul t i pl e I nt er venor s ( MI ) ; Empi r e St at e Devel opment

Corporat i on; and t he Count y of Dut chess. Al l wer e admi t t ed as

par t i es t o t he pr oceedi ng, as wer e Hess Cor por at i on, t he Count y

of Or ange, t he Count y of Ul st er , t he J oi nt Task For ce of t he

Town and Vi l l age of At hens ( At hens J oi nt Task For ce) , t he Publ i c

Ut i l i t y Law Pr oj ect of New Yor k, I nc. ( PULP) , and, as a gr oup,

Accent Ener gy Mi dwest Gas, LLC, Accent Energy Mi dwest I I , LLC,

I GS Ener gy, I nc. , and I nt er st at e Gas Suppl y, I nc.

Fol l owi ng a st atus conf er ence on J une 27, 2012, and

upon r econsi der at i on of an i ni t i al r ul i ng, t he J udges adopt ed a

schedul e f or t he pr oceedi ng cal l i ng f or t he f i l i ng of i ni t i al

comment s or t est i mony ( at t he opt i on of t he part y) by

Oct ober 12, 2012, and repl y comment s or r ebut t al t est i mony by

November 2, 2012. Ul t i mat el y, i ni t i al t est i mony was f i l ed by

St af f and PULP, and i ni t i al comment s were submi t t ed by At hens,

Dut chess Count y, ESD, I BEW Local 320, MI , and UI U. Repl y

comment s were recei ved f r om At hens, and rebut t al t est i mony was

f i l ed by Pet i t i oner s. St af f was subsequent l y aut hor i zed t o

submi t sur r ebut t al t est i mony i n r esponse t o Pet i t i oner s, and di d

so on December 4, 2012.

1 New York State Register, May 23, 2012, p. 15.


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CASE 12- M- 0192

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On December 12, 2012, Pet i t i oner s f i l ed a Not i ce of

Set t l ement pur suant t o whi ch al l par t i es, except PULP, act i vel y

par t i ci pat ed i n negot i at i ons t hat l ast ed appr oxi mat el y t en

busi ness days, and r esul t ed i n t he J oi nt Pr oposal t hat we ar e

addressi ng i n t hi s Recommended Deci si on. 2 The J oi nt Pr oposal was

f i l ed wi t h t he Secr et ary on J anuary 28, 2013, and was si gned by

Pet i t i oner s, St af f , MI , UI U and t he Count i es of Dut chess, Or ange

and Ul st er . 3 I t st at es t he concl usi on of t he si gnat or i es t hat

t he pr oposed mer ger , wi t h t he ter ms and condi t i ons set f or t h i n

t he pr oposal , meet s t he publ i c i nt er est st andar d of PSL 70 and

shoul d be approved.

St at ement s expr essi ng gener al suppor t f or t he J oi nt

Pr oposal wer e f i l ed on Febr uar y 8, 2013, by Pet i t i oner s, St af f ,

MI and UI U. The Count i es rei t er at ed t hei r l i mi t ed suppor t .

St at ement s opposi ng adopt i on of t he J oi nt Pr oposal i n i t s

pr esent f orm wer e f i l ed by PULP, RESA, t he New Yor k St ate Ener gy

Mar ket er s Coal i t i on ( NYSEMC) , and I BEW Local 320. Repl i es wer e

2 PULP expl ai ns i n i t s comment s i n opposi t i on t o t he J oi nt

Pr oposal t hat i t was unabl e t o par t i ci pat e due t o a l ack ofavai l abl e r esour ces caused by a del ay i n t he r ecei pt off undi ng. I ni t i al Comment s of Publ i c Ut i l i t y Law Pr oj ect ofNew Yor k, I nc. ( PULP) i n Opposi t i on t o J oi nt Pr oposal ( PULPI ni t i al Comment s) , pp. 1- 2.

3 The si gnatur es of t he Count i es ar e accompani ed by di scl ai mer sst at i ng t hat t hey ar e af f i xed f or t he pur pose of expr essi ngsuppor t f or speci f i c pr ovi si ons of t he J oi nt Pr oposal , andt hat t he Count i es t ake no posi t i on on t he bal ance of t hedocument . I n gener al , t he Count i es st at ed suppor t f orpr ovi si ons cal l i ng f or a r at e f r eeze, t he credi t i ng of syner gy

savi ngs, and t he payment of posi t i ve benef i t s i ncl udi ng t heCommuni t y Benef i t Fund and wr i t e- down of r egul at ory asset s.The Count i es par t i ci pat ed as par t i es, and si gned t he J oi ntPr oposal , t hr ough t hei r count y execut i ves. Subsequent t oexecut i on of t he J oi nt Pr oposal , t he Ul st er Count yl egi sl at ur e, by r esol ut i on, and a maj or i t y of t he member s oft he Dut chess Count y l egi sl at ur e, by l et t er , opposed appr ovalof t he pr oposal , whi l e Or ange Count y Execut i ve Edward Di anasubmi t t ed comment s suppor t i ng i t f ul l y.


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CASE 12- M- 0192

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f i l ed on Febr uar y 15, 2013, by Pet i t i oner s, St af f , I BEW

Local 320, MI , PULP, and RESA.

I n a J anuar y 29, 2013 r ul i ng est abl i shi ng a schedul e

f or st at ement s i n suppor t of , or opposi t i on t o, t he J oi nt

Pr oposal , t he J udges speci f i ed t hat any par t y advocat i ng an

evi dent i ar y hear i ng on t he J oi nt Pr oposal must speci f y i n i t s

i ni t i al comment s ( due Febr uar y 8, 2013) a mat er i al i ssue of f act

t hat coul d not be r esol ved wi t hout t he cr oss- exami nat i on of

wi t nesses. No part y s i ni t i al comment s at t empt ed t o make such a

showi ng.

On May 1, 2013, t wo addi t i onal par t i es were admi t t ed:

Ci t i zens f or Local Power ( CLP) and t he Consor t i um i n Opposi t i on

t o t he Acqui si t i on ( Consor t i um) . Al t hough some member s of t hese

gr oups had pr evi ousl y submi t t ed comment s, t he organi zat i ons

t hemsel ves had not par t i ci pat ed i n t he pr oceedi ng pr i or t o thei r

admi ss i on.

By mot i on dat ed May 1, 2013, CLP and t he Consor t i um

have r equest ed an evi dent i ary hear i ng. Al t hough t he t i me f or

opposi ng r esponses has not yet expi r ed, we recommend on t he

basi s of t he pr esent r ecor d t hat t he Commi ssi on deny the mot i on. 4

Regardl ess of what any responses mi ght assert , we f i nd t hat t he

mot i on i s cont r ar y t o t he pr i nci pl e i n Rul e 4. 3( c) ( 2) t hat l at e

i nt er vent i on i s per mi t t ed onl y subj ect t o t he new par t y s

accept ance of t he r ecor d as of t he i nt er vent i on dat e; and, mor e

subst ant i vel y, t hat t he mot i on f ai l s t o sat i sf y t he r equi r ement

i n t he J anuar y 29, 2013 r ul i ng t hat any r equest f or hear i ngs be

suppor t ed by i ssues t hat r equi r e cr oss- exami nat i on.

We agr ee wi t h CLP and t he Consor t i um t hat t hi s case i s

as i mpor t ant as ot hers where hear i ngs have been hel d. I n our

4 At Pet i t i oner s r equest , wi t hout opposi t i on f r om any ot herpart y, t he due date f or r esponses t o t he mot i on has beenaccel erat ed t o May 6, 2013.


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CASE 12- M- 0192

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vi ew, however , t he det er mi ni ng f act or i s t hat an evi dent i ar y

hear i ng woul d serve no l egi t i mate f unct i on because the

cont r over si es i n t he pr oceedi ng, not abl y i ncl udi ng t hose rai sed

by CLP and t he Consor t i um i n comment s f i l ed si mul t aneousl y wi t h

t he mot i on, pr esent no f act ual quest i ons t hat coul d be cl ar i f i ed

by conf r ont at i on of wi t nesses and coul d mat er i al l y af f ect t he

Commi ssi on s deci si on. Moreover , whi l e we al so agr ee t hat t he

pr ef i l ed evi dence shoul d be avai l abl e i n t he r ecor d as a

pot ent i al basi s f or t he Commi ssi on s deci si on, a hear i ng i s not

necessar y t o accompl i sh t hat r esul t .

PUBLI C COMMENTS

On Febr uary 21, 2013, publ i c st at ement hear i ngs

concer ni ng t he J oi nt Pr oposal wer e hel d i n Ki ngst on and

Poughkeepsi e. Appr oxi mat el y 40 peopl e at t ended t he hear i ngs, 17

of whom provi ded comment s on t he r ecor d. Comment ers i ncl uded

Cent r al Hudson cust omer s f r om t hr oughout t he ut i l i t y s servi ce

t err i t ory, as wel l as New Yor k St at e Assembl y Member Kevi n

Cahi l l and Town of Rosendal e Counci l Member Manna J o Gr eene.

The or i gi nal not i ce of publ i c st at ement hear i ngs

cal l ed f or al l comment s t o be submi t t ed by March 21, 2013.

Af t er r ecei vi ng numer ous r equest s f or addi t i onal t i me f r om

publ i c of f i ci al s and ot her s, t he Secret ar y ext ended t he deadl i ne

t hr ough May 1, 2013. Dur i ng t he ext ensi on per i od, addi t i onal

publ i c st at ement hear i ngs wer e hel d on Apr i l 17, 2013, i n

Poughkeepsi e and Apr i l 18, 2013 i n Ki ngst on. Appr oxi matel y 130

peopl e at t ended t he hear i ngs and 47 provi ded comment s. Speakers

i ncl uded Assembl y Member Fr ank Skart ados, Dutchess County

Legi sl at or s Ri char d Per ki ns and J oel Tyner , Rosendal e Counci l

Member Gr eene, Rosendal e Super vi sor J eanne Wal sh, Woodst ock Town

Counci l Member J ay Wenk, and a r epr esent at i ve f r om t he of f i ce of

St at e Senat or Ceci l i a Tkaczyk. Al l speaker s at al l of t he

publ i c st at ement hear i ngs opposed t he merger . Thr ough May 1,


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CASE 12- M- 0192

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2013, anot her approxi mat el y 316 comment s opposi ng t he merger

wer e recei ved by t he Commi ssi on by mai l , e- mai l , t el ephone, and

post i ng t o t he Commi ssi on s websi t e. I n addi t i on, 896

i ndi vi dual s had si gned a pet i t i on post ed on t he Si gnOn. or g

websi t e expr essi ng opposi t i on t o t he mer ger . 5

Comment ers opposed t o t he merger i ncl uded Senat or

Tkaczyk and Senat or Ter r y Gi pson; Assembl y Members Cahi l l , Di di

Barr et t , and J ames Skouf i s; Ci t y of Beacon Mayor Randy Casal e;

Town of Woodst ock Supervi sor J er emy Wi l ber ; 13 members of t he

Dut chess Count y Legi sl at ur e, by j oi nt l et t er ; Dut chess Count y

Legi sl at ur e Assi st ant Maj or i t y Leader Angel a Fl esl and,

i ndi vi dual l y; and f ormer Member of Congr ess Maur i ce D. Hi nchey.

Al l of t hese past and pr esent publ i c of f i ci al s ur ged t he

Commi ssi on t o di sappr ove t he pr oposed mer ger t r ansact i on, as di d

r esol ut i ons adopt ed by t he Ul st er Count y Legi sl at ur e; t he Ci t y

of Newbur gh; t he Towns of Esopus, Mar bl et own, Newbur gh, New

Pal t z, Ol i ve, Rosendal e, and Woodst ock; t he Vi l l age of Red Hook,

and t he Rosendal e Envi r onment al Commi ssi on. The Economi c

Devel opment Commi t t ee of t he Town of Red Hook al so opposed t he

mer ger , as di d AARP, t he Si er r a Cl ub, t he Dut chess Count y

Cent r al Labor Counci l , and the Hudson Val l ey Ar ea Labor

Feder at i on.

Opponent s of t he merger expressed varyi ng degrees of

concer n about t he pot ent i al f or l ong- r un negat i ve consequences

not onl y f or Cent r al Hudson r at epayer s, but al so f or t he

economi c wel l - bei ng of t he ut i l i t y s Mi d- Hudson ser vi ce

t er r i t ory i f t he t r ansact i on wer e consummated. The t hemes

evoked most f r equent l y i n t he comment s der i ved f r om t he

per cept i on t hat t he t r ansact i on woul d r epl ace a wel l - r egar ded,

5 The Si gnOn. Or g websi t e al l ows pet i t i on si gner s t o causee- mai l s t o be sent t o t he Secr et ar y memor i al i zi ng t hei rsi gnat ur es, and many i ndi vi dual s avai l ed t hemsel ves of t hatopt i on. The number s ci t ed above do not i ncl ude t hose e- mai l s.


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CASE 12- M- 0192

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hi ghl y capabl e and l ocal l y engaged ut i l i t y wi t h a f or ei gn ent i t y

of unpr oven qual i t y havi ng no i nher ent t i es t o t he ser vi ce

t er r i t or y and f i nanci al obj ect i ves t hat may conf l i ct wi t h t he

i nt er est s of r at epayer s. These concer ns ar e epi t omi zed by t he

comment s of J enni f er Metzger , Chai r of t he Town of Rosendal e

Envi r onment al Commi ssi on, who st at ed t hat Cent r al Hudson s

communi t y i nvol vement has benef i t ed Rosendal e t r emendousl y, and

warned that :

t hi s l evel of i nvol vement wi l l decrease orper haps end i n t he f ut ur e i f t he company i sacqui r ed by For t i s I nc. a f or ei gn company wi t hmul t i pl e hol di ngs out si de the regi on and count r y

t hat has an i nher ent i ncent i ve t o cut cost s andoper at i onal expenses i n i t s subsi di ar i es t oi mpr ove i t s own pr of i t abi l i t y.

Thi s percei ved pot ent i al f or a di ver gence of i nt er est s

bet ween a di st ant hol di ng company and the l ocal communi t y ser ved

by i t s ut i l i t y subsi di ar y was a sour ce of concer n f or near l y al l

of t he comment ers, many of whom expressed a gener al uneasi ness

wi t h t he pr ospect of f or ei gn owner shi p of cr i t i cal

i nf r ast r uct ur e necessar y t o pr ovi de essent i al el ect r i c and gas

ser vi ces. Some saw t hi s as a cont i nuat i on of a di st ur bi ng t r end

t oward more and more f orei gn ownershi p of U. S. busi nesses, and

expr essed concer n t hat domest i c cont r ol over vi t al i ndust r i es

was bei ng l ost .

Ot her s had mor e speci f i c concerns. Many comment ers

descr i bed Cent r al Hudson as havi ng been ver y pr oact i ve i n

pr omot i ng energy ef f i ci ency and r enewabl e energy. They

suggest ed t hat t her e was no l anguage i n the J oi nt Pr oposal t hat

woul d ensur e a comparabl e envi r onment al r esponsi veness f r om t he

merged compani es. I n a si mi l ar vei n, many comment ers not ed

Cent r al Hudson s r ecor d of communi t y i nvol vement and suppor t f or

l ocal economi c devel opment . They quest i oned whet her t hat l evel

of commi t ment woul d ext end beyond t he f undi ng expressl y pr ovi ded


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CASE 12- M- 0192

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i n t he J oi nt Pr oposal , whi ch t hey char act er i zed as a pur el y

shor t - t er m benef i t .

For other comment er s, t he i ssue was pr i mar i l y

economi c. They vi ewed t he put at i ve f i nanci al benef i t s of t he

J oi nt Pr oposal f or r at epayer s as meager and t r ansi t or y, whi l e

t he f i nanci al r i sks woul d be subst ant i al and per si st ent .

Assembl y Member Cahi l l , f or exampl e, argued t hat t he pr oposed

mer ger t r ansact i on makes no f i nanci al sense. For t i s, he

suggest ed, coul d not make a pr of i t and st i l l mai nt ai n cur r ent

l evel s of ser vi ce f or Cent r al Hudson r at epayer s. Ul t i mat el y, he

cont ended, cust omer s woul d be f orced t o pr ovi de t hat pr of i t

t hr ough ei t her i ncreased r at es or decreased ser vi ce r el i abi l i t y

and saf et y.

Pr i or t o t he i ssuance on Apr i l 24, 2013, of t he not i ce

announci ng the pr eparat i on of t hi s r ecommended deci si on, t he

Commi ssi on had not r ecei ved a si ngl e publ i c comment suppor t i ng

t he merger . The f i r st such comment , post ed on Apr i l 24, came

f r om Char l es S. Nort h, Presi dent and CEO of t he Dut chess Count y

Regi onal Chamber of Commerce. Mr . Nor t h st at ed t hat af t er

meet i ng wi t h Cent r al Hudson of f i ci al s and l ear ni ng t he f act s of

t he t r ansact i on, he st r ongl y suppor t ed i t . For t i s s commi t ment s

t o pr ovi de $50 mi l l i on i n benef i t s and t o mai nt ai n Cent r al

Hudson as a st andal one ent i t y ar e a wi n/ wi n f or cust omer s, he

sai d. I n Mr . Nor t h s opi ni on, Cent r al Hudson wi l l benef i t f r om

t he r esour ces of a l ar ger or gani zat i on and has done r i ght by i t s

cust omers i n agr eei ng t o t he merger .

Subsequent l y, t hrough May 1, 2013, t he Commi ss i on has

r ecei ved approxi mat el y 274 comment s urgi ng t hat t he merger be

approved. About 133 of t hose comment s came f r om Cent r al Hudson

empl oyees. Many ot her s came f r om Cent r al Hudson cust omers and

f r om busi nesses and busi ness organi zat i ons i ncl udi ng t he Edi son

El ect r i c I nst i t ut e, t he Hudson Val l ey Economi c Devel opment


13/71

CASE 12- M- 0192

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Corporat i on, t he Put nam Count y Economi c Devel opment Corporat i on,

t he West chest er Count y Of f i ce of Economi c Devel opment , t he

Dutchess County Economi c Devel opment Corpor at i on, t he Counci l of

I ndust r y of Sout heast ern New Yor k, t he New Pal t z Regi onal

Chamber of Commerce, t he Sul l i van Count y Par t nershi p f or

Economi c Devel opment , t he Gr eat er Newbur gh Par t ner shi p, t he

Or ange Count y I ndust r i al Devel opment Aut hor i t y, and t he Or ange

Count y Par t ner shi p. Support ers of t he mer ger emphasi ze t he

val ue of t he posi t i ve benef i t s pr ovi ded f or i n t he J oi nt

Proposal and t he commi t ment s of Fort i s t o operat e Cent r al Hudson

as a st andal one ent i t y, mai nt ai ni ng l ocal j obs and keepi ng i t s

headquar t er s i n t he communi t y. The economi c devel opment

or gani zat i ons st r ess par t i cul ar l y t he i mpor t ance of t he pr oposed

$5 mi l l i on Communi t y Benef i t Fund ( descr i bed bel ow) .

Suppl emental comments wer e f i l ed on May 1, 2013 by

f i ve par t i es: CLP and t he Consor t i um, j oi nt l y; J oi nt Pr oposal

si gnat or y MI ; opponent I BEW Local 320; and Pet i t i oner s. CLP and

t he Consor t i um expounded i n det ai l on t he benef i t s and

det r i ment s of t he mer ger as proposed, t o show t hat i t not onl y

woul d f ai l t he per t i nent Commi ssi on' s posi t i ve net benef i t s t est

but woul d be af f i r mat i vel y har mf ul and, i n t hat r espect ,

compar es unf avor abl y wi t h al l t he maj or energy company merger s

t he Commi ssi on has appr oved si nce 1999. They sai d t he J oi nt

Pr oposal sat i sf i es nei t her t he st at ut or y publ i c i nt er est

st andar d, nor t he cr i t er i a i n t he Set t l ement Gui del i nes such as

conf ormi t y wi t h st ate pol i ci es and consensus among adver sar i al

par t i es. They char ged For t i s wi t h di si ngenuousness or

i ndi f f er ence r egar di ng val ues t he Commi ssi on shoul d uphol d i n

t he pur sui t of obj ect i ves such as envi r onment al pr ot ect i on,

economi c devel opment , ut i l i t y i nf r ast r uct ur e i mpr ovement s, and

devel opment of sust ai nabl e ener gy r esour ces.


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CASE 12- M- 0192

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For t he most part , MI s comment s r epeat ed i t s

cri t i ci sm of pr evi ousl y r ai sed obj ecti ons t o t he J oi nt Pr oposal

and emphasi zed t he pot ent i al l oss of $49. 5 mi l l i on i n posi t i ve

benef i t s t o r at epayer s i f t he pr oposal wer e r ej ect ed. MI al so

argued t hat l ess wei ght shoul d be gi ven t o comment s f r om

ent i t i es t hat di d not par t i ci pat e f ul l y i n t he pr ocess l eadi ng

t o t he J oi nt Pr oposal , par t i cul ar l y t hose of t he l egi sl at ur es of

Dut chess and Ul st er Count i es whose count y execut i ves were

si gnat or i es t o t he pr oposal .

I BEW Local 320 r epeat ed i t s previ ousl y st at ed concer ns

about Cent r al Hudson s out sour ci ng pol i ci es and t hei r i mpact on

uni on j obs and servi ce qual i t y, and cont ends t hat t hey have not

been al l evi at ed. The J oi nt Pr oposal shoul d not be appr oved, i t

sai d, unl ess pr ovi si on i s made f or a needed i nf usi on of i nt er nal

worker s. The uni on al so submi t t ed a copy of an e- mai l sent by a

Cent r al Hudson Vi ce Pr esi dent t o empl oyees ur gi ng t hem t o submi t

comment s t o t he Commi ss i on suppor t i ng t he merger and pr ovi di ng

t empl at es f or t hat pur pose. The e- mai l st at es t hat , The number

of posted comments matters even i f f or m l et t er s ar e used

[ emphasi s i n or i gi nal ] . I BEW Local 320 st at es t hat t he vast

maj or i t y of empl oyees who have responded wi t h comment s ar e not

r epr esent ed by the uni on.

Pet i t i oner s addi t i onal comment s cont ended t hat t he

r ecor d demonst r at es t hat t he J oi nt Pr oposal wi l l pr oduce

benef i t s t hat gr eat l y exceed any r i sks present ed by t he mer ger .

They ci t ed comments by St af f i n suppor t of t he J oi nt Pr oposal

st at i ng St af f s vi ew t hat t he cri t er i a f or appr oval of t he

merger under PSL 70, as est abl i shed i n pr evi ous Commi ssi on

deci si ons, have been met or exceeded, and t hat t he t r ansact i on

compares f avorabl y wi t h t hose pr evi ousl y appr oved.

Pet i t i oner s al so ar gued t hat comment s r ecei ved i n

opposi t i on t o t he mer ger , mai nl y f r om non- par t i es, have


15/71

CASE 12- M- 0192

- 11-

gener al l y been mi si nf ormed, are cont r adi ct ed by t he t er ms of t he

J oi nt Pr oposal and/ or t he comments of t he si gnat or i es, and have

added not hi ng of si gni f i cance t o t he r ecor d. For many of t he

most f r equent l y r ai sed cr i t i ci sms of t he mer ger , Pet i t i oner s

pr ovi ded i nf or mat i on t endi ng t o r ef ut e t he al l egat i ons, f or

exampl e, wi t h r espect t o concerns about f orei gn owner shi p of

Cent r al Hudson, NAFTA, envi r onment al i ssues, i nf r ast r uct ur e

i nvest ment , f i nanci al r i sks, and so f or t h. Pet i t i oner s

concl uded t hat t he J oi nt Pr oposal :

i s a compel l i ng pat h f or war d t hat assures t hecont i nuat i on and enhancement of Cent r al Hudson

consi st ent wi t h i t s past per f or mance as a wel l -run, l ow- cost ut i l i t y t hat i s ext raor di nar i l ysensi t i ve t o l ocal needs and Commi ssi onr equi r ement s. 6

Al l of t he comment s r ecei ved have been i ncl uded i n t he

of f i ci al r ecor d and have been f ul l y revi ewed and consi der ed i n

t he pr eparat i on of t hi s r ecommended deci si on.

DESCRI PTI ON OF J OI NT PROPOSAL

The J oi nt Pr oposal expresses t he agreement of t he

si gnat or y par t i es t hat t he pr oposed acqui si t i on of Cent r al

Hudson by For t i s i s i n t he publ i c i nt er est f or pur poses of

PSL 70, and shoul d be appr oved, subj ect t o t he t er ms descr i bed

i n t he pr oposal . Br oadl y speaki ng, t hose t er ms ar e i nt ended t o

per f or m t wo f unct i ons: t he mi t i gat i on of any pot ent i al r i sks

t hat mi ght ar i se f r om consummat i on of t he mer ger t r ansact i on,

and t he secur i ng of i ncr ement al publ i c benef i t s t o ensur e a net

posi t i ve out come f r om t he t r ansact i on. I n t hi s sect i on, we

descr i be the pr ovi si ons of t he J oi nt Pr oposal and t he st at ement s

suppor t i ng and opposi ng thei r adopt i on.

6 Addi t i onal Comment s of Pet i t i oner s, p. 47.


16/71

CASE 12- M- 0192

- 12-

A. Ri sk Mi t i gat i on1. Corporat e St r uct ur e, Gover nance and Fi nanci al

Pr ot ect i ons

Pet i t i oner s st at e t hat al t hough t hei r or i gi nal

pet i t i on vol unt ar i l y i ncl uded pr ovi si ons i nt ended t o addr ess

concer ns t hat wer e i dent i f i ed i n pr i or Commi ssi on or der s

addr essi ng t he acqui si t i on of di str i but i on ut i l i t i es, t he J oi nt

Proposal si gnat or i es have agr eed t o even more comprehensi ve and

st r i ngent r equi r ement s f or cor por at e st r uct ur e, cor por at e

gover nance and f i nanci al pr ot ect i ons. St af f agr ees, ar gui ng

t hat t he J oi nt Pr oposal i ncor por at es a myr i ad of cust omer

pr ot ect i ons addr essi ng such mat t er s as goodwi l l and acqui si t i on

cost s; cr edi t qual i t y and di vi dend r est r i ct i ons; money pool i ng;

a speci al cl ass of pr ef er r ed st ock t o be i ssued i n t he event of

t he bankrupt cy of For t i s ( t he gol den shar e) ; f i nanci al

t r anspar ency and cont i nued f i nanci al r epor t i ng r equi r ement s;

updat ed af f i l i at e t r ansact i on and cost al l ocat i ons, as wel l as,

Code of Conduct r ul es and st andards; f ol l ow- on merger savi ngs;

and cor porat e gover nance and oper at i onal pr ot ect i on pr ovi si ons. 7

Si mi l ar l y, MI st at es t hat al t hough Pet i t i oner s or i gi nal

proposal di d a commendabl e j ob of advanci ng r easonabl e cust omer

pr ot ect i ons, t he J oi nt Pr oposal pr ovi des addi t i onal and/ or

st r engt hened f i nanci al and oper at i onal pr ot ect i ons f or

cust omer s. 8

a. Goodwi l l and Acqui si t i on Cost sTo t he ext ent t hat t he consi derat i on pai d by For t i s

f or t he st ock of CHEG exceeds t he book val ue of CHEG s assets,an account i ng asset , goodwi l l , wi l l be creat ed. As the

7 Depar t ment of Publ i c Ser vi ce St af f St at ement i n Suppor t ofJ oi nt Pr oposal ( St af f St at ement ) , p. 10.

8 I ni t i al Comment s of Mul t i pl e I nt er venor s i n Suppor t of J oi ntProposal ( MI Comment s) , p. 12.


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CASE 12- M- 0192

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Commi ssi on has made cl ear i n pr evi ous or der s, nei t her t he cost

of acqui r i ng, nor t he cost of car r yi ng, t hat asset shoul d be

bor ne by ut i l i t y cust omer s, and t he exi st ence of goodwi l l shoul d

not adver sel y af f ect r at epayer s. The J oi nt Pr oposal i ncl udes

pr ovi si ons i nt ended t o ensur e t hat t hi s wi l l be t he case f or

Cent r al Hudson cust omer s. I t bar s goodwi l l associ at ed wi t h t he

mer ger t r ansact i on f r om bei ng r ecorded on t he books of Cent r al

Hudson, t o the ext ent per mi t t ed by U. S. Gener al l y Accept ed

Account i ng Pr i nci pl es (U. S. GAAP) . I f t hose account i ng r ul es

r equi r e goodwi l l t o be pushed down t o Cent r al Hudson f or

f i nanci al r epor t i ng pur poses, t he J oi nt Pr oposal pr ecl udes i t

f r om bei ng r ef l ect ed i n t he r egul at ed account s of Cent r al Hudson

on whi ch r at es ar e based. I n addi t i on, i f ei t her For t i s or

For t i sUS i s obl i gat ed t o r ecor d an i mpai r ment of t he goodwi l l

cr eated by t he t r ansact i on, t he Commi ssi on must be not i f i ed

wi t hi n f i ve days. St af f ar gues t hat t hi s pr ovi si on wi l l af f or d

i t and t he Commi ssi on adequat e t i me to t ake st eps t o ensur e that

t he i mpai r ment does not adver sel y af f ect Cent r al Hudson

cust omer s. Fi nal l y, t he J oi nt Pr oposal r equi r es Cent r al Hudson

t o submi t t o St af f a schedul e of al l ext er nal l egal , f i nanci al

advi sory and si mi l ar cost s i ncur r ed t o achi eve t he mer ger i n

order t o permi t t he Commi ssi on t o ensur e that t hey cannot be

r ecover ed i n r at es.

b. Cr edi t Qual i t y and Di vi dend Rest r i ct i onsSt af f i dent i f i ed t he possi bi l i t y of Cent r al Hudson s

cr edi t st andi ng bei ng adver sel y af f ect ed by t he f i nances of

For t i s as a si gni f i cant r i sk of t he pr oposed mer ger .

Accor di ngl y, t he J oi nt Pr oposal i ncor por at es an ar r ay of

condi t i ons desi gned t o pr ot ect t he credi t qual i t y of t he

ut i l i t y.

Fi r st , t o per mi t t he Commi ssi on t o adequatel y moni t or

t he i mpact of t he t r ansact i on on Cent r al Hudson s f i nances, t he


18/71

CASE 12- M- 0192

- 14-

J oi nt Pr oposal est abl i shes a cont i nui ng r equi r ement t hat copi es

of al l pr esent at i ons made by Cent r al Hudson, For t i s or any

For t i s af f i l i at e be pr ovi ded t o St af f wi t hi n t en busi ness days.

Bot h For t i s and Cent r al Hudson ar e r equi r ed t o be r egi st er ed

wi t h at l east t wo maj or nat i onal l y and i nt er nat i onal l y

r ecogni zed r at i ng agenci es, t o mai nt ai n separ at e debt

i nst r ument s, and t o be separ at el y rat ed by at l east t wo rat i ng

agenci es. I n addi t i on, nei t her For t i s nor Cent r al Hudson wi l l

be per mi t t ed t o ent er i nt o any debt i nst r ument cont ai ni ng cr oss-

def aul t pr ovi si ons t hat coul d af f ect Cent r al Hudson. 9

To mi t i gat e t he r i sk of an i ncr ease i n Cent r al

Hudson s f i nanci ng cost s, t he J oi nt Pr oposal r equi r es t hat

For t i s and Cent r al Hudson suppor t t he obj ect i ve of mai nt ai ni ng

an A cr edi t r at i ng f or t he ut i l i t y, unl ess t he Commi ssi on

modi f i es i t s f i nanci al i nt egr i t y pol i ci es. Al so, t o ensur e t hat

Cent r al Hudson mai nt ai ns t he common equi t y capi t al i zat i on on

whi ch r at es are based, t he J oi nt Pr oposal woul d bar Cent r al

Hudson f r om payi ng di vi dends i f i t s aver age common equi t y rat i o

f or t he 13 mont hs pr i or t o t he pr oposed di vi dend were more t han

200 basi s poi nt s bel ow t he r at i o used i n set t i ng r at es. 10 St af f

st at es t hat t hi s i s an addi t i onal r at epayer f i nanci al pr ot ecti on

9 A cross- def aul t pr ovi si on i s one t hat can t r i gger def aul t on adebt obl i gat i on based on a def aul t on a di f f er ent debtobl i gat i on. For exampl e, a pr ovi si on i n a Cent r al Hudson debti nst r ument per mi t t i ng accel er at i on of t he due dat e f or

r epayment i n t he event of a def aul t by For t i s on one of i t sbonds woul d be a cr oss- def aul t pr ovi si on pr ohi bi t ed under t het er ms of t he J oi nt Pr oposal .

10 I n r esponse t o a quest i on posed by t he J udges, t he si gnator ypar t i es cl ar i f i ed t hei r i nt ent i on t hat t hi s pr ovi si on woul dbar a di vi dend not onl y when Cent r al Hudson s t r ai l i ng 13-mont h aver age equi t y r at i o was al r eady bel ow t he 200 basi spoi nt t hr eshol d, but al so when t he payment of t he di vi dendwoul d i t sel f cause t he aver age to dr op bel ow t he thr eshol d.


19/71

CASE 12- M- 0192

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beyond t hose t hat t he Commi ss i on has r equi r ed i n pr i or

t r ansact i ons.

The J oi nt Pr oposal woul d al so cont i nue di vi dend

r est r i ct i ons or i gi nal l y i mposed as par t of a Rest r uct ur i ng

Set t l ement Agreement ( RSA) appr oved by t he Commi ssi on i n 1998. 11

Among ot her t hi ngs, t he RSA st i pul at es t hat i f Cent r al Hudson s

seni or debt r at i ng i s downgr aded bel ow BBB+ by more than one

cr edi t r at i ng agency and the downgr ade i s because of t he

per f or mance of , or concer ns about , t he f i nanci al condi t i on of

i t s par ent or an af f i l i at e, di vi dends wi l l be l i mi t ed t o a r at e

of not more t han 75% of t he aver age annual i ncome avai l abl e f or

di vi dends, on a t wo- year r ol l i ng aver age basi s. I n t he event

t hat t he debt r at i ng i s pl aced on Cr edi t Wat ch f or a r at i ng

bel ow BBB by more t han one credi t r at i ng agency, di vi dends ar e

l i mi t ed t o 50% of t he aver age net i ncome, and i f t her e i s a

downgr ade bel ow BBB- by more t han one cr edi t r at i ng agency, no

di vi dends are al l owed t o be pai d unt i l such t i me as t he r at i ng

has been r est or ed t o BBB- or hi gher .

I n addi t i on t o cont i nui ng t he RSA l i mi t at i ons, t he

J oi nt Pr oposal i ncl udes a new pr ovi si on t hat woul d i nsul at e

Cent r al Hudson r at epayer s f r om t he ef f ect s of a downgr ade to

For t i s s credi t r at i ng. I f wi t hi n t hr ee year s of t he mer ger

Cent r al Hudson s cr edi t r at i ng wer e downgr aded as a di r ect

r esul t of a For t i s downgr ade, t he hi gher debt cost r esul t i ng

f r om t he downgr ade woul d not be r ef l ect ed i n Cent r al Hudson s

cost of capi t al used t o set r at es. Rat epayer s woul d be hel d

har ml ess f or t he f i nanci al i mpact of t he For t i s downgr ade.

The J oi nt Pr oposal al so woul d bar Cent r al Hudson f r om

pr ovi di ng f i nanci al suppor t t o For t i s or i t s ot her af f i l i at es

11 Case 96- E- 0909, Central Hudson Gas & Electric Corporation, Or derAdopt i ng Ter ms of Set t l ement Subj ect t o Modi f i cat i ons andCondi t i ons ( i ssued Febr uar y 19, 1998) .


20/71

CASE 12- M- 0192

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except as per mi t t ed by t he J oi nt Pr oposal , t he RSA or a

Commi ssi on or der . I t woul d al so r equi r e t hat Cent r al Hudson s

banki ng and other f i nanci al ar r angement s be kept separate f r om

t hose of ot her For t i s af f i l i at es.

Fi nal l y, t he J oi nt Pr oposal woul d aut hor i ze Cent r al

Hudson t o der egi st er f r om t he Uni t ed St at es Secur i t i es and

Exchange Commi ssi on ( SEC) and rel y mor e on the pr i vat e mar ket

under SEC Rul e 144A t o i ssue debt . 12 The Commi ssi on s or der

i ssued l ast year i n Case 12- M- 0172 woul d be amended t o permi t

such pr i vat e f i nanci ng. 13 I t i s expect ed t hat t he avai l abi l i t y

of t hi s opt i on wi l l enhance Cent r al Hudson s pr i ci ng posi t i on,

l ower i ng i t s debt cost s, and benef i t i ng r at epayer s.

c. Money Pool i ngMoney pool s enabl e af f i l i ated compani es t o make thei r

excess cash on hand avai l abl e as a qui ck, l ow- cost sour ce of

shor t - t er m f undi ng f or ot her pool par t i ci pant s. The J oi nt

Pr oposal woul d per mi t Cent r al Hudson t o par t i ci pate i n such

pool i ng ar r angement s, but onl y wi t h For t i s, For t i sUS and ot her

ent i t i es t hat ar e r egul at ed ut i l i t i es oper at i ng i n t he Uni t edSt at es, pr ovi ded t hat For t i s and For t i sUS may par t i ci pat e onl y

as l ender s and may not r ecei ve l oans or f und t r ansf er s, di r ect l y

or i ndi r ectl y. Cr oss- def aul t pr ovi si ons af f ecti ng Cent r al

Hudson woul d be prohi bi t ed.

12 Rul e 144A i s a saf e har bor exempt i on f r om t he r egi st r at i onr equi r ement s of t he Secur i t i es Act of 1933 t hat al l owscompani es t o sel l secur i t i es i n t he pr i vat e mar ket t oqual i f i ed i nst i t ut i onal buyer s i n a mor e t i mel y f ashi on wi t hf ewer di scl osur es and f i l i ng r equi r ement s.

13 Case 12- M- 0172, Central Hudson Gas & Electric Corporation,Or der Aut hor i zi ng I ssuance of Secur i t i es ( i ssued Sept ember 14,2012) .


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d. Speci al Cl ass of Pr ef er r ed St ockThe J oi nt Pr oposal woul d r equi r e t he cr eat i on of

speci al cl ass of Cent r al Hudson pr ef er r ed st ock t o be hel d by a

t r ust ee appr oved by t he Commi ssi on. Wi t hout t he consent of t he

hol der of t hi s gol den shar e, Cent r al Hudson woul d be pr ecl uded

f r om ent er i ng i nt o vol unt ar y bankr upt cy. Thi s i s i dent i cal t o a

pr ovi si on i ncl uded i n t he Commi ssi on s order appr ovi ng t he

acqui si t i on of New Yor k St at e El ect r i c and Gas Corpor at i on and

Rochest er Gas & El ect r i c Cor por at i on by I ber dr ol a. 14

Wi t h t he gol den shar e i n pl ace, Cent r al Hudson woul d

be per mi t t ed t o demonst r at e i n f ut ur e r at e cases t hat i t s st and-

al one capi t al st r uct ur e shoul d be used f or set t i ng r at es. That

demonst r at i on woul d be made by submi t t i ng curr ent wr i t t en

eval uat i ons f r om at l east t wo rat i ng agenci es suppor t i ng t he

eval uat i on of Cent r al Hudson as a separat e company, wi t hout

mat er i al adj ust ment s based on r i sks r el at ed t o t he capi t al

st r uct ur e and r at i ngs of For t i s. I f such eval uat i ons wer e not

avai l abl e, Cent r al Hudson woul d have t he bur den of pr ovi di ng

comparabl e evi dence to suppor t t he st andal one assumpt i on.

e. Fi nanci al Tr anspar ency and Repor t i ngThe J oi nt Pr oposal i ncor porat es a number of provi si ons

i nt ended to ensure that t he Commi ssi on and i t s St af f have ready

access t o t he f i nanci al dat a and ot her i nf or mat i on necessary t o

cont i nue our r egul at or y over si ght of Cent r al Hudson. I t

pr ovi des t hat Cent r al Hudson wi l l cont i nue t o use t he st andar ds

of GAAP f or i t s f i nanci al account i ng and f i nanci al r epor t s. I f

t hat account i ng met hod wer e r epl aced f or publ i cl y- t r aded

ent i t i es, t he change woul d appl y t o Cent r al Hudson. Cent r al

Hudson woul d al so be r equi r ed t o cont i nue t o sat i sf y al l of t he

14 Case 07- M- 0906, Iberdrola, S.A. et al. Acquisition Petition,Or der Aut hor i zi ng Acqui si t i on Subj ect t o Condi t i ons ( i ssuedJ anuar y 6, 2009) ( Iberdrola or der ) , pp. 43- 44.


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Commi ssi on s r epor t i ng requi r ement s f or j ur i sdi ct i onal compani es

of i t s si ze and nat ur e.

Cent r al Hudson woul d al so cont i nue t o compl y wi t h t he

pr ovi si ons of sect i ons 302 t hr ough 404 of t he Sarbanes- Oxl ey Act

( SOX) as i f Cent r al Hudson wer e st i l l bound di r ect l y by the

pr ovi si ons of SOX, even t hough i t woul d be a subsi di ar y of a

f or ei gn hol di ng company. Thi s woul d i ncl ude annual at t est at i on

audi t s by i ndependent audi t or s wi t h r espect t o Cent r al Hudson s

f i nanci al st at ement s and i nt er nal cont r ol s over f i nanci al

r epor t i ng.

The J oi nt Pr oposal woul d al so r equi r e t hat St af f be

gi ven r eady access t o any books and r ecor ds of For t i s and i t s

af f i l i at es t hat St af f mi ght deem necessary t o det er mi ne whet her

t he rates and charges of Cent r al Hudson are j ust and r easonabl e.

That access must i ncl ude, but i s not l i mi t ed t o, al l i nf or mat i on

suppor t i ng t he under l yi ng cost s and t he basi s f or any f act or

t hat det er mi nes t he al l ocat i on of t hose cost s. Cent r al Hudson

woul d al so be r equi r ed annual l y t o f i l e t he f i nanci al

st atement s, i ncl udi ng bal ance sheet s, i ncome st at ement s, and

cash f l ow st at ement s of For t i s and i t s maj or r egul at ed and

unr egul at ed ener gy company subsi di ar i es i n t he Uni t ed St ates,

and t o pr ovi de, t o the ext ent avai l abl e f r om a recogni zed

f i nanci al r epor t i ng i nf or mat i on ser vi ce, t he "as r epor t ed"

quar t er l y and annual bal ance sheet s, i ncome st at ement s and

st at ement s of cash f l ows of For t i s i n U. S. dol l ar s wi t h t he

under l yi ng cur r ency t r ansl at i on assumpt i ons. Al l r equi r ed

f i nanci al f i l i ngs woul d be i n Engl i sh and i n U. S. dol l ar s or , i f

t hat wer e not pr act i cabl e, wi t h t he under l yi ng cur r ency

t r ansl at i on assumpt i ons.

f . Af f i l i at e St andar dsThe RSA appr oved by t he Commi ssi on when Cent r al Hudson

was r eorgani zed as a subsi di ary of CHEG i ncl uded a set of


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st andar ds addr essi ng t r ansact i ons, conf l i ct s of i nt er est , cost

al l ocat i ons, and i nf ormat i on shar i ng among Cent r al Hudson and

i t s af f i l i at es. The J oi nt Proposal woul d updat e and r evi se

t hose st andar ds and appl y t hem t o For t i s. Cent r al Hudson woul d

be bar r ed f r om ent er i ng i nt o t r ansact i ons wi t h af f i l i at es t hat

wer e not i n compl i ance wi t h t he t r ansact i on st andards; woul d be

pr ohi bi t ed f r om shar i ng oper at i ng ( i . e. , non- management )

empl oyees wi t h af f i l i at es, and woul d be r equi r ed t o gi ve 180

days pr i or not i ce and obt ai n Commi ssi on appr oval pr i or t o t he

st ar t of any mat er i al shar ed ser vi ces i ni t i at i ves or t he

est abl i shment of a shar ed servi ces or gani zat i on t hat woul d

pr ovi de mat er i al servi ces t o Cent r al Hudson. 15 Cur r ent cost

al l ocat i on gui del i nes woul d be cont i nued, but woul d be subj ect

t o r evi si on i f i nt er company t r ansact i ons gr ew beyond a def i ned

l evel . St af f cont ends t hat , col l ecti vel y, t hese pr ovi si ons

ensur e t hat t he Commi ssi on wi l l have adequat e advance not i ce of

any change i n For t i s s expr essed phi l osophy of al l owi ng i t s

subsi di ar y ut i l i t i es t o oper at e on a st andal one basi s.

g. Fol l ow- On Merger Savi ngsThe J oi nt Pr oposal i ncl udes a condi t i on t hat woul d

ensur e Cent r al Hudson cust omers an appr opr i at e share of any

savi ngs r esul t i ng f r om f ut ur e mer ger s or acqui si t i ons by For t i s

unt i l new r at es ar e set . Thi s condi t i on, St af f says, i s

i dent i cal t o f ol l ow- on mer ger savi ngs pr ovi si ons t hat have been

adopt ed as a condi t i on t o t he appr oval of other r ecent mer ger s.

h. Corporate Gover nance and Oper at i onal Provi si onsThe J oi nt Pr oposal cont ai ns a number of provi si ons

i nt ended t o addr ess concer ns t hat t he r esponsi veness of Cent r al

Hudson t o t he communi t y i t ser ves mi ght be di mi ni shed as a

15 Mat er i al i s def i ned as ser vi ces i ndi vi dual l y or col l ecti vel yhavi ng a val ue gr eater t han 5% of Cent r al Hudson s net i ncomeon an af t er t ax basi s.


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subsi di ar y of a f or ei gn hol di ng company. The pr ovi si ons speci f y

t hat t he headquar t er s of t he ut i l i t y woul d r emai n wi t hi n t he

ser vi ce t er r i t or y. 16 A new boar d of di r ect ors woul d be appoi nt ed

wi t hi n one year wi t h a maj or i t y of di r ect or s who ar e

i ndependent , and at l east one i ndependent di r ect or woul d be

r equi r ed t o l i ve wi t hi n t he ser vi ce t er r i t or y. 17 At l east 50% of

Cent r al Hudson s of f i cer s woul d al so be r equi r ed t o l i ve wi t hi n

t he t er r i t or y. These r equi r ement s, St af f says, go beyond what

i s cur r ent l y requi r ed f or CHEG.

I n addi t i on, t he J oi nt Pr oposal speci f i es t hat Cent r al

Hudson i s t o be gover ned, managed and oper at ed on a st andal one

basi s post - merger . Local management woul d cont i nue t o make

deci si ons concer ni ng st af f i ng l evel s, and cur r ent empl oyees,

bot h management and non- management , woul d be r et ai ned f or t wo

year s af t er cl osi ng of t he mer ger . Wi t hi n 30 days af t er each of

t he f i r st t wo anni ver sar y dat es of t he mer ger cl osi ng, Cent r al

Hudson woul d be r equi r ed t o f i l e a r epor t wi t h t he Secr et ar y

compar i ng the l evel of uni on and management empl oyees on t hat

dat e t o t he l evel s on t he mer ger cl osi ng dat e. The col l ect i ve

bargai ni ng pr ocess woul d be cont i nued. The Cent r al Hudson Boar d

woul d cont i nue t o be r esponsi bl e f or management oversi ght ,

i ncl udi ng capi t al and oper at i ng budget s, di vi dend pol i cy, debt ,

and equi t y r equi r ement s. The Boar d woul d al so have an audi t

16 I n r esponse t o a quest i on f r om t he J udges, t he si gnat or ypar t i es cl ar i f i ed t hat headquar t er s means t he pl ace wher eal l seni or of f i cer s and t hei r suppor t staf f , l egal ,

admi ni st r at i ve, account i ng, oper at i ng super vi si on, and ot herhead of f i ce f unct i ons are l ocat ed.

17 The si gnat or y part i es agr eed i n r esponse t o a quest i on f r omt he J udges t hat an i ndependent di r ect or i s one who r ecei ves noconsul t i ng, advi sory or ot her compensat i on f r om Cent r al Hudsonor an af f i l i at e or subsi di ar y of Cent r al Hudson. A di r ect orwho i s an of f i cer , empl oyee or consul t ant of Cent r al Hudson,For t i sUS, For t i s, or any ot her For t i s af f i l i at e woul d not beconsi dered i ndependent .


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commi t t ee, wi t h a maj or i t y of member s who are i ndependent , and

i t woul d cont i nue t o be r esponsi bl e f or t he f i nanci al i nt egr i t y

and ef f ect i veness of i nt er nal cont r ol s. Fi nal l y, t o mai nt ai n an

act i ve cor por at e and char i t abl e pr esence i n t he ser vi ce

t er r i t or y, Cent r al Hudson woul d agr ee t o mai nt ai n i t s 2011 l evel

of communi t y i nvol vement t hrough 2017.

2. Per f ormanceA common t heme t hr oughout t he t est i mony and comment s

i n t hi s case has been t he concer n t hat pr essur e t o demonst r ate

t he pr of i t abi l i t y of t he mer ger t r ansact i on mi ght l ead t o

def er r ed i nvest ment i n ut i l i t y pl ant , r educed mai nt enance l evel s

and ot her cost - cut t i ng measur es t hat coul d event ual l y have a

negat i ve i mpact on Cent r al Hudson s provi si on of saf e and

r el i abl e ser vi ce. To r educe t hi s r i sk, t he J oi nt Pr oposal

i ncl udes a broad range of per f ormance- r el at ed mechani sms, some

of whi ch ar e mor e st r i ngent t han t hose cur r ent l y appl i cabl e t o

Cent r al Hudson. Al l of t hese per f ormance mechani sms woul d

cont i nue unt i l modi f i ed by the Commi ssi on i n a subsequent

pr oceedi ng. The J oi nt Proposal al so i ncor por at es pr ovi si onsmandat i ng speci f i c l evel s of expendi t ur es f or i mpor t ant saf et y,

mai nt enance and i nf r ast r uct ur e devel opment act i vi t i es.

a. Per f or mance Mechani smsi . Ser vi ce Qual i t y

Under t he t er ms of t he J oi nt Pr oposal , t he Ser vi ce

Qual i t y Per f ormance Mechani sm i ncl uded i n Cent r al Hudson s

cur r ent r at e pl an woul d be cont i nued wi t h t wo changes. Fi r st ,

t he maxi mum negat i ve revenue adj ust ment ( NRA) i mposed as a

r esul t of f ai l ur e t o meet def i ned t ar get s woul d be doubl ed f r om

$1. 9 mi l l i on annual l y t o $3. 8 mi l l i on. Second, t he t ar get f or

t he PSC compl ai nt r ate woul d be l ower ed, f r om 1. 7 per year per

100, 000 cust omer s to 1. 1. I n addi t i on, dur i ng a per i od of

di vi dend r est r i ct i on under t he f i nanci al pr ovi si ons of t he J oi nt


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Proposal , t he maxi mum NRA woul d i ncr ease t o $5. 7 mi l l i on, and i t

woul d r i se f ur t her , t o $7. 6 mi l l i on, i f per f or mance t ar get s wer e

mi ssed t hr ee t i mes i n any f i ve- year per i od. 18

i i . El ect r i c Rel i abi l i t yThe J oi nt Pr oposal woul d mai nt ai n t he el ect r i c

r el i abi l i t y st andar ds i ncl uded i n Cent r al Hudson s cur r ent r at e

pl an. As wi t h t he servi ce qual i t y per f ormance mechani sm,

pot ent i al NRAs woul d be doubl ed i mmedi at el y, t r i pl ed i n t he

event of a di vi dend r est r i ct i on, and quadr upl ed i f t ar get s wer e

mi ssed i n t hr ee of any f i ve cal endar year s. I n addi t i on,

At t achment I I t o t he J oi nt Pr oposal def i nes uni f or m r epor t i ng

r equi r ement s t hat St af f says wi l l ai d i t s moni t or i ng of Cent r al

Hudson s per f or mance and wi l l cont r i but e t o consi st ency of

r epor t i ng among ut i l i t i es.

i i i . Gas Saf et yAs wi t h el ect r i c rel i abi l i t y, t he gas saf et y

per f or mance t ar get s i n Cent r al Hudson s curr ent r at e pl an woul d

be cont i nued, wi t h pot ent i al NRAs i mmedi at el y doubl ed, t r i pl ed

i n t he event of a di vi dend r est r i ct i on and quadr upl ed i f t ar get s

ar e mi ssed i n t hr ee of f i ve cal endar year s. I n addi t i on, t he

J oi nt Pr oposal woul d est abl i sh a new met r i c f or compl i ance wi t h

cer t ai n pi pel i ne saf et y regul at i ons set f or t h i n 17 NYCRR

Par t s 255 and 261, wi t h potent i al NRAs of up t o 100 basi s

18 I n r esponse t o a quest i on f r om t he J udges, t he si gnat or i escl ar i f i ed t hi s was what was i nt ended by the phr ase i f t ar get sar e mi ssed f or t hr ee year s wi t hi n t he next f i ve year per i od, i n secti on I V. B. 2 of t he J oi nt Pr oposal .


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poi nt s. The pr ovi si on i s essent i al l y t he same as ones the

Commi ssi on adopt ed f or Corni ng Nat ur al Gas and Nat i onal Gr i d. 19

i v. Leak- Prone Pi peThe J oi nt Pr oposal woul d i ncr ease r equi r ed annual

expendi t ur es f or t he r epl acement of l eak- pr one pi pe, as

det er mi ned t hr ough a r i sk- based anal ysi s, f r om $6. 0 mi l l i on t o

$7. 7 mi l l i on, as recommended by St af f . St af f says the i ncr ease

can be expect ed t o dr i ve down act i ve l eaks, r educe l eakage rates

on t he di st r i but i on syst em and l ower over t i me and oper at i ng and

mai nt enance cost s. I f Cent r al Hudson f ai l s t o expend t he

r equi r ed amount , one- hal f of t he r evenue r equi r ement equi val ent

of t he shor t f al l woul d be def er r ed f or r at epayer benef i t .

b. Expendi t ure Requi r ement si . Ri ght - of - Way Tree Tr i mmi ng

The J oi nt Pr oposal woul d cont i nue t o budget

expendi t ur es f or r i ght - of - way t r ee t r i mmi ng t hr ough J une 30,

2014 at t he l evel est abl i shed i n Cent r al Hudson s cur r ent r at e

pl an f or t he year endi ng J une 30, 2013. At t he end of t he one-

year ext ensi on, actual expendi t ur es woul d be compared t o t he

budget . Any shor t f al l woul d be def er r ed f or t he benef i t of

r at epayer s wi t h car r yi ng char ges at t he pr e- t ax r at e of r et ur n.

i i . St r ay Vol t age Test i ngThe J oi nt Pr oposal woul d est abl i sh t ar geted

expendi t ur es f or t he year endi ng J une 30, 2014, of $2. 023

mi l l i on f or st r ay vol t age t est i ng and $350, 000 f or st r ay vol t age

mi t i gat i on. I f Cent r al Hudson s expendi t ur es f el l shor t of

19 Case 11- G- 0280, Corning Natural Gas Corporation, Or derAdopt i ng Ter ms of J oi nt Pr oposal and Est abl i shi ng a Mul t i - YearRat e Pl an ( i ssued Apr i l 20, 2012) , p. 21; Cases 12- E- 0201 and12- G- 0202, Niagara Mohawk Power Corporation d/b/a NationalGrid - Electric and Gas Rates, Or der Appr ovi ng El ect r i c andGas Rat e Pl ans i n Accor d wi t h J oi nt Pr oposal ( i ssued Mar ch 15,2013) , pp. 13- 14.


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ei t her of t he t ar get s, t he shor t f al l woul d be def er r ed f or t he

benef i t of r at epayer s wi t h car r yi ng char ges at t he pr e- t ax r at e

of r et ur n.

i i i . I nf r ast r uct ur e I nvest mentThe J oi nt Pr oposal woul d cont i nue t he net pl ant

r econci l i at i on mechani sm i ncl uded i n Cent r al Hudson s cur r ent

r at e pl an wi t h new t ar get s est abl i shed f or t he year endi ng

J une 30, 2014. Act ual net pl ant i n ser vi ce as of t hat dat e

woul d be compar ed t o t he t arget s and t he r evenue requi r ement

i mpact of any di f f er ence woul d be cal cul at ed usi ng t he

met hodol ogy descr i bed i n At t achment I V t o t he J oi nt Pr oposal . 20

I f t he di f f er ence wer e negat i ve, Cent r al Hudson woul d be

r equi r ed t o def er t he revenue requi r ement i mpact f or t he benef i t

of r at epayer s wi t h car r yi ng char ges at t he pr e- t ax rat e of

r et ur n. I f t he di f f er ence wer e posi t i ve, no def er r al woul d be

per mi t t ed.

B. I ncr ement al Benef i t sWhi l e t he pr ovi si ons of t he J oi nt Pr oposal di scussed

above ar e i nt ended t o be benef i ci al t o r at epayer s, t hei r pr i mar y

pur pose i s t o r educe t he pot ent i al f or negat i ve i mpact s f r om t he

mer ger . Consequent l y, i n an ef f or t t o ensur e a net posi t i ve

out come f or r at epayer s i f t he mer ger t r ansact i on i s appr oved,

t he J oi nt Pr oposal i ncl udes a number of pr ovi si ons t hat ar e

desi gned t o gener ate i ncr ement al benef i t s t hat woul d not be

r eal i zed i n t he absence of t he mer ger .

1. Rat e Fr eezeUnder t he t er ms of t he J oi nt Pr oposal , Cent r al Hudson

r at es cur r ent l y schedul ed t o r emai n i n ef f ect t hr ough J une 30,

20 The si gnat or y par t i es conf i r med t hat r ef er ences t oAt t achment I I I on page 34 of t he J oi nt Pr oposal shoul d r eadAt t achment I V.


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2013, woul d cont i nue t hr ough J une 30, 2014. St af f cal cul at es

t hat t hi s r at e f r eeze woul d pr ovi de a smal l , but posi t i ve

benef i t t o rat epayer s.

2. Ear ni ngs Shar i ngCent r al Hudson s cur r ent r at e pl an speci f i es t hat when

t he ut i l i t y s ear ned r et ur n on equi t y exceeds 10. 5%, r at epayer s

r ecei ve 50% of t he excess up t o an earned ret ur n of 11. 0%; 80%

of t he excess bet ween 11. 0% and 11. 5%; and 90% of t he excess

over 11. 5%. Under t he t er ms of t he J oi nt Pr oposal , t he 50% and

90% shar i ng t hr eshol ds woul d be l ower ed, and t he 80% shar i ng

l evel woul d be el i mi nat ed. Rat epayer s woul d be cr edi t ed wi t h

50% of ear ni ngs bet ween 10. 0% and 10. 5%, and 90% i n excess of

10. 5%. I n addi t i on, Cent r al Hudson woul d be r equi r ed t o appl y

50% of i t s shar e of ear ni ngs exceedi ng 10. 5% t o wr i t e down

cer t ai n def er r ed expenses t hat woul d other wi se be r ecover ed i n

r at es, pr ovi ded t hat doi ng so woul d not r educe t he act ual ear ned

r etur n bel ow 10. 5%. Thr ough t hi s revi sed shar i ng mechani sm,

St af f says, r at epayer s woul d gai n i f any unexpect ed savi ngs

mat er i al i ze as a r esul t of t he mer ger , but St af f r at es t hel i kel i hood as smal l gi ven t he ear ni ngs i mpact of t he ot her

posi t i ve benef i t s requi r ed by t he J oi nt Pr oposal .

3. Syner gy Savi ngsThe si gnat or i es t o t he J oi nt Pr oposal agree t hat t he

mer ger t r ansact i on wi l l gener at e syner gy savi ngs of at l east

$1. 85 mi l l i on, and Cent r al Hudson woul d guarant ee t hi s amount

f or f i ve year s, f or a t ot al of $9. 25 mi l l i on. The savi ngs woul d

begi n t o accrue i n t he mont h f ol l owi ng cl osi ng of t he mer ger

t r ansact i on and woul d be avai l abl e f or r at e mi t i gat i on at t he

st ar t of t he f i r st r at e year i n t he next r at e case f i l ed by

Cent r al Hudson.


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CASE 12- M- 0192

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4. Def er r al Wr i t e- Of f s and Fut ur e Rat e Mi t i gat i onThe J oi nt Pr oposal speci f i es t hat upon cl osi ng of t he

mer ger , For t i s wi l l pr ovi de Cent r al Hudson $35 mi l l i on whi ch

wi l l be r ecor ded as a r egul at or y l i abi l i t y, t o be used t o wr i t e

down st or m r est or at i on expenses f or whi ch def er r al and r ecover y

f r om r at epayer s has been request ed i n thr ee pendi ng pet i t i ons t o

t he Commi ssi on, i ncl udi ng most notabl y one f or Super st orm Sandy.

To t he ext ent t he t ot al expense r ecover y ul t i mat el y aut hor i zed

by t he Commi ssi on i s l ess t han $35 mi l l i on, t he bal ance woul d be

r eser ved as a r egul at or y l i abi l i t y wi t h car r yi ng char ges at t he

pr e- t ax r at e of r et ur n, subj ect t o f ut ur e di sposi t i on by t he

Commi ssi on.

5. Communi t y Benef i t FundI n addi t i on t o t he $35 mi l l i on f or def er r al wr i t e- of f s

and r at e mi t i gat i on, For t i s woul d be r equi r ed t o pr ovi de Cent r al

Hudson $5 mi l l i on f or a Communi t y Benef i t Fund t o be used f or

l ow i ncome cust omer and economi c devel opment programs.

a. Low I ncome Pr ogram EnhancementsThe J oi nt Pr oposal speci f i es t hat $500, 000 f r om t he

Communi t y Benef i t Fund woul d be used t o suppl ement f unds

cur r ent l y pr ovi ded i n r at es f or pr ogr ams t ar get ed t o l ow i ncome

cust omer s. Cur r ent l y, Cent r al Hudson pr ovi des a bi l l cr edi t of

$11. 00 per mont h f or al l cust omers who ar e Home Energy

Assi st ance Pr ogr am ( HEAP) r eci pi ent s. Under t he J oi nt Pr oposal ,

wi t hi n 30 days af t er an or der i n t hi s case, Cent r al Hudson woul d

i mpl ement a new schedul e of di scount s provi di ng cr edi t s of

$17. 50 per mont h f or HEAP- par t i ci pant heat i ng cust omer s

r ecei vi ng onl y el ect r i c or onl y gas ser vi ce, and $23. 00 f or

t hose r ecei vi ng both. Non- heat i ng cust omer s woul d r ecei ve

credi t s of $5. 50 f or one ser vi ce, or $11. 00 f or bot h, pr ovi ded

t hat cust omer s cur r ent l y r ecei vi ng an $11. 00 cr edi t f or a si ngl e

servi ce woul d cont i nue t o r ecei ve t hat amount . Cent r al Hudson


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CASE 12- M- 0192

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woul d al so be requi r ed to wai ve r econnect i on f ees f or

par t i ci pant s i n i t s l ow i ncome pr ogr ams up t o a t ot al of

$50, 000. I f t he t ot al cost of t he pr ogr ams exceeded t he amount

al l owed i n r ates pl us t he $500, 000 f r om t he Communi t y Benef i t

Fund, t he shor t f al l woul d be made up f r om f unds previ ousl y

def er r ed f or t he benef i t of t he l ow i ncome pr ogr ams, wi t h any

excess def er r ed as a r egul atory asset . Cent r al Hudson woul d be

r equi r ed t o cont i nue t o r ef er par t i ci pant s i n i t s l ow i ncome

programs t o t he New Yor k Energy Resear ch and Devel opment

Aut hor i t y s EmPower New Yor k pr ogr am f or ener gy ef f i ci ency

ser vi ces. Fi nal l y, t he J oi nt Pr oposal est abl i shes a schedul e

f or quar t er l y r epor t i ng on l ow i ncome pr ogr ams t o t he

Commi ssi on, and speci f i es t he data to be pr ovi ded.

b. Economi c Devel opmentThe J oi nt Pr oposal provi des f or $5 mi l l i on dol l ar s t o

be al l ocat ed by Cent r al Hudson f or t he support of economi c

devel opment pr ogr ams. The $5 mi l l i on woul d consi st of $4. 5

mi l l i on f r om t he Communi t y Benef i t Fund and $500, 000 f r om

Cent r al Hudson s exi st i ng Compet i t i on Educat i on Fund. Wi t hi n 15days af t er an or der i n t hi s case, Cent r al Hudson woul d f i l e a

pr oposal wi t h t he Commi ssi on f or modi f i cat i on of i t s exi st i ng

economi c devel opment progr ams and woul d request expedi t ed

consi der at i on. The modi f i cat i ons woul d pr ovi de f or Cent r al

Hudson t o cont i nue t o admi ni st er i t s pr ogr ams pur suant t o

exi st i ng Commi ssi on aut hor i zat i ons wi t h i nput f r om t he count i es

i n i t s ser vi ce t er r i t or y. They woul d al so est abl i sh a cri t er i on

t hat appl i cant s f or pr oj ect f undi ng t hat do not have

par t i ci pat i on f r om Empi r e St at e Devel opment , a count y i ndust r i al

devel opment agency, a count y communi t y col l ege, or a l ocal

muni ci pal r esol ut i on woul d seek a l et t er of suppor t f r om t he

count y wher e t he pr oj ect woul d be l ocat ed. Cent r al Hudson woul d

al so agr ee t o seek count y par t i ci pat i on i n economi c devel opment


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CASE 12- M- 0192

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grant awar d not i f i cat i ons and announcement s, and woul d meet

t wi ce a year wi t h r epr esent at i ves of al l t he count i es i n i t s

ser vi ce t er r i t or y.

6. St ate I nf r ast r uct ur e Enhancement sThe J oi nt Pr oposal woul d commi t Cent r al Hudson t o

cont i nue t o suppor t t he New Yor k St at e Tr ansmi ss i on Assessment

and Rel i abi l i t y St udy, t he Ener gy Hi ghway, and economi cal l y

j ust i f i ed gas expansi on. For t i s woul d agree t o pr ovi de equi t y

suppor t t o t he extent r equi r ed by Cent r al Hudson f or pr oj ect s

t hat r ecei ve r egul at or y appr oval and pr oceed t o const r uct i on.

7. Gas Expansi on Pi l ot Pr ogr amCent r al Hudson woul d commi t t o cont i nue i t s exi st i ng

gas market i ng expansi on campai gn dur i ng t he rate f r eeze per i od

and woul d cont i nue t o pr ovi de i nf or mat i on and assi st ance to

cust omers who are seeki ng or consi der i ng gas ser vi ce. Where

adequate f i nanci al commi t ment s and reasonabl e f r anchi se

condi t i ons can be secur ed, i t woul d pur sue expansi on of gas

f aci l i t i es t o ar eas not cur r ent l y ser ved and woul d seek

expedi t ed Commi ssi on appr oval f or such expansi on. Wi t hi n 90

days of an or der i n t hi s case, Cent r al Hudson woul d i ni t i at e a

modi f i ed gas ser vi ce r equest t r acki ng syst em r et ai ni ng

suf f i ci ent data t o demonst r at e why servi ce was or was not

i ni t i at ed. I n addi t i on, by J ul y 1, 2013, Cent r al Hudson woul d

pr opose a l i mi t ed pi l ot expansi on pr ogr am desi gned t o test a

number of i nnovat i ve measur es t o f aci l i t at e gas ser vi ce

expansi on.

8. Ret ai l AccessFor t he st ated pur pose of support i ng t he Commi ssi on s

r et ai l mar ket devel opment i ni t i at i ves, t he J oi nt Pr oposal woul d

r equi r e Cent r al Hudson wi t hi n 90 days f ol l owi ng t he cl osi ng of

t he mer ger t r ansact i on t o i ncl ude a t ot al bi l l compar i son on al l


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CASE 12- M- 0192

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r et ai l access r esi dent i al bi l l s usi ng consol i dat ed bi l l i ng. The

compar i son woul d be generat ed usi ng an exi st i ng Cent r al Hudson

pr ogr am t hat has al r eady been i mpl ement ed. I n addi t i on, wi t hi n

60 days af t er t he i ssuance of an or der i n t hi s case, Cent r al

Hudson woul d be requi r ed to f i l e a pr oposal t o pr ovi de payment -

t r oubl ed cust omer s- - t hose subj ect t o ser vi ce t er mi nat i on- - wi t h

si mi l ar bi l l compar i son i nf or mat i on. The cost of i mpl ement i ng

t hese i ni t i at i ves woul d be pai d f r om Cent r al Hudson s exi st i ng

Compet i t i on Educat i on Fund. I f t he bal ance i n t he f und wer e

i nadequat e, Cent r al Hudson woul d be per mi t t ed to def er t he

excess cost . Cent r al Hudson woul d r epor t quar t er l y t o St af f on

t he pr ogr ess of i t s bi l l compar i son ef f or t s.

PARTY OPPOSI TI ON TO THE J OI NT PROPOSAL

Three par t i es, RESA, I BEW Local 320, and PULP,

submi t t ed st at ement s i n opposi t i on t o t he J oi nt Pr oposal . I n

addi t i on, t he Town Boar d of t he Town of At hens, whi l e not

expr essl y opposi ng t he J oi nt Pr oposal , has expr essed concer n

t hat t he pr oposal does not desi gnate a port i on of t he Communi t y

Benef i t Fund t o be used f or expansi on of gas servi ce wi t hi n t he

t own, as was r equest ed i n comment s submi t t ed by t he At hens J oi nt

Task For ce bef or e t he J oi nt Pr oposal was f i l ed.

A. RESARESA t akes except i on t o t he r et ai l access sect i on of

t he J oi nt Pr oposal , and, i n par t i cul ar , t he r equi r ement t hat

Cent r al Hudson i ncl ude a t ot al bi l l compar i son on r esi dent i al

r et ai l access consol i dat ed bi l l s wi t hi n 90 days f ol l owi ng t he

cl osi ng of t he mer ger t r ansact i on. I t makes, essent i al l y, t wo

poi nt s.

Fi r st , RESA ar gues t hat t he i mpl ement at i on of a bi l l

compar i son requi r ement i s pr ematur e gi ven t hat t he mer i t s of

such an i ni t i at i ve ar e cur r ent l y bei ng debat ed i n t he Ret ai l


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CASE 12- M- 0192

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Ener gy Market s case, a separ ate gener i c pr oceedi ng i ni t i at ed by

t he Commi ssi on t o consi der t hi s and var i ous ot her r et ai l access

i ssues. 21 RESA poi nt s out t hat Cent r al Hudson or i gi nal l y t ook

t he posi t i on t hat t he Ret ai l Ener gy Market s case woul d be a more

appr opr i at e f or um f or consi der i ng i ncl usi on of bi l l compar i sons

i n cust omer bi l l s, a posi t i on wi t h whi ch RESA agr eed.

Fur t her mor e, RESA says, t he J oi nt Pr oposal i t sel f st at es t hat

t he si gnat or y par t i es ant i ci pat e t hat modi f i cat i ons t o t he

bi l l i ng i ni t i at i ve may become appr opr i at e based on

devel opment s i n t he Ret ai l Ener gy Market s case. Ther ef ore,

RESA ar gues, i t woul d be l ogi cal and r easonabl e t o awai t t he

out come of t hat case bef ore deci di ng on i mpl ement at i on of a

mont hl y pr i ce compar i son by Cent r al Hudson.

RESA s second poi nt i s t hat t he r equi r ement s of t he

J oi nt Pr oposal wi t h r espect t o bi l l compar i sons ar e vague and

i l l - def i ned. I t not es t hat t he J oi nt Pr oposal cal l s f or t he

compar i sons t o be per f ormed usi ng t he exi st i ng Cent r al Hudson

comput er progr am t hat had been pr evi ousl y i mpl ement ed. There

i s no f ur t her i nf or mat i on about t hat pr ogr am i n t he J oi nt

Pr oposal or i n t he r ecor d, and no meani ngf ul descr i pt i on or

di scussi on of t he det ai l s of how t he bi l l compar i son met hodol ogy

i s desi gned or how i t wi l l oper at e i n pr act i ce. Gi ven t hat

ener gy ser vi ce compani es ( ESCOs) have si gni f i cant concer ns t hat

such compar i sons may be mi sl eadi ng, RESA says, addi t i onal r evi ew

and anal ysi s shoul d be under t aken bef or e t hi s bi l l compar i son

r equi r ement i s i mpl ement ed.

St af f r esponds t hat t he Commi ssi on, i n i ni t i at i ng t he

Ret ai l Ener gy Mar ket s proceedi ng, expr essl y speci f i ed that

quest i ons concer ni ng t he i ncl usi on of bi l l compar i sons on

21 Cases 12- M- 0476, et al., Proceeding on Motion of theCommission to Assess Certain Aspects of the Residential and

Small Non-residential Retail Energy Markets in New York State

(Retail Energy Markets).


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CASE 12- M- 0192

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cust omer bi l l s, and t he pr ovi si on of bi l l compar i son i nf or mat i on

t o payment - t r oubl ed cust omers, were bei ng addr essed f or Cent r al

Hudson s oper at i ons i n t he cont ext of [ t hi s mer ger

pr oceedi ng] . 22 I t says RESA di d not obj ect t o t hi s appr oach i n

t he Ret ai l Ener gy Mar ket s case and di d not pr ovi de any posi t i on

on t he bi l l compar i son i ssues i n t hi s case pr i or t o i t s comment s

on t he J oi nt Proposal . The det ai l s of t he bi l l compar i son,

St af f says, ar e adequat el y descr i bed when t he J oi nt Pr oposal i s

r ead i n conj unct i on wi t h t he quest i ons posed by t he Commi ssi on

i n Case 12- M- 0476.

Wi t h r espect t o concerns about mi sl eadi ng compar i sons,

St af f ar gues t hat i t i s t he ESCOs r esponsi bi l i t y t o ensur e t hat

t hei r cust omer s under st and what servi ces t hey recei ve f or t he

pr i ce t hey pay, and t hat a tot al bi l l compar i son mer el y gi ves

cust omer s pur chasi ng such servi ces a cl ear er pi ct ur e of any

pr emi um t hey ar e payi ng or cost savi ngs t hey ar e r eal i zi ng.

St af f concl udes t hat RESA s opposi t i on shoul d not cause

r ej ect i on of t he J oi nt Pr oposal because, i f t he Commi ssi on

agr ees t hat t he r et ai l access pr oposal s i n t hi s case shoul d be

def er r ed pendi ng t he r esul t s of t he Retail Energy Markets case,

i t shoul d si mpl y modi f y t he J oi nt Pr oposal t o so pr ovi de.

Accor di ng t o Pet i t i oner s, not onl y does t he bi l l

compar i son deser ve t o be i mpl ement ed here regardl ess of t he

pendency of t he Retail Energy Markets case, but i ndeed t he

exper i ence gai ned now by i mpl ement i ng i t f or Cent r al Hudson

mi ght ver y wel l i nf or m and assi st t he ongoi ng ef f or t s i n t he

gener i c case. A mont h of r eal - wor l d exper i ence wi t h bi l l

compar i son publ i cat i on mi ght be wort h a year of hear i ngs, t hey

suggest .

22 Case 12- M- 0476, et al., Retail Energy Markets, Or der I nst i t ut i ngProceedi ng and Seeki ng Comment s Regardi ng t he Oper at i on of t heRet ai l Energy Market s i n New Yor k St ate ( i ssued Oct ober 19,2012) , Appendi x, note 1.


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CASE 12- M- 0192

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B. I BEW Local 320The uni on s concer n, expressed i n i t s comments and

r ei t er at ed i n i t s opposi t i on t o t he J oi nt Pr oposal , i s that , i n

i t s vi ew, Cent r al Hudson has a hi st or y of i nappr opr i at el y

r el yi ng on out si de cont r act or s whi l e al l owi ng i t s i nt er nal

wor kf or ce t o decl i ne t hr ough at t r i t i on. Thi s, i t argues, has

evi scerat ed t he company s operat i onal knowl edge base, l eadi ng t o

shoddy and possi bl y unsaf e work, i ncr easi ng oper at i ng cost s, and

creat i ng t he pot ent i al f or gr af t i n r el at i ons wi t h cont r act or s.

I t poi nt s out t hat For t i s has expr essed i t s i nt ent i on t o al l ow

Cent r al Hudson t o oper ate as a st andal one ent i t y, does not have

a pol i cy regar di ng t he out sour ci ng of wor k, and has no pl ans t o

encour age or di scour age r educt i ons i n non- management empl oyees.

Thi s, t he uni on ar gues, suggest s t hat Cent r al Hudson s cur r ent

pr act i ces concer ni ng t he use of out si de cont r act or s ar e l i kel y

t o per si st . I t cont ends t hat unl ess t he J oi nt Pr oposal i s

modi f i ed t o i ncl ude pr ovi si ons t hat wi l l cur t ai l t he cont i nued

escal at i ng use of t hi r d par t y cont r act or s and di mi ni shi ng

i nt er nal company l abor , i t shoul d be r ej ect ed. 23

Pet i t i oner s r espond t hat I BEW Local 320 has f ai l ed t o

suppl y any f act ual suppor t f or i t s cl ai ms and t hat t hey ar e

unj ust i f i ed. Pet i t i oner s say al l of t he i nci dent s t he uni on

ci t es as exampl es of i mpr oper workmanshi p r esul t i ng f r om t he use

of out si de cont r actors have been unr el ated t o each other and

have been f ul l y anal yzed i n consul t at i on wi t h St af f . The

uni on s cont ent i ons t hat a decl i ni ng i nt er nal wor kf or ce wi l l

l ead t o poor er servi ce or hi gher cost s are vague and

specul at i ve, Pet i t i oner s say, and f ai l t o t ake i nt o account

product i vi t y i mprovement s and t echnol ogy enhancement s whi ch t end

t o r equi r e l ess l abor but r educe cost s and i mpr ove r el i abi l i t y.

Most f undament al l y, Pet i t i oner s ar gue, Local 320 s demand f or

23 I BEW I ni t i al Comment s, p. 6.


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CASE 12- M- 0192

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t he i ncl usi on i n t he J oi nt Pr oposal of r ul es concer ni ng t he use

of out si de cont r act or s and t he si ze of t he i nt er nal wor kf or ce

amount s t o an at t empt t o obt ai n j ob advant ages f or uni on

empl oyees t hat shoul d be consi der ed, i f at al l , i n t he cont ext

of col l ect i ve bar gai ni ng.

St af f , si mi l ar l y, ar gues t hat t he uni on s cl ai ms ar e

specul at i ve and l ack f act ual suppor t . I t not es t hat not hi ng i n

t he record of t hi s case or i n the recent management audi t of

Cent r al Hudson suggest s t hat t he use of out si de cont r act or s has

had a det r i ment al ef f ect on ser vi ce or r el i abi l i t y. I n f act,

St af f not es, t he audi t f ound t hat Cent r al Hudson per f orms some

wor k i n- house t hat i s cust omar i l y out sour ced by ot her ut i l i t i es,

and r ecommended t hat t he company i mpl ement a wor k management

syst em cover i ng bot h out si de cont r act or s and t he i nt er nal

wor kf or ce, whi ch Cent r al Hudson i s doi ng. Cl ai ms of i ncr eased

cost s, St af f says, have no basi s i n t he r ecor d, and war ni ngs

about pot ent i al gr af t ar e der i ved f r om i nci dent s at a much

l ar ger and di f f er ent ut i l i t y and ar e pur el y specul at i ve wi t h

r espect t o Cent r al Hudson. The l egi t i mat e concer ns of I BEW

Local 320 have been r easonabl y addr essed i n t he J oi nt Proposal ,

St af f cont ends, t hr ough pr ovi si ons r equi r i ng adher ence t o t he

cur r ent col l ect i ve bar gai ni ng agr eement , mai nt enance of const ant

st af f i ng l evel s f or t he next t wo year s, r egul ar r epor t i ng of

recommended decision: fortis application for acquisition of ch energy/central hudson

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