(As filed January 7, 2000)
File No. ________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1
APPLICATION/DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Energy East Corporation
New York State Electric & Gas Corporation
CMP Natural Gas, L.L.C.
One Canterbury Green
Stamford, CT 06904
CMP Group, Inc.
Central Maine Power Company
Maine Electric Power Company, Inc.
NORVARCO
83 Edison Drive
Augusta, ME 04336
Connecticut Energy Corporation
The Southern Connecticut Gas Company
855 Main Street
Bridgeport, CT 06604
CTG Resources, Inc.
Connecticut Natural Gas Corporation
100 Columbus Boulevard
Hartford, CT 06103
Berkshire Energy Resources
The Berkshire Gas Company
115 Cheshire Road
Pittsfield, MA 01201
(Names of companies filing this statement and
addresses of principal executive offices)
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Energy East Corporation 1
(Name of top registered holding company parent)
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Kenneth M. Jasinski Arthur W. Adelberg
Executive Vice President Executive Vice President &
& General Counsel Chief Financial Officer
Energy East Corporation CMP Group, Inc.
One Canterbury Green 83 Edison Drive
Stamford, Connecticut 06904 Augusta, Maine 04336
Arthur C. Marquardt Scott S. Robinson
Chairman, President & President & Chief Executive Officer
Chief Executive Officer Berkshire Energy Resources
CTG Resources, Inc. 115 Chesire Road
100 Columbus Boulevard Pittsfield, Massachusetts 01201
Hartford, Connecticut 06103
Joseph R. Crespo
Chairman, President &
Chief Executive Officer
Connecticut Energy Corporation
855 Main Street
Bridgeport, Connecticut 06604
(Names and addresses of agents for service)
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The Commission is requested to send copies of all
notices, orders and communications in connection with
this Application/Declaration to:
William T. Baker, Jr., Esq. Adam Wenner, Esq.
J. Michael Parish, Esq. Vinson & Elkins, L.L.P.
Thelen Reid & Priest LLP 1455 Pennsylvania Avenue, N.W.
40 West 57th Street Washington, D.C. 20004-1008
New York, New York 10019
Frank Lee, Esq.
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
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1 Energy East will register following the consummation of its proposed
combinations with CMP Group, Inc., CTG Resources, Inc. and Berkshire
Energy Resources.
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TABLE OF CONTENTS
Item 1. Description of Proposed Transaction................................1
1.1. Introduction..............................................1
1.2. Description of Energy East and its Subsidiaries...........2
1.3. Capital Structure of Energy East..........................3
1.4. Summary of Requested Approvals............................4
1.5. Use of Proceeds...........................................7
1.6. Description of Proposed Financing Program.................7
1.7. Guaranties...............................................13
1.8. Hedging Transactions.....................................14
1.9. Changes in Capital Stock of Subsidiaries.................15
1.10. Financing Subsidiaries...................................15
1.11. Intermediate Subsidiaries and New Subsidiaries...........16
1.12. Investments in Energy-Related Assets.....................18
1.13. Sales of Services and Goods Among Nonutility
Subsidiaries of Energy East..............................20
1.14. Activities of Rule 58 Subsidiaries Within and
Outside the United States................................20
1.15. Payment of Dividends Out of Capital and
Unearned Surplus.........................................22
1.16. Tax Allocation Agreement.................................24
1.17. Certificates of Notification.............................25
Item 2. Fees, Commissions and Expenses....................................26
Item 3. Applicable Statutory Provisions...................................27
Item 4. Regulatory Approvals..............................................28
Item 5. Procedure.........................................................28
Item 6. Exhibits and Financial Statements.................................28
Item 7. Information as to Environmental Effects...........................30
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
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1.1. Introduction. Energy East Corporation ("Energy East ") is a New York
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corporation and public utility holding company exempt from all provisions of the
Public Utility Holding Company Act of 1935, as amended (the "Act"), except
Section 9(a)(2), by order issued under Section 3(a)(1).2 Energy East has
previously filed two Applications/Declarations on Form U-1 (File Nos. 70-09545
and 70-09569, collectively, the "Merger U-1 Applications"), pursuant to Sections
9 and 10 and other applicable provisions of the Act seeking approval to acquire
all of the issued and outstanding common shares of:
o Connecticut Energy Corporation ("Connecticut Energy"), a
Connecticut corporation and public utility holding company exempt
from all provisions of the Act, except Section 9(a)(2), pursuant to
Section 3(a)(1) of the Act and Rule 2 thereunder;
o CMP Group, Inc. ("CMP Group"), a Maine corporation and public
utility holding company exempt from all provisions of the Act, except
Section 9(a)(2), by order issued under Section 3(a)(1);3
o CTG Resources, Inc. ("CTG Resources"), a Connecticut corporation
and public utility holding company exempt from all provisions of the
Act, except Section 9(a)(2), pursuant to Section 3(a)(1) of the Act
and Rule 2 thereunder; and
o Berkshire Energy Resources ("Berkshire"), a Massachusetts
business trust and public utility holding company exempt from all
provisions of the Act, except Section 9(a)(2), pursuant to Section
3(a)(1) of the Act and Rule 2 thereunder.
Energy East is proposing to acquire the common shares of: Connecticut Energy for
cash, Energy East Common Stock or a combination of cash and Energy East Common
Stock (the "Connecticut Energy Merger"); CMP Group for cash (the "CMP Merger");
CTG Resources for cash, Energy East Common Stock or a combination of cash and
Energy East Common Stock (the "CTG Merger"); and Berkshire for cash (the
"Berkshire Merger," and collectively with the CMP Merger, the CTG Merger and the
Connecticut Energy Merger, the "Mergers"). A more complete description of the
Mergers and the transactions contemplated in connection with the Mergers is
contained in the Merger U-1 Applications, which descriptions are hereby
incorporated by reference herein. Upon consummation of the CMP, CTG and
Berkshire Mergers, Energy East intends to register as a holding company pursuant
to Section 5 of the Act.
This Application/Declaration seeks authorization and approval of the
Commission with respect to ongoing financing activities of Energy East and its
subsidiaries, intrasystem extensions of credit, the creation, acquisition or
sale of nonutility subsidiaries, the payment of dividends out of capital and
unearned surplus and other related matters pertaining to Energy East and its
subsidiaries.
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2 Energy East, et al., Holding Company Act Release No. 35-26976
(February 12, 1999).
3 CMP Group, Inc., et al., Holding Company Act Release No. 35-26977
(February 12, 1999).
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1.2. Description of Energy East and its Subsidiaries. Upon completion of
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the Mergers, Energy East will own, directly or indirectly, interests in the
following eight public utility companies, each of which will be wholly-owned by
companies within the Energy East system, unless otherwise indicated:
o New York State Electric & Gas Corporation ("NYSEG"), a New York
corporation and a wholly-owned subsidiary of Energy East, which
purchases, transmits and distributes electricity and purchases,
transmits and distributes natural gas in parts of New York;
o CMP Natural Gas, L.L.C. ("CMP Natural Gas"), a Maine limited
liability company, which distributes gas in Maine and which is a
joint venture between New England Gas Development Corp. (holding a
19% interest), a wholly-owned subsidiary of CMP Group, and Energy
East Enterprises, Inc. ("Energy East Enterprises"), a Maine
corporation (holding an 81% interest), a wholly-owned subsidiary of
Energy East and a public utility company exempt from all provisions
of the Act except Section 9(a)(2), by order issued under Section
3(a)(1);
o Central Maine Power Company ("Central Maine Power"), a Maine
corporation, the common stock of which is wholly-owned by CMP Group,
which is primarily engaged in purchasing, transmitting and
distributing electricity in Maine;
o Maine Electric Power Company, Inc. ("MEPCo"), a Maine
corporation, which owns and operates a 345kV transmission
interconnection between the Maine - New Brunswick, Canada
international border at Orient, Maine - Central Maine Power presently
owns a 78.3% voting interest in MEPCo with the remaining interests
owned by two other Maine utilities;
o NORVARCO, a Maine corporation, which holds a 50% general
partnership interest in Chester SVC Partnership, a general
partnership which owns a static var compensator located in Chester,
Maine, adjacent to MEPCo's transmission interconnection - NORVARCO is
presently a wholly-owned subsidiary of Central Maine Power;
o The Southern Connecticut Gas Company ("Southern Connecticut
Gas"), a Connecticut corporation and a wholly-owned subsidiary of
Connecticut Energy, which is engaged in the retail distribution and
transportation of natural gas in parts of Connecticut;
o Connecticut Natural Gas Corporation ("Connecticut Natural Gas"),
a Connecticut corporation and a wholly-owned subsidiary of CTG
Resources, which is primarily engaged in the retail distribution and
transportation of natural gas to parts of Connecticut; and
o The Berkshire Gas Company ("Berkshire Gas"), a Massachusetts
corporation and a wholly-owned subsidiary of Berkshire, which is
engaged in the sale and distribution of natural gas in western
Massachusetts.
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Collectively, the eight subsidiaries referenced above are referred to
herein as the "Utility Subsidiaries." Together, the Utility Subsidiaries provide
electric service to approximately 1.4 million wholesale, retail and industrial
electric customers in parts of New York and Maine, and gas service to
approximately 600,000 residential, commercial, agricultural and industrial
customers, in Maine, Connecticut, Massachusetts and New York.
As explained in the Merger U-1 Applications, CMP Group, Connecticut
Energy, CTG Resources and Berkshire will remain in existence as first tier
public utility holding company subsidiaries of Energy East following the
Mergers. In addition, as described above Energy East currently owns Energy East
Enterprises which is a public utility holding company by virtue of the 81%
interest it holds in CMP Natural Gas. These companies are referred to herein as
the "Intermediate Holding Companies."
Upon completion of the Mergers, Energy East will also own interests in
three companies owning nuclear power plants, all of which have been permanently
shut down; namely, Maine Yankee Atomic Power Company, which has permanently shut
down its nuclear electric generating plant located in Wiscasset, Maine, Yankee
Atomic Electric Company, which has permanently shut down its plant located in
Rowe, Massachusetts, and Connecticut Yankee Atomic Power Company, which has
permanently shut down its plant in Haddam, Connecticut.
Upon completion of the Mergers, Energy East will also directly own or
own an indirect interest in, approximately 41 other subsidiary companies that
are not public utility companies under the Act. Such entities are collectively
referred to herein as the "Nonutility Subsidiaries." A more complete
description of all of the Utility Subsidiaries and Nonutility Subsidiaries may
be found in the Merger U-1 Applications, which descriptions are incorporated
herein by reference, together with the corporate chart of Energy East and its
Subsidiaries after the Mergers, filed as Exhibit E-5 to Amendment No. 1 to
Energy East's Application/Declaration on Form U-1, File No. 070-09569.
Among the Nonutility Subsidiaries is Energy East Management Corporation
("EE Management"), a Delaware corporation and wholly-owned subsidiary of Energy
East, the present business of which is to manage the investment of the net
proceeds from the sale of the coal-fired generation assets by one of Energy
East's other subsidiaries. It is anticipated that in connection with the
Mergers, EE Management will assume the role of providing management,
administrative and corporate support services to the companies within the Energy
East system. A separate Application/Declaration on Form U-1 will be filed with
the Commission by Energy East in connection with EE Management assuming such
responsibilities.
Collectively, the Utility Subsidiaries, the Intermediate Holding
Companies and the Nonutility Subsidiaries are referred to herein as the
"Subsidiaries." The term "Subsidiaries" shall also include entities that become
subsidiaries of Energy East after the consummation of the Mergers.
1.3. Capital Structure of Energy East. Energy East is authorized under its
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Restated Certificate of Incorporation, as amended (see Exhibits A-1 and A-2
hereto), to issue 300,000,000 shares of Common Stock, par value $.01 per share
("Common Stock") and 10,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock"). Immediately following the Mergers, Energy East
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expects that it will have issued and outstanding approximately 126,000,000
shares of Common Stock.4 Energy East has not issued any Preferred Stock and will
not issue any Preferred Stock in connection with the Mergers. The cash portion
of the consideration to be paid in the Mergers will be financed in part by the
issuance of approximately $500 million of unsecured debt ("Acquisition Debt").
The terms and conditions of the Acquisition Debt have not been negotiated as of
the time of this filing. However, it is expected that the Acquisition Debt will
have maturities of up to 30 years. Immediately after the Mergers, it is
projected that common equity as a percentage of the pro forma consolidated
capitalization of Energy East and Subsidiaries will be between 40-45%.
1.4. Summary of Requested Approvals. Energy East and the Subsidiaries
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hereby request approval for a program of external financing, credit support
arrangements, and other related proposals for the period commencing on the
effective date of an order issued pursuant to this filing and ending December
31, 2005 ("Authorization Period"), as follows:
(i) Energy East requests authority to issue Common Stock to shareholders of CTG
Resources in connection with the CTG Merger. In addition, Energy East requests
authority to maintain in place the Acquisition Debt and to refinance such
Acquisition Debt.
(ii) Energy East requests authority to issue and sell from time to time, either
through underwritten public offerings, in private placements, pursuant to its
dividend reinvestment plan and stock-based management incentive and employee
benefit plans or in exchange for securities or assets being acquired from other
companies, up to 50 million shares of Common Stock (as such number may hereafter
be adjusted during the Authorization Period to reflect any stock split). In
addition, Energy East requests authority to issue and sell from time to time (A)
up to $250 million of Preferred Stock, (B) up to $500 million principal amount
of unsecured indebtedness having maturities of one year or less (hereinafter,
"Short-term Debt"), and (C) up to $1.5 billion principal amount of unsecured
debentures having maturities of up to 50 years (the "Debentures"), provided that
the aggregate principal amount of Debentures at any time outstanding, when added
to the aggregate principal amount of all other indebtedness of Energy East at
any time outstanding (including, specifically, Short-term Debt and Acquisition
Debt), shall not exceed $2 billion (the "Energy East Debt Limitation").
(iii) The Utility Subsidiaries and Intermediate Holding Companies request
authority to issue, sell and have outstanding at any one time during the
Authorization Period debt securities with maturities of one year or less in the
following aggregate principal amounts:
Utility Subsidiaries Aggregate Principal Amount
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NYSEG $275,000,000
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4 The exact number of shares of Common Stock which will be issued in the
Mergers will depend upon the number of shares of Connecticut Energy and CTG
Resources common stock outstanding on the date of the Mergers and the
exchange ratio on such date.
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CMP Natural Gas 50,000,000
Central Maine Power 150,000,000
MEPCo ... 30,000,000
NORVARCO 30,000,000
Southern Connecticut Gas 100,000,000
Connecticut Natural Gas 100,000,000
Berkshire Gas 50,000,000
Intermediate Holding Company Aggregate Principal Amount
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CMP Group $ 30,000,000
Connecticut Energy 30,000,000
CTG Resources 30,000,000
Berkshire 30,000,000
Energy East Enterprises 30,000,000
(iv) To the extent that such transactions are not exempt under Rule 52(b), the
Nonutility Subsidiaries request authority to issue and sell from time to time
during the Authorization Period debt and equity securities in order to finance
their operations and future nonutility investments, provided that such future
investments are exempt under the Act or rules thereunder or have been authorized
in a separate proceeding.
(v) Energy East requests authority to provide guaranties and other forms of
credit support ("Energy East Guaranties") with respect to the securities or
other obligations of its Subsidiaries in an aggregate principal or nominal
amount not to exceed $1 billion at any one time outstanding.
(vi) Nonutility Subsidiaries request authority to provide guaranties and other
forms of credit support ("Nonutility Subsidiary Guaranties") with respect to
obligations of other Nonutility Subsidiaries in an aggregate principal or
nominal amount not to exceed $700 million at any one time outstanding, exclusive
of any guaranties that are exempt pursuant to Rule 45(b) and Rule 52. In
addition, each of the Intermediate Holding Companies request authority to
provide guaranties and other forms of credit support to or on behalf of their
respective Subsidiaries up to the following aggregate principal or nominal
amounts:
Intermediate Holding Company Aggregate Principal Amount
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CMP Group $30,000,000
Connecticut Energy 30,000,000
CTG Resources 30,000,000
Berkshire 30,000,000
Energy East Enterprises 30,000,000
(vii) Energy East and, to the extent not exempt under Rule 52, the Subsidiaries
request authority to enter into hedging transactions ("Interest Rate Hedges")
with respect to outstanding indebtedness of such companies in order to manage
and minimize interest rate costs. Such companies also request authority to enter
into hedging transactions ("Anticipatory Hedges") with respect to anticipatory
debt issuances in order to lock-in current interest rates and/or manage interest
rate risk exposure.
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(viii) Energy East, on behalf of the Subsidiaries, requests authorization to
change any wholly-owned Subsidiary's authorized capital stock capitalization.
(ix) Energy East and the Subsidiaries request authority to acquire the equity
securities of one or more special-purpose subsidiaries ("Financing
Subsidiaries") organized solely to facilitate a financing and to guaranty the
securities issued by such Financing Subsidiaries, to the extent not exempt
pursuant to Rule 45(b) and Rule 52.
(x) Energy East requests authority to acquire, directly or indirectly, the
equity securities of (a) one or more intermediate subsidiaries ("Intermediate
Subsidiaries") organized exclusively for the purpose of acquiring, financing,
and holding the securities of one or more existing or future Nonutility
Subsidiaries, including but not limited to "exempt wholesale generators"
("EWGs"), as defined in Section 32 of the Act, "foreign utility companies"
("FUCOs"), as defined in Section 33 of the Act, companies engaged or formed to
engage in activities permitted by Rule 58 ("Rule 58 Subsidiaries"), or "exempt
telecommunications companies" ("ETCs"), as defined in Section 34 of the Act,
provided that the Intermediate Subsidiaries may also provide management,
administrative, project development, and operating services to such entities,
and (b) one or more new subsidiaries ("New Subsidiaries") organized exclusively
for the purpose of engaging in any business or activity in which any of the
Nonutility Subsidiaries of Energy East are engaged at the effective time of the
Mergers.
(xi) Nonutility Subsidiaries request authority to invest up to $700 million in
certain types of nonutility energy-related assets ("Energy-Related Assets") that
are incidental to energy marketing activities of such companies, or the capital
stock of companies substantially all of whose physical assets consist of such
Energy-Related Assets.
(xii) As permitted by Rule 87(b)(1), Nonutility Subsidiaries may from time to
time provide services and sell goods to each other. To the extent not exempt
pursuant to Rule 90(d), such companies request authority to perform such
services and to sell such goods to each other at fair market prices, without
regard to "cost," as determined in accordance with Rules 90 and 91, subject to
certain limitations that are noted below.
(xiii) Energy East requests authority on behalf of any current and future Rule
58 Subsidiaries to engage in certain categories of activities permitted
thereunder both within and outside the United States.
(xiv) Energy East, the Intermediate Holding Companies and their respective
Subsidiaries request authority to pay dividends out of capital and unearned
surplus, subject to certain limitations.
(xv) Energy East requests approval for an agreement among Energy East and the
Subsidiaries to allocate consolidated income tax liabilities.
1.5. USE OF PROCEEDS. The proceeds from the financings authorized by the
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Commission pursuant to this Application/Declaration will be used for general
corporate purposes, including (i) financing, in part, investments by and capital
expenditures of Energy East and its Subsidiaries, including, without limitation,
the funding of future investments in EWGs, FUCOs, Rule 58 Subsidiaries, and
ETCs, (ii) the repayment, redemption, refunding or purchase by Energy East or
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any Subsidiary of any of its own securities pursuant to Rule 42, and (iii)
financing working capital requirements of Energy East and its Subsidiaries.
The Applicants represent that no financing proceeds will be used to
acquire the securities of, or other interests in, any company unless such
acquisition has been approved by the Commission in this proceeding or in a
separate proceeding or in accordance with an available exemption under the Act
or rules thereunder, including Sections 32 and 33 and Rule 58. Energy East
states that the aggregate amount of proceeds of financing and Energy East
Guaranties approved by the Commission in this proceeding used to fund
investments in EWGs and FUCOs will not, when added to Energy East's "aggregate
investment" (as defined in Rule 53) in all such entities at any point in time,
exceed 50% of Energy East's "consolidated retained earnings" (also as defined in
Rule 53). Further, Energy East represents that proceeds of financing and Energy
East Guaranties and Nonutility Subsidiary Guaranties utilized to fund
investments in Rule 58 Subsidiaries will be subject to the limitations of that
rule. Energy East further represents that it will not seek to recover through
higher rates of any of the Utility Subsidiaries losses attributable to any
operations of its Nonutility Subsidiaries.
1.6. DESCRIPTION OF PROPOSED FINANCING PROGRAM.
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1.6.1. Energy East External Financing.
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(a) Common Stock. Energy East requests authorization to
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issue and sell from time to time during the Authorization Period, either
through underwritten public offerings, in private placements, pursuant to its
dividend reinvestment plan and stock-based management incentive and employee
benefit plans or in exchange for securities or assets being acquired from other
companies, up to 50 million shares of its Common Stock (as such number may be
adjusted for any stock split during the Authorization Period). Energy East may
issue and sell Common Stock or options, warrants, or other stock purchase
rights that are exercisable for Common Stock and issue Common Stock upon the
exercise of such options, warrants, or other stock purchase rights. Energy
East may also buy back shares of Common Stock during the Authorization Period
in accordance with Rule 42.
Energy East may issue and sell Common Stock pursuant to underwriting
agreements of a type generally standard in the industry. Public distributions
may be pursuant to private negotiation with underwriters, dealers or agents, as
discussed below, or effected through competitive bidding among underwriters. In
addition, sales may be made through private placements or other non-public
offerings to one or more persons. All such Common Stock sales will be at rates
or prices and under conditions negotiated or based upon, or otherwise determined
by, competitive capital markets.
Specifically, Energy East may issue and sell Common Stock through
underwriters or dealers, through agents, or directly to a limited number of
purchasers or a single purchaser. If underwriters are used in the sale of Common
Stock, such securities may be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. Common Stock may be offered to the public either
through underwriting syndicates (which may be represented by a managing
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underwriter or underwriters designated by Energy East) or directly by one or
more underwriters acting alone. Common Stock may be sold directly by Energy East
or through agents designated by Energy East from time to time. If dealers are
utilized in the sale of Common Stock, Energy East will sell such securities to
the dealers, as principals. Any dealer may then resell such Common Stock to the
public at varying prices to be determined by such dealer at the time of resale.
If Common Stock is being sold in an underwritten offering, Energy East may grant
the underwriters thereof a "green shoe" option permitting the purchase from
Energy East at the same price additional shares then being offered solely for
the purpose of covering over-allotments.
Energy East, Connecticut Energy, CMP Group and CTG Resources currently
have in effect the stock based plans listed in Exhibit I (to be filed by
amendment), which authorize grants of such companies' common stock, stock
options and other stock-based awards to eligible employees and directors. Energy
East may issue shares of its Common Stock under the authorization and within the
limitations set forth herein in order to satisfy any obligations and the
obligations of Connecticut Energy, CMP Group and CTG Resources under all such
plans and under plans adopted after the effective time of the Mergers which
replace any plans listed in Exhibit I. Shares of Common Stock for use under the
common stock plans may either be newly issued shares, treasury shares or shares
purchased in the open market. Energy East will make open-market purchases of
Common Stock in accordance with the terms of or in connection with the operation
of the stock plans pursuant to Rule 42. Energy East also requests authorization
to issue and/or sell shares of Common Stock pursuant to these existing stock
plans and similar plans or plan funding arrangements hereafter adopted, and to
engage in other sales of its treasury shares for general business purposes,
without any additional prior Commission order. Stock transactions of this
variety would be treated the same as other stock transactions permitted pursuant
to this Application/Declaration.
Energy East also has a dividend reinvestment plan under which shares of
its Common Stock may be issued to shareholders reinvesting cash dividends and/or
making optional cash investments to purchase additional shares of Common Stock.
Shares of Common Stock for use under the dividend reinvestment plan may be
either newly issued shares, treasury shares, or shares purchased on the open
market. Energy East hereby seeks authority for the issuance and sale of its
shares in accordance with its dividend reinvestment plan under the authorization
and within the limitations set forth herein.
Under Rule 58 and Section 34 of the Act, Energy East is authorized to
acquire securities of companies engaged in "energy-related" businesses, as
described in Rule 58, and ETCs. Historically, similar acquisitions have
occasionally involved the exchange of parent company stock for securities of the
company being acquired in order to provide the seller with certain tax
advantages. These transactions are individually negotiated. The Energy East
Common Stock to be exchanged in such transactions may be purchased on the open
market pursuant to Rule 42, or may be original issue or treasury shares.
Original issue stock or treasury shares may be registered under the Securities
Act of 1933, as amended (the "1933 Act"), or issued pursuant to any exemption
from the registration requirements of the 1933 Act.
The ability to offer stock as consideration in an acquisition could
make a transaction more economical for Energy East as well as for the seller of
the business. Therefore, Energy East requests authorization to issue Common
Stock in consideration for an acquisition by Energy East or a Nonutility
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Subsidiary of securities or assets of a business, the acquisition of which has
been approved by the Commission in this proceeding or is exempt under the Act or
the rules thereunder. The Energy East Common Stock would be valued at market
value based upon the closing price on the day before closing of the sale or
based upon average high or low prices for a period prior to the closing of the
sale as negotiated by the parties. From the perspective of the Commission, the
use of stock as consideration valued at market value is no different than a sale
of Common Stock on the open market and the use of proceeds to acquire
securities, the acquisition of which is otherwise authorized or exempt.
(b) Preferred Stock. Energy East requests authorization to
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issue up to $250 million of Preferred Stock during the Authorization Period.
The dividends payable on any series of Preferred Stock, as well as all other
terms and conditions and any associated placement, underwriting or selling
agent fees, commissions and discounts, if any, will be established by
negotiation or competitive bidding and reflected in the applicable purchase
agreement or underwriting agreement setting forth such terms; provided,
however, that the dividend rate on any series of Preferred Stock will not
exceed the rate generally obtainable at the time of issuance for preferred
securities having the same or reasonably similar terms and conditions issued
by utility holding companies of reasonably comparable credit quality, as
determined by competitive capital markets.
Energy East contemplates that the Preferred Stock would be issued and
sold directly to one or more purchasers in privately-negotiated transactions or
to one or more investment banking or underwriting firms or other entities who
would resell the Preferred Stock either without registration under the 1933 Act
in reliance upon one or more applicable exemptions from registration thereunder,
or to the public either (i) through underwriters selected by negotiation or
competitive bidding or (ii) through selling agents acting either as agent or as
principal for resale to the public either directly or through dealers.
(c) Short-term Debt. The aggregate principal amount of
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Short-term Debt of Energy East at any time outstanding during the Authorization
Period shall not exceed $500 million in aggregate principal amount. The
effective cost of money on Short-term Debt authorized in this proceeding will
not exceed the competitive market rates available at the time of issuance to
companies with comparable credit ratings with respect to debt having similar
maturities.
To provide financing for general corporate purposes, to meet refunding
obligations, other working capital requirements and construction spending until
long-term financing can be obtained, Energy East may sell commercial paper, from
time to time, in established commercial paper markets. Such commercial paper
would typically be sold to dealers at the discount rate per annum prevailing at
the date of issuance for commercial paper of comparable quality and maturities
sold to commercial paper dealers generally. It is expected that the dealers
acquiring commercial paper from Energy East will reoffer such paper at a
discount to corporate and institutional investors. It is anticipated that Energy
East's commercial paper will be reoffered to investors such as commercial banks,
insurance companies, pension funds, investment trusts, foundations, colleges and
universities, finance companies and nonfinancial corporations.
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Energy East also may establish bank lines in an aggregate principal
amount not to exceed the aforementioned $500 million. Loans under these lines
will have maturities not more than one year from the date of each borrowing.
Energy East may engage in other types of short-term financing generally
available to borrowers with comparable credit ratings as it may deem appropriate
in light of its needs and market conditions at the time of issuance.
(d) Debentures. Energy East requests authorization to
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issue and sell from time to time during the Authorization Period up to $1.5
billion principal amount of Debentures in one or more series, provided that
the aggregate principal amount of Short-term Debt, Debentures and Acquisition
Debt at any time outstanding shall not exceed the Energy East Debt Limitation.
The Debentures (a) may be convertible into any other securities of Energy East,
(b) will have maturities ranging from one to 50 years, (c) may be subject to
optional and/or mandatory redemption, in whole or in part, at par or at various
premiums above the principal amount thereof, (d) may be entitled to mandatory
or optional sinking fund provisions, (e) may provide for reset of the coupon
pursuant to a remarketing arrangement, and (f) may be called from existing
investors by a third party. In addition, Energy East may have the right from
time to time to defer the payment of interest on the Debentures of one or more
series (which may be fixed or floating or "multi-modal" debentures, i.e.,
debentures where the interest is periodically reset for each reset period).
The Debentures will be issued under an indenture (the "Indenture") to be
entered into between Energy East and a national bank, as trustee (the
"Trustee," including any successor trustee appointed pursuant to the
Indenture).
Energy East contemplates that the Debentures would be issued and sold
directly to one or more purchasers in privately-negotiated transactions or to
one or more investment banking or underwriting firms or other entities which
would resell the Debentures either without registration under the 1933 Act in
reliance upon one or more applicable exemptions from registration thereunder, or
to the public either (i) through underwriters selected by negotiation or
competitive bidding or (ii) through selling agents acting either as agent or as
principal for resale to the public either directly or through dealers.
The maturity dates, interest rates, redemption and sinking fund
provisions and conversion features, if any, with respect to the Debentures of a
particular series, as well as any associated placement, underwriting or selling
agent fees, commissions and discounts, if any, will be established by
negotiation or competitive bidding and reflected in a purchase agreement or
underwriting agreement setting forth such terms; provided, however, that Energy
East will not issue and sell any Debentures at interest rates in excess of those
generally obtainable at the time of pricing or repricing of such Debentures for
securities having the same or reasonably similar maturities and having
reasonably similar terms, conditions and features issued by utility companies or
utility holding companies of the same or reasonably comparable credit quality,
as determined by the competitive capital markets.
Finally, Energy East undertakes that without further Commission
authorization it will not issue any Debentures that are not at the time of
original issuance rated at least investment grade by a nationally recognized
statistical rating organization.
(e) Other Securities. In addition to the specific
----------------
securities for which authorization is sought herein, Energy East may also find
it necessary or desirable in order to minimize financing costs or to obtain new
10
<PAGE>
capital under then existing market conditions to issue and sell other types of
securities from time to time during the Authorization Period. Energy East
requests that the Commission reserve jurisdiction over the issuance of
additional types of securities and the amount thereof. Energy East also
undertakes to file a post-effective amendment in this proceeding which will
describe the general terms of each such security and the amount thereof to be
issued and request a supplemental order of the Commission authorizing the
issuance thereof by Energy East.
1.6.2. Utility Subsidiary Financing. The issue and sale of most
----------------------------
securities by the Utility Subsidiaries will be exempt from the preapproval
requirements of Sections 6(a) and 7 of the Act pursuant to Rule 52(a), as most
securities offerings by a Utility Subsidiary must be approved by the state
utility commission with jurisdiction over such utility. However, certain
financings by the Utility Subsidiaries for which authorization is requested
herein may be outside the scope of the Rule 52 exemption because they will not
be subject to state commission approval. Specifically, the approval of the
Public Service Commission of the State of New York ("NYPSC") is not required
for the issuance by NYSEG of indebtedness with maturities of one year or less.
The Connecticut Department of Public Utility Control ("DPUC") has jurisdiction
over the issuance of securities by Southern Connecticut Gas and Connecticut
Natural Gas, other than indebtedness with maturities of one year or less.
The Maine Public Utilities Commission ("MPUC") has jurisdiction over the
issuance of securities by CMP Natural Gas, Central Maine Power, MEPCo and
NORVARCO, other than indebtedness one year or less. The Massachusetts
Department of Telecommunications and Energy ("MDTE") has jurisdiction over
the issuance of securities by Berkshire Gas, other than indebtedness with
maturities of one year or less.
Accordingly, the Utility Subsidiaries request authorization herein to
maintain outstanding certain indebtedness and to issue and sell the following
securities during the Authorization Period:
(a) Short-term Debt of the Utility Subsidiaries. The
Utility Subsidiaries request authority to issue and sell from time to time
during the Authorization Period debt and securities, to the extent they are
not otherwise exempt pursuant to Rule 52(a), with maturities of one year or
less, up to the following aggregate principal amounts:
Utility Subsidiaries Aggregate Principal Amount
-------------------- --------------------------
NYSEG $275,000,000
CMP Natural Gas 50,000,000
Central Maine Power 150,000,000
MEPCo 30,000,000
NORVARCO 30,000,000
Southern Connecticut Gas 100,000,000
Connecticut Natural Gas 100,000,000
Berkshire Gas 50,000,000
Subject to such limitations, the Utility Subsidiaries may engage in short-term
financing as they may deem appropriate in light of their needs and market
conditions at the time of issuance. Such short-term financing could include,
without limitation, commercial paper sold in established commercial paper
11
<PAGE>
markets in a manner similar to Energy East, bank lines and debt securities
issued under their respective indentures and note PROGRAMS. The obligations
incurred in connection with any such short-term financing will bear interest at
a rate which is not greater than 300 basis points over LIBOR.
(b) Other Securities. The Utility Subsidiaries may also
----------------
issue and sell other types of securities to non-associate purchasers which do
not qualify for exemption under Rule 52 but which are considered appropriate
during the Authorization Period. The Utility Subsidiaries request that the
Commission reserve jurisdiction over the issuance of such additional types of
securities and the amounts thereof. They also undertake to cause a
post-effective amendment to be filed in this proceeding which will describe the
general terms of each such security and the amounts thereof and request a
supplemental order of the Commission authorizing the issuance thereof by the
subject Utility Subsidiary.
1.6.3. Short-term Debt of Intermediate Holding Companies. Each of
-------------------------------------------------
the Intermediate Holding Companies requests authority to issue, sell and have
outstanding at any one time during the Authorization Period debt securities with
maturities of one year or less in the following aggregate principal amounts:
Intermediate Holding Company Aggregate Principal Amount
---------------------------- --------------------------
CMP Group $30,000,000
Connecticut Energy 30,000,000
CTG Resources 30,000,000
Berkshire 30,000,000
Energy East Enterprises 30,000,000
Subject to such limitations, the Intermediate Holding Companies may engage in
short-term financing as they may deem appropriate in light of their needs and
market conditions at the time of issuance. Such short-term financing could
include, without limitation, commercial paper sold in established commercial
paper markets in a manner similar to Energy East, bank lines and debt securities
issued under their respective indentures and note programs. The obligations
incurred in connection with any such short-term financing will bear interest at
a rate which is not greater than 300 basis points over LIBOR. In addition, none
of the Intermediate Holding Companies will issue any indebtedness in
contravention of any pre-existing orders of any state utility commission.
1.6.4. Nonutility Subsidiary Financing. Energy East, through its
-------------------------------
Nonutility Subsidiaries, is engaged in and expects to continue to be active in
the development and expansion of its existing energy-related, telecommunications
or otherwise functionally related, nonutility businesses. In order to finance
investments in such competitive businesses, it will be necessary for the
Nonutility Subsidiaries to have the ability to engage in financing transactions
which are commonly accepted for such types of investments. It is believed that,
in almost all cases, such financings will be exempt from prior Commission
authorization pursuant to Rule 52(b). It is requested that the Commission
reserve jurisdiction over the issuance by any Nonutility Subsidiary of any other
securities with respect to which the exemption under Rule 52(b) would not apply.
Energy East undertakes to cause a post-effective amendment to be filed in this
12
<PAGE>
proceeding which will describe the general terms of each such non-exempt
security and the amounts thereof and request a supplemental order of the
Commission authorizing the issuance thereof.
In order to be exempt under Rule 52(b), any loans by Energy East to a
Nonutility Subsidiary or by one Nonutility Subsidiary to another must have
interest rates and maturities that are designed to parallel the lending
company's effective cost of capital. However, in the limited circumstances where
the Nonutility Subsidiary making the borrowing is not wholly-owned by Energy
East, directly or indirectly, authority is requested under the Act for Energy
East or a Nonutility Subsidiary, as the case may be, to make such loans to such
subsidiaries at interest rates and maturities designed to provide a return to
the lending company of not less than its effective cost of capital.5 If such
loans are made to a Nonutility Subsidiary, such company will not sell any
services to any associate Nonutility Subsidiary unless such company falls within
one of the categories of companies to which goods and services may be sold on a
basis other than "at cost," as described below in Item 1.13. Furthermore, in the
event any such loans are made, Energy East will include in the next certificate
filed pursuant to Rule 24 in this proceeding substantially the same information
as that required on Form U-6B-2 with respect to each such transaction.
1.7. GUARANTIES.
-----------
1.7.1. Energy East Guaranties. Energy East requests authorization
----------------------
to enter into guaranties, obtain letters of credit, enter into expense
agreements or otherwise provide credit support (collectively, "Energy East
Guaranties") with respect to the obligations of any Subsidiary as may be
appropriate to enable such Subsidiary to operate in the ordinary course of its
business, in an aggregate principal amount not to exceed $1 billion outstanding
at any one time. Energy East may charge each Subsidiary a fee for each guaranty
provided on its behalf that is approximately equal to the cost of obtaining the
liquidity necessary to perform the guaranty (for example, bank line commitment
fees or letter of credit fees, plus other transactional expenses).
1.7.2. Nonutility Subsidiary Guaranties. In addition, Nonutility
--------------------------------
Subsidiaries request authority to provide to or on behalf of other Nonutility
Subsidiaries Guaranties and other forms of credit support in an aggregate
principal amount not to exceed $700 million outstanding at any one time,
exclusive of any guaranties and other forms of credit support that are exempt
pursuant to Rule 45(b) and Rule 52. The Nonutility Subsidiary providing any
such credit support may charge its associate company a fee for each guaranty
provided on its behalf determined in the same manner as specified above.
1.7.3. Intermediate Holding Company Guaranties. Each Intermediate
---------------------------------------
Holding Company requests authorization to enter into guaranties, obtain letters
of credit, enter into expense agreements or otherwise provide credit support
(collectively, the "Intermediate Holding Company Guaranties") with respect to
the obligations of their respective subsidiary companies as may be appropriate
to enable such companies to operate in the ordinary course of their business, in
an aggregate principal amount not to exceed $30 million outstanding at any one
time. The Intermediate Holding Companies may charge their subsidiaries a fee for
- -----------------------------
5 The Commission has granted similar authority to another registered holding
company. See Entergy Corporation, et al., Holding Co. Act Release No. 27039
(June 22, 1999).
13
<PAGE>
each guaranty provided on its behalf that is approximately equal to the cost of
obtaining the liquidity necessary to perform the guaranty (for example, bank
line commitment fees or letter of credit fees, plus other transactional
expenses). The Intermediate Holding Companies will not issue any guaranties in
contravention of any orders of any state utility commission.
1.8. HEDGING TRANSACTIONS.
---------------------
1.8.1. Interest Rate Hedges. Energy East, and to the extent not
--------------------
exempt pursuant to Rule 52, the Subsidiaries, request authorization to enter
into interest rate hedging transactions with respect to outstanding
indebtedness ("Interest Rate Hedges"), subject to certain limitations and
restrictions, in order to reduce or manage interest rate costs. Interest Rate
Hedges would only be entered into with counterparties ("Approved
Counterparties") whose senior debt ratings, or the senior debt ratings of the
parent companies of the counterparties, as published by Standard and Poor's,
are equal to or greater than BBB-, or an equivalent rating from Moody's
Investors Service, Fitch Investor Service or Duff and Phelps.
Interest Rate Hedges will involve the use of financial instruments
commonly used in today's capital markets, such as interest rate swaps, caps,
collars, floors, and structured notes (i.e., a debt instrument in which the
principal and/or interest payments are indirectly linked to the value of an
underlying asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury obligations. The transactions would be
for fixed periods and stated notional amounts. Fees, commissions and other
amounts payable to the counterparty or exchange (excluding, however, the swap or
option payments) in connection with an Interest Rate Hedge will not exceed those
generally obtainable in competitive markets for parties of comparable credit
quality.
1.8.2. Anticipatory Hedges. In addition, Energy East and the
-------------------
Subsidiaries request authorization to enter into interest rate hedging
transactions with respect to anticipated debt offerings (the "Anticipatory
Hedges"), subject to certain limitations and restrictions. Such Anticipatory
Hedges would only be entered into with Approved Counterparties, and would be
utilized to fix and/or limit the interest rate risk associated with any new
issuance through (i) a forward sale of exchange-traded U.S. Treasury futures
contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward
Sale"), (ii) the purchase of put options on U.S. Treasury obligations (a "Put
Options Purchase"), (iii) a Put Options Purchase in combination with the sale
of call options on U.S. Treasury obligations (a "Zero Cost Collar "), (iv)
transactions involving the purchase or sale, including short sales, of U.S.
Treasury obligations, or (v) some combination of a Forward Sale, Put Options
Purchase, Zero Cost Collar and/or other derivative or cash transactions,
including, but not limited to structured notes, caps and collars, appropriate
for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades")
with brokers through the opening of futures and/or options positions traded on
the Chicago Board of Trade ("CBOT"), the opening of over-the-counter positions
with one or more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. Energy East or a Subsidiary will
14
<PAGE>
determine the optimal structure of each Anticipatory Hedge transaction at the
time of execution. Energy East or a Subsidiary may decide to lock in interest
rates and/or limit its exposure to interest rate increases. All open positions
under Anticipatory Hedges will be closed on or prior to the date of the new
issuance and neither Energy East nor any Subsidiary will, at any time, take
possession or make delivery of the underlying U.S. Treasury Securities.
The Applicants will comply with the then existing financial disclosure
requirements of the Financial Accounting Standards Board associated with hedging
transactions.6
1.9. CHANGES IN CAPITAL STOCK OF SUBSIDIARIES. The portion of an individual
----------------------------------------
Subsidiary's aggregate financing to be effected through the sale of stock to
Energy East or other intermediate parent company during the Authorization Period
pursuant to Rule 52 and/or pursuant to an order issued in this proceeding cannot
be ascertained at this time. It may happen that the proposed sale of capital
securities may in some cases exceed the then authorized capital stock of such
Subsidiary. In addition, the Subsidiary may choose to use capital stock with no
par value. Also, a wholly-owned Subsidiary may wish to engage in a reverse stock
split to reduce franchise taxes. As needed to accommodate such proposed
transactions and to provide for future issues, request is made for authority to
change any such wholly-owned Subsidiary's authorized capital stock
capitalization by an amount deemed appropriate by Energy East or other
intermediate parent company in the instant case. A Subsidiary would be able to
change the par value, or change between par value and no-par stock, without
additional Commission approval. Any such action by a Utility Subsidiary would be
subject to and would only be taken upon the receipt of any necessary approvals
by the state commission in the state or states where the Utility Subsidiary is
incorporated and doing business.7
1.10. FINANCING SUBSIDIARIES. Energy East and the Subsidiaries request
----------------------
authority to acquire, directly or indirectly, the equity securities of one or
more corporations, trusts, partnerships or other entities (hereinafter,
"Financing Subsidiaries") created specifically for the purpose of facilitating
the financing of the authorized and exempt activities (including exempt and
authorized acquisitions) of such companies through the issuance of long-term
debt or equity securities, including but not limited to monthly income preferred
securities, to third parties and the transfer of the proceeds of such financings
by such Financing Subsidiaries to Energy East or to a Subsidiary, as the case
may be. Energy East may, if required, guaranty or enter into expense agreements
in respect of the obligations of any Financing Subsidiary which it organizes.
The Subsidiaries may also provide guaranties and enter into expense agreements,
if required, on behalf of any Financing Subsidiaries which they organize
pursuant to Rules 45(b)(7) and 52, as applicable. If the direct parent company
of a Financing Subsidiary is authorized in this proceeding or any subsequent
proceeding to issue long-term debt or similar types of equity securities, then
the amount of such securities issued by that Financing Subsidiary would count
- -----------------------------
6 The proposed terms and conditions of the Interest Rate Hedges and
Anticipatory Hedges are substantially the same as the Commission has
approved in other cases. See New Century Energies, Inc., et al., Holding
Co. Act Release No. 27000 (April 7, 1999); and Ameren Corp., et al.,
Holding Co. Act Release No. 27053 (July 23, 1999).
7 The Commission has granted similar approvals to other registered holding
companies. See Conectiv, Inc., Holding Co. Act Release No. 26833
(Feb. 26, 1998); and New Century Energies, Inc., Holding Co. Act Release
No. 26750 (Aug. 1, 1997).
15
<PAGE>
against the limitation applicable to its parent for those securities. In such
cases, however, the guaranty by the parent of that security issued by its
Financing Subsidiary would not be counted against the limitations on Energy East
Guaranties or Intermediate Holding Company Guaranties or Nonutility Subsidiary
Guaranties, as the case may be, set forth in Item 1.7.1, 1.7.2 or 1.7.3, above.
In other cases, in which the parent company is not authorized herein or in a
subsequent proceeding to issue similar types of securities, the amount of any
guaranty not exempt pursuant to Rules 45(b)(7) and 52 that is entered into by
the parent company with respect to securities issued by its Financing Subsidiary
would be counted against the limitation on Energy East Guaranties, Intermediate
Holding Company Guaranties or Nonutility Subsidiary Guaranties, as the case may
be. Energy East requests that the Commission reserve jurisdiction over any
transfer of proceeds of financing by any Financing Subsidiary to Energy East
pending completion of the record.8
1.11. INTERMEDIATE SUBSIDIARIES AND NEW SUBSIDIARIES. Energy East requests
----------------------------------------------
authorization to acquire, directly or indirectly, the securities of one or more
Intermediate Subsidiaries, which would be organized exclusively for the purpose
of acquiring, holding and/or financing the acquisition of the securities of or
other interest in one or more EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other
Nonutility Subsidiaries (as authorized in this proceeding or in a separate
proceeding), provided that Intermediate Subsidiaries may also engage in
development activities and administrative activities relating to such
subsidiaries. To the extent such transactions are not exempt from the Act or
otherwise authorized or permitted by rule, regulation or order of the Commission
issued thereunder, Energy East requests authority for Intermediate Subsidiaries
to provide management, administrative, project development and operating
services to such entities. Such services may be rendered at fair market prices
to the extent they qualify for any of the exceptions from the "at cost" standard
requested in Item 1.13, below. In addition, Energy East requests authorization
to acquire, directly or indirectly, the securities of one or more New
Subsidiaries, which would be organized exclusively for the purpose of engaging
in one or more of the activities in which any of Energy East's existing
Nonutility Subsidiaries is engaged at the effective time of the Mergers.
There are several legal and business reasons for the use of
special-purpose intermediate companies in connection with making investments in
EWGs and FUCOs, Rule 58 Subsidiaries, ETCs and other non-exempt Nonutility
Subsidiaries. For example, the formation and acquisition of special-purpose
subsidiaries is often necessary or desirable to facilitate financing the
acquisition and ownership of a FUCO, an EWG or another nonutility enterprise.
Furthermore, the laws of some foreign countries may require that the bidder in a
privatization program be organized in that country. In such cases, it may be
necessary to form a foreign subsidiary as the entity (or participant in the
entity) that submits the bid or other proposal.
An Intermediate Subsidiary may be organized, among other things, (1) in
order to facilitate the making of bids or proposals to develop or acquire an
interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other non-exempt
Nonutility Subsidiary; (2) after the award of such a bid proposal, in order to
- -----------------------------
8 The Commission has previously authorized registered holding companies and
their subsidiaries to create financing subsidiaries, subject to
substantially the same terms and conditions. See New Century Energies,
Inc., et al., Holding Co. Act Release No. 27000 (April 7, 1999); and
Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999).
16
<PAGE>
facilitate closing on the purchase or financing of such acquired company; (3) at
any time subsequent to the consummation of an acquisition of an interest in any
such company in order, among other things, to effect an adjustment in the
respective ownership interests in such business held by Energy East and
non-affiliated investors; (4) to facilitate the sale of ownership interests in
one or more acquired nonutility companies; (5) to comply with applicable laws of
foreign jurisdictions limiting or otherwise relating to the ownership of
domestic companies by foreign nationals; (6) as a part of tax planning in order
to limit Energy East's exposure to state, U.S. and foreign taxes; (7) to further
insulate Energy East and the Utility Subsidiaries from operational or other
business risks that may be associated with investments in nonutility companies;
or (8) for other lawful business purposes.
Investments in Intermediate Subsidiaries or New Subsidiaries may take
the form of any combination of the following: (1) purchases of capital shares,
partnership interests, member interests in limited liability companies, trust
certificates or other forms of equity interests; (2) capital contributions; (3)
open account advances with or without interest; (4) loans; and (5) guaranties
issued, provided or arranged in respect of the securities or other obligations
of any Intermediate Subsidiaries or New Subsidiaries. Funds for any direct or
indirect investment in any Intermediate Subsidiaries or New Subsidiaries will be
derived from (1) financings authorized in this proceeding; (2) any appropriate
future debt or equity securities issuance authorization obtained by Energy East
from the Commission; and (3) other available cash resources, including proceeds
of securities sales by a Nonutility Subsidiary pursuant to Rule 52. To the
extent that Energy East provides funds or guaranties directly or indirectly to
an Intermediate Subsidiary which are used for the purpose of making an
investment in any EWG or FUCO or a Rule 58 Subsidiary, the amount of such funds
or guaranties will be included in Energy East's "aggregate investment" in such
entities, as calculated in accordance with Rule 53 or Rule 58, as applicable.9
Energy East may determine from time to time to consolidate or otherwise
reorganize all or any part of its direct and indirect ownership interests in
Nonutility Subsidiaries, and the activities and functions related to such
investments, under one or more Intermediate Subsidiaries. To effect any such
consolidation or other reorganization, Energy East may wish to either contribute
the equity securities of one Nonutility Subsidiary to another Nonutility
Subsidiary or sell (or cause a Nonutility Subsidiary to sell) the equity
securities of one Nonutility Subsidiary to another one. To the extent that these
transactions are not otherwise exempt under the Act or Rules thereunder,10
Energy East hereby requests authorization under the Act to consolidate or
otherwise reorganize under one or more direct or indirect Intermediate
Subsidiaries, Energy East's ownership interests in existing and future
- -----------------------------
9 The Commission has previously authorized registered holding companies to
organize intermediate subsidiary companies to acquire and hold various
nonutility subsidiaries, and for such intermediate companies to provide
administrative and development services to such subsidiaries. See New
Century Energies, Inc., et al., Holding Co. Act Release No. 27000 (April 7,
1999); Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June
22, 1999); and Ameren Corp., et al., Holding Co. Act Release No. 27053
(July 23, 1999).
10 Sections 12(c), 32(g), 33(c)(1) and 34(d) and Rules 43(b), 45(b), 46(a)
and 58, as applicable, may exempt many of the transactions described in
this paragraph.
17
<PAGE>
Nonutility Subsidiaries.11 Such transactions may take the form of a Nonutility
Subsidiary selling, contributing or transferring the equity securities of a
subsidiary as a dividend to an Intermediate Subsidiary, and Intermediate
Subsidiaries acquiring, directly or indirectly, the equity securities of such
companies, either by purchase or by receipt of a dividend. The purchasing
Nonutility Subsidiary in any transaction structured as an intrasystem sale of
equity securities may execute and deliver its promissory note evidencing all or
a portion of the consideration given. Each transaction would be carried out in
compliance with all applicable U.S. or foreign laws and accounting requirements,
and any transaction structured as a sale would be carried out for a
consideration equal to the book value of the equity securities being sold.
Energy East will report each such transaction in the next quarterly certificate
filed pursuant to Rule 24 in this proceeding, as described below.
1.12. INVESTMENTS IN ENERGY-RELATED ASSETS. Nonutility Subsidiaries request
------------------------------------
authority to acquire or construct in one or more transactions from time to time
during the Authorization Period, nonutility energy assets in the United States,
including, without limitation, natural gas production, gathering, processing,
storage and transportation facilities and equipment, liquid oil reserves and
storage facilities, and associated facilities (collectively, "Energy-Related
Assets"), that would be incidental to the energy marketing, brokering and
trading operations of Energy East's Subsidiaries.12 Nonutility Subsidiaries
request authorization to invest up to $500 million (the "Investment Limitation")
during the Authorization Period in such Energy-Related Assets or in the equity
securities of existing or new companies substantially all of whose physical
properties consist or will consist of such Energy-Related Assets.13 Such
Energy-Related Assets (or equity securities of companies owning Energy-Related
Assets) may be acquired for cash or in exchange for Common Stock or other
securities of Energy East or a Nonutility Subsidiary of Energy East, or any
combination of the foregoing. If Common Stock of Energy East is used as
consideration in connection with any such acquisition, the market value thereof
on the date of issuance will be counted against the requested Investment
Limitation. The stated amount or principal amount of any other securities issued
as consideration in any such transaction will also be counted against the
Investment Limitation. Under no circumstances will any Nonutility Subsidiary
acquire, directly or indirectly, any assets or properties the ownership or
operation of which would cause such company to be considered an "electric
utility company" or "gas utility company" as defined under the Act.
As this Commission has recognized in American Electric Power Company,
Inc., et al., 68 SEC Docket 1251 (November 2, 1998) and SEI Holdings, Inc., 62
SEC Docket 2493 (September 26, 1996) and other decisions, a successful marketer
of energy commodities must be able to control some level of physical assets that
- -----------------------------
11 The Commission has granted similar authority to other registered holding
companies. See Entergy Corporation, et al., Holding Co. Act Release No.
27039 (June 22, 1999), Columbia Energy Group, et al., Holding Co. Act
Release No. 27099 (November 5, 1999).
12 Currently, Energy East's electric power and gas marketing operations are
conducted through Energy East Solutions, Inc. and NYSEG Solutions Inc.
13 Companies whose physical properties consist of Energy-Related Assets may
also be currently engaged in energy (gas or electric or both) marketing
activities. To the extent necessary, applicants request authorization to
continue such activities in the event they acquire such companies.
18
<PAGE>
are incidental and reasonably necessary in its day-to-day operations. For
example, gas marketers today must be able to offer their customers a variety of
value-added, or "bundled," services, such as gas storage and processing, that
the interstate pipelines offered prior to FERC Order 636.14 In order to provide
such value-added services, many of the leading gas marketers have invested in
production, gathering, processing, and storage capacity at or near the principal
gas producing areas and hubs and market centers in the U.S. Similarly, in order
to compete with both interstate pipelines and local distribution companies for
industrial and electric utility sales, marketers must have the flexibility to
acquire or construct such supply facilities. In fact, most of the larger energy
marketers today own, directly or through affiliates, substantial physical assets
of the type described herein.
The acquisition of production, gathering, processing, and storage
capacity provide energy marketers the opportunity to hedge the price of future
supplies of natural gas against changes in demand brought about due to weather,
increased usage requirements by end use customers, or other volatility imposed
by the market. Storage and pipeline assets allow energy marketers to "bank" low
cost supplies for use during periods of high volatility or take advantage of
differential price spreads between different markets. Energy marketers with
strong and balanced physical asset portfolios are able to originate tolling or
reverse tolling of gas and electric commodities, whereby the payment is made in
one or the other commodity. The integration of production, gathering, and
storage assets offer energy marketers the opportunity to provide either gas or
electric products and services to energy users, at their discretion, depending
on user requirements and needs. Finally, the physical assets underlying an
energy marketer's balance sheet may provide substantial credit support for the
financial transactions undertaken by the marketer.
Energy East may add to the existing base of nonutility,
marketing-related, assets held by its subsidiaries as and when market conditions
warrant, whether through acquisitions of specific assets or groups of assets
that are offered for sale, or by acquiring existing companies (for example,
other gas marketing companies which own significant physical assets in the areas
of gas production, processing, storage, and transportation).
1.13. SALES OF SERVICES AND GOODS AMONG NONUTILITY SUBSIDIARIES OF ENERGY
-------------------------------------------------------------------
EAST. Energy East's Nonutility Subsidiaries request authorization to provide
- ----
services and sell goods to each other at fair market prices determined without
regard to cost, and therefore request an exemption (to the extent that Rule
90(d) does not apply) pursuant to Section 13(b) from the cost standards of
Rules 90 and 91 as applicable to such transactions, in any case in which the
Nonutility Subsidiary purchasing such goods or services is:
(i) A FUCO or foreign EWG which derives no part of its income, directly or
indirectly, from the generation, transmission, or distribution of electric
energy for sale within the United States;
- -----------------------------
14 See FERC Order 636, FERC Stats. & Regs. P. 30,939, "Pipeline Service
Obligations and Revisions to Regulations Governing Self-Implementing
Transportation; and Regulation of Natural Gas Pipelines After Partial
Wellhead Decontrol," 57 Fed. Reg. 13,270 (April 16, 1992).
19
<PAGE>
(ii) An EWG which sells electricity at market-based rates which have been
approved by the Federal Energy Regulatory Commission ("FERC"), provided that the
purchaser is not one of the Utility Subsidiaries;
(iii) A "qualifying facility" ("QF") within the meaning of the Public Utility
Regulatory Policies Act of 1978, as amended ("PURPA") that sells electricity
exclusively (a) at rates negotiated at arms'-length to one or more industrial or
commercial customers purchasing such electricity for their own use and not for
resale, and/or (ii) to an electric utility company (other than a Utility
Subsidiary) at the purchaser's "avoided cost" as determined in accordance with
the regulations under PURPA;
(iv) A domestic EWG or QF that sells electricity at rates based upon its cost of
service, as approved by FERC or any state public utility commission having
jurisdiction, provided that the purchaser thereof is not one of the Utility
Subsidiaries; or
(v) A Rule 58 Subsidiary or any other Nonutility Subsidiary that (a) is
partially-owned by Energy East, provided that the ultimate purchaser of such
goods or services is not a Utility Subsidiary or EE Management (or any other
entity that Energy East may form whose activities and operations are primarily
related to the provision of goods and services to the Utility Subsidiaries or EE
Management), (b) is engaged solely in the business of developing, owning,
operating and/or providing services or goods to Nonutility Subsidiaries
described in clauses (i) through (iv) immediately above, or (c) does not derive,
directly or indirectly, any material part of its income from sources within the
United States and is not a public-utility company operating within the United
States.15
1.14. ACTIVITIES OF RULE 58 SUBSIDIARIES WITHIN AND OUTSIDE THE UNITED
----------------------------------------------------------------
STATES. Energy East, on behalf of any current or future Rule 58 Subsidiaries,
- ------
requests authority to engage in business activities permitted by Rule 58 both
within and outside the United States. Such activities may include:
(i) the brokering and marketing of electricity, natural gas and other
energy commodities ("Energy Marketing");
(ii) energy management services ("Energy Management Services"), including the
marketing, sale, installation, operation and maintenance of various products and
services related to energy management and demand-side management, including
energy and efficiency audits; facility design and process control and
enhancements; construction, installation, testing, sales and maintenance of (and
training client personnel to operate) energy conservation equipment; design,
implementation, monitoring and evaluation of energy conservation programs;
development and review of architectural, structural and engineering drawings for
energy efficiencies, design and specification of energy consuming equipment; and
general advice on programs; the design, construction, installation, testing,
sales and maintenance of new and retrofit heating, ventilating, and air
- -----------------------------
15 The five circumstances in which market based pricing would be allowed are
substantially the same as those approved by the Commission in other cases.
See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June
22, 1999); Ameren Corp., et al. , Holding Co. Act Release No. 27053 (July
23, 1999); and Interstate Energy Corporation, Holding Co. Act Release No.
27069 (August 26, 1999).
20
<PAGE>
conditioning ("HVAC"), electrical and power systems, alarm and warning systems,
motors, pumps, lighting, water, water-purification and plumbing systems, and
related structures, in connection with energy-related needs; and the provision
of services and products designed to prevent, control, or mitigate adverse
effects of power disturbances on a customer's electrical systems; and
(iii) engineering, consulting and other technical support services ("Consulting
Services") with respect to energy-related businesses, as well as for
individuals. Such Consulting Services would include technology assessments,
power factor correction and harmonics mitigation analysis, meter reading and
repair, rate schedule design and analysis, environmental services, engineering
services, billing services (including consolidation billing and bill
disaggregation tools), risk management services, communications systems,
information systems/data processing, system planning, strategic planning,
finance, feasibility studies, and other similar services.
Energy East requests that the Commission (i) reserve jurisdiction over
Energy Marketing activities outside the United States and Canada pending
completion of the record in this proceeding16 (ii) authorize Energy East and its
direct and indirect subsidiaries to provide Energy Management Services and
Consulting Services anywhere outside the United States,17 and (iii) reserve
jurisdiction over other activities of Rule 58 Subsidiaries outside the United
States, pending completion of the record.
1.15. PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS.
---------------------------------------------------------
1.15.1. Payment of Dividends by Energy East, Intermediate
-------------------------------------------------
Holding Companies and the Utility Subsidiaries. The Mergers will give rise to
- ----------------------------------------------
a substantial level of goodwill, the difference between the aggregate fair
values of all identifiable tangible and intangible assets, and the total
consideration to be paid and the fair values of the liabilities assumed. In
accordance with the Commission's Staff Accounting Bulletin No. 54, Topic 5J
("Staff Accounting Bulletin"), the goodwill will be "pushed down" and reflected
as additional paid-in-capital in financial statements of these entities, and
accordingly the consolidated statements of Energy East. The amortization of
this goodwill will decrease net income and, therefore, decrease retained
earnings, the traditional source of dividend payments, of Energy East, the
respective Utility Subsidiaries and Intermediate Holding Companies. Accordingly,
the Applicants request authorization to pay dividends out of additional
paid-in-capital up to the amount of retained earnings just prior to the Mergers
and the cumulative amount
- -----------------------------
16 See Southern Energy, Inc., Holding Co. Act Rel. No. 27020 (May 13, 1999)
(supplemental order amending prior order to permit registered holding
company subsidiary to engage in power and gas marketing activities in
Canada and reserving jurisdiction over such activities outside the United
States and Canada); Interstate Energy Corporation, Holding Co. Act Release
No. 27069 (August 26, 1999).
17 The Commission has heretofore authorized nonutility subsidiaries of a
registered holding company to sell similarly-defined energy management
services and technical consulting services to customers both within and
outside the United States. See Columbia Energy Group, et al., Holding Co.
Act Release No. 26498 (March 25, 1996); and Cinergy Corp., Holding Co. Act
Release No. 26662 (February 7, 1997); and Interstate Energy
Corporation, Holding Co. Act Release No. 27069 (August 26, 1999).
21
<PAGE>
of the amortization of goodwill thereafter.18 The amortization of goodwill, on
a consolidated basis, is estimated to be $20-25 million per year.
Section 12(c) of the Act and Rule 46 thereunder generally prohibit the
payment of dividends out of "capital or unearned surplus" except pursuant to an
order of the Commission. The legislative history explains that this provision
was intended to "prevent the milking of operating companies in the interest of
the controlling holding company groups." See S. Rep. No. 621, 74th Cong., 1st
Sess. p. 34 (1935).19 In determining whether to permit a registered holding
company to pay dividends out of capital surplus, the Commission considers
various factors, including: (i) the asset value of the company in relation to
its capitalization, (ii) the company's prior earnings, (iii) the company's
current earnings in relation to the proposed dividend, and (iv) the
company's projected cash position after payment of a dividend. See Eastern
Utilities Associates, Holding Co. Act Release No. 25330 (June 13, 1991)
("EUA"), and cases cited therein. Further, the payment of the dividend
must be "appropriate in the public interest." Id., citing Commonwealth &
Southern Corporation, 13 S.E.C. 489, 492 (1943).
In support of their request, Applicants assert that each of the
standards of Section 12(c) of the Act enunciated in the EUA case are satisfied:
(i) After the Mergers, and giving effect to the pushdown of goodwill, Energy
East's common equity as a percentage of total capitalization is estimated to be
40-45%, substantially in excess of the traditional levels of equity
capitalization that the Commission has authorized for other registered holding
company systems.
(ii) Energy East has a favorable history of prior earnings, and it has a long
record of dividend payments.20
(iii) Applicants anticipate that Energy East's cash flow after the Mergers will
not differ significantly from its cash flow prior thereto and that earnings
before the amortization of goodwill ("Gross Earnings"), therefore, should remain
stable after the Mergers. The Applicants believe that dividends paid out of
- -----------------------------
18 The Commission recently was requested to approve a substantially identical
methodology in a case involving an acquisition accounted for under the
purchase method. See National Grid Group plc, et al., Holding Co.
Act Release No. 27086 (October 12, 1999).
19 Compare Section 305(a) of the Federal Power Act.
20 In recent years, Energy East's net income and dividends have been:
Year Net Income ($ millions) Dividends Paid ($ millions)
---------------------------------------------------------------------------
1995 $178 $100
1996 $169 $100
1997 $175 $ 95
1998 $194 $100
22
<PAGE>
future earnings will continue to reflect a conservative dividend payout ratio of
less than 50% of Gross Earnings, based on a rolling 5-year average.
(iv) The requested dividend payments are in the public interest. Energy East is
in sound financial condition as indicated by its sound capitalization ratios.
The expectations of continued strong financial condition should allow it to
continue to access the capital markets to finance its operations and growth.
In addition, the dividend payments are consistent with investor
interests because they allow the capital structure of Energy East to be adjusted
to more appropriate levels of debt and equity. Lastly, a prohibition on dividend
payments out of additional paid-in-capital would impair the ability of Energy
East to service the Acquisition Debt incurred in connection with the Mergers.
Energy East and each of the Intermediate Holding Companies and Utility
Subsidiaries represents that it will not declare or pay any dividend out of
capital or unearned surplus in contravention of any law restricting the payment
of dividends. In this regard, it should be noted that all U.S. jurisdictions
limit to one extent or another the authority of corporations to make dividend
distributions to shareholders. Most state corporation statutes contain either or
both an equity insolvency test or some type of balance sheet test. Energy East
and each of the Intermediate Holding Companies and Utility Subsidiaries also
will comply with the terms of any credit agreements and indentures that restrict
the amount and timing of distributions to shareholders.
Energy East and each of the Intermediate Holding Companies and Utility
Subsidiaries represents that it will not declare or pay any dividend out of
capital or unearned surplus in contravention of any law restricting the payment
of dividends. In this regard, it should be noted that all U.S. jurisdictions
limit to one extent or another the authority of corporations to make dividend
distributions to shareholders. Most state corporation statutes contain either or
both an equity insolvency test or some type of balance sheet test. Energy East
and each of the Intermediate Holding Companies and Utility Subsidiaries also
will comply with the terms of any credit agreements and indentures that restrict
the amount and timing of distributions to shareholders.
1.15.2. Payment of Dividends by Nonutility Subsidiaries. Energy East
-----------------------------------------------
also requests authorization, on behalf of itself and each of its current and
future non-exempt Nonutility Subsidiaries, that such companies be permitted to
pay dividends with respect to the securities of such companies, from time to
time through the Authorization Period, out of capital and unearned surplus.21
Energy East anticipates that there may be situations in which it or one
or more Nonutility Subsidiaries will have unrestricted cash available for
distribution in excess of any such company's current and retained earnings. In
such situations, the declaration and payment of a dividend would have to be
charged, in whole or in part, to capital or unearned surplus. As an example, if
an Intermediate Subsidiary of Energy East were to purchase all of the stock of
an EWG or FUCO and, following such acquisition, the EWG or FUCO incurs
non-recourse borrowings, some or all of the proceeds of which are distributed to
the Intermediate Subsidiary as a reduction in the amount invested in the EWG or
FUCO (i.e., return of capital), the Intermediate Subsidiary (assuming it has no
earnings) could not, without the Commission's approval, in turn distribute such
cash to Energy East or its immediate parent.22
Similarly, using the same example, if an Intermediate Subsidiary,
following its acquisition of all of the stock of an EWG or FUCO, were to sell
part of that stock to a third party for cash, the Intermediate Subsidiary would
again have substantial unrestricted cash available for distribution, but
(assuming no profit on the sale of the stock) would not have current earnings
and therefore could not, without the Commission's approval, declare and pay a
dividend to its parent out of such cash proceeds.
- -----------------------------
21 The Commission has granted similar approvals to other registered holding
companies. See Entergy Corporation, et al., Holding Co. Act Release No.
27039 (June 22, 1999); and Interstate Energy Corporation,
et al., Holding Co. Act Release No. 27069 (August 26, 1999).
22 The same problem would arise where an Intermediate Subsidiary is
over-capitalized in anticipation of a bid which is ultimately unsuccessful.
In such a case, Energy East would normally desire a return of some or all
of the funds invested.
23
<PAGE>
Further, there may be periods during which unrestricted cash available
for distribution by a Nonutility Subsidiary exceeds current and retained
earnings due to the difference between accelerated depreciation allowed for tax
purposes, which may generate significant amounts of distributable cash, and
depreciation methods required to be used in determining book income.
Finally, even under circumstances in which a Nonutility Subsidiary has
sufficient earnings, and therefore may declare and pay a dividend to its
immediate parent, such immediate parent may have negative retained earnings,
even after receipt of the dividend, due to losses from other operations. In this
instance, cash would be trapped at a subsidiary level where there is no current
need for it.
Energy East, on behalf of each current and future non-exempt Nonutility
Subsidiary represents that it will not declare or pay any dividend out of
capital or unearned surplus in contravention of any law restricting the payment
of dividends. Energy East also states that its subsidiaries will comply with
the terms of any credit agreements and indentures that restrict the amount and
timing of distributions to shareholders.
1.16. TAX ALLOCATION AGREEMENT. The Applicants ask the Commission to
------------------------
approve an agreement for the allocation of consolidated tax among Energy East
and the Subsidiaries (the "Tax Allocation Agreement"). Approval is necessary
because the proposed Tax Allocation Agreement may provide for the retention by
Energy East of certain payments for tax losses incurred from time to time,
rather than the allocation of such losses to Subsidiaries without payment as
would otherwise be required by Rule 45(c)(5).
Provisions in a tax allocation agreement between a registered holding
company and its subsidiaries must comply with Section 12 of the Act and Rule 45
thereunder. Rule 45(a) of the Act generally prohibits any registered holding
company or subsidiary company from, directly or indirectly, lending or in any
manner extending its credit to or indemnifying, or making any donation or
capital contribution to, any company in the same holding company system, except
pursuant to a Commission order. Rule 45(c) provides, however, that no approval
is required for a tax allocation agreement between eligible associate companies
in a registered holding company system which "provides for allocation among such
associate companies of the liabilities and benefits arising from such
consolidated tax return for each tax year in a manner not inconsistent with" the
conditions of the rule. Of interest here, Rule 45(c)(5) provides that:
[t]he agreement may, instead of excluding members as provided in
paragraph (c)(4), include all members of the group in the tax
allocation, recognizing negative corporate taxable income or a negative
corporate tax, according to the allocation method chosen. An agreement
under this paragraph shall provide that those associate companies with
a positive allocation will pay the amount allocated and those
subsidiary companies with a negative allocation will receive current
payment of their corporate tax credits. The agreement shall provide a
method for apportioning such payments, and for carrying over
uncompensated benefits, if the consolidated loss is too large to be
used in full. Such method may assign priorities to specified kinds of
benefits. (Emphasis added.)
24
<PAGE>
Under the rule, only "subsidiary companies," as opposed to "associate
companies" (which includes the holding company in a holding company system), are
entitled to be paid for corporate tax credits. However, if a tax allocation
agreement does not fully comply with the provisions of Rule 45(c), it may
nonetheless be approved by the Commission under Section 12(b) and Rule 45(a).
In connection with the 1981 amendments to Rule 45, the Commission
explained that the distinction between "associate companies" and "subsidiary
companies" represented a policy decision to preclude the holding company from
sharing in consolidated return savings. The Commission noted that exploitation
of utility companies by holding companies through the misallocation of
consolidated tax return benefits was among the abuses examined in the
investigations underlying the enactment of the Act.23 It must be noted, however,
that the result in Rule 45(c)(5) is not dictated by the statute and, as the
Commission has recognized, there is discretion on the part of the agency to
approve tax allocation agreements that do not, by their terms, comply with Rule
45(c) -- so long as the policies and provisions of the Act are otherwise
satisfied. In this matter, where the holding company is seeking only to receive
payment for tax losses that have been generated by it, the proposed arrangement
will not give rise to the types of problems (e.g., upstream loans) that the Act
was intended to address.24
As a result of the Mergers, Energy East or its finance subsidiary will
be creating tax deductions chiefly in the form of deductions for interest
expense on the Acquisition Debt that are non-recourse to the Subsidiaries. As a
result, Energy East should retain the benefits of those tax credits.
Accordingly, the Applicants request that the Commission approve the Tax
Allocation Agreement which will be filed by amendment as Exhibit B.
1.17. CERTIFICATES OF NOTIFICATION. It is proposed that, with respect to
----------------------------
Energy East, the reporting system of the 1933 Act and the 1934 Act be
integrated with the reporting system under the Act. This would eliminate
duplication of filings with the Commission that cover essentially the same
subject matters, resulting in a reduction of expense for both the Commission
and Energy East. To effect such integration, the portion of the 1933 Act and
1934 Act reports containing or reflecting disclosures of transactions occurring
pursuant to the authorization granted in this proceeding would be incorporated
by reference into this proceeding through Rule 24 certificates of notification.
The certificates would also contain all other information required by Rule 24,
including the certification that each transaction being reported on had been
carried out in accordance with the terms and conditions of and for the purposes
represented in this Application/Declaration. Such certificates of notification
would be filed within 60 days after the end of each of the first three calendar
quarters, and 90 days after the end of the last calendar quarter, in which
transactions occur.
The Rule 24 certificates will contain the following information for the
reporting period:
- -----------------------------
23 See Holding Co. Act Release No. 21968 (March 25, 1981), citing Sen. Doc.
92, Part 72A, 70th Congress, 1st Sess. at 477-482.
24 See e.g., Section 12(a) of the Act.
25
<PAGE>
(a) The sales of any Common Stock by Energy East and the
purchase price per share and the market price per share at the date of the
agreement of sale;
(b) The total number of shares of Common Stock issued or
issuable under options granted during the quarter under Energy East's employee
benefit plans and dividend reinvestment plan or otherwise, including any plans
hereafter adopted;
(c) If Common Stock has been transferred to a seller of
securities of a company or assets being acquired, the number of shares so
issued, the value per share and whether the shares are restricted to the
acquiror;
(d) The name of the guarantor and of the beneficiary of any
guarantied note, Energy East Guaranty, Intermediate Holding Company Guaranty
or Nonutility Subsidiary Guaranty issued during the quarter, and the amount,
terms and purpose of the guaranty;
(e) The amount and terms of any Debentures issued during the
quarter;
(f) The amount and terms of any financings consummated by any
Nonutility Subsidiary during the quarter that are not exempt under Rule 52;
(g) The notional amount and principal terms of any Interest Rate
Hedge or Anticipatory Hedge entered into during the quarter and the identity
of the parties to such instruments;
(h) The name, parent company, and amount invested in any
Intermediate Subsidiary or New Subsidiary or Financing Subsidiary during the
quarter;
(i) A list of Form U-6B-2 statements filed with the Commission
during the quarter, including the name of the filing entity and the date of the
filing;
(j) The amount and terms of any short-term debt issued by Energy
East during the quarter;
(k) The amount and terms of any short-term debt issued by any
Utility Subsidiary during the quarter;
(l) The amount and terms of any short-term debt issued by any
Intermediate Holding Company during the quarter;
(m) Consolidated balance sheets as of the end of the quarter,
and separate balance sheets as of the end of the quarter for each company,
including Energy East, that has engaged in financing transactions during the
quarter.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
-------------------------------
The fees, commissions and expenses incurred or to be incurred in
connection with this Application/Declaration are estimated at $25,000. The above
fees do not include any underwriting fees or other expenses incurred in
consummating financings covered hereby. It is estimated that such fees and
26
<PAGE>
expenses will not exceed 5% of the proceeds from any such financings.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
--------------------------------
3.1. GENERAL. Sections 6(a) and 7 of the Act are applicable to the
-------
issuance and sale of Common Stock, Preferred Stock, Short-term Debt and
Debentures by and to the issuance and sale of securities by the Subsidiaries
that are not exempt under Rule 52. In addition, Sections 6(a) and 7 of the Act
are applicable to Interest Rate Hedges, except to the extent that they may be
exempt under Rule 52, and to Anticipatory Hedges. Section 12(b) of the Act
and Rule 45(a) are applicable to the issuance of Energy East Guaranties,
Nonutility Subsidiary Guaranties and Intermediate Holding Company Guaranties
to the extent not exempt under Rules 45(b) and 52. Sections 9(a)(1) and 10 of
the Act are also applicable to (i) Energy East's or any Nonutility Subsidiary's
or any Intermediate Holding Company's acquisition of the equity securities of
any Financing Subsidiary, (ii) the acquisition of securities of Intermediate
Subsidiaries, (iii) the acquisition of Energy-Related Assets or the securities
of companies substantially all of whose assets consist of Energy-Related
Assets, and, (iv) the activities of Rule 58 Subsidiaries within and outside
the United States. Section 12(c) of the Act and Rule 46 are applicable to the
payment of dividends from capital and unearned surplus by Energy East and the
Subsidiaries. Section 13(b) of the Act and Rules 80 - 92 are applicable to the
performance of services and sale of goods among Nonutility Subsidiaries, but
may be exempt from the requirements thereof in some cases pursuant to Rules
87(b)(1), 90(d) and 92, as applicable. Section 12(b) of the Act and Rule 45(c)
are applicable to the proposed Tax Allocation Agreement.
3.2. COMPLIANCE WITH RULES 53 AND 54. The transactions proposed herein are
-------------------------------
also subject to Rules 53 and 54. Under Rule 53(a), the Commission shall not make
certain specified findings under Sections 7 and 12 in connection with a proposal
by a holding company to issue securities for the purpose of acquiring the
securities of or other interest in an EWG, or to guaranty the securities of an
EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof are
met, provided that none of the conditions specified in paragraphs (b)(1) through
(b)(3) of Rule 53 exists. Rule 54 provides that the Commission shall not
consider the effect of the capitalization or earnings of subsidiaries of a
registered holding company that are EWGs or FUCOs in determining whether to
approve other transactions if Rule 53(a), (b) and (c) are satisfied. These
standards are met.
Rule 53(a)(1): Immediately following the Mergers, Energy East's
"aggregate investment" in EWGs and FUCOs will be approximately $20 million, or
approximately 2.6% of Energy East's "consolidated retained earnings" at
September 30, 1999 (approximately $777 million).
Rule 53(a)(2): Energy East will maintain books and records enabling it
to identify investments in and earnings from each EWG and FUCO in which it
directly or indirectly acquires and holds an interest. Energy East will cause
each domestic EWG in which it acquires and holds an interest, and each foreign
EWG and FUCO that is a majority-owned subsidiary, to maintain its books and
records and prepare its financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP"). All of such books and records and
financial statements will be made available to the Commission, in English, upon
request.
27
<PAGE>
Rule 53(a)(3): No more than 2% of the employees of the Utility
Subsidiaries will, at any one time, directly or indirectly, render services to
EWGs and FUCOs.
Rule 53(a)(4): Energy East will submit a copy of the
Application/Declaration in this proceeding and each amendment thereto, and will
submit copies of any Rule 24 certificates required hereunder, as well as a copy
of Energy East's Form U5S, to each of the public service commissions having
jurisdiction over the retail rates of the Utility Subsidiaries.
In addition, Energy East states that the provisions of Rule 53(a) are
not made inapplicable to the authorization herein requested by reason of the
occurrence or continuance of any of the circumstances specified in Rule 53(b).
Rule 53(c) is inapplicable by its terms.
ITEM 4. REGULATORY APPROVALS.
---------------------
NYPSC has jurisdiction over the issuance of securities by NYSEG, other
than indebtedness with maturities of one year or less. DPUC has jurisdiction
over the issuance of securities by Southern Connecticut Gas and Connecticut
Natural Gas, other than indebtedness with maturities of one year or less. MPUC
has jurisdiction over the issuance of securities by CMP Natural Gas, Central
Maine Power, MEPCo and NORVARCO other than indebtedness of up to one year. MDTE
has jurisdiction over the issuance of securities by Berkshire Gas other than
indebtedness with maturities of one year or less.
Except as stated above, no state commission, and no federal commission,
other than the Commission, has jurisdiction over the proposed transactions.
ITEM 5. PROCEDURE.
----------
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application or Declaration as soon as practicable.
The Applicants request that the Commission's Order be issued as soon as the
rules allow, and that there should not be a 30-day waiting period between
issuance of the Commission's order and the date on which the order is to become
effective. The Applicants hereby waive a recommended decision by a hearing
officer or any other responsible officer of the Commission and consents that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
----------------------------------
A. EXHIBITS.(To be filed by amendment unless otherwise indicated)
A-1 Restated Certificate of Incorporation of Energy East
filed in the Office of the Secretary of State of the
State of New York on April 23, 1998 (filed as Exhibit
4.1 to Energy East's Post-effective Amendment No. 1
to Registration No. 033-54155 and incorporated herein
by reference).
A-2 Certificate of Amendment of the Certificate of
Incorporation of Energy East filed in the Office of
the Secretary of State of the State of New York on
April 26, 1999 (filed as Exhibit 3.3 to Energy East's
Form 10-Q for the quarter ended March 31, 1999, File
28
<PAGE>
No. 1-14766 and incorporated herein by reference).
A-3 By-Laws of Energy East as amended April 23, 1999
(filed as Exhibit 3.4 to Energy East's Form 10-Q for
the quarter ended March 31, 1999, File No. 1-14766,
and incorporated herein by reference).
A-4 Amended and Restated Certificate of Incorporation of
CMP Group (filed in the Office of the Secretary of
State of the State of Maine on June 11, 1999, File
No. 199811590D, and previously filed on Form S-E and
incorporated herein by reference).
A-5 Amended and Restated Certificate of Incorporation of
CTG Resources (filed as Exhibit 3.2 to the
Registration Statement on Form S-4 in File No.
333-16297 and incorporated herein by reference).
A-6 Declaration of Trust of Berkshire Energy Resources
(filed in Exhibit 3.1.1, to the Registration
Statement on Form S-4 in File No. 333-46799 and
incorporated herein by reference).
B Form of Tax Allocation Agreement.
F Opinion of Counsel.
G Financial Data Schedule (filed as Exhibit G-3 and
titled "Exhibit 27" to Energy East's Amendment No. 1
to the Application/Declaration on Form U-1, File No.
070-09569, and incorporated herein by reference).
H Proposed Form of Federal Register Notice (filed
herewith).
I Energy East, Connecticut Energy, CMP Group and CTG
Resources dividend reinvestment plan and stock-based
compensation and employee benefit plans.
B. FINANCIAL STATEMENTS.
---------------------
FS-1 Pre-Merger and pro forma combined condensed balance
sheet of Energy East as of June 30, 1999, and
pre-Merger and pro forma combined condensed statement
of income and statement of retained earnings of
Energy East for the twelve months ended June 30, 1999
(filed as Exhibit FS-1 to Energy East's Amendment No.
1 to Application/Declaration on Form U-1, File No.
070-09569 and incorporated herein by reference).
FS-2 Balance Sheet of CMP Group as of June 30, 1999, and
statement of income and statement of retained
earnings of CMP Group for the twelve months ended
29
<PAGE>
June 30, 1999, included in the balance sheet,
statement of income and statement of retained
earnings of Energy East (filed in FS-1).
FS-3 Balance Sheet of CTG Resources as of June 30, 1999,
and statement of income and statement of retained
earnings of CTG Resources for the twelve months ended
June 30, 1999, included in the balance sheet,
statement of income and statement of retained
earnings of Energy East (filed in FS-1).
FS-4 Balance Sheet of Connecticut Energy as of June 30,
1999, and statement of income and surplus of
Connecticut Energy for the twelve months ended June
30, 1999, included in the balance sheet, statement of
income and statement of retained earnings of Energy
East (filed as Exhibit FS-1 to Energy East's
Application/Declaration on Form U-1, File No.
070-09545 and incorporated herein by reference).
FS-5 Balance Sheet of Berkshire as of June 30, 1999, and
statement of income and statement of retained
earnings of Berkshire for the twelve months ended
June 30, 1999, included in the balance sheet,
statement of income and statement of retained
earnings of Energy East (filed in FS-1).
FS-6 Statements of income and surplus of CMP Group for the
fiscal year ended December 31, 1998, 1997, and 1996
(included in CMP Group's Form 10-K for the year ended
December 31, 1998, File No. 01-0519429 and
incorporated herein by reference).
FS-7 Statements of income and surplus of CTG Resources for
the fiscal year ended September 30, 1998, 1997, and
1996 (included in CTG Resource's Form 10-K for the
year ended September 30, 1998, File No. 1-12859 and
incorporated herein by reference).
FS-8 Statements of income and surplus of Connecticut
Energy for the fiscal year ended September 30, 1998,
1997, and 1996 (included in Connecticut Energy's Form
10-K for the year ended September 30, 1998, File No.
1-08369 and incorporated herein by reference).
FS-9 Statements of income and surplus of Berkshire Energy
for the fiscal year ended June 30, 1999, 1998, and
1997 (included in Berkshire's Form 10-K for the year
ended June 30, 1999, File No. 0-29812 and
incorporated herein by reference).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
----------------------------------------
None of the matters that are the subject of this
Application/Declaration involve a "major federal action" nor do they
"significantly affect the quality of the human environment" as those terms are
used in section 102(2)(C) of the National Environmental Policy Act. The
transaction that is the subject of this Application/Declaration will not result
in changes in the operation of the Applicants that will have an impact on the
30
<PAGE>
environment. The applicants are not aware of any federal agency that has
prepared or is preparing an environmental impact statement with respect to the
transactions that are the subject of this Application/Declaration.
31
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, each of the undersigned companies has duly caused this
Application/Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
ENERGY EAST CORPORATION NEW YORK STATE ELECTRIC & GAS
CORPORATION
/s/ Robert D. Kump /s/ Robert D. Kump
---------------------------------- -------------------------------
Name: Robert D. Kump Name: Robert D. Kump
Title: Vice President & Treasurer Title: Treasurer
Date: 1/7/00 Date: 1/7/00
CMP NATURAL GAS, L.L.C CMP GROUP, INC.
/s/ Tim D. Kelley /s/ Arthur W. Adelberg
---------------------------------- -------------------------------
Name: Tim D. Kelley Name: Arthur W. Adelberg
Title: President & CEO Title: Executive Vice President
Date: 1/7/00 & CFO
Date: 1/7/00
CENTRAL MAINE POWER COMPANY MAINE ELECTRIC POWER COMPANY
/s/ Sara J. Burns /s/ Sara J. Burns
---------------------------------- -------------------------------
Name: Sara J. Burns Name: Sara J. Burns
Title: President Title: President
Date: 1/7/00 Date: 1/7/00
NORVARCO CONNECTICUT ENERGY CORPORATION
/s/ Arthur W. Adelberg /s/ Sam Bowlby
---------------------------------- -------------------------------
Name: Arthur W. Adelberg Name: Sam Bowlby
Title: President Title: V.P., General Counsel &
Date: 1/7/00 Secretary
Date: 1/7/00
32
<PAGE>
THE SOUTHERN CONNECTICUT GAS COMPANY CTG RESOURCES, INC.
/s/ Sam Bowlby /s/ James P. Bolduc
---------------------------------- -------------------------------
Name: Sam Bowlby Name: James P. Bolduc
Title: V.P., General Counsel & Secretary Title: Executive Vice President
Date: 1/7/00 & C.F.O.
Date: 1/7/00
CONNECTICUT NATURAL GAS CORPORATION BERKSHIRE ENERGY RESOURCES
/s/ James P. Bolduc /s/ Scott S. Robinson
---------------------------------- -------------------------------
Name: James P. Bolduc Name: Scott S. Robinson
Title: Executive Vice President & C.F.O. Title: President & CEO
Date: 1/7/00 Date: 1/7/00
THE BERKSHIRE GAS COMPANY
/s/ Scott S. Robinson
----------------------------------
Name: Scott S. Robinson
Title: Chief Executive Officer
Date: 1/7/00
33
EXHIBIT H
PROPOSED FORM OF FEDERAL REGISTER NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. ____________)
Filings under the Public Utility Holding Company Act of 1935, as amended ("Act")
January 7, 2000.
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) for
complete statements of the proposed transaction(s) summarized below. The
applications(s) and/or declaration(s) and any amendments thereto is/are
available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
_____________, 2000 to the Secretary, Securities and Exchange Commission,
Washington DC 20549, and serve a copy on the relevant applicant(s) and/or
declarant(s) at the address(es) as specified below. Proof of service (by
affidavit or, in 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 the matter. After _______, 2000, the application(s) and/or declaration(s), as
filed and amended, may be granted and/or permitted to become effective.
ENERGY EAST, ET AL.
- -------------------
Energy East Corporation ("Energy East ") is a public utility holding
company exempt from all provisions of the Public Utility Holding Company Act of
1935, as amended (the "Act"), except Section 9(a)(2), by order issued under
Section 3(a)(1), whose principal offices are located at P.O. Box 1196, Stamford,
CT 06904-1196. Energy East has previously filed two Applications/Declarations on
Form U-1 (File Nos. 70-09545 and 70-09569, collectively, the "Merger U-1
Applications"), pursuant to Sections 9 and 10 and other applicable provisions of
the Act seeking approval to acquire all of the issued and outstanding common
shares of: Connecticut Energy Corporation, CMP Group, Inc., CTG Resources, Inc.
and Berkshire Energy Resources (collectively, the "Mergers").
Upon completion of the Mergers, Energy East will own, directly or
indirectly, interests in the following eight public utility companies, each of
which will be wholly-owned by companies within the Energy East system, unless
otherwise indicated:
o New York State Electric & Gas Corporation ("NYSEG"), a New York corporation
and a wholly-owned subsidiary of Energy East, which purchases, transmits
and distributes electricity and purchases, transmits and distributes
natural gas in parts of New York;
o CMP Natural Gas, L.L.C. ("CMP Natural Gas"), a Maine limited
liability company, which distributes gas in Maine and which is a joint
venture between New England Gas Development Corp. (holding a 19%
interest), a wholly-owned subsidiary of CMP Group, and Energy East
Enterprises, Inc. (holding an 81% interest), a wholly-owned subsidiary of
Energy East;
o Central Maine Power Company ("Central Maine Power"), a Maine corporation
and a wholly-owned subsidiary of CMP Group, which is primarily engaged in
purchasing, transmitting and distributing electricity in Maine;
o Maine Electric Power Company, Inc. ("MEPCo"), a Maine corporation, which
owns and operates a 345kV transmission interconnection between the Maine -
New Brunswick, Canada international border at Orient, Maine - Central Maine
Power presently owns a 78.3% voting interest in MEPCo with the remaining
interests owned by two other Maine utilities;
o NORVARCO, a Maine corporation, which holds a 50% general partnership
interest in Chester SVC Partnership, a general partnership which owns a
static var compensator located in Chester, Maine, adjacent to MEPCo's
transmission interconnection - NORVARCO is presently a wholly-owned
subsidiary of Central Maine Power;
o The Southern Connecticut Gas Company ("Southern Connecticut Gas"), a
Connecticut corporation and a wholly-owned subsidiary of Connecticut
Energy, which is engaged in the retail distribution and transportation of
natural gas in parts of Connecticut;
o Connecticut Natural Gas Corporation ("Connecticut Natural Gas"), a
Connecticut corporation and a wholly-owned subsidiary of CTG Resources,
which is primarily engaged in the retail distribution and transportation of
natural gas to parts of Connecticut; and
o The Berkshire Gas Company ("Berkshire Gas"), a Massachusetts corporation
and a wholly-owned subsidiary of Berkshire, which is engaged in the sale
and distribution of natural gas in western Massachusetts.
Collectively, the eight subsidiaries referenced above are referred to
herein as the "Utility Subsidiaries." Together, the Utility Subsidiaries provide
electric service to approximately 1.4 million wholesale, retail and industrial
electric customers in parts of New York and Maine and gas service to
approximately 600,000 residential, commercial, agricultural and industrial
customers, in Maine, Connecticut, Massachusetts and New York.
Energy East will register as a public utility holding company following
the consummation of its proposed combinations with CMP Group, Inc., CTG
Resources, Inc. and Berkshire Energy Resources.
As explained in the Merger U-1 Application, CMP Group, Connecticut
Energy, CTG Resources and Berkshire will remain in existence as first tier
subsidiaries of Energy East following the Mergers. In addition, Energy East
currently owns Energy East Enterprises which is a public utility holding company
by virtue of the 81% interest it holds in CMP Natural Gas. These companies are
referred to herein as the "Intermediate Holding Companies."
In addition, Energy East, upon completion of the Mergers, will also
directly or indirectly own approximately 41 other subsidiary companies that are
not public utility companies under the Act. Such entities are collectively
referred to herein as the "Nonutility Subsidiaries."
Energy East and the Subsidiaries are requesting approval for a program
of external financing, credit support arrangements, and other related proposals
for the period commencing on the effective date of an order issued pursuant to
the filing and ending December 31, 2005, as follows:
Energy East requests authority to issue Common Stock to shareholders of
CTG Resources in connection with the CTG Merger. In addition, Energy East
requests authority to maintain in place certain debt incurred in connection with
the Mergers ("the Acquisition Debt") and to refinance such Acquisition Debt.
Energy East requests authority to issue and sell from time to time,
either through underwritten public offerings, in private placements, pursuant to
its dividend reinvestment plan and stock-based management incentive and employee
benefit plans or in exchange for securities being acquired from other companies,
up to 50 million shares of Common Stock (as such number may hereafter be
adjusted during the Authorization Period to reflect any stock split). In
addition, Energy East requests authority to issue and sell from time to time (A)
up to $ 250 million of Preferred Stock, (B) up to $500 million principal amount
of unsecured indebtedness having maturities of one year or less, and (C) up to
$1.5 billion principal amount of unsecured debentures having maturities of up to
50 years, provided that the aggregate principal amount of such debentures at any
time outstanding, when added to the aggregate principal amount of all other
indebtedness of Energy East at any time outstanding (including, specifically,
short-term debt and Acquisition Debt), shall not exceed $2 billion.
The Utility Subsidiaries and Intermediate Holding Companies request
authority to issue, sell and have outstanding at any one time during the
Authorization Period debt securities with maturities of one year or less in the
following aggregate principal amounts:
Utility Subsidiaries Aggregate Principal Amount
-------------------- --------------------------
NYSEG $275,000,000
CMP Natural Gas 50,000,000
Central Maine Power 150,000,000
MEPCo 30,000,000
NORVARCO 30,000,000
Southern Connecticut Gas 100,000,000
Connecticut Natural Gas 100,000,000
Berkshire Gas 50,000,000
Intermediate Holding Company Aggregate Principal Amount
---------------------------- --------------------------
CMP Group $ 30,000,000
Connecticut Energy 30,000,000
CTG Resources 30,000,000
Berkshire 30,000,000
Energy East Enterprises 30,000,000
To the extent that such transactions are not exempt under Rule 52(b),
the Nonutility Subsidiaries request authority to issue and sell from time to
time during the Authorization Period debt and equity securities in order to
finance their operations and future nonutility investments, provided that such
future investments are exempt under the Act or rules thereunder or have been
authorized in a separate proceeding.
Energy East requests authority to provide guaranties and other forms of
credit support ("Energy East Guaranties") with respect to the securities or
other obligations of its Subsidiaries in an aggregate principal or nominal
amount not to exceed $1 billion at any one time outstanding.
Nonutility Subsidiaries request authority to provide guaranties and
other forms of credit support with respect to obligations of other Nonutility
Subsidiaries in an aggregate principal or nominal amount not to exceed $700
million at any one time outstanding, exclusive of any guaranties that are exempt
pursuant to Rule 45(b) and Rule 52. In addition, each of the Intermediate
Holding Companies request authority to provide guaranties and other forms of
credit support to or on behalf of their respective Subsidiaries in the following
maximum aggregate principal or nominal amounts:
Intermediate Holding Company Aggregate Principal Amount
---------------------------- --------------------------
CMP Group $30,000,000
Connecticut Energy 30,000,000
CTG Resources 30,000,000
Berkshire 30,000,000
Energy East and, to the extent not exempt under Rule 52, the
Subsidiaries request authority to enter into hedging transactions with respect
to outstanding indebtedness of such companies in order to manage and minimize
interest rate costs. Such companies also request authority to enter into hedging
transactions with respect to anticipatory debt issuances in order to lock-in
current interest rates and/or manage interest rate risk exposure.
Energy East, on behalf of the Subsidiaries, requests authorization to
change any wholly-owned Subsidiary's or Intermediate Holding Company's
authorized capital stock capitalization.
Energy East and the Subsidiaries request authority to acquire the
equity securities of one or more special-purpose subsidiaries organized solely
to facilitate a financing and to guaranty the securities issued by such
Financing Subsidiaries, to the extent not exempt pursuant to Rule 45(b) and Rule
52.
Energy East requests authority to acquire, directly or indirectly, the
equity securities of (a) one or more intermediate subsidiaries organized
exclusively for the purpose of acquiring, financing, and holding the securities
of one or more existing or future Nonutility Subsidiaries, including but not
limited to "exempt wholesale generators", as defined in Section 32 of the Act,
"foreign utility companies", as defined in Section 33 of the Act, companies
engaged or formed to engage in activities permitted by Rule 58 ("Rule 58
Subsidiaries"), or "exempt telecommunications companies", as defined in Section
34 of the Act, provided that Intermediate Subsidiaries may also provide
management, administrative, project development, and operating services to such
entities, and (b) one or more new subsidiaries organized exclusively for the
purpose of engaging in any business or activity in which any of the Nonutility
Subsidiaries of Energy East are engaged at the effective time of the Mergers.
Nonutility Subsidiaries request authority to invest up to $700 million
in certain types of nonutility energy-related assets that are incidental to
energy marketing activities of such companies, or the capital stock of companies
substantially all of whose physical assets consist of such Energy-Related
Assets.
As permitted by Rule 87(b)(1), Nonutility Subsidiaries may from time to
time provide services and sell goods to each other. To the extent not exempt
pursuant to Rule 90(d), such companies request authority to perform such
services and to sell such goods to each other at fair market prices, without
regard to "cost," as determined in accordance with Rules 90 and 91, subject to
certain limitations that are noted below.
Energy East requests authority on behalf of any current and future Rule
58 Subsidiaries to engage in certain categories of activities permitted
thereunder both within and outside the United States.
Energy East, the Intermediate Holding Companies and their respective
Subsidiaries request authority to pay dividends out of capital and unearned
surplus, subject to certain limitations.
Energy East requests approval for an agreement among Energy East, the
Intermediate Holding Companies and the Subsidiaries to allocate consolidated
income tax liabilities in a manner different than permitted under Rule 45(c).
