MANCHESTER – After PSNH emerged from its January 1988 bankruptcy nearly two years after filing for Chapter 11, ratepayers were hit with seven yearly rate increases of 5.5 percent each, beginning in 1990.

FairPoint Communications Inc.'s bankruptcy filing on Oct. 26 has raised questions whether ratepayers should worry about the kind of rate shock PSNH customers were forced to accept, which led to electric utility restructuring, in 1997.

Separated by 20 years, the bankruptcy cases of the public utilities share one devastating business characteristic -- crushing debt. PSNH's debt was to pay its share of building the Seabrook nuclear power plant; FairPoint's is to pay for its highly leveraged purchase of Verizon's northern New England telephone lines.

►Key events in FairPoint's path to bankruptcy (1)

The state Legislature approved PSNH's multi-year rate hikes as part of the settlement that led to Northeast Utilities bringing PSNH out of bankruptcy in April 1990.

In FairPoint's case, although there has been much talk and speculation from elected officials, FairPoint's battle in the three northern New England states so far has been with regulators, consumer advocates and utility commissions.

On Thursday, legislative representatives from Maine, Vermont and New Hampshire will hear from FairPoint about the future of the Northern New England telecommunications system .

The PSNH 'burden'

Jeb Bradley, R-Wolfeboro, then a state representative and now a state senator, was a key player in the deregulation battle that followed PSNH's re-emergence from bankruptcy.

"Back in the 1990s, Republicans and Democrats, I think, recognized that having the highest electric rates in the nation was really an impediment to having a growing economy," said Bradley, who also served as 1st District Congressman from 2003 to 2006. "And it was really a significant burden on hard-working New Hampshire citizens."

"At the time, that electric service was, and still is today, virtually a monopoly by virtue of the fact that electricity can only be delivered by wires that the utility owns," Bradley said.

A key difference with FairPoint today, he said, is that "technology has already restructured dramatically the telecommunications industry.

"Cell phones bypass FairPoint totally; you can get cable service, wireless Internet services," he said.

Still, there are likely some areas of the state beyond the reach of wireless, cable and competitive providers where FairPoint is the only telecommunications provider, he said.

Those competitive choices for consumers mean FairPoint doesn't have as free a hand in setting prices, several observers said.

"Certainly, at the time, PSNH's market power was obviously huge as compared to FairPoint, which is in a fairly highly competitive environment," Associate Attorney General Richard Head said last week. Head, assisted by outside counsel Bruce A. Harwood of Sheehan Phinney Bass + Green, is representing the state of New Hampshire's interests in the FairPoint bankruptcy.

"The driving force for PSNH's rate increases apply much differently than a company such as FairPoint in a ... competitive marketplace," Head said.

Charlotte, N.C.-based FairPoint, which operates 32 local exchange companies in 18 states with 1.7 million access lines, filed for bankruptcy reorganization Oct. 26 in New York.

FairPoint spokeswoman Jill Healey Wurm said she could not yet discuss possible rate increases. She said a plan of reorganization, which is expected to be filed by Dec. 10, will have more details.

"We are sitting down with the regulators in each state to discuss what it means," she said.

In court

Former state Consumer Advocate Michael Holmes, who is now retired, said there are lessons to be learned from the PSNH experience.

In the federal bankruptcy court, late Judge James Yacos ruled that he had the authority to set rates, bypassing the state regulatory process, Holmes said.

"The state never appealed his decision that he had that authority," Holmes said.

"I hope they learned from the last experience that when you get a deal like that from the bankruptcy court you have nothing to lose by fighting it," he said.

"When you're told they're going to raise rates the maximum the traffic will bear, you have nothing to lose by appealing," he said.

But Larry K. Smukler, who was the assistant attorney general representing the state in the PSNH bankruptcy, recalled events differently. Smukler has been a New Hampshire Superior Court judge since 1992.

"Seabrook had to be paid for, one way or another, either by ratepayers or investors, but that was money that had to be spent," he said.

"The whole issue in the bankruptcy was who is going to control the PSNH rates," Smukler said. One restructuring proposal in the bankruptcy would have allowed the Federal Energy Regulatory Commission rather that the state Public Utilities Commission to regulate the cost of power.

"The bankruptcy court, of course, had the authority to approve a restructuring of the company or not," he said.

"If and when there was a final bankruptcy plan that was contested and we didn't like that it, that would have been the time to appeal," Smukler said.

He said because the case was resolved through a negotiated settlement, no appeal of the issue regarding the state's rate setting authority was required.

One of the unanticipated consequences of the PSNH settlement was electric rates that outpaced inflation, causing customers to cut back on demand, former Consumer Advocate Holmes said.

"That's when companies started moving out of state," he said. PSNH needed to give special contracts with lower rates to big customers, he said.

New Hampshire spent more than five years deregulating the electricity market before the Legislature put the final pieces in place in 2000.

The state's deregulation plan opened the power market so electricity customers could shop for cheaper sources of electricity. It also lowered rates for all PSNH customers through a combination of refinanced bonds and a write-down of some PSNH debt related to construction of the Seabrook nuclear power plant.