EXHIBIT I
SECURITIES AND EXCHANGE COMMISSION
(Release No. )
National Grid Group plc ("National Grid"), National Grid (US) Holdings
Limited, and National Grid (US) Investments, located at Kirby Corner Road,
Coventry, CV48JY, United Kingdom and National Grid USA, 25 Research Drive,
Westborough, MA 01582, (collectively, the "Applicants"), each a holding company
registered under the Public Utility Holding Act of 1935 (the "Act"), have filed
an application-declaration under Sections 6(a), 7, 9(a), 10, 12(b) and 12(f) of
the Act and Rule 45(a) thereunder.
Applicants propose to make certain changes to the financing authority for
the National Grid system granted in an order of the Commission dated March 15,
2000, Holding Co. Act Release No. 27154 (the "March Order"). In particular,
Applicants propose the following transactions:
(1) National Grid proposes to increase the aggregate amount of convertible bonds
that it may issue under the March Order from $1 billion to $2 billion while
maintaining the overall $4 billion limit on securities (excluding guarantees)
issued by National Grid unchanged;
(2) National Grid proposes to finance the intermediate registered holding
companies that are direct or indirect parent companies of National Grid USA
("Intermediate Companies") and National Grid USA with loans from National Grid,
associate companies outside the National Grid USA ownership chain, and/or with
loans from an indirect parent holding company, and;
(3) The Intermediate Companies propose to enter into currency derivatives with
National Grid and associate companies outside the National Grid USA ownership
chain. The proposed transactions are described in more detail below.
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National Grid requests the increase in convertible bond financing authority
to provide additional flexibility to execute its financing program. The company
is considering issuing convertible bonds in the near future with a likely
program size of $1 billion. If market conditions are favorable at the time of
issuance, however, National Grid would like the flexibility to increase the size
of the offering. The proceeds of the sale of the convertibles will be used in
whole or in part to retire existing debt of National Grid.
The March Order authorizes National Grid to issue equity and debt
securities in an aggregate amount at any one time outstanding not to exceed $4
billion ("Aggregate Limitation") during an Authorization Period that extends to
May 31, 2003. National Grid's authorization is further subject to limits on the
types and amounts of securities that may be issued during the Authorization
Period. Within the overall Aggregate Limitation, the following sub-limits apply:
Type of Security Issuance Limitation
Equity Securities
Ordinary Shares $500 million
Preferred Securities $100 million
Debt Securities
Bank Debt $3 billion
Commercial Paper $3 billion
Convertible Bonds $1 billion
Nonconvertible Bonds $3 billion
National Grid proposes to increase the limit applicable to the issuance of
convertible bonds to $2 billion. The Aggregate Limitation, as well as the
various terms and conditions of National Grid's financing authority set forth in
the March Order, would remain unchanged.
The bonds would be exchangeable into ordinary shares of Energis plc (a
National Grid subsidiary engaged in telecommunications in the U.K and certain
other countries),/1 or perhaps National Grid. Convertible bonds allow investors
to obtain higher income than they may receive from ordinary shares, while
benefiting from greater appreciation potential than regular bonds. The
convertible feature also allows National Grid to enhance the marketability of a
bond issuance, perhaps allowing National Grid to price the issuance at an
interest rate lower than straight bonds of equal maturity and credit quality.
The lower interest rates possible with convertible bonds serves to reduce
National Grid's fixed debt burden in connection with an issuance, thus making
National Grid financially more robust and a better risk.
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1. As of March 31, 2000, National Grid held 36.3% of the outstanding ordinary
shares of Energis plc.
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National Grid proposes to finance the Intermediate Companies and National
Grid USA with loans from National Grid, associate companies outside the National
Grid USA ownership chain (i.e., loans from "foreign" associate companies
including National Grid Holdings Limited, a foreign utility company, and its
subsidiaries), and/or with loans from an indirect parent holding company.
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From time-to-time, it may be advantageous for an Intermediate Company
and/or National Grid USA to borrow funds from an associate company on the
foreign utility company ("FUCO") side of the National Grid system (i.e.,
National Grid Holdings Limited or its direct or indirect subsidiaries) or from
the parent of its immediate parent company (or a more remote company), for
example a loan from National Grid (US) Investments ("NGUSI") to National Grid
USA. Such loans allow National Grid more flexibility to meet the short-term
working capital requirements of National Grid USA and its subsidiaries where the
funds could be raised more cheaply by National Grid than by National Grid USA or
its subsidiaries. Loans from associate companies in the system also allow the
efficient use of surplus cash. For example, surplus cash available in the FUCO
side may be loaned directly to National Grid USA or a direct or indirect
subsidiary. Such direct loans minimise having cash on deposit within the
National Grid group when other companies have borrowings.
Both National Grid USA and National Grid maintain unused committed bank
facilities to provide assured liquidity to meet variations in working capital
requirements. The banks charge fees in connection with the facilities. The
financial flexibility to loan funds to National Grid USA and the Intermediate
Companies will allow facilities made available to National Grid to be used as
and when needed to loan funds to National Grid USA. An element of duplication
could thus be avoided and a portion of National Grid USA's bank facilities could
be cancelled, with a consequent savings of bank facility commitment fees.
As required by the March Order, loans to National Grid USA (and any of its
direct or indirect subsidiaries) from any company in the National Grid system
would bear interest at rates designed to parallel the effective cost of debt
capital of National Grid. In addition, the Commission's equity capitalization
standard and all other terms of the March Order applicable to National Grid USA,
its utility subsidiary companies and the Intermediate Companies would continue
to apply. Funds would not be lent from the Intermediate Companies or National
Grid USA to any companies on the FUCO side of the National Grid system.
The Intermediate Companies also propose to enter into currency derivatives
with National Grid and associate companies outside the National Grid USA
ownership chain. The proposed authority will allow National Grid more
flexibility to structure its ownership of National Grid USA through the
Intermediate Companies in a tax efficient manner and to manage foreign exchange
risk. Any derivative transactions to be undertaken under the authority requested
in the Application would be to facilitate the equity financing of the
Intermediate Companies or to accommodate foreign exchange hedging and would be
limited to transactions within the National Grid System. The derivatives
transactions would not involve National Grid USA or its subsidiaries.
The application-declaration and any amendments thereto are available for
public inspection through the Commission's office of Public Reference.
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Interested persons wishing to comment or request a hearing should submit their
views in writing by______________, 2001, to the Secretary, Securities and
Exchange Commission, Washington, DC 20549, and serve a copy on the
applicant-declarant at the address specified above. Proof of Service (by
affidavit or, in the case of an attorney at law, by certificate) should be filed
with the request. Any request for hearing shall identify specifically the issues
of fact or law that are disputed. A person who so requests will be notified of
any hearing, if ordered, and will receive a copy of any notice or order issued
in this manner. After said date, the application-declaration, as filed or as it
may be amended, may be permitted to become effective.
For the Commission by the Division of Investment Management, pursuant to
delegated authority.
Jonathan G. Katz
Secretary
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