PRELIMINARY STATEMENT OF BLOSSOM A. PERETZ, RATEPAYER ADVOCATE
Presented by Gregory Eisenstark, Deputy Ratepayer Advocate
June 22, 2000

 Good morning. I'd like to thank the Board for giving the Ratepayer Advocate the opportunity to comment on this matter here today. I will be making preliminary comments on the status of the Ratepayer Advocate's review of Atlantic Electric's proposed sale of certain of its non-nuclear generating plants. Specifically, Atlantic has entered into agreements to sell its ownership interests in the B.L. England, Deepwater, Conemaugh, and Keystone facilities to NRG Energy, Inc. The plants are being sold as a package that includes plants owned by Delmarva Power & Light, another Conectiv affiliate.

At the outset, while we are pleased to be able to appear and comment today, we note our objection to the fact that the Board has apparently determined to not conduct any evidentiary hearings in this case, particularly since none of the issues pertaining to the sale of Atlantic's generating plants were addressed in the evidentiary hearings in the Atlantic stranded costs and rate unbundling cases. In fact, Atlantic did not announce any intent to divest its fossil fuel plants until after the evidentiary record was closed in those cases.

Nonetheless, there has been more than ample time since Atlantic's divestiture announcement for the Board to conduct evidentiary hearings in this matter. Instead, the Board has chosen to pursue today's "legislative-type" public hearing format. We believe that given the magnitude of the dollars involved in the sale of the Company's generating facilities, as well as the long-term impact that the Board's decisions here will have on the stranded costs that Atlantic's customers will have to pay through rates, evidentiary hearings should be conducted. Only through the submission of comprehensive written testimony, exhibits, and cross-examination of other parties' witnesses, can a comprehensive evidentiary record be developed in complex matters such as this. Moreover, because this proceeding will likely have a direct impact on customers' stranded cost payments under the Electric Discount and Energy Competition Act, we believe evidentiary hearings are required by law. We also note that the Board has not yet issued its Final Order in the Atlantic stranded cost and unbundling case. We believe it is improper to consider the fossil sale petition until that order, which would establish the parameters directly related to this proposed sale, is issued.

I will now turn to some of the broad issues in this case. Again, I must emphasize that the Ratepayer Advocate has not completed its review of this matter. In fact, we still have not received all of the documents we have requested from Atlantic in discovery. Last month we filed a motion asking the Board to compel Atlantic to provide certain documents. We just received some of these documents during the last few days, and some still appear to have relevant data that has been redacted. We also have additional discovery requests that are outstanding. Therefore, these comments are necessarily preliminary in nature. The Ratepayer Advocate will file more detailed written comments by the deadline the Board has established. I must also note that, if our outstanding discovery requests are not received almost immediately, we will be forced to request an extension of time to file our written initial and reply comments.

Some of the issues the Ratepayer Advocate is reviewing in this care are:

• Whether Atlantic complied with the Board's auction standards;
• The extent to which the sales price reflects a true market value for the assets being sold;
• Market power to be vested in NRG after they acquire the Conectiv assets;
• The negotiated requirement that the units being sold must be eligible facilities and obtain EWG status;
• Perhaps the biggest issue is the allocation of the sales proceeds between the Atlantic-owned plants and the Delmarva-owned plants. In short, Atlantic's New Jersey customers would not receive an appropriate share of the total Conectiv proceeds from the non-nuclear divestiture to NRG under the Company's proposed allocation. Moreover, because the allocation of proceeds to New Jersey was done (according to Atlantic) solely by the purchaser -- NRG -- administratively, on an after-the-fact basis, it clearly does not represent any true market-based valuation of the Company's New Jersey plants. As such, the Board need not accept Atlantic's proposed administrative allocation of divestiture proceeds to New Jersey. In addition, it appears that Atlantic rejected the higher of the two "final" bids -- one that would have been much more favorable to the Company's New Jersey customers. Based on a preliminary review of the bid documents and other discovery responses, the artificially low allocation of the sales price to the New Jersey plants proposed by Atlantic would increase its customers stranded cost liability by between $78 million and $160 million.
• Another negative for New Jersey ratepayers from the proposed sale is that Conectiv negotiated a below-market price parting contract with NRG -- but only for its Delmarva customers. So, while Atlantic's customers are stuck with a smaller allocation of the sale proceeds and higher stranded cost charges, the Company's customers in other states would also receive the benefit of a low-cost parting contract, for provision of basic generation service ("BGS"). This is the very height of insult to Atlantic's New Jersey customers -- since the Board is well aware of the recent problems concerning Atlantic's failure to adequately plan and procure power for its basic generation serving customers for this year's summer peak months. While Conectiv was failing to comply with the Board's Summary Order for the provision of BGS for its New Jersey customers, it was negotiating a parting contract with NRG solely for its Delmarva customers.
• Atlantic's request that the Board find that the Company may recover the Eligible Stranded Costs associated with the asset sale. Based on our preliminary review of the Company's discovery responses, Atlantic has admitted that the sales price that it negotiated is below the market value that Atlantic claimed existed for these same ownership interests during the stranded cost proceedings. This difference would produce an increase in stranded costs, which Atlantic requests be fully recovered from its customers. It is the Ratepayer Advocate's position that Atlantic's customers should not be burdened with increased stranded costs because of Atlantic's acceptance of the NRG bid, including the improper allocation of sales proceeds and the below-market parting contract solely for Delmarva. The Board should not take lightly Conectiv's utter disregard for its New Jersey customers evinced by the structure of this proposed sale. Moreover, the Act requires utilities to attempt to mitigate stranded costs through means such as divestiture, not to increase stranded costs. If the Board approves the sale, it should adopt an appropriate ratemaking adjustment to ensure that Atlantic's customers receive the proper allocation of the proceeds from the proposed sale, and are not burdened with increased stranded costs.

In closing, I want to emphasize that the Board must ensure that New Jersey customers receive their fair share of the proceeds from the divestiture, and are not forced to pay higher stranded cost charges due to an off-balance, unfair administrative allocation done buy the purchaser of the plants or by an incorrect calculation of the net proceeds. Therefore, we propose the following recommendations to the Board:

• With regard to the proposed sale's affect on BGS costs, we recommend that the Board not approve the sale until mid-September at the earliest, after the summer peak. In addition, the Board should not approve this sale until Atlantic has filed, and received Board approval for, a comprehensive plan addressing its long-term procurement of power for its BGS customers.
• In addition, the Board should require Conectiv to procure a parting contract with NRG for its New Jersey customers under the same terms and pricing as the one it has negotiated for its Delmarva customers. If not, then a further adjustment to the allocation of the sales proceeds would be necessary.
• For ratemaking purposes, the Board must reject the allocation of the net proceeds proposed by Atlantic, and adopt an allocation that properly reflects the value of the Atlantic facilities being sold; or, in the alternative
• Reject the proposed sale in its entirety, and direct Atlantic to conduct another auction.

Thank you.

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