Divestiture of Connecticut Light and Power (CL&P) Company s Generation Assets

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1 Divestiture of Connecticut Light and Power (CL&P) Company s Generation Assets Cat Nguyen Connecticut Public Utilities Regulatory Authority August 26, 2015

2 Connecticut Legislature: All customers of electric distribution companies shall have the opportunity to purchase electric generation services from their choice of electric suppliers in a competitive generation market. 2

3 ELECTRIC COMPANIES The Connecticut Legislature: PUBLIC ACT Required each electric company to submit to the Department a plan to unbundle and separate all the company's generation assets; Required any nonnuclear generation asset that was not divested by 1/1/2000 to be transferred to a corporate affiliate, and prohibited the recovery of stranded costs for such assets; Required a public auction held in a commercially reasonable manner and conducted by a consultant unrelated to the company; and Allowed company s corporate affiliates to bid for any generation assets. 3

4 PUBLIC ACT DEPARTMENT OF PUBLIC UTILITY CONTROL The Connecticut Legislature: Required the Department to hold a hearing and issue a final order approving or modifying the unbundling plan; Directed the Department to approve a sale only if: (A) the sale price of an asset equaled or exceeded book; (B) the bidder met all applicable qualifications established by federal law and regulation; (C) the sale was conducted in accordance with the approved divestiture plan; (D) the bidder would preserve labor agreements in effect at the time of the sale; and (E) the sale would result in a net benefit to ratepayers. 4

5 PUBLIC ACT DEPARTMENT OF PUBLIC UTILITY CONTROL The Department was also required to: Establish a code of conduct that applied to electric distribution companies and their generation entities or affiliates and electric suppliers upon the completion of unbundling; Hold a hearing and issue a final order that unbundles prices or rates for electric generation services for each electric company from all other charges on customer bills; and Develop a comprehensive public education outreach program to educate customers about the implementation of retail competition among electric suppliers. 5

6 CODE OF CONDUCT The Code of Conduct shall: (1) Prevent regulated utility from subsidizing unregulated affiliates; (2) Ensure fair dealing between regulated utility and all electric suppliers; (3) Ensure nondiscriminatory access to the transmission and distribution facilities; (4) Prohibit joint marketing activities between regulated utility and generation affiliates. 6

7 DEPARTMENT DIRECTIVES Prior to the auction, the Department: Determined that power purchase agreements must be separately auctioned; Hired a consultant to conduct the auction; Approved a modified public auction; Approved a Code of Conduct for the auction; Ordered CL&P to establish Buy and Sell teams; Appointed staff to oversee the auction and established a firewall between appointed staff and all other Department staff; Rejected CL&P s proposed conditions of sale that: (1) successful bidder must contract with Northeast Utility s affiliate for generation support services; (2) successful bidder must be subject to a callback option; and (3) preference would be given to any bidder that agreed to purchase all assets. 7

8 AUCTIONED GENERATION ASSETS 15 Fossil and 14 Hydro = 3,822.1 MW FOSSIL Capacity (MW) Middletown Middletown ICU 19.2 Norwalk Harbor Norwalk ICU 17.0 Montville Montville ICU 5.5 Devon Devon ICU 19.2 Devon ICU South Meadow 62.5 South Meadow ICU Branford ICU 18.8 Torrington ICU 21.8 Franklin Drive ICU 18.3 Cos Cob 68.5 HYDRO Housatonic Hydro System Capacity (MW) Falls Village 11.0 Bulls Bridge 8.4 Rocky River 30.4 Shepaug 43.4 Stevenson 28.9 Bantam 0.3 Robertsville 0.6 Eastern Hydro System Tunnel 2.1 Tunnel ICU 20.8 Taftville 2.0 Scotland 2.2 Northfield Mountain System Northfield Mountain 1,120.0 Cabot 53.0 Turners Falls 6.3 8

9 ENVIRONMENTAL AND LAND USE ISSUES The State of Connecticut and affected towns were provided opportunities to purchase and negotiate recreational and environmental easements pertaining to land that would be sold with the generation assets. Candlewood Lake: Agreement to purchase land or to negotiate an environmental or public use easement; Land use: current uses to be maintained; Land sale: land added to state park; Conservation easement: easement to preserve the habitat for shore birds and coastal wildlife; access for educational purposes; Fish restoration efforts: continuation of fish restoration efforts. J.P. Morgan hired a nationally recognized environmental consulting firm to review and audit the environmental assessment reports produced by the CL&P. 9

10 THE AUCTION Department s Auction Agent (J.P. Morgan): Developed a strategy for the sale; Assisted in the production of marketing materials and various memoranda of understanding; Formulated and contacted potential interested parties; Coordinated management presentations, site visits and responses to bidders due diligence requests and questions; Evaluated bids; and Made recommendations in the selection of winning bidders. 10

11 AUCTION CONDUCT A procedural manual was issued to the bidder teams to: Require bidders to keep identities confidential at all times; Require bidders to use code names and issued cell phones; Prohibit bidders from revealing company s identity during site visits, including prohibition of use of first names, business cards, or clothing or personal items with company logos; and Require bidders to ask questions through a secured website created for auction. All meetings were accompanied by Department and J.P. Morgan staff. All third-party vendors were required to sign a confidentiality agreement. Bidder information was withheld from CL&P s Buy and Sell Teams until the point where final winners were evident. 11

12 THE AUCTION Assets were structured and packaged to maximize bidder interest and flexibility. 236 potential bidders were contacted. 82 potential bidders executed confidentiality agreements and were mailed materials and video presentations. 35 bidders submitted bids in Round 1 (non-binding bids). 13 bidders proceeded into Round 2. 12

13 AUCTION RESULTS Most successful auction of its kind anywhere in the nation. Results exceeded expectations: Expectations: Bids to enter Round 2: Results: Round 1 bid range: $955 million-$1.455 billion 7 above range Final bid: $80 million $1.326 billion Fossil plants sold for $460 million (5.3 times book value) Hydro plants sold for $866 million (6.9 times book value) The market has spoken. 13