June 3, 1993      UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 92-1165

            NORTHEAST UTILITIES SERVICE COMPANY, 

                         Petitioner,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.
                                         

No. 92-1261

        VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.
                                         

No. 92-1262

 MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.
                                         

No. 92-1263

TOWNS OF CONCORD, NORWOOD AND WELLESLEY, MASSACHUSETTS, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                          

No. 92-1264

               CENTRAL MAINE POWER CO., ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1316

         CITY OF HOLYOKE GAS &amp; ELECTRIC DEPARTMENT, 

                         Petitioner,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1328

               CANAL ELECTRIC COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1336

         THE AMERICAN PAPER INSTITUTE, INC., ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                        

No. 92-1340

                BOSTON EDISON COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1510

        VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                     

                         ERRATA SHEET

   The opinion of this court issued on May 19, 1993, is amended
as follows:

   On page 28,  line 12  from the bottom,  within block  quote:
change "single person with a  least 75-percent" to "single person
with at least 75-percent".  

   On  page 43,  line  3 from  the  bottom:   change  "born" to
"borne".

                UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 92-1165

            NORTHEAST UTILITIES SERVICE COMPANY, 

                         Petitioner,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.
                                         

No. 92-1261

        VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.
                                         

No. 92-1262

 MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.
                                         

No. 92-1263

TOWNS OF CONCORD, NORWOOD AND WELLESLEY, MASSACHUSETTS, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                          

No. 92-1264

               CENTRAL MAINE POWER CO., ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1316

         CITY OF HOLYOKE GAS &amp; ELECTRIC DEPARTMENT, 

                         Petitioner,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1328

               CANAL ELECTRIC COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1336

         THE AMERICAN PAPER INSTITUTE, INC., ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                        

No. 92-1340

                BOSTON EDISON COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1510

        VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

              PETITIONS FOR REVIEW OF ORDERS OF 
           THE FEDERAL ENERGY REGULATORY COMMISSION
                                         

                            Before
                   Torruella, Circuit Judge,
                                           
                Bownes, Senior Circuit Judge,
                                            
                  and Boudin, Circuit Judge.
                                           
                                         

   Gerald M.  Amero, with whom Catherine R. Connors and Pierce,
                                                               
Atwood,  Scribner,  Allen,  Smith   &amp;  Lancaster  and  Arthur  W.
                                                               
Adelberg, and Anne M. Pare, were on brief, for petitioner Central
                        
Maine Power Company.
   Harvey L. Reiter, with whom William I. Harkaway, Kathleen L.
                                                               
Mazure,  and McCarthy,  Sweeney &amp;  Harkaway, were  on  brief, for
                                         
petitioners Vermont Department of Public Service,  Vermont Public
Service  Board,  Rhode  Island  Attorney  General,  Rhode  Island
Division of Public Utilities and Carriers, Maine Public Utilities
Commission and Massachusetts Department of Public Utilities.
   George H.  Williams, Jr.,  with whom  Morley Caskin,  was on
                                                      
brief,  for  petitioners  Canal  Electric  Company,  Commonwealth
Electric Company and Cambridge Electric Light Company.
   J.A. Bouknight,  Jr., with  whom David B.  Raskin, David  L.
                                                               
Schwartz,  and  Newman &amp;  Holtzinger,  P.C., and  Robert  P. Wax,
                                                              
General  Counsel,   were  on  brief,   for  petitioner  Northeast
Utilities Service Company.
   Randolph Elliott,  with whom  William  S. Scherman,  General
                                                     
Counsel, Jerome M. Feit, Solicitor, Katherine Waldbauer, and Eric
                                                               
Christensen,  were   on  brief,  for  respondent  Federal  Energy
         
Regulatory Commission.
                                         

   Alan  J. Roth, Scott H. Strauss, William S. Huang, Spiegel &amp;
                                                               
McDiarmid, Nicholas J. Scobbo, Ferriter, Scobbo, Sikora, Caruso &amp;
                                                               
Rodophele,  Wallace  L. Duncan  and  Duncan,  Weinberg, Miller  &amp;
                                                               

Pembroke,  on  brief   for  petitioner  Massachusetts   Municipal
      
Wholesale Electric Company.
   Charles  F. Wheatley, Jr., Peter A. Goldsmith and Wheatley &amp;
                                                               
Ranquist, on brief for petitioners Towns of Concord, Norwood &amp; 
      
   David J. Bardin, Noreen M. Lavan, Eugene J. Meitgher, Steven
                                                               
R. Miles, and  Arent, Fox, Kintner, Plotkin &amp; Kahn,  on brief for
                                                
petitioner City of Holyoke Gas &amp; Electric Department.
   James T.  McManus, Michael E. Small, Wright &amp; Talisman, P.C.
                                                               
and Frederick S.  Samp, General Counsel, on  brief for petitioner
                    
Bangor Hydro-Electric Co.
   Steven  Halpern   on  brief  for   petitioner  Massachusetts
                  
Department of Public Utilities.
   Alan H.  Richardson on brief for  petitioner American Public
                      
Power Association.
   Mitchell Tennenbaum,  Senior Staff  Attorney,  on brief  for
                      
petitioner Maine Public Utilities Commission.
   Edward  G.  Bohlen,  Assistant Attorney  General,  and Scott
                                                               
Harshbarger,   Attorney   General,   on   brief   for  petitioner
         
Massachusetts Attorney General.
   Julio  Mazzoli,  Special  Assistant,  and  James  E. O'Neil,
                                                              
Attorney General,  on brief for petitioner  Rhode Island Division
of  Public  Utilities and  Carriers  and Rhode  Island  Office of
Attorney General.
   Robert F. Shapiro, Lynn N. Hargis and Chadbourne &amp; Parke, on
                                                           
brief for petitioner The American Paper Institute, Inc.
   Wayne  R.  Frigard on  brief  for  petitioner Boston  Edison
                     
Company.
   George  M. Knapp, Roger B. Wagner, David A. Fazzone, John F.
                                                               
Smitka,  and McDermott,  Will  &amp; Emery,  on brief  for petitioner
                                    
Montaup Electric Company.
   Robert S. Golden, Jr.,  Assistant Attorney General,  Richard
                                                               
Blumenthal, Attorney  General,  and Howard  E.  Shapiro,  Special
                                                     
Assistant  Attorney General, and  Van Ness, Feldman  &amp; Curtis, on
                                                           
brief  for intervenor  Connecticut  Department of  Public Utility
Control.
   Kenneth M. Simon, Larry F. Eisenstat, and Dickstein, Shapiro
                                                               
&amp; Morin, on brief for intervenor Masspower.
     
   Harold T.  Judd, Senior Assistant Attorney  General, John P.
                                                               
Arnold, Attorney  General,  Glen L.  Ortman,  John S.  Moot,  and
                                                         
Verner, Liipfert, Bernhard, McPherson  and Hand, Chrtd., on brief
                                                     
for  intervenors The  State of  New Hampshire  and New  Hampshire
Public Utilities Commission.
   Kenneth  D. Brown  on  brief for  intervenor Public  Service
                    
Electric and Gas Company.
   Edward  Berlin, Kenneth  G.  Jaffee, Martin  W. Gitlin,  and
                                                         
Swidler  &amp; Berlin, and Cynthia A. Arcate, on brief for intervenor
                                      
New England Power Company.
                                         

                         May 19, 1993
                                         

          BOWNES, Senior Circuit Judge.   These petitions for
          BOWNES, Senior Circuit Judge.
                                      

review  challenge the Federal  Energy Regulatory Commission's

("FERC"  or  "the   Commission")  decision  to  conditionally

approve  the merger  of  Northeast Utilities  ("NU") and  the

Public Service  Company of  New Hampshire ("PSNH").   Certain

joint petitioners  and intervenors1  contend that  FERC erred

when it:  (1) held that the benefits of the merger outweighed

its costs; and  (2) failed  to condition the  merger on  NU's

waiver  of  single  participant  status ("SPS")  in  the  New

England Power Pool ("NEPOOL").  A group of public and private

electric  utilities,  state   commissions,  state   agencies,

independent  power producers,  cogenerators and  electric end

users2  claim that  FERC  erred when  it:   (1)  allowed  the

consummation of  the merger upon  the filing of,  rather than

upon   approval  of,   a  transmission   tariff;  (2) adopted

                    

1   Joint petitioners and intervenors include:  Central Maine
Power  Company; Boston Edison  Company; Bangor Hydro-Electric
Company;  the  Towns  of  Concord,  Norwood  and   Wellesley,
Massachusetts;    Maine    Public    Utilities    Commission;
Massachusetts   Department   of  Public   Utilities;  Vermont
Department of Public  Service; Vermont Public Service  Board;
Rhode  Island Attorney  General;  Rhode  Island  Division  of
Public  Utilities  and   Carriers;  Massachusetts   Municipal
Wholesale  Electric  Company;  and,  City of  Holyoke  Gas  &amp;
Electric Department.

2    This group  of petitioners and  intervenors includes the
joint petitioners and intervenors  listed in n.1, supra (with
                                                       
the  exception of  Central Maine  Power Company),  and:   The
American  Paper  Institute,   Inc.;  American  Public   Power
Association;  Canal  Electric Company;  Commonwealth Electric
Company;  Cambridge  Electric  Light  Company;  Massachusetts
Attorney General; and, Montaup Electric Company.

                             -6-

transmission   access  conditions  that  gave  "native  load"

customers  a priority over  other customers; and (3) endorsed

"opportunity  cost" pricing  principles.   The Holyoke  Gas &amp;

Electric Department ("Holyoke")  argues that FERC  erred when

it  failed  to:   (1) conduct  an  appropriate review  of the

environmental impact  of the  proposed merger; and,  (2) make

findings    regarding    allegations    of    anticompetitive

consequences  of  the merger  that  were  unique to  Holyoke.

Finally,  Northeast  Utilities   Service  Company   ("NUSCO")

asserts that FERC's orders  changing the terms of  three rate

schedules  filed in  conjunction with its  merger application

were arbitrary, capricious, and an abuse of discretion.

          For   the   reasons   which   follow,   we   reject

petitioners' arguments and affirm the  Commission's decisions

with the exception of the Commission's decision to change the

terms  of the  Seabrook Power  Contract which  we  remand for

consideration under the "public interest" standard.

I.   BACKGROUND.

     A.   Parties to the Approved Merger.

          Northeast  Utilities ("NU") is a registered holding

company under the Public Utility Holding Company  Act of 1935

(PUHCA).  15 U.S.C.   79 et seq. (1988).  Northeast Utilities
                                

Service Company ("NUSCO") is  a service company subsidiary of

                             -7-

NU   and  supplies  centralized  administrative  and  support

services to NU's operating companies.3

          Prior to the merger,  Public Service Company of New

Hampshire ("PSNH")  was the  largest electric utility  in New

Hampshire, supplying  electric service to some 375,000 retail

customers,  approximately  three-quarters   of  the   State's

population, in every county in the State.  PSNH also provided

wholesale service to the New  Hampshire Electric Cooperative,

three  New Hampshire  municipalities, and  one investor-owned

utility,  Vermont  Electric  Power  Company.   PSNH  had  the

largest  ownership  share,  approximately  35.6  percent,  of

Seabrook Unit  No. 1, a nuclear  generating facility declared

to be available for service on June 30, 1990.

     B.   The Merger Proposal.

          On  January  28,  1988,  PSNH   filed  a  voluntary

petition  in  the  United  States Bankruptcy  Court  for  the

District of New Hampshire for reorganization under Chapter 11

of  the Bankruptcy Code.   11 U.S.C.    1101 et  seq. (1988).
                                                     

PSNH  alleged that it was unable to  recover in its rates the

outlays  it had made in the construction and operation of the

Seabrook  nuclear power  plant.   On  April  20, 1990,  after

                    

3    NU's operating companies are Connecticut Light and Power
Company  (CL&amp;P),  Western  Massachusetts   Electric  Company,
Holyoke  Water  Power  Company (HWP)  and  HWP's wholly-owned
subsidiary, Holyoke Power and Electric Company (HP&amp;E).  These
companies are wholly-owned subsidiaries  of NU and are public
utilities supplying retail and wholesale electric service  in
Connecticut and Massachusetts.

                             -8-

sifting through several  competing reorganization plans,  the

bankruptcy court  approved NU's  proposal to merge  with PSNH

and to  acquire and operate  all of PSNH's  power facilities.

See In re Public Service Co. of New Hampshire, 963  F.2d 469,
                                             

470 (1st Cir.), cert.  denied, Rochman v. Northeast Utilities
                                                             

Service Co., 113 S. Ct. 304 (1992).
           

          NU's proposal contained a two-step process:  first,

PSNH would  emerge from  bankruptcy as a  stand-alone company

bound  to a merger agreement  with NU; second,  PSNH would be

merged  with   an  NU  subsidiary  created   solely  for  the

acquisition (NU Acquisition Corporation), with  PSNH emerging

as  the surviving entity.  After  the merger, PSNH would be a

wholly-owned  subsidiary   of  NU  and  would   transfer  its

ownership  interest   in  Seabrook  to  a   newly  formed  NU

subsidiary,   North   Atlantic  Energy   Corporation  ("North

Atlantic").    The second  step  would occur  only  after all

necessary  approvals   were   received  from   the   relevant

regulatory agencies.

     C.   Procedural History.

          On January 8, 1990, NUSCO, on behalf of NU and NU's

operating subsidiaries, filed an  application with FERC under

section 203 of  the Federal  Power Act ("FPA"),  16 U.S.C.   

824b (1988), seeking authorization for PSNH to dispose of all

of its  jurisdictional facilities and  concurrently to  merge

with, and become  a subsidiary  of, NU.   In connection  with

                             -9-

this application,  NUSCO filed four rate  schedules with FERC

pursuant to    205 of the FPA:  the Seabrook Power Contract,4

the   Sharing  Agreement5   and   two  Capacity   Interchange

Agreements.6

          The  Commission  consolidated consideration  of the

merger  application and  rate  schedules,  accepted the  rate

schedules for  filing and suspended their  effectiveness, and

set for  hearings before an administrative  law judge ("ALJ")

the questions  of whether the  Commission should grant  the  

203  application  and  approve   the  rate  schedules.    See
                                                             

Northeast Utilities Service Co.,  50 F.E.R.C.   61,266, reh'g
                                                             

granted  in part  and denied  in part,  51 F.E.R.C.    61,177
                                     

(1990).  In its order, the Commission directed the parties to

                    

4  The  Seabrook Power Contract  is a life-of-the-unit  power
sales agreement between PSNH  and North Atlantic entered into
concurrently with  NU's acquisition of PSNH  and the transfer
of PSNH's share  of Seabrook  to North Atlantic.   Under  the
contract, PSNH  agreed  to purchase  North Atlantic's  entire
share of Seabrook capacity and  energy, according to a  cost-
of-service formula rate.  The contract was intended to ensure
that  North Atlantic would recover all of its costs from PSNH
regardless of whether or not Seabrook actually operated.

5   The Sharing Agreement allocates the benefits and obliga-
tions from the  integrated operation of PSNH and  the current
NU  system, as well as  the joint planning  and operations of
these  systems.   This  agreement established  a formula  for
sharing the  expected post-merger benefits that  would accrue
to NU and PSNH  operating companies as a result  of operating
efficiencies  and  the  ability  to take  single  participant
status under the NEPOOL agreement.

6   The  two Capacity Interchange Agreements provide  for the
sale  and purchase  of  energy between  PSNH and  Connecticut
Light &amp; Power Company (CL&amp;P) over a ten-year term.

                             -10-

address  the  effect of  the proposed  merger on  NU's market

power and "whether any transmission conditions  are necessary

to eliminate any  adverse effect of the  proposed merger and,

if  so,  what specific  conditions  should be  imposed."   50

F.E.R.C. at 61,834-35.

          On December  20, 1990,  the ALJ issued  its Initial

Decision  approving  the     203  application  and  the  rate

schedules   with   certain   modifications  and   conditions.

Northeast Utilities Service Co., 53 F.E.R.C.   63,020 (1990).
                               

The Commission, in Opinion No. 364, issued on August 9, 1991,

affirmed in  part and  reversed in part  the ALJ's  decision,

conditionally approving  the    203 application and  the rate

schedules.   Northeast Utilities  Service Co., 56  F.E.R.C.  
                                             

61,269  (1991).    On  January 29,  1992,  after  considering

additional  filings  by  the  parties and  oral  argument  on

transmission  pricing issues,  the Commission  issued Opinion

No. 364-A,  affirming its  conditional approval of  the   203

application  and rate schedules.  Northeast Utilities Service
                                                             

Co., 58 F.E.R.C.   61,070 (1992).
   

          Petitions for review of  Opinions No. 364 and 364-A

were  filed in  this court  and in  the District  of Columbia

Circuit  Court.     The  Judicial   Panel  on   Multidistrict

Litigation  consolidated these petitions  for review  in this

court, where  further petitions for  review were  filed.   28

U.S.C.   2112(a) (1988).  Subsequently, in Opinion No. 364-B,

                             -11-

the Commission denied a request for  rehearing of Opinion No.

364-A.  Northeast Utilities Service Co., 59 F.E.R.C.   61,042
                                       

(1992).  A petition for review of Opinions No. 364-A and 364-

B was filed in this court, where it was consolidated with the

earlier filed  petitions.  We review  the Commission's orders

under the jurisdiction established by 16 U.S.C.   825l.

II.  STANDARD OF REVIEW.

          On  review,   we  give   great  deference  to   the

Commission's decision.   U.S. Dep't of Interior  v. FERC, 952
                                                        

F.2d 538, 543  (D.C. Cir. 1992).  FERC's findings of fact are

reviewed under the "substantial evidence" standard of review.

16 U.S.C.   825l  ("The finding of  the Commission as to  the

facts,  if  supported  by  substantial  evidence,  shall   be

conclusive.").  Therefore,

          [w]e  defer  to  the agency's  expertise,
          particularly where the statute prescribes
          few specific standards  for the agency to
          follow,  so  long  as  its   decision  is
          supported  by  "substantial evidence"  in
          the  record  and  reached   by  "reasoned
          decisionmaking," including an examination
          of  the  relevant  data  and  a  reasoned
          explanation   supported   by   a   stated
          connection  between  the facts  found and
          the choice made.

Electricity  Consumers  Resource Council  v.  FERC, 747  F.2d
                                                  

1511,  1513 (D.C. Cir. 1984).  "Pure" legal errors require no

deference  to agency  expertise,  and are  reviewed de  novo.
                                                            

Questions involving an interpretation of the FPA involve a de
                                                             

novo determination  by the court of  Congressional intent; if
    

                             -12-

that  intent is  ambiguous,  FERC's conclusion  will only  be

rejected if  it  is unreasonable.    Chevron USA  v.  Natural
                                                             

Resources  Defense  Council,  467  U.S.  837,  842-45 (1984);
                           

Boston Edison Co. v. FERC, 856 F.2d 361, 363 (1st Cir. 1988).
                         

III. DISCUSSION.

     A.   Conditional Approval of the Merger.

          1.   Background.
                         

          In reaching  his  decision to  approve the  NU-PSNH

merger,  the   ALJ  found  that  the   merger  would  produce

significant benefits.  Specifically, he found that:  (1) PSNH

would emerge from bankruptcy  as a viable utility on  a solid

financial  footing,  53  F.E.R.C.  at  65,211;  (2)  improved

management techniques and economies of scale would reduce the

operating costs  of Seabrook by  some $527  million,7 id.  at
                                                         

65,212; (3) application of NU operating procedures  to PSNH's

fossil steam plants would save  $100 million, id. at  65,213;
                                                 

(4) reductions in  administrative and general  expenses would

save  $124  million, id.;  (5) NU's  record of  buying lower-
                        

priced coal on the  spot market would save $39  million, id.;
                                                            

and (6) the merger would yield $360 million in savings for NU

because of  its ability to elect  "single participant status"

                    

7   This, and all other dollar amounts are net present values
unless otherwise noted.

                             -13-

in  the  New  England  Power  Pool  (NEPOOL),  a  power  pool

comprised of most of the utilities in New England.  Id.
                                                       

          The ALJ  also found that  unless several conditions

were  imposed, the  merger  would have  short- and  long-term

anticompetitive consequences because of the  merged company's

increased market  power over  key transmission  facilities in

both  the New England region and the Rhode Island and Eastern

Massachusetts submarket ("Eastern  REMVEC").  53 F.E.R.C.  at

65,214-19.   Under the  authority of   203(b)  of the FPA, 16

U.S.C.    824b(b), the  ALJ  approved the  merger subject  to

several conditions, including the  following:  (1) the merged

company  must  offer  firm  (non-interruptible)  transmission

service  for a minimum of 30 days  and a maximum of 20 years,

53  F.E.R.C.  at  65,220-21;  (2) non-firm  service  must  be

offered  for a one-day minimum  term, id. at  65,220; (3) the
                                         

merger would be consummated concurrently with the filing of a

compliance tariff which fully reflects  all of the terms  and

conditions set  out in  the ALJ's  Initial  Decision, id.  at
                                                         

65,221;  (4) NU  must  implement its  New Hampshire  Corridor

Proposal,8 thereby  making available  400 MW  of transmission

                    

8   The  New Hampshire Corridor Transmission  Proposal allows
New  England  utilities  to purchase  long-term  transmission
rights from NU-PSNH in order to connect with power sources in
northern New England and Canada.  See 53 F.E.R.C. at 65,225.
                                     

                             -14-

capacity  for wheeling9  by  utilities in  both northern  and

southern New  England, id.  at 65,225-27; and  (5) the merged
                          

company's veto  power on NEPOOL's  Management Committee would

be restricted for the ninety day period immediately following

consummation of the merger, id. at 65,230-31.
                               

          In  Opinion No.  364, the  Commission affirmed  the

ALJ's finding  that the merger, with  appropriate conditions,

was consistent  with  the public  interest.   56 F.E.R.C.  at

62,011.  It held,  however, that the $364 million  cost-shift

between NU-PSNH and other NEPOOL members should not have been

counted  as a benefit of the merger because it simply shifted

costs dollar-for-dollar  among the membership without any net

savings.10    56 F.E.R.C.  at  61,997.   The  Commission also

held  that,  in evaluating  the  costs  and benefits  of  the

merger, the ALJ  correctly attributed the benefits  resulting

from  the merger to the  merger even if  those benefits could

have been  achieved  by other  means.11   Id.  at  61,994-96.
                                             

This conclusion  was reiterated  on rehearing in  Opinion No.

364-A.  58 F.E.R.C. at 61,186-87.

                    

9   "Wheeling" is defined as the "transfer by direct trans-
mission or displacement [of]  electric power from one utility
to another  over the facilities of  an intermediate utility."
Otter Tail Power Co. v. U.S., 410 U.S. 366, 368 (1973).
                            

10   This issue is discussed in Part III(B), infra.
                                                  

11   This issue is discussed in Part III(A)(3), infra.
                                                     

                             -15-

          Petitioners  and intervenors argue that FERC erred,

as  a matter  of law,  in holding  that  the benefits  of the

merger outweighed its costs.

                             -16-

          2.   The Statutory Standard.
                                     

          FERC's   authority   to    consider   the    merger

applications of utilities  is set  forth in    203(a) of  the

FPA, 16  U.S.C.   824b(a):  the Commission  "shall approve" a

proposed merger of utility facilities if, "[a]fter notice and

opportunity  for hearing, . . . the Commission finds that the

proposed disposition, consolidation, acquisition,  or control

will  be  consistent with  the public  interest."   Id.   The
                                                       

Commission has the additional authority to grant approval for

such transactions "upon such terms and conditions as it finds

necessary   or  appropriate  to  secure  the  maintenance  of

adequate service and the  coordination in the public interest

of facilities subject to the jurisdiction of the Commission."

16 U.S.C.     824b(b).    As the  Commission  noted  when  it

reviewed the Initial Decision of the ALJ,

          [m]erger  applicants need not show that a
          positive  benefit  will  result   from  a
          proposed  merger.    The  applicant  must
          fully  disclose  all  material facts  and
          show  affirmatively  that  the merger  is
          consistent with the public interest.   It
          is  sufficient  if  the "probable  merger
          benefits  . . .  add up  to substantially
          more than the costs of the merger."

56 F.E.R.C. at  61,994 (quoting  Utah Power &amp;  Light Co.,  47
                                                        

F.E.R.C.  at  61,750  (1989)  (footnotes omitted);  see  also
                                                             

Pacific Power  &amp; Light Co.  v. Federal Power  Commission, 111
                                                        

F.2d  1014,  1016 (9th  Cir. 1940).    We review  the record,

therefore, to determine whether the Commission's finding that

                             -17-

the   probable   benefits   of   the  NU-PSNH   merger   were

substantially  more   than   its  costs   was  supported   by

substantial evidence.

          3.   Discussion.
                         

          Petitioners make two claims  with regard to  FERC's

evaluation  of the costs and benefits  of the NU-PSNH merger.

First,  they  argue  that  the  Commission  should  not  have

included resolution of PSNH's bankruptcy as a  benefit of the

merger because:  (1) PSNH actually emerged from bankruptcy on

May 16, 1991, the  effective date of the  Reorganization Plan

("RP");  and  (2) prior  to  gaining  the bankruptcy  court's

approval  of the two-step RP, PSNH  had to show that it would

be  financially  viable  as   a  stand-alone  entity  because

regulatory approval  for the  second step  of the  RP (merger

with and into NU) was not assured.  These two facts, however,

do not  imply that  it was  error for  FERC  to consider  the

"resolution of PSNH's bankruptcy" as  a benefit, indeed as  a

principal benefit, of the merger.  

          It  is  true  that  PSNH, as  a  technical  matter,

"emerged" from  bankruptcy prior  to FERC's  consideration of

the proposed merger.  The ALJ and the Commission did not hold

otherwise.   The  ALJ  stated, and  the Commission  summarily

affirmed the fact that "[t]he merger is part of  a plan which
                                                       

enables a  reorganized PSNH to  emerge from bankruptcy."   53

F.E.R.C. at 65,211  (emphasis added); see also 56 F.E.R.C. at
                                              

                             -18-

61,993.  Like the state regulators  who approved the two-step

merger  plan, the Commission  evaluated the plan  as a whole,

anticipating  "the merger   not  `stand alone' PSNH    as the

ultimate destiny  for the reorganized company."   53 F.E.R.C.

at 65,211.   "All parties to  the reorganization contemplated

[stand  alone]  status as  an interim  step  en route  to the

merger."  Id.   It was the entire  plan, which admittedly had
             

two  sequential and  severable  steps, that  allowed PSNH  to

emerge  from bankruptcy.  There is no evidence that the state

regulators would have approved a plan to allow PSNH to emerge

from bankruptcy  that included  only the first  "stand alone"

step.  Indeed, there is evidence to the contrary.

          FERC  also found that "resolving" PSNH's bankruptcy

meant  more  than  simply  the emergence  of  PSNH  from  the

protection of  bankruptcy court.   FERC held  that the  final

resolution of PSNH's bankruptcy included the treatment of its

creditors and  stockholders who stood  to lose  approximately

$250 million  in  the absence  of  the merger.    As the  ALJ

observed, the Commission "regard[s] the right of these public

bondholders as of primary importance after the consumers have

been protected."  53 F.E.R.C. at 65,211 (quoting In re Evans,
                                                            

1 F.P.C. 511, 517  (1937) (approving an acquisition involving

the reorganization  of a bankrupt utility)).   The Commission

also held that it was  in the public interest to  approve the

creation  of a  stronger, more  viable merged  entity, rather

                             -19-

than leaving PSNH in a "weakened", "stand alone" state.  This

holding was sufficiently supported by evidence in the record.

          Petitioners also  claim that, given  the bankruptcy

court's   "feasibility   finding"  required   by   11  U.S.C.

  1129(a)(11),12  the Commission  was estopped  from reaching

the  conclusion that a "stand  alone" PSNH would  be "weak." 

We disagree.   The  bankruptcy court  and FERC evaluated  the

merger proposal under  different standards.   The  bankruptcy

court  was required  to determine  the likelihood  of further

liquidation or reorganization proceedings were the plan to be

approved.  FERC was obliged to determine whether the plan was

"consistent  with   the  public   interest."    It   was  not

inconsistent for FERC to find that although PSNH was  capable

of  surviving  as  a stand  alone  entity,  it  would not  be

"consistent  with the  public interest"  to prevent  a merger

that  would  result   in  an  even  stronger  utility.    The

principles of estoppel simply do not apply  in a case such as

this, where the issues litigated and the standards applied in

the two proceedings are so different. 

                    

12   The Bankruptcy Code provides that:
     (a)   The   court   shall  confirm   a   plan   [of
     reorganization]  only  if   all  of  the  following
     requirements are met:
     (11) confirmation  of the plan is not  likely to be
     followed  by  the  liquidation,  or  the  need  for
     further financial reorganization, of the  debtor or
     any successor to the  debtor under the plan, unless
     such liquidation  or reorganization is  proposed in
     the plan.
  11 U.S.C.   1129(a)(11).

                             -20-

          Even were petitioners correct in their asseveration

that  FERC  improperly  counted  the  resolution   of  PSNH's

bankruptcy  as a  benefit  of the  merger, "the  Commission's

error would be immaterial in light of the overwhelming excess

of other  benefits ($791  million) over  the costs  (0) still

attributable . . . to the acquisition."   City of Holyoke Gas
                                                             

&amp; Elec. Dep't v. S.E.C., 972 F.2d 358, 362 (D.C. Cir. 1992).
                       

          Second,  petitioners  argue that  FERC  erred  as a

matter  of law  in  weighing as  merger  benefits results  or

alleged  savings   that  were,  or  could   be,  achieved  by

"alternate  means."   Specifically, petitioners  contend that

FERC's   failure  to   apply  the   "alternate   means"  test

contradicted  general agency  policy  and  general  antitrust

principles. 

          It is undisputed  that utilities  are "not  immune"

from antitrust laws.   Otter Tail Power Co. v. U.S., 410 U.S.
                                                   

366,  372-75 (1973); Town  of Concord  v. Boston  Edison, 915
                                                        

F.2d  17 (1st  Cir.  1990), cert.  denied,  111 S.  Ct.  1337
                                         

(1991).  At issue in this case is whether FERC is required by

statute,  or otherwise,  to  engage  in "standard"  antitrust

analysis before  passing on    203  merger applications.   In

claiming that  FERC has such an  obligation, petitioners rely

on a statute  governing agency approval of  bank mergers (the

                             -21-

"Bank  Merger  Act")  which   states  that  the  agency  with

jurisdiction over a proposed bank merger,13

          shall not approve  
             (A)  any  proposed merger  transaction
          which  would result  in  a  monopoly,  or
          which  would  be  in furtherance  of  any
          combination  or conspiracy  to monopolize
          or  to attempt to monopolize the business
          of  banking in  any  part  of the  United
          States, or
             (B)   any    other   proposed   merger
          transaction whose effect  in any  section
          of  the country  may be  substantially to
          lessen  competition, or to tend to create
          a monopoly, or which in any  other manner
          would be in restraint of trade, unless it
          finds that the anticompetitive effects of
          the  proposed   transaction  are  clearly
          outweighed in the public interest  by the
          probable  effects  of the  transaction in
          meeting the convenience  and needs of the
          community to be served. . . .
          (6)   The    responsible   agency   shall
          immediately  notify the  Attorney General
          of any  approval by  it pursuant  to this
          subsection    of   a    proposed   merger
          transaction.

12 U.S.C.   1828(c)(5)-(6).   The Supreme Court, interpreting

the Bank Merger Act, has held that before a bank merger which

is  injurious to  the  public interest  may  be approved,  "a

showing [must] be made that the gain expected from the merger

cannot  reasonably be expected through other means."  U.S. v.
                                                          

Phillipsburg Nat. Bank &amp; Trust Co., 399 U.S. 350, 372 (1970).
                                  

Petitioners claim that the language of the Bank Merger Act is

sufficiently similar to the statute governing FERC's approval

                    

13   Jurisdiction varies  depending on whether  the resulting
entity  is  a national  bank, a  state  member bank,  a state
nonmember bank, or a savings association.

                             -22-

of  proposed  mergers,  16  U.S.C.    824b(a),  because  both

contain  a "public interest" standard, to require FERC to use

the "alternate means" test which  bank regulators must use in

evaluating proposed bank mergers.  We disagree.

          As with  any matter  of statutory construction,  we

first examine the language  of the statute.  Under  16 U.S.C.

  824b(a),  the  Commission  is required,  after  notice  and

opportunity  for hearing,  to  approve a  proposed merger  of

utility  facilities if  it finds  that the proposal  "will be

consistent  with  the  public interest."    That  is all  the

statute  says.  There  is no explicit  reference to antitrust

policies or principles.   There is no  evidence that Congress

sought  to  have  the  Commission  serve  as  an  enforcer of

antitrust  policy  in  conjunction  with  the  Department  of

Justice and  the Federal Trade  Commission.  The  Bank Merger

Act  reveals a  quite different  intention.   There, Congress

explicitly  set out  standards for  approval of  bank mergers

that incorporate  principles  embodied  in  the  Sherman  and

Clayton  Acts.   12  U.S.C.   1828(c)(5).   By  requiring the

reviewing  agency  to  notify  the Attorney  General  of  any

decision  to approve  a  proposed bank  merger,  12 U.S.C.   

1828(c)(6),  Congress  expressed  its  desire  to  have  bank

regulators  serve as pre-screening  bodies of  mergers which,

because of their importance or character, in most  cases also

deserve the attention of the Department of Justice.

                             -23-

          The Bank  Merger Act  carries with it  the implicit

presumption that  mergers are  to be disapproved  (the agency

"shall not approve" a  bank merger "unless it finds  that the

anticompetitive  effects are clearly outweighed in the public

interest"  by   the  benefits   of  the  merger,   12  U.S.C.

  1828(c)(5)).   The  FPA,  on the  other hand,  requires the

Commission to approve any merger that is "consistent with the

public  interest."     16   U.S.C.     824b(a).     Antitrust

considerations   are,   of   course,   relevant   in   FERC's

consideration of  the "public interest"  in merger proposals.

The  statute,  however,  does  not require  FERC  to  analyze

proposed mergers under the same standards that the Department

of Justice or bank regulators must apply.

          Although  the  Commission  must  include  antitrust

considerations in its public interest calculus under the FPA,

it is not  bound to use antitrust principles when they may be

inconsistent  with the  Commission's  regulatory goals.   See
                                                             

Otter  Tail,   410  U.S.   at   373  ("[a]lthough   antitrust
           

considerations  may be  relevant [in  determining  the public

interest], they are not determinative").  In Town of Concord,
                                                            

this  court  observed  that indiscriminate  incorporation  of

antitrust policy into utility regulation  "could undercut the

very objectives  the antitrust  laws are designed  to serve."

915  F.2d  at  22.     Therefore,  "antitrust  analysis  must

sensitively `recognize and  reflect the distinctive  economic

                             -24-

and  legal  setting' of  the regulated  industry to  which it

applies."   Id. (quoting Watson &amp;  Brunner, Monopolization by
                                                             

Regulated   "Monopolies":     The   Search  for   Substantive
                                                             

Standards, 22 Antitrust Bull. 559, 565 (1977)).
         

          Petitioners  may  rest  assured that  were  FERC to

approve  a merger of utilities which ran afoul of Sherman Act

or other  antitrust policies, the utilities  would be subject

to either prosecution by government officials responsible for

policing the antitrust laws,  or to suit by private  citizens

meeting the requirements  of standing.   See Otter Tail,  410
                                                       

U.S. at 374-5.

     B.   FERC's  Failure to Condition  Merger on NU's Waiver
          of Single Participant Status.

          Petitioners  argue  that  the  Commission  erred in

failing to  condition the merger on waiver  by NU and PSNH of

"single participant status" ("SPS")  in the New England Power

Pool ("NEPOOL"), thereby preventing  the imposition of a $364

million cost shift  from NU and PSNH to  the other members of

NEPOOL.

          1.   Background.
                         

          NEPOOL is  a power  pool comprised  of most  of the

utilities in New England.  The association is governed by the

New England  Power  Pool Agreement  ("the  Agreement")  which

establishes a "comprehensive interconnection and coordination

arrangement" among  its members in order  "to achieve greater

                             -25-

reliability and economies in the  production of electricity."

Groton v.  FERC,  587  F.2d  1296,  1298  (D.C.  Cir.  1978).
               

Section  202(a)  of the  Federal  Power  Act encourages  such

voluntary  interconnection  and  coordination of  electricity

generating facilities in order to achieve economies of scale.

16  U.S.C.    824a; see  also 16  U.S.C.    824a-1 (regarding
                             

pooling  agreements).  The Agreement  was approved as a filed

rate  schedule  by  FERC's  predecessor,  the  Federal  Power

Commission.   53 F.E.R.C. at  65,213.  Under  its terms, each

member  is  required  to   supply  the  pool  with  resources

("Capacity Responsibility") according to a formula based upon

the  relationship of the member's peak load to an estimate of

aggregate peak load of all members.

          NU  experiences its  peak load  in the  summer, and

PSNH experiences its peak load in the winter.  By aggregating

these two,  complementary, peak loads, NU-PSNH  can achieve a

lower Capacity Responsibility than would  be the case if  the

two   utilities  remained  separate.    Because  the  overall

capacity requirements of NEPOOL  will not change as  a result

of the merger, the Capacity Responsibilities of other members

must rise to  make up  for the savings  accruing to  NU-PSNH.

The  ALJ  accepted  the  "undisputed" estimate  that  "single

participant status" (SPS)  will result in a  shifting of some

$360  million in costs from  NU-PSNH to other  members of the

pool.  Id.
          

                             -26-

                             -27-

          2.   Discussion.
                         

          Petitioners  offer six  arguments to  support their

claim that FERC erred  in failing to condition the  merger on

waiver of SPS by NU and PSNH.  First, petitioners  claim that

the Commission  did not  properly interpret the  provision of

the NEPOOL Agreement which  governs the election of SPS.   We

agree with  the Commission's finding that  the Agreement both

specifically allows for the election  by NU-PSNH of SPS,  and

encourages  such elections.    Section 3.1  of the  Agreement

provides in relevant part that:

          All  Entities which  are controlled  by a
          single person (such as a corporation or a
          common law business  trust) which owns at
          least seventy-five percent of  the voting
          shares   of   each  of   them   shall  be
                                               
          collectively   treated    as   a   single
          Participant   for    purposes   of   this
          Agreement, if they elect  such treatment.
          They are  encouraged to  do so.   Such an
                                        
          election shall  be  made by  signing  the
          appropriate   form  at   the  end   of  a
          counterpart of this Agreement.

(Emphasis  supplied.)    Both  the  ALJ  and  the  Commission

interpreted section 3.1 to be  an explicit endorsement of the

election of  SPS by NU-PSNH.   The  ALJ stated that  "[i]t is

undisputed  that  NU  and   PSNH  qualify  for  such  [single

participant]  status under  the Agreement."   53  F.E.R.C. at

65,213.  The Commission  gave great weight to the  unrebutted

testimony  of  witness  Bigelow,   who  participated  in  the

negotiation of  the NEPOOL Agreement regarding  the intent of

the  original  signatories   to  the   Agreement  and   their

                             -28-

recognition  of  such  potentially  large  cost-shifts  among

NEPOOL members.  Bigelow stated:

          [W]hen  we put  NEPOOL together  20 years
          ago,  we  recognized  that  these  things
          might happen.  This is not something that
          snuck  up  on people. . . .   And  we did
          discuss  at  length  what   would  happen
          because . . . we were then coming up to a
          potential   merger   of  Boston   Edison,
          Eastern Utilities, New England Power.  It
          was recognized that these kinds of things
          could happen in the future and we spelled
          out the ground rules and  recognized that
          that would  happen when it happened.  And
          the  people   who  didn't  like   it  got
          something else for it.

53  F.E.R.C.  at 65,214.   Both  the  ALJ and  the Commission

rejected petitioners' claim on the basis of both the language

of the Agreement, and Bigelow's unrebutted testimony that not

only  had the  signatories been  aware of such  a potentially

large  savings  shift, but  that  those  utilities that  were

dissatisfied  with this risk  received additional concessions

as  compensation.    We  will not  disturb  the  Commission's

findings.

          Second,  petitioners claim  that the  Agreement, as

interpreted in  NEPOOL Power Pool Agreement,  56 F.P.C. 1562,
                                           

1580 (1976), aff'd sub nom. Municipalities of Groton v. FERC,
                                                            

587 F.2d 1296 (D.C. Cir. 1978), prohibits utilities with peak

loads  in different  seasons  from  electing  SPS.    As  the

Commission  explained,  this  argument  mischaracterizes  the

Agreement and  the decision  of the Federal  Power Commission

("FPC") in NEPOOL.
                 

                             -29-

          The NEPOOL Agreement, as  initially filed
          and    as   approved,    allowed   single
          participant    status    for    utilities
          controlled by a single "person" owning at
          least 75 percent of the voting shares  of
          each utility.  An exception was expressly
          allowed  in the  filed agreement  for any
          Vermont  utility  which  elected   to  be
          grouped   with  Vermont   Electric  Power
          Company.  This exception was approved for
          essentially two reasons:  (1) the Vermont
          utilities  had  long  acted  as  a single
          contiguous  integrated  electric  entity;
          and (2) since  they all experienced their
          peak loads in winter,  single participant
          status would not give them a lower NEPOOL
          Capability Responsibility (and consequent
          savings).    A   broader  exception   was
          denied, however, for a group of municipal
          utilities (represented by MMWEC) that was
          not entitled to single participant status
          and  that lacked the two cited attributes
          of the  Vermont utilities.  The basis for
          the denial was that allowing  such status
          for "any group of systems, such as MMWEC,
          could   well   be   detrimental  to   the
          functioning of NEPOOL."
             The  NEPOOL  decision, thus,  does not
          stand  for  the  proposition that  single
          participant status is  available only  to
          utilities  having their peak loads in the
          same  season.    Instead,   another  way,
          indeed   the   primary   way,  in   which
          utilities  may qualify  is  if  they  are
          controlled  by a  single  person with  at
          least 75-percent common ownership.   That
          is the basis upon  which NU and PSNH will
          presumably seek to  qualify if the merger
          is  approved.   Such status  is expressly
          allowed   under   the  NEPOOL   Agreement
          regardless of when NU and PSNH experience
          their peak loads.

56 F.E.R.C. at 61,996-97.  The reasons  offered by the FPC in

its  decision  to  grant  a  special  exception  for  Vermont

utilities seeking SPS were  not intended to be, and  are not,

conditions, in  addition to those  set out in  the Agreement,

                             -30-

which must be satisfied to elect SPS.  The FPC did not narrow

the scope of Section  3.1 to apply only to  utilities sharing

the  same peak  load  season; rather,  it  created a  special

exception to the  75 percent rule  to accommodate the  unique

situation faced by Vermont utilities.

          Third, petitioners  claim that FERC failed  to give

proper consideration  to Section  4.2 of the  Agreement, "the

interests of  other  pool members,  and  the purpose  of  the

Agreement as  a whole."  Essentially,  petitioners argue that

allowing  NU-PSNH  to  elect  SPS  would  violate  a  general

provision  of the  Agreement, which states  that participants

"shall  not . . . take  advantage of  the provisions  of this

Agreement so  as to harm another Participant  or to prejudice

the  position  of any  Participant  in  the electric  utility

business."   We  reject  this argument  for the  same reasons

expressed   by  the  Commission   in  its   decision  denying

petitioners' request for a rehearing:

          [W]e  find more  relevance in  the NEPOOL
          Agreement's   explicit   endorsement   of
          single  participant  status  than in  the
          agreement's  general  goal of  "equitable
          sharing"   and  prohibition   on  members
          "taking  advantage"  of the  agreement to
          harm  or prejudice  other  members.   The
          NEPOOL Agreement  specifically encourages
          eligible    parties   to    seek   single
          participant status;  the provisions cited
          by  the  intervenors  are   general,  not
          specific.      Construing   the   general
          consistent  with  the  specific, we  find
          single participant status for  the merged
          company  consistent   with  an  equitable
          sharing,  as  envisioned  by  the  NEPOOL

                             -31-

          Agreement, and not  violative of the  ban
          on  taking  advantage of  the agreement's
          provisions  to  harm  or prejudice  other
          members.

58 F.E.R.C. at 61,189.   We agree with FERC's  interpretation

of  the  Agreement.     The  NEPOOL  signatories   explicitly

encouraged  qualified  members  to  seek  SPS,   indeed  they

contemplated that members that merged might choose to do just

that.   We agree  with the  Commission's construction  of the

Agreement which avoids a direct conflict between Sections 3.1

and 4.2, and instead gives both provisions reasonable effect.

          Fourth, petitioners argue that failure to condition

the   merger  on   waiver  of   SPS  would   create  "serious

disincentives"   for  current   members  to   continue  their

membership  in NEPOOL,  and  that the  breakup  of NEPOOL  is

contrary to the public interest.  Petitioners imply that FERC

did not take seriously their complaints about SPS, but rather

rested its decision  not to  require a waiver  solely on  the

fact that the Agreement allowed the election of SPS.  This is

simply not so.

          The  Commission reversed  the ALJ  on the  issue of

whether SPS savings  should be  counted as a  benefit of  the

merger.   The Commission  found that  because the  cost shift

amounted  to  a  zero-sum   transaction,  with  NU  and  PSNH

benefitting and the other members burdened dollar-for-dollar,

the shift could not  be counted as a  benefit of the  merger.

                             -32-

56  F.E.R.C. at 61,997.  Thus, the Commission did not dismiss

petitioners' claims regarding SPS without thought.

          Also,  the ALJ  found,  and the  Commission agreed,

that SPS was essential to the merger, and that the merger, as

conditioned, was in the public interest.  FERC must approve a

proposed merger if it is consistent with the public interest.

16  U.S.C.    824b(a).    FERC  has  the  discretion  to  add

conditions  to a proposed  merger to  ensure that  the merger

will, taken as a whole, be in the public interest.  16 U.S.C.

   824b(b).    FERC  need  not, however,  explain  why  every

condition, or failure to  establish a condition is consistent

with the public interest when considered separately and apart

from the entire transaction.  Petitioners seem to argue  that

FERC was required by law to  state why it was consistent with

the  public interest  to  follow the  explicit  terms of  the

approved fifteen  year-old  NEPOOL Agreement  rather than  to

condition  the  merger  on   waiver  of  a  membership  right

established by the Agreement.   FERC had no such  obligation.

It need not have  explained why it failed to add a particular

condition  prior to approving  a merger.   The statute simply

provides that "[t]he Commission may grant any application for

an order under this section in whole or in part and upon such

terms and conditions as it  finds necessary or appropriate to

secure the  maintenance of adequate  service and coordination

in  the   public  interest  of  facilities   subject  to  the

                             -33-

jurisdiction  of the Commission."   16 U.S.C.    824b(b).  In

this  case, the Commission  set forth a  reasonable basis for

approving the  merger as consistent with  the public interest

in light of the supplementary conditions the Commission found

necessary.   FERC  need not  have gone  further than  this to

explain  why it  failed  to place  further conditions  on the

merger.

          Fifth,   petitioners   allege   that   FERC   acted

inconsistently in  its  treatment of  the NEPOOL  Agreement's

provisions regarding  voting rights and SPS.   The Commission

adopted  a  condition limiting  the  merged company's  NEPOOL

voting  rights to  prevent PSNH  and NU  from gaining  a veto

power  in NEPOOL.  56  F.E.R.C. at 62,043-45.   FERC reasoned

that,  while   there  was   evidence  that   the  signatories

anticipated  that  large   cost-shifts  would  accompany  the

election  of SPS in merger  situations, there was no evidence

that they anticipated the  voting rights implications of such

mergers.   58 F.E.R.C.  at 61,189.   It was not,  contrary to

petitioners' argument,  inconsistent as a matter  of logic to

condition voting rights where the Agreement was silent on the

need or lack of need to do so, while failing to condition SPS

where the  Agreement explicitly favored the  election of SPS.

Furthermore, it was not  an error of law to  condition voting

rights while  leaving SPS  rights untouched.   Petitioners do

not  contest the Commission's decision to condition NU-PSNH's

                             -34-

voting  rights.    We  will uphold  whatever  conditions  the

Commission  imposes on  a proposed  merger  so long  as their

necessity is supported in the record by substantial evidence.

          Finally,  petitioners  contend that  the Commission

"failed to  explain why  burdening other NEPOOL  members with

$364 million in additional  costs with no offsetting benefits

to them is consistent  with the public interest."   In making

this argument, petitioners imply that each and every piece of

a complex package of merger agreements and conditions must be

able to  withstand "public interest"  analysis without regard

to other pieces of the package or to other conditions imposed

by  the  Commission.   Petitioners  also  imply that  if  any

individual or group is harmed by a piece of the package, that

provision is not in the public interest and must therefore be

stricken  or modified.   Both  implicit arguments  are deeply

flawed.

          In  evaluating a  transaction  such as  the one  at

issue  here, the  Commission  is required  to  find that  the

entire transaction, taken as a whole,  is consistent with the

public interest.  16 U.S.C.    824b(a).  Each element of  the

transaction  need not  benefit  every  utility or  individual

which might  be affected; rather, the  whole transaction must

be consistent with the interest of "the public."  There is no

reason  to  think  that  the interest  of  individual  NEPOOL

members is  synonymous with  the "public"  interest.  As  has

                             -35-

already been noted,  FERC may  add conditions  to a  proposed

merger before granting approval.   16 U.S.C.   824b(b).   The

statute  does  not  require,  however,  that  FERC  establish

conditions so  that every effect of an  approved merger could

withstand the "public interest" test.

          At  a less  theoretical level,  the ALJ  determined

that the NEPOOL savings  "were a vital  part of the long  and

strenuous negotiations which culminated in the resulting PSNH

reorganization plan,"  and  the particular  savings  of  $146

million   for  New   Hampshire   consumers  were   relied  on

specifically by the  State of New Hampshire in  approving the

merged company's rate package.   53 F.E.R.C. at 65,213.   The

Commission accepted this  finding of the  ALJ, while, at  the

same time, it reversed  the ALJ's decision to count  the $360

million as  a benefit of the merger.   58 F.E.R.C. at 61,997.

The fact that  the cost-shift was not a benefit to be counted

in weighing the  benefits and  costs of the  merger does  not

mean that  the election of SPS and the concomitant cost-shift

is not in  the public interest.   Election of  SPS is in  the

public interest because it is a central element of the merger

plan  which, viewed  as  a whole,  was  found by  FERC  to be

consistent  with  the public  interest  based  on substantial

evidence in the record.  We approve the Commission's decision

not to condition the merger on waiver by NU of SPS.

     C.   Timing of Merger's Consummation.

                             -36-

          In  the  proceedings before  the  ALJ,  NU proposed

filing  a transmission  tariff within  60 days  following the

merger.  Intervenors and Commission staff proposed the filing

and  approval of  an  interim  transmission  rate.   The  ALJ

rejected  both proposals  and  instead held  that the  merger

would  be  consummated upon  the  filing  of NU's  compliance
                                        

tariff.  He reasoned as follows:

          I see no  need for  requiring one  tariff
          (with potential for controversy, charges,
          collections and refunds)  to be  followed
          by  yet  another  tariff,  with  its  own
          potential for still other disputes.
             Avoiding  a  transitional period  will
          make   it   unnecessary   to  require   a
          transitional  tariff.    To achieve  this
          result, consummation of  the merger  must
          be conditioned on  the concurrent  filing
          of  a  compliance   tariff  which   fully
          reflects all of  the terms and conditions
          set out in this Initial Decision.  Such a
          condition should encourage  a prompt  and
          fair compliance filing  because NU  could
          not begin  to  reap the  merger  benefits
          without it.

53 F.E.R.C. at 65,221.  The Commission concurred:

             We    believe    the   GTC    [General
          Transmission   Conditions]  and   the  NH
          Corridor  Proposal,  as modified  herein,
          adequately    mitigate    the    merger's
          anticompetitive effects without requiring
          the adoption of the Merger Tariff.  Trial
          Staff stated that the Merger Tariff would
          make  service available  immediately upon
          approval of the merger.   We believe that
          the presiding judge accomplished the same
          result  by  allowing consummation  of the
          merger  when  NU  submits its  compliance
          filing.
             We further believe  that delaying  the
          merger's    consummation    until     the
          Commission   accepts    NU's   compliance

                             -37-

          submittal    for    filing    would    be
          inappropriate   given   the   uncertainty
          surrounding    issues   which    may   be
          challenged   and   subject   to   further
          litigation  in the  compliance proceeding
          and  given our  commitment to  act before
          the Merger Agreement's December  31, 1991
          termination date.  We believe that NU and
          PSNH are  entitled to  a prompt and  fair
          resolution  of this  proceeding.   At the
          same time the intervenors are entitled to
          have service begin as soon  as practical,
          together  with a  fair resolution  of any
          disputes raised regarding NU's compliance
          filing.  Accordingly, we believe  that it
          is in the best  interests of all  parties
          to allow NU to consummate the merger when
          it submits  its  compliance filing.    We
          shall also require  NU to begin  honoring
          such  requests  for transmission  service
          under the  GTC,  as modified  herein,  at
          that  time.    Such transmission  service
          will be  provided at  either the firm  or
          non-firm  transmission rates  proposed in
          NU's   compliance   filing,  subject   to
          refund, and  without a refund  floor.  In
          reviewing    NU's   filing    to   ensure
          compliance  with  this  Opinion, we  will
          hold  NU to a very high  standard.  As NU
          itself  states, "[i]f NU  fails to comply
          with  the  letter   or  spirit  of   such
          [Commission]  requirement,  NU  would  be
          subject to summary judgment  with respect
          to any aspect of its compliance filing."

56 F.E.R.C. at 62,025.

          Petitioners'  stated concern  is that,  by allowing

the  merger to be consummated prior to FERC's approval of the

compliance tariff, FERC did not provide a sufficient guaranty

that NU would provide transmission access that would mitigate

                             -38-

the  merger's  anticompetitive  effects.14    Petitioners  do

not, however,  seek  to unravel  the  merger.   Rather,  they

propose that any  cost shift under the  NEPOOL Agreement, see
                                                             

discussion in  Part III(B),  supra, be postponed  until after
                                  

the compliance tariff is approved.  Petitioners complain that

the course chosen by FERC creates an incentive on the part of

NU  to delay  proceedings on  the compliance  tariff, thereby

maximizing  competitive  advantage.   Petitioners do  not, of

course,  point  out  that  their  proposal  would  create  an

incentive  on  their  part to  delay  final  approval of  the

compliance tariff, thereby postponing the day when the NEPOOL

cost shift will take effect.

          The ALJ and the Commission carefully considered the

alternatives before reaching their decisions.  The Commission

held that the anticompetitive effects of the merger  would be

adequately  mitigated  by  the  dual  requirements   that  NU

immediately provide  transmission access upon  the filing  of

its compliance  tariff, and  that any  fees  collected by  NU

would be subject to  refund without a refund floor.   Because

NU  accepted  these  merger conditions,  the  Commission  can

enforce NU's  promise to pay  such refunds if  the Commission

finds them to be appropriate.  See Distrigas of Massachusetts
                                                             

Corp. v.  FERC, 737 F.2d  1208, 1225 (1st  Cir. 1984).   FERC
              

                    

14   We  note that,  at oral  argument, petitioners  conceded
that no one  had as  yet sought access  to NU's  transmission
facilities.

                             -39-

explicitly  warned NU  that  "[i]n reviewing  NU's filing  to

ensure compliance with  this Opinion,  we will hold  NU to  a

very high standard."  56 F.E.R.C. at 62,025.

          The Commission balanced the merging companies' need

for a "prompt  and fair resolution" of  the merger proceeding

against the intervenors' need "to have [transmission] service

begin  as soon as practical,  together with a fair resolution

of any disputes raised  regarding NU's compliance filing." 56

F.E.R.C.  at 62,025.    An  agency's  discretion  is  at  its

"zenith" when  it fashions remedies to  effectuate the charge

entrusted to it by Congress.   Niagra Power Corp. v. FPC, 379
                                                        

F.2d 153,  159 (D.C. Cir.  1967).  See also,  Consolo v. FMC,
                                                            

383 U.S.  607, 620-21  (1966); Environmental Action,  Inc. v.
                                                          

FERC, 939 F.2d 1057, 1064 (D.C. Cir. 1991); Boston Edison Co.
                                                             

v. FERC,  856 F.2d 361,  371 (1st Cir.  1988).  We  hold that
       

FERC's exercise  of its  discretion was not  inappropriate in

these  circumstances.   FERC  did not  defer, as  petitioners

suggest,  consideration of the anticompetitive effects of the

merger  which  FERC  itself   identified.    The   Commission

recognized the effects, and dealt with them in a reasoned way

which  balanced  the  competing  interests  of  all  parties.

FERC's remedy  is not  unreasonable, and we  therefore affirm

its order.

     D.   Protection of Native Load Customers.

          1.   Priority of Services.
                                   

                             -40-

               a.   Background.
                              

          In its  merger  application, NU  made  a  voluntary

commitment   to   provide  wholesale   transmission  service,

including third  party wheeling  service,15  for any  utility

over  its existing transmission system.  At the same time, NU

sought  to limit  this  obligation by  reserving an  absolute

priority  for  power  purchases  on  behalf  of  native  load

customers (whose  power  needs NU  is bound  by franchise  or

contract  to  meet).   The  ALJ  held  that  although NU  may

reasonably give  native load service  priority over  wheeling

service if NU's transmission system had insufficient capacity

to serve both, 53  F.E.R.C. at 65,221-222, NU could  not deny

firm  wheeling   requests  based  upon  the   reservation  of

transmission  capacity for  its  own non-firm  sales, id.  at
                                                         

65,225.  

          In Opinion  No.  364, the  Commission balanced  the

interests of  native load customers and  third party wheeling

customers  and  affirmed  the  ALJ's denial  of  an  absolute

priority:

          we  .  . .  deny  NU's  proposal to  give
          higher priority to  its own non-firm  use
          than  to third  party  requests for  firm
          wheeling    in     allocating    existing
          transmission  capacity.    In  no  event,
          however, will  NU be required  to provide
          firm third party wheeling service  out of
          existing   transmission   facilities   if

                    

15   For a definition of "wheeling" see n.9, supra.
                                                  

                             -41-

          reliability  of  service  to native  load
          customers would be adversely affected.

56  F.E.R.C. at  62,021 (footnote  omitted).   The Commission

found it "reasonable to allow NU to reserve firm transmission

capacity  to  provide reliable  service  to  its native  load
                              

customers."  Id. (Emphasis in original.)
                

          On rehearing,  NU asked the  Commission to  clarify

the  scope of  the "reliability"  criterion.   The Commission

"reiterate[d] that under no circumstances will NU be required

to provide firm wheeling service out of existing transmission

capacity where  doing so would impair  or degrade reliability

of  service to native load customers."  58 F.E.R.C. at 61,199

(emphasis  removed).   The  Commission  held  the concept  of

reliability generally  encompasses the:   (1) reservation  of

transmission capacity to back  up large generating units; (2)

provision of generation reserves; and (3) coverage of certain

future  needs.     As  to  the  coverage   of  future  demand

requirements, the Commission  specifically ordered that  "any

capacity needed for reliability purposes  within a reasonable

planning horizon  must be offered  for wheeling use  until NU

expects  to need the capacity  for reliability reasons."  Id.
                                                             

at 61,199-200.

          Petitioners assert  that the  decision to accord  a

priority to native load  over transmission load is arbitrary,

discriminatory, and  anticompetitive.   They argue  that FERC

neither  defined  nor  justified  the   priority  granted  by

                             -42-

allowing reservation of transmission capacity for native load

service  and  that  any  such  priority  creates  competitive

advantages for  NU.  We  hold that the  Commission adequately

defined and reasonably justified its decision to allow such a

reservation  and  properly   addressed  the   anticompetitive

concerns raised by the intervenors.  

               b.   Discussion.
                              

          Although the Commission reaffirmed the general rule

that  firm transmission service  should be  accorded priority

over  non-firm  service, even  if  the  latter would  benefit

native load,    it nonetheless  allowed  NU to  reserve  firm

transmission capacity  needed to ensure reliability of native

load  service and allowed the  use of this  capacity for non-

firm transactions.  58 F.E.R.C. at 61,196.  Thus, native load

service will receive  a "priority" over third-party  wheeling

service  in  allocating existing  transmission  capacity when

reliability  of service  to  native load  would be  adversely

affected.     The  Commission  specifically   qualified  this

priority by requiring NU  to offer the capacity  for wheeling

use until NU needed  it to assure reliability to  native load

customers.

          There  is nothing arbitrary or discriminatory about

FERC's decision.  It struck  a reasonable balance between the

competing interests of native load customers and  third-party

wheeling customers.  NU-PSNH is obligated to serve its native

                             -43-

load  customers.  In return for this obligation to serve, the

native load customers regularly bear the cost of transmission

facilities;  native load  customers pay  for them,  use them,

plan  on them, and rely on them.   As the ALJ noted, "[e]very

New England utility favors  its own native load.   Nothing in

the NEPOOL agreement requires  its members to surrender their

native load preference, and none do."  53 F.E.R.C. at 65,222.

Thus,  "NU should be allowed  to give priority  over safe and

reliable service to its  native load customers using existing

transmission capacity  built to  serve those customers."   58

F.E.R.C. at  61,199.   FERC explicitly defined  and justified

the challenged native load "priority."

          2.   Transmission Upgrades Pricing.
                                             

               a.   Background.
                              

          NU's commitment to provide third-party transmission

service   includes   the  obligation   to   build  additional

transmission facilities as necessary to  relieve transmission

constraints on  its system.   58  F.E.R.C.  at 61,204-10;  56

F.E.R.C. at 62,021-24.   The issue  then becomes, how  should

the  cost  of  constructing  such  transmission  upgrades  be

allocated.  The ALJ stated  that questions of cost allocation

are  best  addressed  in  future  proceedings  regarding  the

particular   responsibilities   for  particular   facilities.

Nevertheless,  the ALJ  adopted  the "but  for" analysis  for

determining responsibility proposed by NU witness Schultheis:

                             -44-

          [W]heeling customers must make a pro rata
          contribution   whenever  the   facilities
          would  not have been  needed but  for the
          wheeling  transfers across  a constrained
          interface.   This means that  NU's native
          load customers pay for the new facilities
          they  create  the need  for  and wheeling
          customers  pay  for  the facilities  they
          create the need for.

53 F.E.R.C. at 65,223.  The ALJ also noted that the financial

exposure of  transmission customers  was limited by  the cost

caps  to  which NU  was committed.16    Id. at  65,224.   The
                                           

Commission agreed that cost  questions should be litigated in

the context of a specific proposal,  and accepted the concept

of  the "but for" test  as a framework  for ascertaining cost

responsibility and the  use of  the proposed cost  caps as  a

reasonable  means of  limiting  the  transmission  customers'

responsibility for  future upgrades.  56  F.E.R.C. at 62,028-

030.   The Commission reaffirmed that  decision on rehearing.

58 F.E.R.C. 61,204-207.

          Petitioners  contend that the  Commission failed to

adequately  explain  the pricing  policy  it  will employ  in

pricing  transmission upgrades.  Basically, petitioners claim

the ruling is too ambiguous to determine whether, or how, the

                    

16  NU committed  to cap  cost responsibility  to "(1)  those
specific facilities  identified  by NU  at  the time  of  the
wheeling request as needing to be built or upgraded either at
the time of the request or in the future; and (2) the maximum
dollar  amount  contained  in  NU's  initial  estimate  of  a
wheeling customer's pro  rata share  of the  costs of  future
upgrades  needed  to  accommodate   a  request  for  wheeling
service."  
56 F.E.R.C. at 62,031-32.

                             -45-

Commission changed its  policy from the traditional  "rolled-

in" approach used  in pricing transmission service.   We hold

that   the  Commission   provided   a  clear   and   reasoned

justification for  the principles that will  guide its future

determinations of  transmission upgrade  pricing.  We  affirm

the Commission's decision not  to modify the basic principles

adopted in its order.

               b.   Discussion.
                              

          In accepting as reasonable  the "but for" test, the

Commission  has  done no  more than  approve a  framework for

determining  cost responsibility  which furthers  the general

principle that  transmission costs  should be borne  by those

entities  responsible  for the  cost.    58 F.E.R.C.  61,205.

Under  this test,  incremental  cost pricing  could be  found

appropriate when firm wheeling across  a particular interface

would  degrade reliability absent  upgrades.   The Commission

specifically declined, however, to answer the requests of the

intervenors  to  decide  the "rolled-in  versus  incremental"

rate17 issue in  the abstract and  chose instead to  evaluate

it only within the  context of a particular rate  proposal or

upgrade.  Id.   The Commission articulated  how it envisioned
             

                    

17  Under "rolled  in" pricing principles, the upgrade  costs
would  be rolled in with  other company costs  and charged to
all ratepayers as part of NU's  general rate structure; while
administratively   simple,   it   ignores  any   concept   of
responsibility.  Thus, incremental pricing principles look to
hold parties responsible for their share of upgrade costs.

                             -46-

pricing  transmission  upgrades   and  adopted  a   condition

limiting  the  amount  NU  may  propose  to  collect  from  a

transmission customer to the greater of 

          (1) the incremental  cost of new  network
          facilities  required  at  the   time  the
          customer's new transmission load is added
          or (2) the rolled-in cost of  all network
          facilities required to serve the combined
          transmission loads of [NU], including any
          required transmission additions.

Id. at 61,206.   Thus, a wheeling customer may be charged the
   

greater of rolled-in cost rates or incremental cost rates.   

          The Commission acknowledged  that the  introduction

of incremental  cost pricing  principles is a  departure from

its  traditional pricing  policies18 and  justified  this new

policy  on NU's  unprecedented  obligation  to provide  third

party transmission service.   Id.  The  Commission noted that
                                 

incremental  cost  pricing  may  be  appropriate  in  certain

circumstances,  but  decided to  leave  the  details of  cost

responsibility  questions to  a  future specific  section 205

rate case.  When such a  case arises, NU will bear the burden

of   justifying  "any   direct  assignments   of   costs  and

support[ing] any arguments that  reliability is degraded by a

particular  firm transmission  service.    No presumption  is

                    

18     The  Commission generally  has  adhered to  rolled  in
pricing,   but  has   never  precluded   particularized  cost
allocations to  specific  customers where  appropriate.   See
                                                             
Utah Power &amp; Light Co., 45 F.E.R.C.   61,095, at 61,291 n.163
                      
(1988);  Public Service Co. of Indiana, 51 F.E.R.C.   61,367,
                                      
at 62,203 (1990).

                             -47-

created  by  NU's  `but  for' criterion  that  firm  wheeling

customers always cause the need for upgrades."  Id. at 61,207
                                                   

(quoting 56 F.E.R.C. at 62031).   The Commission also allowed

that  any  reliance by  NU  upon the  "but  for" test  may be

challenged in  future actions.   The Commission  sufficiently

explained and  justified the  principles that will  guide its

transmission upgrade pricing.

     E.   Opportunity Cost Pricing.

          As has already been discussed, the Commission found

it necessary to impose a number of conditions on the proposed

NU-PSNH merger to mitigate  the merged company's market power

in the  markets for  transmission and short-term  bulk power.

58 F.E.R.C.  at 61,195.    Specifically, the  Commission held

that  NU  must  provide  firm  transmission  service  out  of

existing  capacity  for  any   utility,  subject  only  to  a

reservation  of  sufficient  capacity  to  maintain  reliable

service to its  native load customers  and to honor  existing

contractual obligations.   NU was  prohibited, however,  from

denying a request for  firm transmission service by reserving

capacity for  non-firm transactions  that would enable  it to

provide more economical service to its native load customers.

56 F.E.R.C.  at 62,014-21;  58 F.E.R.C. at 61,196-200.   FERC

also  held   that  NU  must  build   additional  transmission

facilities   as   needed   to   provide   transmission  where

insufficient capacity  exists.  56 F.E.R.C.  at 62,021-24; 58

                             -48-

F.E.R.C. at 61,204-10.   The Commission found that  these and

other conditions  would  "adequately mitigate"  the  merger's

anticompetitive effects.  58 F.E.R.C. at 61,213.

          On rehearing, NU and  the States of Connecticut and

New Hampshire  argued that the Commission  should address the

issue of  firm transmission  pricing because, in  Opinion No.

364, FERC  had established  principles governing  the related

issue of  firm transmission priority which  made NU's ability

to purchase  inexpensive power (which would lower its cost of

serving  its  native  load  customers)  subordinate  to   its

obligation  to provide  firm transmission for  third parties.

58  F.E.R.C.  at  61,201-02.    The  Commission  agreed,  but

declined  to approve  "opportunity  cost  pricing"19  outside

the  context of  a specific  tariff proposal.   Instead,  the

Commission announced three "basic  goals" to guide its future

decisions on the  pricing of firm transmission service on the

merged company's existing capacity, and left the door open to

NU  to propose  a tariff  based on  opportunity costs  or any

                    

19   As the Commission explained, opportunity costs
          are the  revenues lost or  costs incurred
          by  a  utility  in providing  third-party
          transmission  service  when  transmission
          capacity is insufficient to  satisfy both
          a  third-party  wheeling request  and the
          utility's   own   use.     For   example,
          opportunity   costs  might   include  the
          revenues lost or costs incurred because a
          utility  must  reduce its  own off-system
          purchases or sales in order to overcome a
          constraint on the [transmission] grid.
58 F.E.R.C. at 61,200-201.

                             -49-

other  methodology  that would  meet  the three  goals.   The

Commission explained its decision as follows:

            We are now confronted with the need  to
          provide   NU   with  enough   specificity
          regarding  what it  will  be  allowed  to
          propose for the  pricing of future third-
          party  wheeling  service,  so   that  the
          company  can  decide  whether to  proceed
          with the  merger.  We also  cannot ignore
          the  need  to  act  as  expeditiously  as
          possible  given the  commercial realities
          and time pressures presented in corporate
          matters subject to our  jurisdiction, and
          in  particular  the  need  to  resolve  a
          bankruptcy situation.   At the  same time
          we are confronted with the need to ensure
          an  adequate record on pricing issues and
          to   afford   all  parties   an  adequate
          opportunity to voice their objections.
            Balancing  these  respective needs,  we
          conclude  that  the  best  course  is  to
          provide guidance on  pricing issues,  but
          to defer specific  pricing issues to  the
          compliance phase of  this proceeding,  or
          to subsequent cases where  the Commission
          may consider specific  proposals from  NU
          in a concrete, factual setting and with a
          more developed record.
          . . . .
          First, the  native load customers  of the
                                                   
          utility  providing  transmission  service
                                                   
          should   be   held  harmless.     Second,
                                                   
          transmission customers  should be charged
                                                   
          the lowest reasonable cost-based rate for
                                                   
          third-party transmission service.  Third,
                                                   
          the pricing should prevent the collection
                                                   
          of  monopoly  rents  by the  transmission
                                                   
          owner and  promote efficient transmission
                                                   
          decisions.      In  ruling   on  specific
                   
          proposed  rates,  we  will balance  these
          three  goals  in light  of the  facts and
          circumstances presented at that time.   

58 F.E.R.C. at 61,203 (emphasis added) (footnotes omitted).

          FERC  was careful  to  point out  that it  endorsed

opportunity cost pricing  only insofar as NU  could show that

                             -50-

it could "propose rates which  include legitimate, verifiable

opportunity costs."  Id.   The Commission warned NU  that any
                        

such  proposal would  be carefully  scrutinized and  would be

subject to challenge.  Id. at 61,203-04.  Specifically,  FERC
                          

stated that  NU would  have to  address the  following issues

should it seek recovery of opportunity costs:

          (1) whether opportunity  costs should  be
          capped by incremental expansion  costs or
          any  other  cap;   (2)  whether   current
          wheeling   and   wholesale   requirements
          customers  should be  treated differently
          from   future   wheeling  and   wholesale
          requirements    customers,    e.g.,    by
                                            
          receiving    "grandfather"   rights    to
          embedded cost  rates  for the  amount  of
          transmission  capacity they  already use;
          (3) how NU  will identify those customers
          responsible for growth on its  system and
          what   particular   new  facilities   are
          necessary to accommodate that growth; (4)
          whether  and how third  parties should be
          protected   from   uncertainty  regarding
          fluctuations  in  opportunity costs;  (5)
          how  the proposed rates  will prevent the
          collection of monopoly rents; and (6) how
          the  proposed  opportunity costs  will be
          verified.

Id.    The Commission  expressly  postponed consideration  of
   

whether opportunity cost pricing  would be inconsistent  with

nondiscriminatory  pricing  and  nondiscriminatory terms  and

conditions of  service until  those issues  were raised  in a

concrete factual context.  Id. at 61,204, n.118.
                              

          Petitioners claim that FERC's decision  amounted to

an arbitrary endorsement of opportunity cost pricing that was

not  supported  by evidence  in  the  record, was  inherently

                             -51-

discriminatory, and contrary to FERC's  regulation of natural

gas pipelines.   Petitioners' underlying concern  seems to be

that  when  the  issue arises  next  in  the  context of  the

Commission's  review  of NU's  compliance  tariff, FERC  will

simply approve the tariff and dismiss petitioners' objections

on the  ground that  opportunity cost pricing  principles had

already  been  endorsed  by  the  Commission.    Although  we

understand petitioners' concerns,  we believe  that they  are

misplaced and that FERC did not go as far as petitioners fear

in endorsing opportunity cost pricing.

          Petitioners will have an opportunity to contest any

compliance tariff proposed by NU.  The Commission itself laid

out a number of issues which NU would have to address were it

to  propose a tariff based on opportunity costs.  58 F.E.R.C.

at 61,203.   Only  after carefully considering  the competing

interests of providing  guidance to  NU as to  what kinds  of

tariffs it would consider, and  the need to endorse  specific

methodologies only on the  basis of a fully-developed record,

did  the Commission  decide  to outline  broad pricing  goals

which would allow  for a number of pricing  schemes including

opportunity  cost pricing.  Id.   It was  squarely within the
                               

Commission's  power  to defer  consideration  of petitioners'

assertions until  after NU filed  its compliance tariff.   As

the  Supreme  Court  has  held,  "[a]n  agency  enjoys  broad

discretion in determining how  to handle related yet discrete

                             -52-

issues  in  terms  of  procedures, and  priorities."    Mobil
                                                             

Exploration   &amp;   Producing   Southeast,   Inc.   v.   United
                                                             

Distribution  Cos., 111  S.  Ct. 615,  627 (1991)  (citations
                  

omitted).   Petitioners argue that deferral was inappropriate

in this case because  their objections went "to the  heart of

the  public interest  determination  to be  made."   Maryland
                                                             

People's Counsel v. FERC, 761 F.2d 768, 778 (D.C. Cir. 1985).
                        

We disagree.

          The   Commission   announced   pricing  goals   and

conditions  that   it  determined  would   keep  the   merger

consistent  with the  public  interest, and  would result  in

"just and  reasonable rates."   Until NU proposed  a specific

tariff regime, the Commission did not have a developed record

to evaluate on the  merits.  The Commission remains  free to,

and  we expect it will, invite  objections to NU's compliance

tariff from  affected parties,  and will reject  any proposed

tariff that  conflicts with its  statutory responsibility  to

approve rates  that are "just and reasonable," and to approve

mergers that are, as conditioned, "consistent with the public

interest."

     F.   Environmental Impact Statement.

          The  City of  Holyoke  Gas  &amp;  Electric  Department

("HG&amp;E") alleges that FERC's refusal to examine the potential

environmental  impacts  of its  approval  of  the merger  was

arbitrary and capricious.  We disagree.

                             -53-

          The National Environmental  Policy Act of 1969,  42

U.S.C.    4321 et seq., ("NEPA") requires federal agencies to
                      

consider the  potential environmental effects  of a  proposed

major  federal  action  that  may  significantly  affect  the

quality of the human environment.   Section 102(2)(C) of NEPA

states:

          The Congress authorizes and directs that,
          to the  fullest extent  possible:  . .  .
          (2) all    agencies   of    the   Federal
          Government shall  
          . . . .
          (C)  include  in every  recommendation or
          report on proposals  for legislation  and
          other major Federal actions significantly
          affecting  the  quality   of  the   human
          environment, a detailed statement  by the
          responsible official on  
            (i)  the  environmental  impact of  the
          proposed action,
            (ii) any  adverse environmental effects
          which  cannot  be   avoided  should   the
          proposal be implemented,
            (iii)  alternatives   to  the  proposed
          action,
            (iv)  the  relationship  between  local
          short-term uses of man's  environment and
          the maintenance and enhancement  of long-
          term productivity, and 
            (v) any  irreversible and irretrievable
          commitments of resources  which would  be
          involved in the proposed action should it
          be implemented.

42  U.S.C.    4332(2)(C).   Agencies  were authorized,  under

guidelines  promulgated  by  the  Council   on  Environmental

Quality ("CEQ"), to create categorical exclusions for actions

which do not individually  or cumulatively have a significant

effect  on  the human  environment.    40  C.F.R.     1507.3,

1508.4.    FERC  adopted   such  a  category  of  exclusions,

                             -54-

including one for merger  approvals such as the one  at issue

in this case.  That regulation states in pertinent part:

          (a) General  rule.  Except  as stated  in
          paragraph (b) of this section, neither an
          environmental    assessment    nor     an
          environmental  impact  statement will  be
          prepared  for  the following  projects or
          actions:
          . . . .
            (16) Approval of actions under sections
          4(b), 203, 204, 301,  304, and 305 of the
          Federal  Power  Act relating  to issuance
          and  purchase of  securities, acquisition
          or   disposition  of   property,  merger,
          interlocking directorates, jurisdictional
          determinations and accounting orders.

18  C.F.R.    380.4(a)(16).    An  agency  need  not issue  a

"finding  of  no  significant  impact"  in  cases  concerning

matters that fall into a categorical exclusion.  40 C.F.R.   

1501.3, 1501.4, 1508.13.

          CEQ  guidelines  also  required  agencies  adopting

categorical   exclusions   to   "provide  for   extraordinary

circumstances in which a normally  excluded action may have a

significant environmental effect."  40 C.F.R.   1508.4.  FERC

made such provision in its regulations:

            (b)    Exceptions     to    categorical
          exclusions. (1) In accordance with 40 CFR
          1508.4, the Commission and its staff will
          independently    evaluate   environmental
          information  supplied  in an  application
          and  in  comments by  the public.   Where
          circumstances indicate that an action may
          be a major  Federal action  significantly
          affecting  the  quality   of  the   human
          environment, the Commission:
            (i) May require an environmental report
          or    other    additional   environmental
          information, and 

                             -55-

            (ii)  Will   prepare  an  environmental
          assessment  or  an  environmental  impact
          statement.
            (2) Such circumstances  may exist  when
          the action  may have an effect  on one of
          the following:
            (i) Indian lands;
            (ii) Wilderness areas;
            (iii) Wild and scenic rivers;
            (iv) Wetlands;
            (v) Units of  the National Park System,
          National   Refuges,   or  National   Fish
          Hatcheries;
            (vi)  Anadromous   fish  or  endangered
          species; or
            (vii)  Where the  environmental effects
          are uncertain.
          However, the existence of  one or more of
          the above will not  automatically require
          the submission of an environmental report
          or  the  preparation of  an environmental
          assessment  or  an  environmental  impact
          statement.

18  C.F.R.     380.4(b).20    HG&amp;E  argues  that  the NU-PSNH

merger might  "alter mixes  of generation  in New  England by

constraining  the locations for new plants."   HG&amp;E points to

the language of 18 C.F.R.   380.4(b)(1)(ii) in support of its

position  that FERC was  compelled, at the  least, to explain

why  it   was  not  obliged   to  perform  the   analysis  of

environmental  effects required  by  NEPA.   HG&amp;E also  cites

FERC's  decision  in  Southern   California  Edison  Co.,  49
                                                        

F.E.R.C.     61,091  (1989)   (holding  that    380.4(b)  was

triggered when approved merger would result in the dumping of

                    

20  HG&amp;E  does  not challenge  the  validity  of  any of  the
applicable regulations cited above.

                             -56-

hundreds of tons of additional air contaminants into the most

polluted air in the United States).

          There was no evidence in the record of identifiable

environmental harms that would likely result from the NU-PSNH

merger.  The  fact that new generating  facilities might wind

up  in different locations than  would have been  the case in

the absence of  the merger does not approach in significance,

because  its  significance  is  not quantifiable,  the  known

effects of  the  merger between  Southern  California  Edison

Company  and San  Diego Gas  &amp; Electric  Company.   Thus, the

factual  situation presented in Southern California Edison is
                                                          

completely distinguishable from that of this case.

          The   character  and   location   of   the   future

environmental effects of the  NU-PSNH merger are so uncertain

that  no  meaningful  environmental  review would  have  been

possible, even had  FERC made the effort.  Here, FERC was not

approving  a  regional  development  plan.    It  was  merely

approving a merger between utility companies, albeit a merger

involving  two  of  the  largest utilities  in  New  England.

Energy  demand may increase in New England over the following

decades, and the fact  of the merger may influence  how those

needs  are met.  Nevertheless, any attempt by FERC to prepare

an  EIS would  have involved  little more  than spinning  out

multiple  hypothetical  development forecasts,  with multiple

options  for   the  type,  amount  and   location  of  future

                             -57-

generating facilities.  See  Kleppe v. Sierra Club,  427 U.S.
                                                  

390, 401-2 (1976).  Once concrete plans have been established

for   the   construction   of  transmission   or   generating

facilities, those  proposals will  be reviewed under  NEPA or

the applicable state environmental review procedures.

          FERC  was justified  in  deciding  that neither  an

environmental   assessment   nor   an  environmental   impact

statement was required prior to approving the NU-PSNH merger.

     G.   HG&amp;E's "Unique" Harm.

          HG&amp;E also  contends that because it  relied on PSNH

New Hampshire  Corridor facilities for over  one-third of its

electricity supply,  it would be "uniquely  threatened" by NU

in head-to-head competition for  large, industrial loads.  To

protect    itself,   HG&amp;E   requested   that   FERC   either:

(1) disapprove  the merger;  (2) require  the  divestiture or

restructuring of  NU's retail  business in Holyoke  (HWP); or

(3) grant  HG&amp;E  grandfather  rights to  PSNH  New  Hampshire

Corridor transmission.  The ALJ rejected the "drastic remedy"

of divestiture of HWP, stating that it was  "wholly uncalled-

for  by anything in this record," and holding that HG&amp;E would

be  adequately  protected by  the  conditions  to the  merger

designed   to   address   the  anticompetitive   effects   on

transmission dependent  utilities ("TDUs").   53  F.E.R.C. at

65,232.

          As the ALJ described,

                             -58-

          [t]he  Transmission  Dependent  Utilities
          (TDUs) are  "entirely dependent on  NU or
          PSNH  for  their bulk  power transmission
          needs."  These  companies (most of  which
          involve municipal ownership) are  not big
          enough  to  own  or construct  sufficient
          generation to meet their loads.  As their
          brief states, they "are physically unable
          to  engage in any  bulk power transaction
                           
          without using the NU or PSNH transmission
          systems.  Absent  economic access to NU's
          or  PSNH's  transmission facilities,  the
          TDU  cannot  survive  as  an  independent
          entity."   The  TDUs compete with  NU and
          PSNH in the wholesale bulk  power market;
          each   TDU,   like  NU/PSNH,   seeks  out
          attractive sources of  supply.  TDUs thus
          "are in  the  uneasy position  of  having
          their    only    source   of    essential
          transmission  service  in  the  hands  of
          their principal competitor."  These small
          companies,    uniquely    vulnerable   to
          possible  anticompetitive   conduct,  are
          entitled  to  some measure  of protective
          assurance regarding NU/PSNH's post merger
          conduct.

53  F.E.R.C. at 65,232-33.   The ALJ held  that "[a]ll rates,

terms and  conditions of NU/PSNH transmission  service to the

TDUs in effect  on this date shall . .  . be maintained after

the merger,  unless and until changes are  either agreed upon

by  the merged  company and  the TDUs,  or authorized  by the

Commission."  53 F.E.R.C. at 65,233.  In short, while finding

that  TDUs  were  "uniquely  vulnerable"  to  anticompetitive

conduct by NU-PSNH,  the ALJ  found that HG&amp;E  had not  shown

that  it was  entitled to  protections beyond those  given to

TDUs  generally.    The  Commission agreed,  56  F.E.R.C.  at

62,049,  but bolstered the protection for TDUs ordered by the

                             -59-

ALJ by imposing the additional condition  that NU establish a

special tariff for TDUs.  Id. at 62,050.
                             

          HG&amp;E  points  to  no  evidence  in  the  record  to

indicate  that it  faced anticompetitive consequences  of the

merger sufficiently  different in  character or magnitude  to

warrant greater  protections than those given  to other TDUs.

We therefore affirm the Commission's actions to protect TDUs,

which were adequately explained and supported in the record.

     H.   Modifications to the Filed Rate Schedules.

          The Commission analyzed the Seabrook Power Contract

and Capacity Interchange Agreements  filed by NUSCO under the

"just and reasonable"  standard of    206 of  the FPA,21  and

ordered the  following modifications to  the rate  schedules:

(1) deletion of the automatically adjusting rate of return on

equity  provision  in  the   Seabrook  Power  Contract;   (2)

reduction of the  rate of  return on equity  in the  Seabrook

Power  Contract from  13.75 percent  to 12.53  percent;22 (3)

                    

21   Section  206(a)  of  the  FPA,  16  U.S.C.     824(e)(a)
provides:
            Whenever the  Commission, after hearing
          had  upon   its   own  motion   or   upon
          complaint, shall find that any rate . . .
          collected by any public  utility . . . is
          unjust,        unreasonable,       unduly
          discriminatory   or   preferential,   the
          Commission shall determine  the just  and
          reasonable  rate . . .  to be  thereafter
          observed and in force, and shall  fix the
          same by order.

22   NUSCO did not appeal this modification.

                             -60-

North  Atlantic's decommissioning expenses under the Seabrook

Power Contract  and any subsequent changes  thereto were made

subject to  review by  the Commission;  (4) reduction  in the

rate  of return  on  equity  specified  in the  two  Capacity

Interchange Agreements  from 14.50  percent to 13.17  percent

for the period from July 27, 1990 through August 8, 1991, and

thereafter  to  12.93 percent;  and  (5)  the Seabrook  Power

Contract  could be modified  by the Commission  in the future

under the "just and reasonable" standard of   206 of the FPA,

rather than the "public  interest" standard agreed to  by the

parties.  56 F.E.R.C. at 61,993; 58 F.E.R.C. at 61,185.

          Each  of the  three parties  to the  Seabrook Power

Contract ("SPC"), NU,  PSNH and the  State of New  Hampshire,

waived  its right to file  a complaint under    206 regarding

the rates contained in the agreement.  Section 12 of  the SPC

also provided that:

          [E]ach [party] further agrees that in any
          proceeding  by the FERC under Section 206
          the  FERC  shall   not  change  the  rate
          charged under this Agreement  unless such
          rate  is found  to  be  contrary  to  the
          public interest.

NU argues  that the Commission  violated the  "Mobile-Sierra"
                                                            

doctrine23 when  it  modified the  SPC  in disregard  of  the

intent of the parties.

                    

23   This doctrine is based on the  companion cases of United
                                                             
Gas Pipe Line  Co. v. Mobile  Gas Service Co.,  350 U.S.  332
                                             
(1956)  and FPC  v. Sierra  Pacific Power  Co., 350  U.S. 348
                                              
(1956).

                             -61-

          Under  the  Mobile-Sierra doctrine,  the Commission
                                   

must respect certain private  contract rights in the exercise

of its  regulatory powers.  Parties  to a contract may:   (1)

waive  their  rights to  file  a  complaint challenging  that

contract,  and (2) restrict  the power  of the  Commission to

impose rate changes  under   206 to  cases in which it  finds

the  rates contrary to the public interest   a more difficult

standard  for  the  Commission  to meet  than  the  statutory

"unjust and  unreasonable" standard  of    206.   See  Papago
                                                             

Tribal Utility Authority  v. FERC,  723 F.2d  950, 953  (D.C.
                                 

Cir. 1983), cert. denied,  467 U.S. 1241 (1984).   In Papago,
                                                            

the court held  that, regardless of the  parties' intent, the

Commission retained, in any event,

          the indefeasible right . . . under    206
          to replace rates that are contrary to the
          public interest, "as where  [the existing
          rate   structure]    might   impair   the
          financial ability of  the public  utility
          to continue its  service, cast upon other
          consumers  an  excessive  burden,  or  be
          unduly discriminatory."

Papago, 723 F.2d at  953, (quoting Sierra, 350 U.S.  at 355).
                                         

The court  went on to  note that  "unduly discriminatory"  in

this  context  "apparently  means  unduly  discriminatory  or

preferential  to  the detriment  of  purchasers  who are  not

parties to the contract."  Papago, 723 F.2d at 953 n.4.
                                 

          In  this case,  seemingly for  the first  time, the

Commission held that it also had the

                             -62-

          authority   under  the   public  interest
          standard to  modify a contract where:  it
                                                   
          may   be  unjust,   unreasonable,  unduly
                                          
          discriminatory  or  preferential  to  the
          detriment  of  purchasers  that  are  not
          parties to  the contract;  it is  not the
                                                   
          result  of arm's length bargaining; or it
                                                   
          reflects  circumstances where  the seller
                                                   
          has  exercised  market  power   over  the
                                                   
          purchaser.
                   

50  F.E.R.C. at 61,839 (emphasis added).  The ALJ interpreted

that holding as follows:

          The  Commission  made clear  that  in the
          particular circumstances  surrounding the
          Seabrook  contract,  it  retains power   
          through the "public interest"  language  
          to    make   modifications    under   the
          traditional   just  and   reasonable  and
          nondiscrimination standards.

53 F.E.R.C.  at  65,235.   The  standard established  by  the

Commission, and  subsequently applied by  the ALJ,  conflates

the  "just and  reasonable" and "public  interest" standards,

thereby  circumventing  the  Mobile-Sierra  doctrine.     The
                                          

distinction  between the  "just and  reasonable" and  "public

interest"  standards  loses  its   meaning  entirely  if  the

Commission may  modify a  contract under the  public interest

standard  where it  finds  the contract  "may be  unjust [or]

unreasonable."   The  parties'  express intent  was to  avoid

review  of  rate  schedules  under the  just  and  reasonable

standard.    Mobile-Sierra protects  their  right  to do  so,
                          

leaving the Commission  with the power  to modify rates  only

when required by the public interest.

                             -63-

          The  Commission  found that  the  SPC  might unduly

discriminate  against entities not  parties to  the contract,

and that there was no genuine arm's-length bargaining because

NU and PSNH negotiated the agreement at a time when they knew

they were about to  merge and have identical interests.   The

Commission held  that, in  this context, it  could "carefully

scrutinize the  rates, terms and conditions  of the contract"

to determine if they were just.  Id.
                                    

          The Commission's  explanation for employing  a just

and  reasonable  standard seems  to  us inadequate.    To the

extent  the  Commission   is  relying  on   NU's  prospective

ownership of PSNH, it is unclear why the Commission should be

concerned    about   protecting   PSNH   from   a   perceived

disadvantageous arrangement imposed by its  prospective owner

since any disadvantage visited on  the prospective subsidiary

will be borne by its owner.  If NU chooses  to allocate risks

among its operating subsidiaries  and one of its subsidiaries

is  disfavored in  this calculation,  there would seem  to be

little justification for the Commission stepping in on behalf

of the disfavored subsidiary absent some threat to the public

interest.

          As for the seller's  market power, reliance on this

factor  threatens  to  erode  the  Mobile-Sierra doctrine  so
                                                

substantially that  a fuller explanation  from the Commission

is required before  proceeding down this  route.  After  all,

                             -64-

some  measure of  market power  could be  present in  a large

number  of  contracts.    A  case-by-case  inquiry  into  the

presence  and extent of market  power would inject  a new and

potentially  time-consuming  element  into the  Mobile-Sierra
                                                             

analysis, and it is not entirely  clear in any event why  the

Commission should protect a buyer who voluntarily enters into

an agreement with a dominant seller.

          The  most attractive case  for affording additional

protection, despite  the presence of a contract, is where the

protection is  intended to  safeguard the interests  of third

parties,  notably the  buyer's customers.   The Mobile-Sierra
                                                             

doctrine itself allows  for intervention by FERC  where it is

shown  that the  interests of  third parties  are threatened.

Mobile,  350  U.S.  at  344-45;  Sierra,  350  U.S.  at  355.
                                       

However, the  standard to be  applied, as  formulated by  the

Supreme  Court, is  the  protection of  outside parties  from

"undu[e] discriminat[ion]"  or  imposition of  an  "excessive

burden."  Sierra,  350 U.S. at 355.  If  there is some reason
                

for departing from this public interest standard as framed by

the Supreme Court, the Commission has not supplied it.

          We  assume, without  deciding, that:   (1)  FERC is

correct  in its assertion that the State of New Hampshire did

not adequately represent the  interests of non-parties to the

contract,  and  that,  therefore,  the SPC  may  have  unduly

discriminated  against those non-parties; and (2) the alleged

                             -65-

lack of arms'-length bargaining among NU,  PSNH and the State

of  New Hampshire gave  the Commission the  right to evaluate

the SPC.  We hold, however,  that the Commission was bound to

follow  the Mobile-Sierra  doctrine as explicated  by Papago,
                                                            

and therefore should have evaluated  the SPC under the public

interest standard, not the just and reasonable standard.

          We  therefore remand this issue for reconsideration
                              

by FERC under the public interest standard.24

IV.  SUMMARY.

          We affirm  the Commission's orders in  all respects
                                                             

with the exception of its modifications of the Seabrook Power
                                                             

Contract filed with the merger  proposal which we remand  for
                                                             

consideration under the public interest standard.
                UNITED STATES COURT OF APPEALS
consideration under the public interest standard.
                                                 

                    FOR THE FIRST CIRCUIT

                                         

No. 92-1165

            NORTHEAST UTILITIES SERVICE COMPANY, 

                         Petitioner,

                    

24   We have considered, but find unpersuasive, NU's argument
that FERC  committed error  when it disrupted  the bankruptcy
settlement by modifying the Capacity Interchange Agreements.

                             -66-

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1261

        VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1262

 MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY, ET AL.,

                             -67-

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

                             -68-

No. 92-1263

  TOWNS OF CONCORD, NORWOOD AND WELLESLEY, MASSACHUSETTS, ET

AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                          

No. 92-1264

               CENTRAL MAINE POWER CO., ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                             -69-

                         Respondents.

                                         

No. 92-1316

         CITY OF HOLYOKE GAS &amp; ELECTRIC DEPARTMENT, 

                         Petitioner,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

                             -70-

No. 92-1328

               CANAL ELECTRIC COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

No. 92-1336

         THE AMERICAN PAPER INSTITUTE, INC., ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                             -71-

                         Respondents.

                                        

No. 92-1340

                BOSTON EDISON COMPANY, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

                             -72-

No. 92-1510

        VERMONT DEPARTMENT OF PUBLIC SERVICE, ET AL.,

                         Petitioners,

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION, ET AL.,

                         Respondents.

                                         

              PETITIONS FOR REVIEW OF ORDERS OF 

           THE FEDERAL ENERGY REGULATORY COMMISSION

                                         

                            Before

                   Torruella, Circuit Judge,
                                           

                Bownes, Senior Circuit Judge,
                                            

                  and Boudin, Circuit Judge.
                                           

                                         

                             -73-

     Gerald  M. Amero,  with  whom Catherine  R. Connors  and
                                                        

Pierce, Atwood, Scribner, Allen, Smith &amp; Lancaster and Arthur
                                                             

W.  Adelberg, and Anne M. Pare, were on brief, for petitioner
                              

Central Maine Power Company.

     Harvey  L.  Reiter,  with  whom   William  I.  Harkaway,
                                                            

Kathleen L. Mazure, and McCarthy, Sweeney &amp; Harkaway, were on
                                                    

brief, for petitioners Vermont Department of Public  Service,

Vermont  Public Service Board, Rhode Island Attorney General,

Rhode Island Division of Public Utilities and Carriers, Maine

Public Utilities Commission  and Massachusetts Department  of

Public Utilities.

     George H. Williams, Jr., with whom Morley Caskin, was on
                                                     

brief, for petitioners  Canal Electric Company,  Commonwealth

Electric Company and Cambridge Electric Light Company.

     J.A. Bouknight, Jr., with whom David B. Raskin, David L.
                                                             

Schwartz,  and Newman &amp; Holtzinger,  P.C., and Robert P. Wax,
                                                            

General  Counsel, were  on  brief,  for petitioner  Northeast

Utilities Service Company.

     Randolph Elliott, with whom William S. Scherman, General
                                                    

Counsel, Jerome M. Feit, Solicitor, Katherine  Waldbauer, and
                                                        

Eric  Christensen,  were  on  brief,  for  respondent Federal
                 

Energy Regulatory Commission.

                                         

                             -74-

     Alan  J.  Roth,  Scott  H. Strauss,  William  S.  Huang,
                                                             

Spiegel &amp;  McDiarmid, Nicholas  J. Scobbo, Ferriter,  Scobbo,
                                                             

Sikora,  Caruso &amp;  Rodophele, Wallace  L. Duncan  and Duncan,
                                                             

Weinberg,  Miller   &amp;  Pembroke,  on  brief   for  petitioner
                               

Massachusetts Municipal Wholesale Electric Company.

     Charles  F.  Wheatley,  Jr.,  Peter  A.   Goldsmith  and
                                                        

Wheatley  &amp;  Ranquist,  on  brief for  petitioners  Towns  of
                     

Concord, Norwood &amp; 

     David J.  Bardin, Noreen  M. Lavan, Eugene  J. Meitgher,
                                                            

Steven  R. Miles, and Arent, Fox, Kintner, Plotkin &amp; Kahn, on
                                                         

brief  for   petitioner  City  of  Holyoke   Gas  &amp;  Electric

Department.

     James T.  McManus, Michael E. Small,  Wright &amp; Talisman,
                                                             

P.C. and  Frederick S.  Samp, General  Counsel, on  brief for
                            

petitioner Bangor Hydro-Electric Co.

     Steven  Halpern  on brief  for  petitioner Massachusetts
                    

Department of Public Utilities.

     Alan  H. Richardson  on  brief  for petitioner  American
                        

Public Power Association.

     Mitchell Tennenbaum, Senior Staff Attorney, on brief for
                        

petitioner Maine Public Utilities Commission.

     Edward  G. Bohlen, Assistant Attorney General, and Scott
                                                             

Harshbarger,  Attorney  General,  on  brief   for  petitioner
           

Massachusetts Attorney General.

                             -75-

     Julio Mazzoli, Special  Assistant, and James  E. O'Neil,
                                                            

Attorney  General,  on  brief  for  petitioner  Rhode  Island

Division of  Public Utilities  and Carriers and  Rhode Island

Office of Attorney General.

     Robert  F.  Shapiro, Lynn  N.  Hargis  and Chadbourne  &amp;
                                                             

Parke, on brief for  petitioner The American Paper Institute,
     

Inc.

     Wayne R.  Frigard on brief for  petitioner Boston Edison
                      

Company.

     George M. Knapp, Roger B. Wagner, David A. Fazzone, John
                                                             

F.  Smitka,  and  McDermott,  Will  &amp;  Emery,  on  brief  for
                                            

petitioner Montaup Electric Company.

     Robert  S.  Golden,  Jr.,  Assistant  Attorney  General,
                             

Richard Blumenthal, Attorney General, and Howard E.  Shapiro,
                                                            

Special Assistant  Attorney General, and Van  Ness, Feldman &amp;
                                                             

Curtis,  on brief  for intervenor  Connecticut  Department of
      

Public Utility Control.

     Kenneth  M. Simon,  Larry F.  Eisenstat, and  Dickstein,
                                                             

Shapiro &amp; Morin, on brief for intervenor Masspower.
               

     Harold T. Judd, Senior Assistant Attorney  General, John
                                                             

P. Arnold,  Attorney General, Glen  L. Ortman, John  S. Moot,
                                                            

and Verner, Liipfert,  Bernhard, McPherson and  Hand, Chrtd.,
                                                            

on brief for intervenors  The State of New Hampshire  and New

Hampshire Public Utilities Commission.

                             -76-

     Kenneth D. Brown on  brief for intervenor Public Service
                     

Electric and Gas Company.

     Edward Berlin, Kenneth G.  Jaffee, Martin W. Gitlin, and
                                                        

Swidler  &amp;  Berlin,  and  Cynthia  A.  Arcate,  on  brief for
                                             

intervenor New England Power Company.

                                         

                                         

                             -77-

          BOWNES, Senior Circuit Judge.   These petitions for
          BOWNES, Senior Circuit Judge.
                                      

review  challenge the Federal  Energy Regulatory Commission's

("FERC"  or  "the   Commission")  decision  to  conditionally

approve  the merger  of  Northeast Utilities  ("NU") and  the

Public Service  Company of  New Hampshire ("PSNH").   Certain

joint petitioners  and intervenors25 contend that  FERC erred

when it:  (1) held that the benefits of the merger outweighed

its costs; and  (2) failed  to condition the  merger on  NU's

waiver  of  single  participant  status ("SPS")  in  the  New

England Power Pool ("NEPOOL").  A group of public and private

electric  utilities,  state   commissions,  state   agencies,

independent  power producers,  cogenerators and  electric end

users26  claim  that FERC  erred when  it:   (1)  allowed the

consummation of  the merger upon  the filing of,  rather than

upon   approval  of,   a  transmission   tariff;  (2) adopted

                    

25     Joint petitioners  and intervenors  include:   Central
Maine  Power Company;  Boston Edison  Company; Bangor  Hydro-
Electric  Company;   the  Towns  of   Concord,  Norwood   and
Wellesley, Massachusetts; Maine Public  Utilities Commission;
Massachusetts   Department   of  Public   Utilities;  Vermont
Department of Public  Service; Vermont Public Service  Board;
Rhode  Island Attorney  General;  Rhode  Island  Division  of
Public  Utilities  and   Carriers;  Massachusetts   Municipal
Wholesale  Electric  Company;  and,  City of  Holyoke  Gas  &amp;
Electric Department.

26   This  group of petitioners and intervenors  includes the
joint petitioners and intervenors  listed in n.1, supra (with
                                                       
the  exception of  Central Maine  Power Company),  and:   The
American  Paper  Institute,   Inc.;  American  Public   Power
Association;  Canal  Electric Company;  Commonwealth Electric
Company;  Cambridge  Electric  Light  Company;  Massachusetts
Attorney General; and, Montaup Electric Company.

                             -6-

transmission   access  conditions  that  gave  "native  load"

customers  a priority over  other customers; and (3) endorsed

"opportunity  cost" pricing  principles.   The Holyoke  Gas &amp;

Electric Department ("Holyoke")  argues that FERC  erred when

it  failed  to:   (1) conduct  an  appropriate review  of the

environmental impact  of the  proposed merger; and,  (2) make

findings    regarding    allegations    of    anticompetitive

consequences  of  the merger  that  were  unique to  Holyoke.

Finally,  Northeast  Utilities   Service  Company   ("NUSCO")

asserts that FERC's orders  changing the terms of  three rate

schedules  filed in  conjunction with its  merger application

were arbitrary, capricious, and an abuse of discretion.

          For   the   reasons   which   follow,   we   reject

petitioners' arguments and affirm the  Commission's decisions

with the exception of the Commission's decision to change the

terms  of the  Seabrook Power  Contract which  we  remand for

consideration under the "public interest" standard.

I.   BACKGROUND.

     A.   Parties to the Approved Merger.

          Northeast  Utilities ("NU") is a registered holding

company under the Public Utility Holding Company  Act of 1935

(PUHCA).  15 U.S.C.   79 et seq. (1988).  Northeast Utilities
                                

Service Company ("NUSCO") is  a service company subsidiary of

                             -7-

NU   and  supplies  centralized  administrative  and  support

services to NU's operating companies.27

          Prior to the merger,  Public Service Company of New

Hampshire ("PSNH")  was the  largest electric utility  in New

Hampshire, supplying  electric service to some 375,000 retail

customers,  approximately  three-quarters   of  the   State's

population, in every county in the State.  PSNH also provided

wholesale service to the New  Hampshire Electric Cooperative,

three  New Hampshire  municipalities, and  one investor-owned

utility,  Vermont  Electric  Power  Company.   PSNH  had  the

largest  ownership  share,  approximately  35.6  percent,  of

Seabrook Unit  No. 1, a nuclear  generating facility declared

to be available for service on June 30, 1990.

     B.   The Merger Proposal.

          On  January  28,  1988,  PSNH   filed  a  voluntary

petition  in  the  United  States Bankruptcy  Court  for  the

District of New Hampshire for reorganization under Chapter 11

of  the Bankruptcy Code.   11 U.S.C.    1101 et  seq. (1988).
                                                     

PSNH  alleged that it was unable to  recover in its rates the

outlays  it had made in the construction and operation of the

Seabrook  nuclear power  plant.   On  April  20, 1990,  after

                    

27   NU's operating companies are Connecticut Light and Power
Company  (CL&amp;P),  Western  Massachusetts   Electric  Company,
Holyoke  Water  Power  Company (HWP)  and  HWP's wholly-owned
subsidiary, Holyoke Power and Electric Company (HP&amp;E).  These
companies are wholly-owned subsidiaries  of NU and are public
utilities supplying retail and wholesale electric service  in
Connecticut and Massachusetts.

                             -8-

sifting through several  competing reorganization plans,  the

bankruptcy court  approved NU's  proposal to merge  with PSNH

and to  acquire and operate  all of PSNH's  power facilities.

See In re Public Service Co. of New Hampshire, 963  F.2d 469,
                                             

470 (1st Cir.), cert.  denied, Rochman v. Northeast Utilities
                                                             

Service Co., 113 S. Ct. 304 (1992).
           

          NU's proposal contained a two-step process:  first,

PSNH would  emerge from  bankruptcy as a  stand-alone company

bound  to a merger agreement  with NU; second,  PSNH would be

merged  with   an  NU  subsidiary  created   solely  for  the

acquisition (NU Acquisition Corporation), with  PSNH emerging

as  the surviving entity.  After  the merger, PSNH would be a

wholly-owned  subsidiary   of  NU  and  would   transfer  its

ownership  interest   in  Seabrook  to  a   newly  formed  NU

subsidiary,   North   Atlantic  Energy   Corporation  ("North

Atlantic").    The second  step  would occur  only  after all

necessary  approvals   were   received  from   the   relevant

regulatory agencies.

     C.   Procedural History.

          On January 8, 1990, NUSCO, on behalf of NU and NU's

operating subsidiaries, filed an  application with FERC under

section 203 of  the Federal  Power Act ("FPA"),  16 U.S.C.   

824b (1988), seeking authorization for PSNH to dispose of all

of its  jurisdictional facilities and  concurrently to  merge

with, and become  a subsidiary  of, NU.   In connection  with

                             -9-

this application,  NUSCO filed four rate  schedules with FERC

pursuant  to     205   of  the  FPA:    the   Seabrook  Power

Contract,28   the  Sharing   Agreement29  and   two  Capacity

Interchange Agreements.30

          The  Commission  consolidated consideration  of the

merger  application and  rate  schedules,  accepted the  rate

schedules for  filing and suspended their  effectiveness, and

set for  hearings before an administrative  law judge ("ALJ")

the questions  of whether the  Commission should grant  the  

203  application  and  approve   the  rate  schedules.    See
                                                             

Northeast Utilities Service Co.,  50 F.E.R.C.   61,266, reh'g
                                                             

granted  in part  and denied  in part,  51 F.E.R.C.    61,177
                                     

(1990).  In its order, the Commission directed the parties to

                    

28  The Seabrook  Power Contract is a  life-of-the-unit power
sales agreement between PSNH  and North Atlantic entered into
concurrently with  NU's acquisition of PSNH  and the transfer
of PSNH's share  of Seabrook  to North Atlantic.   Under  the
contract, PSNH  agreed  to purchase  North Atlantic's  entire
share of Seabrook capacity and  energy, according to a  cost-
of-service formula rate.  The contract was intended to ensure
that  North Atlantic would recover all of its costs from PSNH
regardless of whether or not Seabrook actually operated.

29   The Sharing Agreement allocates the benefits and obliga-
tions from the  integrated operation of PSNH and  the current
NU  system, as well as  the joint planning  and operations of
these  systems.   This  agreement established  a formula  for
sharing the  expected post-merger benefits that  would accrue
to NU and PSNH  operating companies as a result  of operating
efficiencies  and  the  ability  to take  single  participant
status under the NEPOOL agreement.

30    The two Capacity Interchange Agreements provide for the
sale  and purchase  of  energy between  PSNH and  Connecticut
Light &amp; Power Company (CL&amp;P) over a ten-year term.

                             -10-

address  the  effect of  the proposed  merger on  NU's market

power and "whether any transmission conditions  are necessary

to eliminate any  adverse effect of the  proposed merger and,

if  so,  what specific  conditions  should be  imposed."   50

F.E.R.C. at 61,834-35.

          On December  20, 1990,  the ALJ issued  its Initial

Decision  approving  the     203  application  and  the  rate

schedules   with   certain   modifications  and   conditions.

Northeast Utilities Service Co., 53 F.E.R.C.   63,020 (1990).
                               

The Commission, in Opinion No. 364, issued on August 9, 1991,

affirmed in  part and  reversed in part  the ALJ's  decision,

conditionally approving  the    203 application and  the rate

schedules.   Northeast Utilities  Service Co., 56  F.E.R.C.  
                                             

61,269  (1991).    On  January 29,  1992,  after  considering

additional  filings  by  the  parties and  oral  argument  on

transmission  pricing issues,  the Commission  issued Opinion

No. 364-A,  affirming its  conditional approval of  the   203

application  and rate schedules.  Northeast Utilities Service
                                                             

Co., 58 F.E.R.C.   61,070 (1992).
   

          Petitions for review of  Opinions No. 364 and 364-A

were  filed in  this court  and in  the District  of Columbia

Circuit  Court.     The  Judicial   Panel  on   Multidistrict

Litigation  consolidated these petitions  for review  in this

court, where  further petitions for  review were  filed.   28

U.S.C.   2112(a) (1988).  Subsequently, in Opinion No. 364-B,

                             -11-

the Commission denied a request for  rehearing of Opinion No.

364-A.  Northeast Utilities Service Co., 59 F.E.R.C.   61,042
                                       

(1992).  A petition for review of Opinions No. 364-A and 364-

B was filed in this court, where it was consolidated with the

earlier filed  petitions.  We review  the Commission's orders

under the jurisdiction established by 16 U.S.C.   825l.

II.  STANDARD OF REVIEW.

          On  review,   we  give   great  deference  to   the

Commission's decision.   U.S. Dep't of Interior  v. FERC, 952
                                                        

F.2d 538, 543  (D.C. Cir. 1992).  FERC's findings of fact are

reviewed under the "substantial evidence" standard of review.

16 U.S.C.   825l  ("The finding of  the Commission as to  the

facts,  if  supported  by  substantial  evidence,  shall   be

conclusive.").  Therefore,

          [w]e  defer  to  the agency's  expertise,
          particularly where the statute prescribes
          few specific standards  for the agency to
          follow,  so  long  as  its   decision  is
          supported  by  "substantial evidence"  in
          the  record  and  reached   by  "reasoned
          decisionmaking," including an examination
          of  the  relevant  data  and  a  reasoned
          explanation   supported   by   a   stated
          connection  between  the facts  found and
          the choice made.

Electricity  Consumers  Resource Council  v.  FERC, 747  F.2d
                                                  

1511,  1513 (D.C. Cir. 1984).  "Pure" legal errors require no

deference  to agency  expertise,  and are  reviewed de  novo.
                                                            

Questions involving an interpretation of the FPA involve a de
                                                             

novo determination  by the court of  Congressional intent; if
    

                             -12-

that  intent is  ambiguous,  FERC's conclusion  will only  be

rejected if  it  is unreasonable.    Chevron USA  v.  Natural
                                                             

Resources  Defense  Council,  467  U.S.  837,  842-45 (1984);
                           

Boston Edison Co. v. FERC, 856 F.2d 361, 363 (1st Cir. 1988).
                         

III. DISCUSSION.

     A.   Conditional Approval of the Merger.

          1.   Background.
                         

          In reaching  his  decision to  approve the  NU-PSNH

merger,  the   ALJ  found  that  the   merger  would  produce

significant benefits.  Specifically, he found that:  (1) PSNH

would emerge from bankruptcy  as a viable utility on  a solid

financial  footing,  53  F.E.R.C.  at  65,211;  (2)  improved

management techniques and economies of scale would reduce the

operating costs  of Seabrook by  some $527 million,31  id. at
                                                          

65,212; (3) application of NU operating procedures  to PSNH's

fossil steam plants would save  $100 million, id. at  65,213;
                                                 

(4) reductions in  administrative and general  expenses would

save  $124  million, id.;  (5) NU's  record of  buying lower-
                        

priced coal on the  spot market would save $39  million, id.;
                                                            

and (6) the merger would yield $360 million in savings for NU

because of  its ability to elect  "single participant status"

                    

31    This,  and all  other  dollar amounts  are net  present
values unless otherwise noted.

                             -13-

in  the  New  England  Power  Pool  (NEPOOL),  a  power  pool

comprised of most of the utilities in New England.  Id.
                                                       

          The ALJ  also found that  unless several conditions

were  imposed, the  merger  would have  short- and  long-term

anticompetitive consequences because of the  merged company's

increased market  power over  key transmission  facilities in

both  the New England region and the Rhode Island and Eastern

Massachusetts submarket ("Eastern  REMVEC").  53 F.E.R.C.  at

65,214-19.   Under the  authority of   203(b)  of the FPA, 16

U.S.C.    824b(b), the  ALJ  approved the  merger subject  to

several conditions, including the  following:  (1) the merged

company  must  offer  firm  (non-interruptible)  transmission

service  for a minimum of 30 days  and a maximum of 20 years,

53  F.E.R.C.  at  65,220-21;  (2) non-firm  service  must  be

offered  for a one-day minimum  term, id. at  65,220; (3) the
                                         

merger would be consummated concurrently with the filing of a

compliance tariff which fully reflects  all of the terms  and

conditions set  out in  the ALJ's  Initial  Decision, id.  at
                                                         

65,221;  (4) NU  must  implement its  New Hampshire  Corridor

Proposal,32 thereby  making available 400 MW  of transmission

                    

32   The New Hampshire  Corridor Transmission Proposal allows
New  England  utilities  to purchase  long-term  transmission
rights from NU-PSNH in order to connect with power sources in
northern New England and Canada.  See 53 F.E.R.C. at 65,225.
                                     

                             -14-

capacity  for wheeling33  by utilities  in both  northern and

southern New  England, id.  at 65,225-27; and  (5) the merged
                          

company's veto  power on NEPOOL's  Management Committee would

be restricted for the ninety day period immediately following

consummation of the merger, id. at 65,230-31.
                               

          In  Opinion No.  364, the  Commission affirmed  the

ALJ's finding  that the merger, with  appropriate conditions,

was consistent  with  the public  interest.   56 F.E.R.C.  at

62,011.  It held,  however, that the $364 million  cost-shift

between NU-PSNH and other NEPOOL members should not have been

counted  as a benefit of the merger because it simply shifted

costs dollar-for-dollar  among the membership without any net

savings.34    56 F.E.R.C.  at  61,997.   The  Commission also

held  that,  in evaluating  the  costs  and benefits  of  the

merger, the ALJ  correctly attributed the benefits  resulting

from  the merger to the  merger even if  those benefits could

have been  achieved  by other  means.35   Id.  at  61,994-96.
                                             

This conclusion  was reiterated  on rehearing in  Opinion No.

364-A.  58 F.E.R.C. at 61,186-87.

                    

33   "Wheeling" is defined as the "transfer by direct trans-
mission or displacement [of]  electric power from one utility
to another  over the facilities of  an intermediate utility."
Otter Tail Power Co. v. U.S., 410 U.S. 366, 368 (1973).
                            

34   This issue is discussed in Part III(B), infra.
                                                  

35   This issue is discussed in Part III(A)(3), infra.
                                                     

                             -15-

          Petitioners  and intervenors argue that FERC erred,

as  a matter  of law,  in holding  that  the benefits  of the

merger outweighed its costs.

                             -16-

          2.   The Statutory Standard.
                                     

          FERC's   authority   to    consider   the    merger

applications of utilities  is set  forth in    203(a) of  the

FPA, 16  U.S.C.   824b(a):  the Commission  "shall approve" a

proposed merger of utility facilities if, "[a]fter notice and

opportunity  for hearing, . . . the Commission finds that the

proposed disposition, consolidation, acquisition,  or control

will  be  consistent with  the public  interest."   Id.   The
                                                       

Commission has the additional authority to grant approval for

such transactions "upon such terms and conditions as it finds

necessary   or  appropriate  to  secure  the  maintenance  of

adequate service and the  coordination in the public interest

of facilities subject to the jurisdiction of the Commission."

16 U.S.C.     824b(b).    As the  Commission  noted  when  it

reviewed the Initial Decision of the ALJ,

          [m]erger  applicants need not show that a
          positive  benefit  will  result   from  a
          proposed  merger.    The  applicant  must
          fully  disclose  all  material facts  and
          show  affirmatively  that  the merger  is
          consistent with the public interest.   It
          is  sufficient  if  the "probable  merger
          benefits  . . .  add up  to substantially
          more than the costs of the merger."

56 F.E.R.C. at  61,994 (quoting  Utah Power &amp;  Light Co.,  47
                                                        

F.E.R.C.  at  61,750  (1989)  (footnotes omitted);  see  also
                                                             

Pacific Power  &amp; Light Co.  v. Federal Power  Commission, 111
                                                        

F.2d  1014,  1016 (9th  Cir. 1940).    We review  the record,

therefore, to determine whether the Commission's finding that

                             -17-

the   probable   benefits   of   the  NU-PSNH   merger   were

substantially  more   than   its  costs   was  supported   by

substantial evidence.

          3.   Discussion.
                         

          Petitioners make two claims  with regard to  FERC's

evaluation  of the costs and benefits  of the NU-PSNH merger.

First,  they  argue  that  the  Commission  should  not  have

included resolution of PSNH's bankruptcy as a  benefit of the

merger because:  (1) PSNH actually emerged from bankruptcy on

May 16, 1991, the  effective date of the  Reorganization Plan

("RP");  and  (2) prior  to  gaining  the bankruptcy  court's

approval  of the two-step RP, PSNH  had to show that it would

be  financially  viable  as   a  stand-alone  entity  because

regulatory approval  for the  second step  of the  RP (merger

with and into NU) was not assured.  These two facts, however,

do not  imply that  it was  error for  FERC  to consider  the

"resolution of PSNH's bankruptcy" as  a benefit, indeed as  a

principal benefit, of the merger.  

          It  is  true  that  PSNH, as  a  technical  matter,

"emerged" from  bankruptcy prior  to FERC's  consideration of

the proposed merger.  The ALJ and the Commission did not hold

otherwise.   The  ALJ  stated, and  the Commission  summarily

affirmed the fact that "[t]he merger is part of  a plan which
                                                       

enables a  reorganized PSNH to  emerge from bankruptcy."   53

F.E.R.C. at 65,211  (emphasis added); see also 56 F.E.R.C. at
                                              

                             -18-

61,993.  Like the state regulators  who approved the two-step

merger  plan, the Commission  evaluated the plan  as a whole,

anticipating  "the merger   not  `stand alone' PSNH    as the

ultimate destiny  for the reorganized company."   53 F.E.R.C.

at 65,211.   "All parties to  the reorganization contemplated

[stand  alone]  status as  an interim  step  en route  to the

merger."  Id.   It was the entire  plan, which admittedly had
             

two  sequential and  severable  steps, that  allowed PSNH  to

emerge  from bankruptcy.  There is no evidence that the state

regulators would have approved a plan to allow PSNH to emerge

from bankruptcy  that included  only the first  "stand alone"

step.  Indeed, there is evidence to the contrary.

          FERC  also found that "resolving" PSNH's bankruptcy

meant  more  than  simply  the emergence  of  PSNH  from  the

protection of  bankruptcy court.   FERC held  that the  final

resolution of PSNH's bankruptcy included the treatment of its

creditors and  stockholders who stood  to lose  approximately

$250 million  in  the absence  of  the merger.    As the  ALJ

observed, the Commission "regard[s] the right of these public

bondholders as of primary importance after the consumers have

been protected."  53 F.E.R.C. at 65,211 (quoting In re Evans,
                                                            

1 F.P.C. 511, 517  (1937) (approving an acquisition involving

the reorganization  of a bankrupt utility)).   The Commission

also held that it was  in the public interest to  approve the

creation  of a  stronger, more  viable merged  entity, rather

                             -19-

than leaving PSNH in a "weakened", "stand alone" state.  This

holding was sufficiently supported by evidence in the record.

          Petitioners also  claim that, given  the bankruptcy

court's   "feasibility   finding"  required   by   11  U.S.C.

  1129(a)(11),36  the Commission  was estopped  from reaching

the  conclusion that a "stand  alone" PSNH would  be "weak." 

We disagree.   The  bankruptcy court  and FERC evaluated  the

merger proposal under  different standards.   The  bankruptcy

court  was required  to determine  the likelihood  of further

liquidation or reorganization proceedings were the plan to be

approved.  FERC was obliged to determine whether the plan was

"consistent  with   the  public   interest."    It   was  not

inconsistent for FERC to find that although PSNH was  capable

of  surviving  as  a stand  alone  entity,  it  would not  be

"consistent  with the  public interest"  to prevent  a merger

that  would  result   in  an  even  stronger  utility.    The

principles of estoppel simply do not apply  in a case such as

this, where the issues litigated and the standards applied in

the two proceedings are so different. 

                    

36   The Bankruptcy Code provides that:
     (a)   The   court   shall  confirm   a   plan   [of
     reorganization]  only  if   all  of  the  following
     requirements are met:
     (11) confirmation  of the plan is not  likely to be
     followed  by  the  liquidation,  or  the  need  for
     further financial reorganization, of the  debtor or
     any successor to the  debtor under the plan, unless
     such liquidation  or reorganization is  proposed in
     the plan.
  11 U.S.C.   1129(a)(11).

                             -20-

          Even were petitioners correct in their asseveration

that  FERC  improperly  counted  the  resolution   of  PSNH's

bankruptcy  as a  benefit  of the  merger, "the  Commission's

error would be immaterial in light of the overwhelming excess

of other  benefits ($791  million) over  the costs  (0) still

attributable . . . to the acquisition."   City of Holyoke Gas
                                                             

&amp; Elec. Dep't v. S.E.C., 972 F.2d 358, 362 (D.C. Cir. 1992).
                       

          Second,  petitioners  argue that  FERC  erred  as a

matter  of law  in  weighing as  merger  benefits results  or

alleged  savings   that  were,  or  could   be,  achieved  by

"alternate  means."   Specifically, petitioners  contend that

FERC's   failure  to   apply  the   "alternate   means"  test

contradicted  general agency  policy  and  general  antitrust

principles. 

          It is undisputed  that utilities  are "not  immune"

from antitrust laws.   Otter Tail Power Co. v. U.S., 410 U.S.
                                                   

366,  372-75 (1973); Town  of Concord  v. Boston  Edison, 915
                                                        

F.2d  17 (1st  Cir.  1990), cert.  denied,  111 S.  Ct.  1337
                                         

(1991).  At issue in this case is whether FERC is required by

statute,  or otherwise,  to  engage  in "standard"  antitrust

analysis before  passing on    203  merger applications.   In

claiming that  FERC has such an  obligation, petitioners rely

on a statute  governing agency approval of  bank mergers (the

                             -21-

"Bank  Merger  Act")  which   states  that  the  agency  with

jurisdiction over a proposed bank merger,37

          shall not approve  
             (A)  any  proposed merger  transaction
          which  would result  in  a  monopoly,  or
          which  would  be  in furtherance  of  any
          combination  or conspiracy  to monopolize
          or  to attempt to monopolize the business
          of  banking in  any  part  of the  United
          States, or
             (B)   any    other   proposed   merger
          transaction whose effect  in any  section
          of  the country  may be  substantially to
          lessen  competition, or to tend to create
          a monopoly, or which in any  other manner
          would be in restraint of trade, unless it
          finds that the anticompetitive effects of
          the  proposed   transaction  are  clearly
          outweighed in the public interest  by the
          probable  effects  of the  transaction in
          meeting the convenience  and needs of the
          community to be served. . . .
          (6)   The    responsible   agency   shall
          immediately  notify the  Attorney General
          of any  approval by  it pursuant  to this
          subsection    of   a    proposed   merger
          transaction.

12 U.S.C.   1828(c)(5)-(6).   The Supreme Court, interpreting

the Bank Merger Act, has held that before a bank merger which

is  injurious to  the  public interest  may  be approved,  "a

showing [must] be made that the gain expected from the merger

cannot  reasonably be expected through other means."  U.S. v.
                                                          

Phillipsburg Nat. Bank &amp; Trust Co., 399 U.S. 350, 372 (1970).
                                  

Petitioners claim that the language of the Bank Merger Act is

sufficiently similar to the statute governing FERC's approval

                    

37   Jurisdiction varies  depending on whether  the resulting
entity  is  a national  bank, a  state  member bank,  a state
nonmember bank, or a savings association.

                             -22-

of  proposed  mergers,  16  U.S.C.    824b(a),  because  both

contain  a "public interest" standard, to require FERC to use

the "alternate means" test which  bank regulators must use in

evaluating proposed bank mergers.  We disagree.

          As with  any matter  of statutory construction,  we

first examine the language  of the statute.  Under  16 U.S.C.

  824b(a),  the  Commission  is required,  after  notice  and

opportunity  for hearing,  to  approve a  proposed merger  of

utility  facilities if  it finds  that the proposal  "will be

consistent  with  the  public interest."    That  is all  the

statute  says.  There  is no explicit  reference to antitrust

policies or principles.   There is no  evidence that Congress

sought  to  have  the  Commission  serve  as  an  enforcer of

antitrust  policy  in  conjunction  with  the  Department  of

Justice and  the Federal Trade  Commission.  The  Bank Merger

Act  reveals a  quite different  intention.   There, Congress

explicitly  set out  standards for  approval of  bank mergers

that incorporate  principles  embodied  in  the  Sherman  and

Clayton  Acts.   12  U.S.C.   1828(c)(5).   By  requiring the

reviewing  agency  to  notify  the Attorney  General  of  any

decision  to approve  a  proposed bank  merger,  12 U.S.C.   

1828(c)(6),  Congress  expressed  its  desire  to  have  bank

regulators  serve as pre-screening  bodies of  mergers which,

because of their importance or character, in most  cases also

deserve the attention of the Department of Justice.

                             -23-

          The Bank  Merger Act  carries with it  the implicit

presumption that  mergers are  to be disapproved  (the agency

"shall not approve" a  bank merger "unless it finds  that the

anticompetitive  effects are clearly outweighed in the public

interest"  by   the  benefits   of  the  merger,   12  U.S.C.

  1828(c)(5)).   The  FPA,  on the  other hand,  requires the

Commission to approve any merger that is "consistent with the

public  interest."     16   U.S.C.     824b(a).     Antitrust

considerations   are,   of   course,   relevant   in   FERC's

consideration of  the "public interest"  in merger proposals.

The  statute,  however,  does  not require  FERC  to  analyze

proposed mergers under the same standards that the Department

of Justice or bank regulators must apply.

          Although  the  Commission  must  include  antitrust

considerations in its public interest calculus under the FPA,

it is not  bound to use antitrust principles when they may be

inconsistent  with the  Commission's  regulatory goals.   See
                                                             

Otter  Tail,   410  U.S.   at   373  ("[a]lthough   antitrust
           

considerations  may be  relevant [in  determining  the public

interest], they are not determinative").  In Town of Concord,
                                                            

this  court  observed  that indiscriminate  incorporation  of

antitrust policy into utility regulation  "could undercut the

very objectives  the antitrust  laws are designed  to serve."

915  F.2d  at  22.     Therefore,  "antitrust  analysis  must

sensitively `recognize and  reflect the distinctive  economic

                             -24-

and  legal  setting' of  the regulated  industry to  which it

applies."   Id. (quoting Watson &amp;  Brunner, Monopolization by
                                                             

Regulated   "Monopolies":     The   Search  for   Substantive
                                                             

Standards, 22 Antitrust Bull. 559, 565 (1977)).
         

          Petitioners  may  rest  assured that  were  FERC to

approve  a merger of utilities which ran afoul of Sherman Act

or other  antitrust policies, the utilities  would be subject

to either prosecution by government officials responsible for

policing the antitrust laws,  or to suit by private  citizens

meeting the requirements  of standing.   See Otter Tail,  410
                                                       

U.S. at 374-5.

     B.   FERC's  Failure to Condition  Merger on NU's Waiver
          of Single Participant Status.

          Petitioners  argue  that  the  Commission  erred in

failing to  condition the merger on waiver  by NU and PSNH of

"single participant status" ("SPS")  in the New England Power

Pool ("NEPOOL"), thereby preventing  the imposition of a $364

million cost shift  from NU and PSNH to  the other members of

NEPOOL.

          1.   Background.
                         

          NEPOOL is  a power  pool comprised  of most  of the

utilities in New England.  The association is governed by the

New England  Power  Pool Agreement  ("the  Agreement")  which

establishes a "comprehensive interconnection and coordination

arrangement" among  its members in order  "to achieve greater

                             -25-

reliability and economies in the  production of electricity."

Groton v.  FERC,  587  F.2d  1296,  1298  (D.C.  Cir.  1978).
               

Section  202(a)  of the  Federal  Power  Act encourages  such

voluntary  interconnection  and  coordination of  electricity

generating facilities in order to achieve economies of scale.

16  U.S.C.    824a; see  also 16  U.S.C.    824a-1 (regarding
                             

pooling  agreements).  The Agreement  was approved as a filed

rate  schedule  by  FERC's  predecessor,  the  Federal  Power

Commission.   53 F.E.R.C. at  65,213.  Under  its terms, each

member  is  required  to   supply  the  pool  with  resources

("Capacity Responsibility") according to a formula based upon

the  relationship of the member's peak load to an estimate of

aggregate peak load of all members.

          NU  experiences its  peak load  in the  summer, and

PSNH experiences its peak load in the winter.  By aggregating

these two,  complementary, peak loads, NU-PSNH  can achieve a

lower Capacity Responsibility than would  be the case if  the

two   utilities  remained  separate.    Because  the  overall

capacity requirements of NEPOOL  will not change as  a result

of the merger, the Capacity Responsibilities of other members

must rise to  make up  for the savings  accruing to  NU-PSNH.

The  ALJ  accepted  the  "undisputed" estimate  that  "single

participant status" (SPS)  will result in a  shifting of some

$360  million in costs from  NU-PSNH to other  members of the

pool.  Id.
          

                             -26-

                             -27-

          2.   Discussion.
                         

          Petitioners  offer six  arguments to  support their

claim that FERC erred  in failing to condition the  merger on

waiver of SPS by NU and PSNH.  First, petitioners  claim that

the Commission  did not  properly interpret the  provision of

the NEPOOL Agreement which  governs the election of SPS.   We

agree with  the Commission's finding that  the Agreement both

specifically allows for the election  by NU-PSNH of SPS,  and

encourages  such elections.    Section 3.1  of the  Agreement

provides in relevant part that:

          All  Entities which  are controlled  by a
          single person (such as a corporation or a
          common law business  trust) which owns at
          least seventy-five percent of  the voting
          shares   of   each  of   them   shall  be
                                               
          collectively   treated    as   a   single
          Participant   for    purposes   of   this
          Agreement, if they elect  such treatment.
          They are  encouraged to  do so.   Such an
                                        
          election shall  be  made by  signing  the
          appropriate   form  at   the  end   of  a
          counterpart of this Agreement.

(Emphasis  supplied.)    Both  the  ALJ  and  the  Commission

interpreted section 3.1 to be  an explicit endorsement of the

election of  SPS by NU-PSNH.   The  ALJ stated that  "[i]t is

undisputed  that  NU  and   PSNH  qualify  for  such  [single

participant]  status under  the Agreement."   53  F.E.R.C. at

65,213.  The Commission  gave great weight to the  unrebutted

testimony  of  witness  Bigelow,   who  participated  in  the

negotiation of  the NEPOOL Agreement regarding  the intent of

the  original  signatories   to  the   Agreement  and   their

                             -28-

recognition  of  such  potentially  large  cost-shifts  among

NEPOOL members.  Bigelow stated:

          [W]hen  we put  NEPOOL together  20 years
          ago,  we  recognized  that  these  things
          might happen.  This is not something that
          snuck  up  on people. . . .   And  we did
          discuss  at  length  what   would  happen
          because . . . we were then coming up to a
          potential   merger   of  Boston   Edison,
          Eastern Utilities, New England Power.  It
          was recognized that these kinds of things
          could happen in the future and we spelled
          out the ground rules and  recognized that
          that would  happen when it happened.  And
          the  people   who  didn't  like   it  got
          something else for it.

53  F.E.R.C.  at 65,214.   Both  the  ALJ and  the Commission

rejected petitioners' claim on the basis of both the language

of the Agreement, and Bigelow's unrebutted testimony that not

only  had the  signatories been  aware of such  a potentially

large  savings  shift, but  that  those  utilities that  were

dissatisfied  with this risk  received additional concessions

as  compensation.    We  will not  disturb  the  Commission's

findings.

          Second,  petitioners claim  that the  Agreement, as

interpreted in  NEPOOL Power Pool Agreement,  56 F.P.C. 1562,
                                           

1580 (1976), aff'd sub nom. Municipalities of Groton v. FERC,
                                                            

587 F.2d 1296 (D.C. Cir. 1978), prohibits utilities with peak

loads  in different  seasons  from  electing  SPS.    As  the

Commission  explained,  this  argument  mischaracterizes  the

Agreement and  the decision  of the Federal  Power Commission

("FPC") in NEPOOL.
                 

                             -29-

          The NEPOOL Agreement, as  initially filed
          and    as   approved,    allowed   single
          participant    status    for    utilities
          controlled by a single "person" owning at
          least 75 percent of the voting shares  of
          each utility.  An exception was expressly
          allowed  in the  filed agreement  for any
          Vermont  utility  which  elected   to  be
          grouped   with  Vermont   Electric  Power
          Company.  This exception was approved for
          essentially two reasons:  (1) the Vermont
          utilities  had  long  acted  as  a single
          contiguous  integrated  electric  entity;
          and (2) since  they all experienced their
          peak loads in winter,  single participant
          status would not give them a lower NEPOOL
          Capability Responsibility (and consequent
          savings).    A   broader  exception   was
          denied, however, for a group of municipal
          utilities (represented by MMWEC) that was
          not entitled to single participant status
          and  that lacked the two cited attributes
          of the  Vermont utilities.  The basis for
          the denial was that allowing  such status
          for "any group of systems, such as MMWEC,
          could   well   be   detrimental  to   the
          functioning of NEPOOL."
             The  NEPOOL  decision, thus,  does not
          stand  for  the  proposition that  single
          participant status is  available only  to
          utilities  having their peak loads in the
          same  season.    Instead,   another  way,
          indeed   the   primary   way,  in   which
          utilities  may qualify  is  if  they  are
          controlled  by  a  single person  with  a
          least 75-percent common ownership.   That
          is the basis upon  which NU and PSNH will
          presumably seek to  qualify if the merger
          is  approved.   Such status  is expressly
          allowed   under   the  NEPOOL   Agreement
          regardless of when NU and PSNH experience
          their peak loads.

56 F.E.R.C. at 61,996-97.  The reasons  offered by the FPC in

its  decision  to  grant  a  special  exception  for  Vermont

utilities seeking SPS were  not intended to be, and  are not,

conditions, in  addition to those  set out in  the Agreement,

                             -30-

which must be satisfied to elect SPS.  The FPC did not narrow

the scope of Section  3.1 to apply only to  utilities sharing

the  same peak  load  season; rather,  it  created a  special

exception to the  75 percent rule  to accommodate the  unique

situation faced by Vermont utilities.

          Third, petitioners  claim that FERC failed  to give

proper consideration  to Section  4.2 of the  Agreement, "the

interests of  other  pool members,  and  the purpose  of  the

Agreement as  a whole."  Essentially,  petitioners argue that

allowing  NU-PSNH  to  elect  SPS  would  violate  a  general

provision  of the  Agreement, which states  that participants

"shall  not . . . take  advantage of  the provisions  of this

Agreement so  as to harm another Participant  or to prejudice

the  position  of any  Participant  in  the electric  utility

business."   We  reject  this argument  for the  same reasons

expressed   by  the  Commission   in  its   decision  denying

petitioners' request for a rehearing:

          [W]e  find more  relevance in  the NEPOOL
          Agreement's   explicit   endorsement   of
          single  participant  status  than in  the
          agreement's  general  goal of  "equitable
          sharing"   and  prohibition   on  members
          "taking  advantage"  of the  agreement to
          harm  or prejudice  other  members.   The
          NEPOOL Agreement  specifically encourages
          eligible    parties   to    seek   single
          participant status;  the provisions cited
          by  the  intervenors  are   general,  not
          specific.      Construing   the   general
          consistent  with  the  specific, we  find
          single participant status for  the merged
          company  consistent   with  an  equitable
          sharing,  as  envisioned  by  the  NEPOOL

                             -31-

          Agreement, and not  violative of the  ban
          on  taking  advantage of  the agreement's
          provisions  to  harm  or prejudice  other
          members.

58 F.E.R.C. at 61,189.   We agree with FERC's  interpretation

of  the  Agreement.     The  NEPOOL  signatories   explicitly

encouraged  qualified  members  to  seek  SPS,   indeed  they

contemplated that members that merged might choose to do just

that.   We agree  with the  Commission's construction  of the

Agreement which avoids a direct conflict between Sections 3.1

and 4.2, and instead gives both provisions reasonable effect.

          Fourth, petitioners argue that failure to condition

the   merger  on   waiver  of   SPS  would   create  "serious

disincentives"   for  current   members  to   continue  their

membership  in NEPOOL,  and  that the  breakup  of NEPOOL  is

contrary to the public interest.  Petitioners imply that FERC

did not take seriously their complaints about SPS, but rather

rested its decision  not to  require a waiver  solely on  the

fact that the Agreement allowed the election of SPS.  This is

simply not so.

          The  Commission reversed  the ALJ  on the  issue of

whether SPS savings  should be  counted as a  benefit of  the

merger.   The Commission  found that  because the  cost shift

amounted  to  a  zero-sum   transaction,  with  NU  and  PSNH

benefitting and the other members burdened dollar-for-dollar,

the shift could not  be counted as a  benefit of the  merger.

                             -32-

56  F.E.R.C. at 61,997.  Thus, the Commission did not dismiss

petitioners' claims regarding SPS without thought.

          Also,  the ALJ  found,  and the  Commission agreed,

that SPS was essential to the merger, and that the merger, as

conditioned, was in the public interest.  FERC must approve a

proposed merger if it is consistent with the public interest.

16  U.S.C.    824b(a).    FERC  has  the  discretion  to  add

conditions  to a proposed  merger to  ensure that  the merger

will, taken as a whole, be in the public interest.  16 U.S.C.

   824b(b).    FERC  need  not, however,  explain  why  every

condition, or failure to  establish a condition is consistent

with the public interest when considered separately and apart

from the entire transaction.  Petitioners seem to argue  that

FERC was required by law to  state why it was consistent with

the  public interest  to  follow the  explicit  terms of  the

approved fifteen  year-old  NEPOOL Agreement  rather than  to

condition  the  merger  on   waiver  of  a  membership  right

established by the Agreement.   FERC had no such  obligation.

It need not have  explained why it failed to add a particular

condition  prior to approving  a merger.   The statute simply

provides that "[t]he Commission may grant any application for

an order under this section in whole or in part and upon such

terms and conditions as it  finds necessary or appropriate to

secure the  maintenance of adequate  service and coordination

in  the   public  interest  of  facilities   subject  to  the

                             -33-

jurisdiction  of the Commission."   16 U.S.C.    824b(b).  In

this  case, the Commission  set forth a  reasonable basis for

approving the  merger as consistent with  the public interest

in light of the supplementary conditions the Commission found

necessary.   FERC  need not  have gone  further than  this to

explain  why it  failed  to place  further conditions  on the

merger.

          Fifth,   petitioners   allege   that   FERC   acted

inconsistently in  its  treatment of  the NEPOOL  Agreement's

provisions regarding  voting rights and SPS.   The Commission

adopted  a  condition limiting  the  merged company's  NEPOOL

voting  rights to  prevent PSNH  and NU  from gaining  a veto

power  in NEPOOL.  56  F.E.R.C. at 62,043-45.   FERC reasoned

that,  while   there  was   evidence  that   the  signatories

anticipated  that  large   cost-shifts  would  accompany  the

election  of SPS in merger  situations, there was no evidence

that they anticipated the  voting rights implications of such

mergers.   58 F.E.R.C.  at 61,189.   It was not,  contrary to

petitioners' argument,  inconsistent as a matter  of logic to

condition voting rights where the Agreement was silent on the

need or lack of need to do so, while failing to condition SPS

where the  Agreement explicitly favored the  election of SPS.

Furthermore, it was not  an error of law to  condition voting

rights while  leaving SPS  rights untouched.   Petitioners do

not  contest the Commission's decision to condition NU-PSNH's

                             -34-

voting  rights.    We  will uphold  whatever  conditions  the

Commission  imposes on  a proposed  merger  so long  as their

necessity is supported in the record by substantial evidence.

          Finally,  petitioners  contend that  the Commission

"failed to  explain why  burdening other NEPOOL  members with

$364 million in additional  costs with no offsetting benefits

to them is consistent  with the public interest."   In making

this argument, petitioners imply that each and every piece of

a complex package of merger agreements and conditions must be

able to  withstand "public interest"  analysis without regard

to other pieces of the package or to other conditions imposed

by  the  Commission.   Petitioners  also  imply that  if  any

individual or group is harmed by a piece of the package, that

provision is not in the public interest and must therefore be

stricken  or modified.   Both  implicit arguments  are deeply

flawed.

          In  evaluating a  transaction  such as  the one  at

issue  here, the  Commission  is required  to  find that  the

entire transaction, taken as a whole,  is consistent with the

public interest.  16 U.S.C.    824b(a).  Each element of  the

transaction  need not  benefit  every  utility or  individual

which might  be affected; rather, the  whole transaction must

be consistent with the interest of "the public."  There is no

reason  to  think  that  the interest  of  individual  NEPOOL

members is  synonymous with  the "public"  interest.  As  has

                             -35-

already been noted,  FERC may  add conditions  to a  proposed

merger before granting approval.   16 U.S.C.   824b(b).   The

statute  does  not  require,  however,  that  FERC  establish

conditions so  that every effect of an  approved merger could

withstand the "public interest" test.

          At  a less  theoretical level,  the ALJ  determined

that the NEPOOL savings  "were a vital  part of the long  and

strenuous negotiations which culminated in the resulting PSNH

reorganization plan,"  and  the particular  savings  of  $146

million   for  New   Hampshire   consumers  were   relied  on

specifically by the  State of New Hampshire in  approving the

merged company's rate package.   53 F.E.R.C. at 65,213.   The

Commission accepted this  finding of the  ALJ, while, at  the

same time, it reversed  the ALJ's decision to count  the $360

million as  a benefit of the merger.   58 F.E.R.C. at 61,997.

The fact that  the cost-shift was not a benefit to be counted

in weighing the  benefits and  costs of the  merger does  not

mean that  the election of SPS and the concomitant cost-shift

is not in  the public interest.   Election of  SPS is in  the

public interest because it is a central element of the merger

plan  which, viewed  as  a whole,  was  found by  FERC  to be

consistent  with  the public  interest  based  on substantial

evidence in the record.  We approve the Commission's decision

not to condition the merger on waiver by NU of SPS.

     C.   Timing of Merger's Consummation.

                             -36-

          In  the  proceedings before  the  ALJ,  NU proposed

filing  a transmission  tariff within  60 days  following the

merger.  Intervenors and Commission staff proposed the filing

and  approval of  an  interim  transmission  rate.   The  ALJ

rejected  both proposals  and  instead held  that the  merger

would  be  consummated upon  the  filing  of NU's  compliance
                                        

tariff.  He reasoned as follows:

          I see no  need for  requiring one  tariff
          (with potential for controversy, charges,
          collections and refunds)  to be  followed
          by  yet  another  tariff,  with  its  own
          potential for still other disputes.
             Avoiding  a  transitional period  will
          make   it   unnecessary   to  require   a
          transitional  tariff.    To achieve  this
          result, consummation of  the merger  must
          be conditioned on  the concurrent  filing
          of  a  compliance   tariff  which   fully
          reflects all of  the terms and conditions
          set out in this Initial Decision.  Such a
          condition should encourage  a prompt  and
          fair compliance filing  because NU  could
          not begin  to  reap the  merger  benefits
          without it.

53 F.E.R.C. at 65,221.  The Commission concurred:

             We    believe    the   GTC    [General
          Transmission   Conditions]  and   the  NH
          Corridor  Proposal,  as modified  herein,
          adequately    mitigate    the    merger's
          anticompetitive effects without requiring
          the adoption of the Merger Tariff.  Trial
          Staff stated that the Merger Tariff would
          make  service available  immediately upon
          approval of the merger.   We believe that
          the presiding judge accomplished the same
          result  by  allowing consummation  of the
          merger  when  NU  submits its  compliance
          filing.
             We further believe  that delaying  the
          merger's    consummation    until     the
          Commission   accepts    NU's   compliance

                             -37-

          submittal    for    filing    would    be
          inappropriate   given   the   uncertainty
          surrounding    issues   which    may   be
          challenged   and   subject   to   further
          litigation  in the  compliance proceeding
          and  given our  commitment to  act before
          the Merger Agreement's December  31, 1991
          termination date.  We believe that NU and
          PSNH are  entitled to  a prompt and  fair
          resolution  of this  proceeding.   At the
          same time the intervenors are entitled to
          have service begin as soon  as practical,
          together  with a  fair resolution  of any
          disputes raised regarding NU's compliance
          filing.  Accordingly, we believe  that it
          is in the best  interests of all  parties
          to allow NU to consummate the merger when
          it submits  its  compliance filing.    We
          shall also require  NU to begin  honoring
          such  requests  for transmission  service
          under the  GTC,  as modified  herein,  at
          that  time.    Such transmission  service
          will be  provided at  either the firm  or
          non-firm  transmission rates  proposed in
          NU's   compliance   filing,  subject   to
          refund, and  without a refund  floor.  In
          reviewing    NU's   filing    to   ensure
          compliance  with  this  Opinion, we  will
          hold  NU to a very high  standard.  As NU
          itself  states, "[i]f NU  fails to comply
          with  the  letter   or  spirit  of   such
          [Commission]  requirement,  NU  would  be
          subject to summary judgment  with respect
          to any aspect of its compliance filing."

56 F.E.R.C. at 62,025.

          Petitioners'  stated concern  is that,  by allowing

the  merger to be consummated prior to FERC's approval of the

compliance tariff, FERC did not provide a sufficient guaranty

that NU would provide transmission access that would mitigate

                             -38-

the  merger's  anticompetitive  effects.38    Petitioners  do

not, however,  seek  to unravel  the  merger.   Rather,  they

propose that any  cost shift under the  NEPOOL Agreement, see
                                                             

discussion in  Part III(B),  supra, be postponed  until after
                                  

the compliance tariff is approved.  Petitioners complain that

the course chosen by FERC creates an incentive on the part of

NU  to delay  proceedings on  the compliance  tariff, thereby

maximizing  competitive  advantage.   Petitioners do  not, of

course,  point  out  that  their  proposal  would  create  an

incentive  on  their  part to  delay  final  approval of  the

compliance tariff, thereby postponing the day when the NEPOOL

cost shift will take effect.

          The ALJ and the Commission carefully considered the

alternatives before reaching their decisions.  The Commission

held that the anticompetitive effects of the merger  would be

adequately  mitigated  by  the  dual  requirements   that  NU

immediately provide  transmission access upon  the filing  of

its compliance  tariff, and  that any  fees  collected by  NU

would be subject to  refund without a refund floor.   Because

NU  accepted  these  merger conditions,  the  Commission  can

enforce NU's  promise to pay  such refunds if  the Commission

finds them to be appropriate.  See Distrigas of Massachusetts
                                                             

Corp. v.  FERC, 737 F.2d  1208, 1225 (1st  Cir. 1984).   FERC
              

                    

38   We  note that,  at oral  argument, petitioners  conceded
that no one  had as  yet sought access  to NU's  transmission
facilities.

                             -39-

explicitly  warned NU  that  "[i]n reviewing  NU's filing  to

ensure compliance with  this Opinion,  we will hold  NU to  a

very high standard."  56 F.E.R.C. at 62,025.

          The Commission balanced the merging companies' need

for a "prompt  and fair resolution" of  the merger proceeding

against the intervenors' need "to have [transmission] service

begin  as soon as practical,  together with a fair resolution

of any disputes raised  regarding NU's compliance filing." 56

F.E.R.C.  at 62,025.    An  agency's  discretion  is  at  its

"zenith" when  it fashions remedies to  effectuate the charge

entrusted to it by Congress.   Niagra Power Corp. v. FPC, 379
                                                        

F.2d 153,  159 (D.C. Cir.  1967).  See also,  Consolo v. FMC,
                                                            

383 U.S.  607, 620-21  (1966); Environmental Action,  Inc. v.
                                                          

FERC, 939 F.2d 1057, 1064 (D.C. Cir. 1991); Boston Edison Co.
                                                             

v. FERC,  856 F.2d 361,  371 (1st Cir.  1988).  We  hold that
       

FERC's exercise  of its  discretion was not  inappropriate in

these  circumstances.   FERC  did not  defer, as  petitioners

suggest,  consideration of the anticompetitive effects of the

merger  which  FERC  itself   identified.    The   Commission

recognized the effects, and dealt with them in a reasoned way

which  balanced  the  competing  interests  of  all  parties.

FERC's remedy  is not  unreasonable, and we  therefore affirm

its order.

     D.   Protection of Native Load Customers.

          1.   Priority of Services.
                                   

                             -40-

               a.   Background.
                              

          In its  merger  application, NU  made  a  voluntary

commitment   to   provide  wholesale   transmission  service,

including third  party wheeling  service,39  for any  utility

over  its existing transmission system.  At the same time, NU

sought  to limit  this  obligation by  reserving an  absolute

priority  for  power  purchases  on  behalf  of  native  load

customers (whose  power  needs NU  is bound  by franchise  or

contract  to  meet).   The  ALJ  held  that  although NU  may

reasonably give  native load service  priority over  wheeling

service if NU's transmission system had insufficient capacity

to serve both, 53  F.E.R.C. at 65,221-222, NU could  not deny

firm  wheeling   requests  based  upon  the   reservation  of

transmission  capacity for  its  own non-firm  sales, id.  at
                                                         

65,225.  

          In Opinion  No.  364, the  Commission balanced  the

interests of  native load customers and  third party wheeling

customers  and  affirmed  the  ALJ's denial  of  an  absolute

priority:

          we  .  . .  deny  NU's  proposal to  give
          higher priority to  its own non-firm  use
          than  to third  party  requests for  firm
          wheeling    in     allocating    existing
          transmission  capacity.    In  no  event,
          however, will  NU be required  to provide
          firm third party wheeling service  out of
          existing   transmission   facilities   if

                    

39   For a definition of "wheeling" see n.9, supra.
                                                  

                             -41-

          reliability  of  service  to native  load
          customers would be adversely affected.

56  F.E.R.C. at  62,021 (footnote  omitted).   The Commission

found it "reasonable to allow NU to reserve firm transmission

capacity  to  provide reliable  service  to  its native  load
                              

customers."  Id. (Emphasis in original.)
                

          On rehearing,  NU asked the  Commission to  clarify

the  scope of  the "reliability"  criterion.   The Commission

"reiterate[d] that under no circumstances will NU be required

to provide firm wheeling service out of existing transmission

capacity where  doing so would impair  or degrade reliability

of  service to native load customers."  58 F.E.R.C. at 61,199

(emphasis  removed).   The  Commission  held  the concept  of

reliability generally  encompasses the:   (1) reservation  of

transmission capacity to back  up large generating units; (2)

provision of generation reserves; and (3) coverage of certain

future  needs.     As  to  the  coverage   of  future  demand

requirements, the Commission  specifically ordered that  "any

capacity needed for reliability purposes  within a reasonable

planning horizon  must be offered  for wheeling use  until NU

expects  to need the capacity  for reliability reasons."  Id.
                                                             

at 61,199-200.

          Petitioners assert  that the  decision to accord  a

priority to native load  over transmission load is arbitrary,

discriminatory, and  anticompetitive.   They argue  that FERC

neither  defined  nor  justified  the   priority  granted  by

                             -42-

allowing reservation of transmission capacity for native load

service  and  that  any  such  priority  creates  competitive

advantages for  NU.  We  hold that the  Commission adequately

defined and reasonably justified its decision to allow such a

reservation  and  properly   addressed  the   anticompetitive

concerns raised by the intervenors.  

               b.   Discussion.
                              

          Although the Commission reaffirmed the general rule

that  firm transmission service  should be  accorded priority

over  non-firm  service, even  if  the  latter would  benefit

native load,    it nonetheless  allowed  NU to  reserve  firm

transmission capacity  needed to ensure reliability of native

load  service and allowed the  use of this  capacity for non-

firm transactions.  58 F.E.R.C. at 61,196.  Thus, native load

service will receive  a "priority" over third-party  wheeling

service  in  allocating existing  transmission  capacity when

reliability  of service  to  native load  would be  adversely

affected.     The  Commission  specifically   qualified  this

priority by requiring NU  to offer the capacity  for wheeling

use until NU needed  it to assure reliability to  native load

customers.

          There  is nothing arbitrary or discriminatory about

FERC's decision.  It struck  a reasonable balance between the

competing interests of native load customers and  third-party

wheeling customers.  NU-PSNH is obligated to serve its native

                             -43-

load  customers.  In return for this obligation to serve, the

native load customers regularly bear the cost of transmission

facilities;  native load  customers pay  for them,  use them,

plan  on them, and rely on them.   As the ALJ noted, "[e]very

New England utility favors  its own native load.   Nothing in

the NEPOOL agreement requires  its members to surrender their

native load preference, and none do."  53 F.E.R.C. at 65,222.

Thus,  "NU should be allowed  to give priority  over safe and

reliable service to its  native load customers using existing

transmission capacity  built to  serve those customers."   58

F.E.R.C. at  61,199.   FERC explicitly defined  and justified

the challenged native load "priority."

          2.   Transmission Upgrades Pricing.
                                             

               a.   Background.
                              

          NU's commitment to provide third-party transmission

service   includes   the  obligation   to   build  additional

transmission facilities as necessary to  relieve transmission

constraints on  its system.   58  F.E.R.C.  at 61,204-10;  56

F.E.R.C. at 62,021-24.   The issue  then becomes, how  should

the  cost  of  constructing  such  transmission  upgrades  be

allocated.  The ALJ stated  that questions of cost allocation

are  best  addressed  in  future  proceedings  regarding  the

particular   responsibilities   for  particular   facilities.

Nevertheless,  the ALJ  adopted  the "but  for" analysis  for

determining responsibility proposed by NU witness Schultheis:

                             -44-

          [W]heeling customers must make a pro rata
          contribution   whenever  the   facilities
          would  not have been  needed but  for the
          wheeling  transfers across  a constrained
          interface.   This means that  NU's native
          load customers pay for the new facilities
          they  create  the need  for  and wheeling
          customers  pay  for  the facilities  they
          create the need for.

53 F.E.R.C. at 65,223.  The ALJ also noted that the financial

exposure of  transmission customers  was limited by  the cost

caps  to  which NU  was committed.40    Id. at  65,224.   The
                                           

Commission agreed that cost  questions should be litigated in

the context of a specific proposal,  and accepted the concept

of  the "but for" test  as a framework  for ascertaining cost

responsibility and the  use of  the proposed cost  caps as  a

reasonable  means of  limiting  the  transmission  customers'

responsibility for  future upgrades.  56  F.E.R.C. at 62,028-

030.   The Commission reaffirmed that  decision on rehearing.

58 F.E.R.C. 61,204-207.

          Petitioners  contend that the  Commission failed to

adequately  explain  the pricing  policy  it  will employ  in

pricing  transmission upgrades.  Basically, petitioners claim

the ruling is too ambiguous to determine whether, or how, the

                    

40  NU committed  to cap  cost responsibility  to "(1)  those
specific facilities  identified  by NU  at  the time  of  the
wheeling request as needing to be built or upgraded either at
the time of the request or in the future; and (2) the maximum
dollar  amount  contained  in  NU's  initial  estimate  of  a
wheeling customer's pro  rata share  of the  costs of  future
upgrades  needed  to  accommodate   a  request  for  wheeling
service."  
56 F.E.R.C. at 62,031-32.

                             -45-

Commission changed its  policy from the traditional  "rolled-

in" approach used  in pricing transmission service.   We hold

that   the  Commission   provided   a  clear   and   reasoned

justification for  the principles that will  guide its future

determinations of  transmission upgrade  pricing.  We  affirm

the Commission's decision not  to modify the basic principles

adopted in its order.

               b.   Discussion.
                              

          In accepting as reasonable  the "but for" test, the

Commission  has  done no  more than  approve a  framework for

determining  cost responsibility  which furthers  the general

principle  that transmission  costs should  be born  by those

entities  responsible  for the  cost.    58 F.E.R.C.  61,205.

Under  this test,  incremental  cost pricing  could be  found

appropriate when firm wheeling across  a particular interface

would  degrade reliability absent  upgrades.   The Commission

specifically declined, however, to answer the requests of the

intervenors  to  decide  the "rolled-in  versus  incremental"

rate41 issue in  the abstract and  chose instead to  evaluate

it only within the  context of a particular rate  proposal or

upgrade.  Id.   The Commission articulated  how it envisioned
             

                    

41  Under "rolled  in" pricing principles, the upgrade  costs
would  be rolled in with  other company costs  and charged to
all ratepayers as part of NU's  general rate structure; while
administratively   simple,   it   ignores  any   concept   of
responsibility.  Thus, incremental pricing principles look to
hold parties responsible for their share of upgrade costs.

                             -46-

pricing  transmission  upgrades   and  adopted  a   condition

limiting  the  amount  NU  may  propose  to  collect  from  a

transmission customer to the greater of 

          (1) the incremental  cost of new  network
          facilities  required  at  the   time  the
          customer's new transmission load is added
          or (2) the rolled-in cost of  all network
          facilities required to serve the combined
          transmission loads of [NU], including any
          required transmission additions.

Id. at 61,206.   Thus, a wheeling customer may be charged the
   

greater of rolled-in cost rates or incremental cost rates.   

          The Commission acknowledged  that the  introduction

of incremental  cost pricing  principles is a  departure from

its  traditional pricing  policies42 and  justified  this new

policy  on NU's  unprecedented  obligation  to provide  third

party transmission service.   Id.  The  Commission noted that
                                 

incremental  cost  pricing  may  be  appropriate  in  certain

circumstances,  but  decided to  leave  the  details of  cost

responsibility  questions to  a  future specific  section 205

rate case.  When such a  case arises, NU will bear the burden

of   justifying  "any   direct  assignments   of   costs  and

support[ing] any arguments that  reliability is degraded by a

particular  firm transmission  service.    No presumption  is

                    

42     The  Commission generally  has  adhered to  rolled  in
pricing,   but  has   never  precluded   particularized  cost
allocations to  specific  customers where  appropriate.   See
                                                             
Utah Power &amp; Light Co., 45 F.E.R.C.   61,095, at 61,291 n.163
                      
(1988);  Public Service Co. of Indiana, 51 F.E.R.C.   61,367,
                                      
at 62,203 (1990).

                             -47-

created  by  NU's  `but  for' criterion  that  firm  wheeling

customers always cause the need for upgrades."  Id. at 61,207
                                                   

(quoting 56 F.E.R.C. at 62031).   The Commission also allowed

that  any  reliance by  NU  upon the  "but  for" test  may be

challenged in  future actions.   The Commission  sufficiently

explained and  justified the  principles that will  guide its

transmission upgrade pricing.

     E.   Opportunity Cost Pricing.

          As has already been discussed, the Commission found

it necessary to impose a number of conditions on the proposed

NU-PSNH merger to mitigate  the merged company's market power

in the  markets for  transmission and short-term  bulk power.

58 F.E.R.C.  at 61,195.    Specifically, the  Commission held

that  NU  must  provide  firm  transmission  service  out  of

existing  capacity  for  any   utility,  subject  only  to  a

reservation  of  sufficient  capacity  to  maintain  reliable

service to its  native load customers  and to honor  existing

contractual obligations.   NU was  prohibited, however,  from

denying a request for  firm transmission service by reserving

capacity for  non-firm transactions  that would enable  it to

provide more economical service to its native load customers.

56 F.E.R.C.  at 62,014-21;  58 F.E.R.C. at 61,196-200.   FERC

also  held   that  NU  must  build   additional  transmission

facilities   as   needed   to   provide   transmission  where

insufficient capacity  exists.  56 F.E.R.C.  at 62,021-24; 58

                             -48-

F.E.R.C. at 61,204-10.   The Commission found that  these and

other conditions  would  "adequately mitigate"  the  merger's

anticompetitive effects.  58 F.E.R.C. at 61,213.

          On rehearing, NU and  the States of Connecticut and

New Hampshire  argued that the Commission  should address the

issue of  firm transmission  pricing because, in  Opinion No.

364, FERC  had established  principles governing  the related

issue of  firm transmission priority which  made NU's ability

to purchase  inexpensive power (which would lower its cost of

serving  its  native  load  customers)  subordinate  to   its

obligation  to provide  firm transmission for  third parties.

58  F.E.R.C.  at  61,201-02.    The  Commission  agreed,  but

declined  to approve  "opportunity  cost  pricing"43  outside

the  context of  a specific  tariff proposal.   Instead,  the

Commission announced three "basic  goals" to guide its future

decisions on the  pricing of firm transmission service on the

merged company's existing capacity, and left the door open to

NU  to propose  a tariff  based on  opportunity costs  or any

                    

43   As the Commission explained, opportunity costs
          are the  revenues lost or  costs incurred
          by  a  utility  in providing  third-party
          transmission  service  when  transmission
          capacity is insufficient to  satisfy both
          a  third-party  wheeling request  and the
          utility's   own   use.     For   example,
          opportunity   costs  might   include  the
          revenues lost or costs incurred because a
          utility  must  reduce its  own off-system
          purchases or sales in order to overcome a
          constraint on the [transmission] grid.
58 F.E.R.C. at 61,200-201.

                             -49-

other  methodology  that would  meet  the three  goals.   The

Commission explained its decision as follows:

            We are now confronted with the need  to
          provide   NU   with  enough   specificity
          regarding  what it  will  be  allowed  to
          propose for the  pricing of future third-
          party  wheeling  service,  so   that  the
          company  can  decide  whether to  proceed
          with the  merger.  We also  cannot ignore
          the  need  to  act  as  expeditiously  as
          possible  given the  commercial realities
          and time pressures presented in corporate
          matters subject to our  jurisdiction, and
          in  particular  the  need  to  resolve  a
          bankruptcy situation.   At the  same time
          we are confronted with the need to ensure
          an  adequate record on pricing issues and
          to   afford   all  parties   an  adequate
          opportunity to voice their objections.
            Balancing  these  respective needs,  we
          conclude  that  the  best  course  is  to
          provide guidance on  pricing issues,  but
          to defer specific  pricing issues to  the
          compliance phase of  this proceeding,  or
          to subsequent cases where  the Commission
          may consider specific  proposals from  NU
          in a concrete, factual setting and with a
          more developed record.
          . . . .
          First, the  native load customers  of the
                                                   
          utility  providing  transmission  service
                                                   
          should   be   held  harmless.     Second,
                                                   
          transmission customers  should be charged
                                                   
          the lowest reasonable cost-based rate for
                                                   
          third-party transmission service.  Third,
                                                   
          the pricing should prevent the collection
                                                   
          of  monopoly  rents  by the  transmission
                                                   
          owner and  promote efficient transmission
                                                   
          decisions.      In  ruling   on  specific
                   
          proposed  rates,  we  will balance  these
          three  goals  in light  of the  facts and
          circumstances presented at that time.   

58 F.E.R.C. at 61,203 (emphasis added) (footnotes omitted).

          FERC  was careful  to  point out  that it  endorsed

opportunity cost pricing  only insofar as NU  could show that

                             -50-

it could "propose rates which  include legitimate, verifiable

opportunity costs."  Id.   The Commission warned NU  that any
                        

such  proposal would  be carefully  scrutinized and  would be

subject to challenge.  Id. at 61,203-04.  Specifically,  FERC
                          

stated that  NU would  have to  address the  following issues

should it seek recovery of opportunity costs:

          (1) whether opportunity  costs should  be
          capped by incremental expansion  costs or
          any  other  cap;   (2)  whether   current
          wheeling   and   wholesale   requirements
          customers  should be  treated differently
          from   future   wheeling  and   wholesale
          requirements    customers,    e.g.,    by
                                            
          receiving    "grandfather"   rights    to
          embedded cost  rates  for the  amount  of
          transmission  capacity they  already use;
          (3) how NU  will identify those customers
          responsible for growth on its  system and
          what   particular   new  facilities   are
          necessary to accommodate that growth; (4)
          whether  and how third  parties should be
          protected   from   uncertainty  regarding
          fluctuations  in  opportunity costs;  (5)
          how  the proposed rates  will prevent the
          collection of monopoly rents; and (6) how
          the  proposed  opportunity costs  will be
          verified.

Id.    The Commission  expressly  postponed consideration  of
   

whether opportunity cost pricing  would be inconsistent  with

nondiscriminatory  pricing  and  nondiscriminatory terms  and

conditions of  service until  those issues  were raised  in a

concrete factual context.  Id. at 61,204, n.118.
                              

          Petitioners claim that FERC's decision  amounted to

an arbitrary endorsement of opportunity cost pricing that was

not  supported  by evidence  in  the  record, was  inherently

                             -51-

discriminatory, and contrary to FERC's  regulation of natural

gas pipelines.   Petitioners' underlying concern  seems to be

that  when  the  issue arises  next  in  the  context of  the

Commission's  review  of NU's  compliance  tariff, FERC  will

simply approve the tariff and dismiss petitioners' objections

on the  ground that  opportunity cost pricing  principles had

already  been  endorsed  by  the  Commission.    Although  we

understand petitioners' concerns,  we believe  that they  are

misplaced and that FERC did not go as far as petitioners fear

in endorsing opportunity cost pricing.

          Petitioners will have an opportunity to contest any

compliance tariff proposed by NU.  The Commission itself laid

out a number of issues which NU would have to address were it

to  propose a tariff based on opportunity costs.  58 F.E.R.C.

at 61,203.   Only  after carefully considering  the competing

interests of providing  guidance to  NU as to  what kinds  of

tariffs it would consider, and  the need to endorse  specific

methodologies only on the  basis of a fully-developed record,

did  the Commission  decide  to outline  broad pricing  goals

which would allow  for a number of pricing  schemes including

opportunity  cost pricing.  Id.   It was  squarely within the
                               

Commission's  power  to defer  consideration  of petitioners'

assertions until  after NU filed  its compliance tariff.   As

the  Supreme  Court  has  held,  "[a]n  agency  enjoys  broad

discretion in determining how  to handle related yet discrete

                             -52-

issues  in  terms  of  procedures, and  priorities."    Mobil
                                                             

Exploration   &amp;   Producing   Southeast,   Inc.   v.   United
                                                             

Distribution  Cos., 111  S.  Ct. 615,  627 (1991)  (citations
                  

omitted).   Petitioners argue that deferral was inappropriate

in this case because  their objections went "to the  heart of

the  public interest  determination  to be  made."   Maryland
                                                             

People's Counsel v. FERC, 761 F.2d 768, 778 (D.C. Cir. 1985).
                        

We disagree.

          The   Commission   announced   pricing  goals   and

conditions  that   it  determined  would   keep  the   merger

consistent  with the  public  interest, and  would result  in

"just and  reasonable rates."   Until NU proposed  a specific

tariff regime, the Commission did not have a developed record

to evaluate on the  merits.  The Commission remains  free to,

and  we expect it will, invite  objections to NU's compliance

tariff from  affected parties,  and will reject  any proposed

tariff that  conflicts with its  statutory responsibility  to

approve rates  that are "just and reasonable," and to approve

mergers that are, as conditioned, "consistent with the public

interest."

     F.   Environmental Impact Statement.

          The  City of  Holyoke  Gas  &amp;  Electric  Department

("HG&amp;E") alleges that FERC's refusal to examine the potential

environmental  impacts  of its  approval  of  the merger  was

arbitrary and capricious.  We disagree.

                             -53-

          The National Environmental  Policy Act of 1969,  42

U.S.C.    4321 et seq., ("NEPA") requires federal agencies to
                      

consider the  potential environmental effects  of a  proposed

major  federal  action  that  may  significantly  affect  the

quality of the human environment.   Section 102(2)(C) of NEPA

states:

          The Congress authorizes and directs that,
          to the  fullest extent  possible:  . .  .
          (2) all    agencies   of    the   Federal
          Government shall  
          . . . .
          (C)  include  in every  recommendation or
          report on proposals  for legislation  and
          other major Federal actions significantly
          affecting  the  quality   of  the   human
          environment, a detailed statement  by the
          responsible official on  
            (i)  the  environmental  impact of  the
          proposed action,
            (ii) any  adverse environmental effects
          which  cannot  be   avoided  should   the
          proposal be implemented,
            (iii)  alternatives   to  the  proposed
          action,
            (iv)  the  relationship  between  local
          short-term uses of man's  environment and
          the maintenance and enhancement  of long-
          term productivity, and 
            (v) any  irreversible and irretrievable
          commitments of resources  which would  be
          involved in the proposed action should it
          be implemented.

42  U.S.C.    4332(2)(C).   Agencies  were authorized,  under

guidelines  promulgated  by  the  Council   on  Environmental

Quality ("CEQ"), to create categorical exclusions for actions

which do not individually  or cumulatively have a significant

effect  on  the human  environment.    40  C.F.R.     1507.3,

1508.4.    FERC  adopted   such  a  category  of  exclusions,

                             -54-

including one for merger  approvals such as the one  at issue

in this case.  That regulation states in pertinent part:

          (a) General  rule.  Except  as stated  in
          paragraph (b) of this section, neither an
          environmental    assessment    nor     an
          environmental  impact  statement will  be
          prepared  for  the following  projects or
          actions:
          . . . .
            (16) Approval of actions under sections
          4(b), 203, 204, 301,  304, and 305 of the
          Federal  Power  Act relating  to issuance
          and  purchase of  securities, acquisition
          or   disposition  of   property,  merger,
          interlocking directorates, jurisdictional
          determinations and accounting orders.

18  C.F.R.    380.4(a)(16).    An  agency  need  not issue  a

"finding  of  no  significant  impact"  in  cases  concerning

matters that fall into a categorical exclusion.  40 C.F.R.   

1501.3, 1501.4, 1508.13.

          CEQ  guidelines  also  required  agencies  adopting

categorical   exclusions   to   "provide  for   extraordinary

circumstances in which a normally  excluded action may have a

significant environmental effect."  40 C.F.R.   1508.4.  FERC

made such provision in its regulations:

            (b)    Exceptions     to    categorical
          exclusions. (1) In accordance with 40 CFR
          1508.4, the Commission and its staff will
          independently    evaluate   environmental
          information  supplied  in an  application
          and  in  comments by  the public.   Where
          circumstances indicate that an action may
          be a major  Federal action  significantly
          affecting  the  quality   of  the   human
          environment, the Commission:
            (i) May require an environmental report
          or    other    additional   environmental
          information, and 

                             -55-

            (ii)  Will   prepare  an  environmental
          assessment  or  an  environmental  impact
          statement.
            (2) Such circumstances  may exist  when
          the action  may have an effect  on one of
          the following:
            (i) Indian lands;
            (ii) Wilderness areas;
            (iii) Wild and scenic rivers;
            (iv) Wetlands;
            (v) Units of  the National Park System,
          National   Refuges,   or  National   Fish
          Hatcheries;
            (vi)  Anadromous   fish  or  endangered
          species; or
            (vii)  Where the  environmental effects
          are uncertain.
          However, the existence of  one or more of
          the above will not  automatically require
          the submission of an environmental report
          or  the  preparation of  an environmental
          assessment  or  an  environmental  impact
          statement.

18  C.F.R.     380.4(b).44    HG&amp;E  argues  that  the NU-PSNH

merger might  "alter mixes  of generation  in New  England by

constraining  the locations for new plants."   HG&amp;E points to

the language of 18 C.F.R.   380.4(b)(1)(ii) in support of its

position  that FERC was  compelled, at the  least, to explain

why  it   was  not  obliged   to  perform  the   analysis  of

environmental  effects required  by  NEPA.   HG&amp;E also  cites

FERC's  decision  in  Southern   California  Edison  Co.,  49
                                                        

F.E.R.C.     61,091  (1989)   (holding  that    380.4(b)  was

triggered when approved merger would result in the dumping of

                    

44  HG&amp;E  does  not challenge  the  validity  of  any of  the
applicable regulations cited above.

                             -56-

hundreds of tons of additional air contaminants into the most

polluted air in the United States).

          There was no evidence in the record of identifiable

environmental harms that would likely result from the NU-PSNH

merger.  The  fact that new generating  facilities might wind

up  in different locations than  would have been  the case in

the absence of  the merger does not approach in significance,

because  its  significance  is  not quantifiable,  the  known

effects of  the  merger between  Southern  California  Edison

Company  and San  Diego Gas  &amp; Electric  Company.   Thus, the

factual  situation presented in Southern California Edison is
                                                          

completely distinguishable from that of this case.

          The   character  and   location   of   the   future

environmental effects of the  NU-PSNH merger are so uncertain

that  no  meaningful  environmental  review would  have  been

possible, even had  FERC made the effort.  Here, FERC was not

approving  a  regional  development  plan.    It  was  merely

approving a merger between utility companies, albeit a merger

involving  two  of  the  largest utilities  in  New  England.

Energy  demand may increase in New England over the following

decades, and the fact  of the merger may influence  how those

needs  are met.  Nevertheless, any attempt by FERC to prepare

an  EIS would  have involved  little more  than spinning  out

multiple  hypothetical  development forecasts,  with multiple

options  for   the  type,  amount  and   location  of  future

                             -57-

generating facilities.  See  Kleppe v. Sierra Club,  427 U.S.
                                                  

390, 401-2 (1976).  Once concrete plans have been established

for   the   construction   of  transmission   or   generating

facilities, those  proposals will  be reviewed under  NEPA or

the applicable state environmental review procedures.

          FERC  was justified  in  deciding  that neither  an

environmental   assessment   nor   an  environmental   impact

statement was required prior to approving the NU-PSNH merger.

     G.   HG&amp;E's "Unique" Harm.

          HG&amp;E also  contends that because it  relied on PSNH

New Hampshire  Corridor facilities for over  one-third of its

electricity supply,  it would be "uniquely  threatened" by NU

in head-to-head competition for  large, industrial loads.  To

protect    itself,   HG&amp;E   requested   that   FERC   either:

(1) disapprove  the merger;  (2) require  the  divestiture or

restructuring of  NU's retail  business in Holyoke  (HWP); or

(3) grant  HG&amp;E  grandfather  rights to  PSNH  New  Hampshire

Corridor transmission.  The ALJ rejected the "drastic remedy"

of divestiture of HWP, stating that it was  "wholly uncalled-

for  by anything in this record," and holding that HG&amp;E would

be  adequately  protected by  the  conditions  to the  merger

designed   to   address   the  anticompetitive   effects   on

transmission dependent  utilities ("TDUs").   53  F.E.R.C. at

65,232.

          As the ALJ described,

                             -58-

          [t]he  Transmission  Dependent  Utilities
          (TDUs) are  "entirely dependent on  NU or
          PSNH  for  their bulk  power transmission
          needs."  These  companies (most of  which
          involve municipal ownership) are  not big
          enough  to  own  or construct  sufficient
          generation to meet their loads.  As their
          brief states, they "are physically unable
          to  engage in any  bulk power transaction
                           
          without using the NU or PSNH transmission
          systems.  Absent  economic access to NU's
          or  PSNH's  transmission facilities,  the
          TDU  cannot  survive  as  an  independent
          entity."   The  TDUs compete with  NU and
          PSNH in the wholesale bulk  power market;
          each   TDU,   like  NU/PSNH,   seeks  out
          attractive sources of  supply.  TDUs thus
          "are in  the  uneasy position  of  having
          their    only    source   of    essential
          transmission  service  in  the  hands  of
          their principal competitor."  These small
          companies,    uniquely    vulnerable   to
          possible  anticompetitive   conduct,  are
          entitled  to  some measure  of protective
          assurance regarding NU/PSNH's post merger
          conduct.

53  F.E.R.C. at 65,232-33.   The ALJ held  that "[a]ll rates,

terms and  conditions of NU/PSNH transmission  service to the

TDUs in effect  on this date shall . .  . be maintained after

the merger,  unless and until changes are  either agreed upon

by  the merged  company and  the TDUs,  or authorized  by the

Commission."  53 F.E.R.C. at 65,233.  In short, while finding

that  TDUs  were  "uniquely  vulnerable"  to  anticompetitive

conduct by NU-PSNH,  the ALJ  found that HG&amp;E  had not  shown

that  it was  entitled to  protections beyond those  given to

TDUs  generally.    The  Commission agreed,  56  F.E.R.C.  at

62,049,  but bolstered the protection for TDUs ordered by the

                             -59-

ALJ by imposing the additional condition  that NU establish a

special tariff for TDUs.  Id. at 62,050.
                             

          HG&amp;E  points  to  no  evidence  in  the  record  to

indicate  that it  faced anticompetitive consequences  of the

merger sufficiently  different in  character or magnitude  to

warrant greater  protections than those given  to other TDUs.

We therefore affirm the Commission's actions to protect TDUs,

which were adequately explained and supported in the record.

     H.   Modifications to the Filed Rate Schedules.

          The Commission analyzed the Seabrook Power Contract

and Capacity Interchange Agreements  filed by NUSCO under the

"just and reasonable"  standard of    206 of  the FPA,45  and

ordered the  following modifications to  the rate  schedules:

(1) deletion of the automatically adjusting rate of return on

equity  provision  in  the   Seabrook  Power  Contract;   (2)

reduction of the  rate of  return on equity  in the  Seabrook

Power  Contract from  13.75 percent  to 12.53  percent;46 (3)

                    

45   Section  206(a)  of  the  FPA,  16  U.S.C.     824(e)(a)
provides:
            Whenever the  Commission, after hearing
          had  upon   its   own  motion   or   upon
          complaint, shall find that any rate . . .
          collected by any public  utility . . . is
          unjust,        unreasonable,       unduly
          discriminatory   or   preferential,   the
          Commission shall determine  the just  and
          reasonable  rate . . .  to be  thereafter
          observed and in force, and shall  fix the
          same by order.

46   NUSCO did not appeal this modification.

                             -60-

North  Atlantic's decommissioning expenses under the Seabrook

Power Contract  and any subsequent changes  thereto were made

subject to  review by  the Commission;  (4) reduction  in the

rate  of return  on  equity  specified  in the  two  Capacity

Interchange Agreements  from 14.50  percent to 13.17  percent

for the period from July 27, 1990 through August 8, 1991, and

thereafter  to  12.93 percent;  and  (5)  the Seabrook  Power

Contract  could be modified  by the Commission  in the future

under the "just and reasonable" standard of   206 of the FPA,

rather than the "public  interest" standard agreed to  by the

parties.  56 F.E.R.C. at 61,993; 58 F.E.R.C. at 61,185.

          Each  of the  three parties  to the  Seabrook Power

Contract ("SPC"), NU,  PSNH and the  State of New  Hampshire,

waived  its right to file  a complaint under    206 regarding

the rates contained in the agreement.  Section 12 of  the SPC

also provided that:

          [E]ach [party] further agrees that in any
          proceeding  by the FERC under Section 206
          the  FERC  shall   not  change  the  rate
          charged under this Agreement  unless such
          rate  is found  to  be  contrary  to  the
          public interest.

NU argues  that the Commission  violated the  "Mobile-Sierra"
                                                            

doctrine47 when  it  modified the  SPC  in disregard  of  the

intent of the parties.

                    

47   This doctrine is based on the  companion cases of United
                                                             
Gas Pipe Line  Co. v. Mobile  Gas Service Co.,  350 U.S.  332
                                             
(1956)  and FPC  v. Sierra  Pacific Power  Co., 350  U.S. 348
                                              
(1956).

                             -61-

          Under  the  Mobile-Sierra doctrine,  the Commission
                                   

must respect certain private  contract rights in the exercise

of its  regulatory powers.  Parties  to a contract may:   (1)

waive  their  rights to  file  a  complaint challenging  that

contract,  and (2) restrict  the power  of the  Commission to

impose rate changes  under   206 to  cases in which it  finds

the  rates contrary to the public interest   a more difficult

standard  for  the  Commission  to meet  than  the  statutory

"unjust and  unreasonable" standard  of    206.   See  Papago
                                                             

Tribal Utility Authority  v. FERC,  723 F.2d  950, 953  (D.C.
                                 

Cir. 1983), cert. denied,  467 U.S. 1241 (1984).   In Papago,
                                                            

the court held  that, regardless of the  parties' intent, the

Commission retained, in any event,

          the indefeasible right . . . under    206
          to replace rates that are contrary to the
          public interest, "as where  [the existing
          rate   structure]    might   impair   the
          financial ability of  the public  utility
          to continue its  service, cast upon other
          consumers  an  excessive  burden,  or  be
          unduly discriminatory."

Papago, 723 F.2d at  953, (quoting Sierra, 350 U.S.  at 355).
                                         

The court  went on to  note that  "unduly discriminatory"  in

this  context  "apparently  means  unduly  discriminatory  or

preferential  to  the detriment  of  purchasers  who are  not

parties to the contract."  Papago, 723 F.2d at 953 n.4.
                                 

          In  this case,  seemingly for  the first  time, the

Commission held that it also had the

                             -62-

          authority   under  the   public  interest
          standard to  modify a contract where:  it
                                                   
          may   be  unjust,   unreasonable,  unduly
                                          
          discriminatory  or  preferential  to  the
          detriment  of  purchasers  that  are  not
          parties to  the contract;  it is  not the
                                                   
          result  of arm's length bargaining; or it
                                                   
          reflects  circumstances where  the seller
                                                   
          has  exercised  market  power   over  the
                                                   
          purchaser.
                   

50  F.E.R.C. at 61,839 (emphasis added).  The ALJ interpreted

that holding as follows:

          The  Commission  made clear  that  in the
          particular circumstances  surrounding the
          Seabrook  contract,  it  retains power   
          through the "public interest"  language  
          to    make   modifications    under   the
          traditional   just  and   reasonable  and
          nondiscrimination standards.

53 F.E.R.C.  at  65,235.   The  standard established  by  the

Commission, and  subsequently applied by  the ALJ,  conflates

the  "just and  reasonable" and "public  interest" standards,

thereby  circumventing  the  Mobile-Sierra  doctrine.     The
                                          

distinction  between the  "just and  reasonable" and  "public

interest"  standards  loses  its   meaning  entirely  if  the

Commission may  modify a  contract under the  public interest

standard  where it  finds  the contract  "may be  unjust [or]

unreasonable."   The  parties'  express intent  was to  avoid

review  of  rate  schedules  under the  just  and  reasonable

standard.    Mobile-Sierra protects  their  right  to do  so,
                          

leaving the Commission  with the power  to modify rates  only

when required by the public interest.

                             -63-

          The  Commission  found that  the  SPC  might unduly

discriminate  against entities not  parties to  the contract,

and that there was no genuine arm's-length bargaining because

NU and PSNH negotiated the agreement at a time when they knew

they were about to  merge and have identical interests.   The

Commission held  that, in  this context, it  could "carefully

scrutinize the  rates, terms and conditions  of the contract"

to determine if they were just.  Id.
                                    

          The Commission's  explanation for employing  a just

and  reasonable  standard seems  to  us inadequate.    To the

extent  the  Commission   is  relying  on   NU's  prospective

ownership of PSNH, it is unclear why the Commission should be

concerned    about   protecting   PSNH   from   a   perceived

disadvantageous arrangement imposed by its  prospective owner

since any disadvantage visited on  the prospective subsidiary

will be borne by its owner.  If NU chooses  to allocate risks

among its operating subsidiaries  and one of its subsidiaries

is  disfavored in  this calculation,  there would seem  to be

little justification for the Commission stepping in on behalf

of the disfavored subsidiary absent some threat to the public

interest.

          As for the seller's  market power, reliance on this

factor  threatens  to  erode  the  Mobile-Sierra doctrine  so
                                                

substantially that  a fuller explanation  from the Commission

is required before  proceeding down this  route.  After  all,

                             -64-

some  measure of  market power  could be  present in  a large

number  of  contracts.    A  case-by-case  inquiry  into  the

presence  and extent of market  power would inject  a new and

potentially  time-consuming  element  into the  Mobile-Sierra
                                                             

analysis, and it is not entirely  clear in any event why  the

Commission should protect a buyer who voluntarily enters into

an agreement with a dominant seller.

          The  most attractive case  for affording additional

protection, despite  the presence of a contract, is where the

protection is  intended to  safeguard the interests  of third

parties,  notably the  buyer's customers.   The Mobile-Sierra
                                                             

doctrine itself allows  for intervention by FERC  where it is

shown  that the  interests of  third parties  are threatened.

Mobile,  350  U.S.  at  344-45;  Sierra,  350  U.S.  at  355.
                                       

However, the  standard to be  applied, as  formulated by  the

Supreme  Court, is  the  protection of  outside parties  from

"undu[e] discriminat[ion]"  or  imposition of  an  "excessive

burden."  Sierra,  350 U.S. at 355.  If  there is some reason
                

for departing from this public interest standard as framed by

the Supreme Court, the Commission has not supplied it.

          We  assume, without  deciding, that:   (1)  FERC is

correct  in its assertion that the State of New Hampshire did

not adequately represent the  interests of non-parties to the

contract,  and  that,  therefore,  the SPC  may  have  unduly

discriminated  against those non-parties; and (2) the alleged

                             -65-

lack of arms'-length bargaining among NU,  PSNH and the State

of  New Hampshire gave  the Commission the  right to evaluate

the SPC.  We hold, however,  that the Commission was bound to

follow  the Mobile-Sierra  doctrine as explicated  by Papago,
                                                            

and therefore should have evaluated  the SPC under the public

interest standard, not the just and reasonable standard.

          We  therefore remand this issue for reconsideration
                              

by FERC under the public interest standard.48

IV.  SUMMARY.

          We affirm  the Commission's orders in  all respects
                                                             

with the exception of its modifications of the Seabrook Power
                                                             

Contract filed with the merger  proposal which we remand  for
                                                             

consideration under the public interest standard.
                                                 

                    

48   We have considered, but find unpersuasive, NU's argument
that FERC  committed error  when it disrupted  the bankruptcy
settlement by modifying the Capacity Interchange Agreements.

                             -66-
