File No. 70-9367
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM U-1/A
Amendment No. 1
To
FORM U-1
APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CMP Group, Inc.
83 Edison Drive
Augusta, Maine 04336
and
New England Gas Development Corporation
83 Edison Drive
Augusta, Maine 04336
(Name of company or companies filing this statement and
address of principal executive offices)
Anne M. Pare, Esq.
Treasurer, Corporate Counsel and Secretary
CMP Group, Inc.
83 Edison Drive
Augusta, Maine 04336
Telephone: (207) 623-3521
(Names and addresses of agents for service)
Copies to:
Frank Lee, Esq.
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
Telephone: (212) 682-6200
<PAGE>
The Form U-1 Application in this proceeding, originally filed with the
Commission on September 30, 1998, is hereby amended and restated to read as
follows:
Item 1. Description of Proposed Transaction.
A. Introduction
Pursuant to Sections 3(a)(1), 9(a)(2) and 10 of the Public Utility
Holding Company Act of 1935, as amended (the "Act"), CMP Group, Inc. ("CMP
Group"), a Maine corporation and an exempt public utility holding company,
hereby requests that the Securities and Exchange Commission (the "Commission")
authorize the transaction described herein (the "Transaction") pursuant to which
CMP Group, through New England Gas Development Corporation ("New England Gas"),
a Maine corporation and a wholly-owned subsidiary of CMP Group, will acquire up
to 50% of the voting securities of CMP Natural Gas, L.L.C. ("Maine GasCo"), a
Maine limited liability company. Maine GasCo will construct, own and operate a
local natural gas distribution system (the "Maine GasCo System") which will
provide on a non-exclusive basis natural gas service in certain areas of Maine
that do not currently receive natural gas service. The remaining voting
securities of Maine GasCo will be held by Energy East Corporation ("EEC"),1 an
exempt public utility holding company, through Energy East Enterprises, Inc.
("EEC Enterprises"), a wholly-owned subsidiary of EEC, pursuant to a Joint
Venture Agreement dated as of November 13, 1997, as amended (the "Joint Venture
Agreement") between Central Maine Power Company ("CMP"), a subsidiary of CMP
Group, and New York State Electric & Gas Corporation ("NYSEG"), a wholly-owned
subsidiary of EEC. The Joint Venture Agreement is attached hereto as Exhibit
B-1.
As noted above, CMP Group is currently a public utility holding company
exempt from all provisions of the Act, except Section 9(a)(2), under Section
3(a)(1) of the Act by order of the Commission dated August 7, 1998. See, Central
Maine Power Company, et al., Holding Co. Act Release No. 26903 (1998). CMP Group
holds 100% of the common stock of CMP. CMP in turn owns 78.3% of the voting
securities of Maine Electric Power Company, Inc. ("MEPCo"), and 100% of the
voting securities of Aroostook Valley Electric Company ("AVEC") and NORVARCO.
CMP, MEPCo, AVEC and NORVARCO are public utility companies as defined under the
Act. CMP is also a public utility holding company exempt from all provisions of
the Act, except Section 9(a)(2), under Section 3(a)(1) of the Act by order of
the Commission mentioned above. Following consummation of the Transaction, CMP
Group will also own, through New England Gas, up to 50% of the voting securities
of Maine GasCo, which, when it begins commercial operation, will be a public
utility company as defined under the Act, and New England Gas will itself be a
public utility holding company as defined under the Act. Section 9(a)(2) of the
Act requires Commission approval of the Transaction because, by virtue of the
Transaction, CMP Group will own, directly or indirectly, more than 5% of the
outstanding voting securities of five public utility companies - CMP, MEPCo,
AVEC2, NORVARCO and Maine GasCo (when it begins commercial operation).
CMP Group seeks an order under Section 3(a)(1) confirming its exempt
status and New England Gas seeks an order under Section 3(a)(1) granting it an
exemption following the consummation of the Transaction. CMP Group and New
England Gas (when Maine GasCo begins commercial operation) will each be a public
utility holding company entitled to an exemption under Section 3(a)(1) of the
Act because both CMP Group and New England Gas, and each public utility
subsidiary from which they derive a material part of their incomes, will
continue to be organized and to operate predominantly in Maine following
consummation of the Transaction. In addition, since this application has no
impact on CMP's status as an exempt public utility holding company, CMP will
continue to be entitled to an exemption under Section 3(a)(1) of the Act because
CMP and each public utility subsidiary from which it derives a material part of
its income will continue to be organized and operating predominantly in Maine.
B. CMP Group and Subsidiaries
On September 1, 1998, CMP Group became the holding company for CMP and
its subsidiaries and certain non-utility companies, described below. CMP Group's
common stock is publicly traded on the New York Stock Exchange. CMP Group's
principal executive offices are located at 83 Edison Drive, Augusta, Maine
04336.
New England Gas was incorporated under the laws of the State of Maine
for the purpose of carrying out the proposed Transaction. New England Gas is
currently a direct, wholly-owned subsidiary of CMP Group. New England Gas does
not currently own any utility assets nor is it currently a "public utility
company" or a "holding company" within the meaning of the Act.
CMP Group's non-utility subsidiaries are engaged in activities designed
to capitalize on core competencies of the CMP system. Descriptions of these
subsidiaries follow:
a. CNEX, formerly called CMP International Consultants, provides
consulting, planning, training, project management, and
information and research services to foreign and domestic
utilities and government agencies in various aspects of utility
operations and utility support services.
b. MaineCom Services ("MaineCom") develops fiber-optic data service
for bulk carriers, provides other telecommunications services,
and holds direct or indirect voting interests in various entities
that are in the business of developing a fiber-optics network in
the Northeast.
c. TeleSmart provides collections and related accounts receivable
management services and has a division which collects charged-off
accounts.
d. The Union Water-Power Company ("Union Water") (i) provides river
facilities management, including the management of dams,
reservoirs, fishways and oxygenation facilities, (ii) provides
utility support services such as underground facility locating,
infrared photography and work order ticket management, (iii)
provides real estate management, development and leasing, and
land and modular housing sales, (iv) provides engineering,
construction management and environmental and licensing services,
and (v) owns 25% of the voting stock of Androscoggin Reservoir
Company (the remainder of the voting stock is owned by Public
Service Company of New Hampshire ("PSNH") and three paper
companies), which owns a storage reservoir and dam on the
Androscoggin River and owns real estate and other facilities at
Aziscohos Dam in northwestern Maine that it leases to a
qualifying facility. Union Water's interest in Androscoggin
Reservoir Company will be sold as a part of the asset sale to an
affiliate of FPL Group, described below.
CMP is an investor-owned Maine public utility incorporated in 1905 and
is a subsidiary of CMP Group. CMP is primarily engaged in the business of
generating,3 purchasing, transmitting, distributing and selling electric energy
for the benefit of retail customers in southern and central Maine and wholesale
customers, principally other utilities. Its principal executive offices are
located at 83 Edison Drive, Augusta, Maine 04336. As mentioned above, CMP is
currently a public utility holding company exempt from regulation under the Act
(except for Section 9(a)(2) thereof) by order of the Commission. CMP currently
has three subsidiaries that are public utility companies within the meaning of
the Act, namely MEPCo, AVEC and NORVARCO, and several non-utility subsidiaries.4
CMP is the largest electric utility in Maine. It serves approximately
528,000 customers in its 11,000 square-mile service area in southern and central
Maine. CMP had $954 million in consolidated electric operating revenues in 1997
(reflecting consolidation of financial statements with MEPCo). The electric
properties of CMP form a single integrated system which is connected at 345
kilovolts and 115 kilovolts with the lines of PSNH at the southerly end and at
115 kilovolts with Bangor Hydro at the northerly end of CMP's system. CMP's
system is also connected with the system of New Brunswick Power and of Bangor
Hydro through the 345-kilovolt interconnection constructed by MEPCo.
CMP has interests in 31 hydroelectric generating stations with an
estimated net capability of 373 megawatts. CMP also operates two oil-fired
steam-electric generating stations, William F. Wyman Station in Yarmouth, Maine,
of which CMP's entitlement is 594 megawatts, and Mason Station in Wiscasset,
Maine, with 145 megawatts of generating capacity. CMP also has internal
combustion generating facilities with an estimated aggregate net capability of
42 megawatts.
CMP has direct or indirect ownership interests in five nuclear
generating facilities in New England. The largest is a 38% common stock interest
in Maine Yankee Atomic Power Company ("Maine Yankee"), which owns a nuclear
generating plant in Wiscasset, Maine, that has been permanently shut down since
August 6, 1997. In addition, CMP owns a 9.5% common stock interest in Yankee
Atomic Electric Company, which has permanently shut down its plant located in
Rowe, Massachusetts, a 6% common stock interest in Connecticut Yankee Atomic
Power Company, which has permanently shut down its plant in Haddam, Connecticut,
and a 4% common stock interest in Vermont Yankee Nuclear Power Corporation,
which owns a plant in Vernon, Vermont. In addition, pursuant to a joint
ownership agreement, CMP has a 2.5% direct ownership interest in the Millstone 3
nuclear unit in Waterford, Connecticut.
CMP is subject to the regulatory authority of the Maine Public
Utilities Commission (the "MPUC") as to retail rates, accounting, service
standards, territory served, the issuance of securities maturing more than one
year after the date of issuance, certification of generation and transmission
projects and various other matters. CMP is also subject to the jurisdiction of
the Federal Energy Regulatory Commission ("FERC") under Parts I, II and III of
the Federal Power Act for some phases of its business, including licensing of
its hydroelectric stations, accounting, rates relating to wholesale sales and to
interstate transmission and sales of energy and certain other matters. The MPUC
also regulates, in some respects, MEPCo, NORVARCO, Chester, AVEC, Maine Yankee
and MaineCom. MEPCo, NORVARCO, Chester and AVEC are regulated by the MPUC in all
respects, except as to rates and short-term (one year or less) financings, which
are regulated by the FERC. Specifically, the MPUC's regulation over these
entities includes financings with maturities of more than one year, transactions
and other arrangements with affiliates, any acquisition or creation of entities
in which they hold at least a 10% interest, transfers of utility property and
construction of facilities. The MPUC regulates financings by Maine Yankee with
maturities of longer than one year and Maine Yankee's transactions with
affiliates. MaineCom is subject to regulation by the MPUC with respect to making
available a fiber optics cable for public use in Maine. MaineCom has also
received MPUC approval to provide local exchange and interexchange telephone
service in Maine and provides such service under contracts which are filed with
the MPUC as rate schedules.
C. Description of the Proposed Transaction
1. The Joint Venture Agreement
CMP and NYSEG have executed the Joint Venture Agreement, which provides
for among other things, the formation of a joint venture company, Maine GasCo.
Maine GasCo is a Maine limited liability company, governed in accordance with
the terms and conditions of the Joint Venture Agreement. In contemplation of the
formation of holding company structures for both parties, the Joint Venture
Agreement was made assignable by both parties to their respective affiliates.
CMP and NYSEG have assigned their interests in the Joint Venture Agreement to
New England Gas and EEC Enterprises, respectively.
The Joint Venture Agreement provides that Maine GasCo will engage in
the business of owning, constructing, and operating a local natural gas
distribution system that will distribute natural gas and provide other related
local services in certain areas of Maine which do not currently receive natural
gas service. Under the Joint Venture Agreement, New England Gas and EEC
Enterprises will be the initial members of Maine GasCo, with EEC Enterprises
holding at least 50% of the membership interests and New England Gas holding the
remaining membership interests. Each member's ownership interest is subject to
adjustment in accordance with the Joint Venture Agreement. The Joint Venture
Agreement calls for members to contribute their respective shares of the initial
capital of Maine GasCo in amounts proportionate to the ownership percentages of
each such Maine GasCo member; all or some portion of this sum will be
contributed in cash when the Management Committee requires the contribution.
Maine GasCo members will make additional capital contributions if the Maine
GasCo members holding a majority interest vote to require such contributions, or
if the Manager determines that Maine GasCo's cash reserves and reasonably
anticipated revenues are less than its budgeted working capital needs for the
next six succeeding months. Pursuant to the Joint Venture Agreement, net profits
and net losses will be allocated between the Maine GasCo members in proportion
to the ownership percentage that each Maine GasCo member holds.
The Joint Venture Agreement establishes a Management Committee
consisting of three New England Gas appointees and three EEC Enterprises
appointees and generally vests a designated Manager, who will be located in
Maine, with exclusive authority to manage the business of Maine GasCo within the
limitations set forth in the Joint Venture Agreement, the Articles of
Organization, or any Statement of Authority under the Maine Limited Liability
Company Act. The Joint Venture Agreement authorizes the Manager to perform any
and all acts customary or incident to the business of Maine GasCo. The Joint
Venture Agreement also authorizes the Manager to delegate authority and to hire
or contract for appropriate and necessary services. Certain actions may be taken
by the Manager only upon the affirmative vote of a majority of the members of
the Management Committee. These actions include the following: incurring
indebtedness, issuing obligations, confessing certain judgments, incurring
certain liabilities, making certain capital expenditures or incurring certain
operating expenses, consummating transactions between Maine GasCo and a Maine
GasCo affiliate or Maine GasCo member, establishing certain reserves, making
distributions to Maine GasCo members, contravening the Joint Venture Agreement,
causing Maine GasCo to become bankrupt or dissolve, transferring substantially
all of the assets of Maine GasCo, entering into derivative transactions,
declaring a distribution of profits, engaging in business acquisitions, calling
for certain additional capital contributions, appointing or removing an officer,
and establishing employee compensation.
A vote of the Maine GasCo members holding at least a majority of the
voting interests may remove the Manager with or without cause. The Maine GasCo
member who appoints a person to the Management Committee may remove such person
with or without cause at any time. The Manager and any Management Committee
member may resign at any time. Maine GasCo members holding a majority of the
voting interests may fill any vacancies in the position of Manager by
affirmative vote, which Manager will hold the position until the election and
qualification of a successor, or the Manager's resignation or removal. The Joint
Venture Agreement limits the liability of a Maine GasCo member for any debts or
losses of Maine GasCo to its respective capital contribution to Maine GasCo,
except as otherwise required by law. The Joint Venture Agreement provides for
the resolution of stalemates or impasses among the Management Committee by
appeal to the Chief Executive Officers of the Maine GasCo members, and by
arbitration in the event that the Chief Executive Officers are unable to resolve
the impasse.
The Joint Venture Agreement contains customary representations and
warranties, including representations regarding corporate existence and
authority to execute the Joint Venture Agreement. The Joint Venture Agreement
requires that any and all disputes arising therefrom will be settled by
arbitration in accordance with the procedures described above for the resolution
of stalemates or impasses, but authorizes injunctive relief when an arbitrator's
award would not adequately protect the rights of a party. The parties to the
Joint Venture Agreement have also agreed not to compete with one another with
regard to the business of Maine GasCo. In addition, any party that ceases to be
a Maine GasCo member will not hire employees of Maine GasCo for three years
after that party ceases to be a Maine GasCo member, and the parties have agreed
that Maine GasCo and any of its subsidiaries will not employ the employees of a
Maine GasCo member or an affiliate under certain conditions. The Joint Venture
Agreement contains other customary terms and conditions, including provisions
regarding indemnification, the use of confidential information, the holding and
conduct of meetings, distributions to Maine GasCo members, transfers of
membership interests in Maine GasCo, dissolution, and interpretation of the
Joint Venture Agreement.
2. Operations of Maine GasCo
Maine GasCo currently expects to furnish natural gas service in Maine
on a non-exclusive basis in the Bethel and Windham areas, the greater Augusta
area, the greater Waterville area, the greater Bangor area, and the coastal area
including Brunswick and Bath. Maine GasCo also anticipates furnishing gas
service to other towns, which are listed in Appendix A to this Application.
Maine GasCo expects to provide both merchant sales and transportation services.
Maine GasCo has evaluated whether it will provide transportation services to
small commercial and residential monthly metered customers. Due to the
relatively small size of Maine GasCo, the low load factors of such small
customers, and the lack of planned storage on the available pipelines, as well
as the administrative difficulty of tracking usage and operationally balancing
such usage and nominations for small pools of monthly metered customers, Maine
GasCo has determined that provision of such transportation services is currently
not feasible. If it becomes feasible, Maine GasCo expects to propose a small
customer transportation service based upon its operational capabilities.
As set forth in more detail in Item 4 - Regulatory Approvals, CMP Group
received authorization from the MPUC, in Docket No. 96-786, to furnish on a
non-exclusive basis, through Maine GasCo, natural gas service in such areas. In
this order, the MPUC noted that authorizing more than one local distribution
company to provide service in a given area will result in beneficial competition
to obtain customer load so that system expansion may ultimately be greater in a
given area than it would be if only one entity was authorized to provide service
in such area. A copy of this order is attached hereto as Exhibit D-1. In
addition, on May 1, 1998, the MPUC, in Docket No. 98-077, issued its order,
attached hereto as Exhibit D-2, authorizing the formation of New England Gas and
Maine GasCo, and authorizing the initial capitalization of Maine GasCo. In
accordance with this approval and the terms of the Joint Venture Agreement, the
proposed capital structure of Maine GasCo will be based on fifty percent (50%)
equity and fifty percent (50%) debt, which would finance an initial $40 million
construction program. The Joint Venture Agreement calls for the initial
capitalization of Maine GasCo with an aggregate of $20 million in equity
contributions made by each party in proportion to its ownership percentage.
Additional capital would be made available as necessary and consistent with the
rules and conditions established by the MPUC.
Maine GasCo expects to derive its supply of natural gas from the
Western Canadian Sedimentation Basin via the proposed Portland Natural Gas
Transmission System pipeline ("PNGTS") and from the gas fields near Sable Island
off Nova Scotia via the proposed Maritimes & Northeast pipeline ("M&N"), both of
which are currently under development. The FERC has issued certificates under
Section 7 of the Natural Gas Act authorizing construction of these pipelines.
Development of these pipelines is proceeding on schedule. PNGTS expects
commercial operation in early 1999, and M&N expects commercial operation in
November, 1999.
The Joint Venture Agreement calls for affiliates of New England Gas and
EEC Enterprises, in their respective capacities as members of Maine GasCo, to
provide administrative and consulting services to Maine GasCo. The services may
include, among other things: accounting, financial planning and analysis,
financial reporting, human resources, regulatory affairs, information systems,
insurance, legal, payroll, purchasing, tax, treasury, transportation, billing
support, telecommunications, meter installation and reading, real estate,
facilities management, call center services, engineering, construction and
environmental services, mapping, training, meter services and testing,
marketing, gas supply and control, gas transportation and general administrative
support. The MPUC has jurisdiction over transactions between utilities and their
affiliates. The provision of any services by CMP or any other CMP Group
subsidiary would be done in accordance with MPUC approved affiliate transaction
procedures. Allocations of cost would be done pursuant to MPUC approved cost
allocation guidelines. The provision of services to Maine GasCo by CMP and its
affiliates would be pursuant to a master services agreement which would conform
to MPUC rules and guidelines and which must be approved by the MPUC.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the Transaction, inclusive of legal fees and
expenses, are estimated at not more than $65,000.
Item 3. Applicable Statutory Provisions.
Sections 3(a)(1), 9(a)(2) and 10 of the Act apply to the Transaction.
Section 9(a)(2) of the Act makes it unlawful, without approval of the Commission
under Section 10, "for any person ... to acquire, directly or indirectly, any
security of any public utility company, if such person is an affiliate ... of
such company and of any other public utility or holding company, or will by
virtue of such acquisition become such an affiliate." By virtue of the
Transaction, CMP Group will own, directly or indirectly, more than 5% of the
outstanding voting securities of five "public utility companies" -- CMP, MEPCo,
AVEC, NORVARCO and Maine GasCo (when it begins commercial operation) - thus
becoming an affiliate of CMP, MEPCo, AVEC, NORVARCO and Maine GasCo. Therefore,
Section 9(a)(2) requires approval by the Commission of the Transaction under
Section 10. The relevant standards under Section 10 are set forth in Sections
10(b), 10(c) and 10(f). In addition, CMP Group is currently an exempt public
utility holding company and New England Gas will be a public utility holding
company within the meaning of Section 2(a)(7) of the Act. New England Gas will
therefore be required to register unless it can qualify for an exemption.
Accordingly, CMP Group and New England Gas request an order under Section
3(a)(1) confirming CMP Group's exemption and granting an exemption to New
England Gas from all of the provisions of the Act (except Section 9(a)(2)
thereof).
For the reasons explained below, the Commission should grant approval
of the Transaction pursuant to Section 9(a)(2) of the Act based upon the
Transaction's compliance with the applicable standards of Section 10 of the Act.
In addition, for the reasons described below, the Commission should by order
confirm CMP Group's exemption and grant New England Gas an exemption, pursuant
to Section 3(a)(1), from all of the provisions of the Act (except for Section
9(a)(2) thereof).
A. Approval of the Transaction under Section 9(a)(2)
As recognized in the comprehensive report issued by the Division of
Investment Management in June 1995 entitled "The Regulation of Public-Utility
Holding Companies" (the "Division Report"), the framers of the Act intended and
understood the need for the Act to be interpreted in a flexible manner to
account for changes in the utility industry over time. Commission decisions have
recognized the framers' intent. While the Applicants believe that the requested
authorization is well within existing Commission precedent, changes in the
utility industry make the case for the Transaction even more compelling. The
utility industry is evolving towards a broadly-based energy-related business. As
discussed below, the evolution of the utility industry dramatically affects the
appropriate notion of what a utility system consists of.
Sections 10(b), 10(c) and 10(f) of the Act set forth the standards for
approval of the Transaction. The Transaction satisfies all of the requirements
of Section 10 and should therefore be approved. Specifically, as the following
discussion more fully explains:
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o the Transaction will not tend towards interlocking relations or the
concentration of control of public utility companies to the detriment of
investors and consumers;
o the consideration, including all commissions and fees, to be paid in
connection with the Transaction is reasonable;
o the Transaction will not unduly complicate the capital structure of the CMP
Group holding company system;
o the Transaction is in the public interest and the interests of consumers
and investors;
o the Transaction will tend towards the development of an integrated gas
utility system; and
o the Transaction will comply with all applicable State laws.
1. Section 10(b)
a. Section 10(b)(1)
Section 10(b)(1) provides that, if the requirements of Section 10(f)
are satisfied, the Commission shall approve an acquisition unless:
(1) such acquisition will tend towards interlocking relations
or the concentration of control of public utility companies,
of a kind or to an extent detrimental to the public interest
or the interest of investors or consumers.
The Transaction will not tend towards interlocking relationships or the
concentration of control that would be detrimental to the public interest or the
interests of investors or consumers because following consummation of the
Transaction (i) all of the public utilities in the CMP Group system, including
Maine GasCo, will remain subject to regulation by the MPUC, which operates
pursuant to regulations specifically designed to protect the public interest and
the interests of consumers, (ii) the addition of Maine GasCo, which will account
for a relatively small portion of CMP Group's income, to the CMP Group system
will not materially increase the size of the system, (iii) due to the nearly
total absence of cross elasticity of demand, as explained below, CMP and Maine
GasCo will have few occasions to compete directly and CMP will continue to
operate in a competitive market which will not change as a result of the
Transaction, (iv) since Maine GasCo was given non-exclusive authorization to
provide natural gas service in certain areas of Maine, there will be a
competitive gas market in such areas, and (v) as a result of the Transaction,
the Applicants expect to achieve significant economies of scale and efficiencies
and expect to be able to compete more effectively in the evolving energy
marketplace, both of which will benefit consumers and ratepayers and are in the
public interest.
The formation and initial capitalization of Maine GasCo have been
approved by the MPUC. In addition, all of the operating utilities, including
Maine GasCo, will be subject to continuing regulation by the MPUC, which
functions to protect the interest of consumers and the public interest. Maine
GasCo will be subject to the jurisdiction of the MPUC with respect to rates,
affiliate transactions, accounting, service standards, territory served, the
issuance of securities maturing more than one year after the date of issuance,
and various other matters. The level of regulatory authority exercised by the
MPUC over CMP, MEPCo, AVEC and NORVARCO will not be affected by the Transaction.
Thus, the presence of continuing state regulation will help to ensure that the
Transaction will not have a detrimental effect on the public interest or
consumers. In the Division Report at p. 73-4, the Division of Investment
Management recommended that the Commission approach its analysis on merger and
acquisition transactions in a flexible manner with emphasis on whether the
transaction creates an entity subject to effective regulation and is beneficial
for shareholders and customers, as opposed to focusing on rigid, mechanical
tests.
Section 10(b)(1) requires a finding that a transaction will not "tend
towards the concentration of control ... of a kind or to an extent detrimental
to the public interest or the interest of investors or consumers." The framers
of the Act sought through Section 10(b)(1) to avoid "an excess of concentration
and bigness" and "huge, complex and irrational holding company systems," while
preserving the "opportunities for economies of scale, the elimination of
duplicative facilities and activities, the sharing of production capacity and
reserves and generally more efficient operations" afforded by certain
combinations. American Electric Power Co., Inc., 46 S.E.C. 1299, 1307-1309
(1978). The Transaction will not create an "excess of concentration and bigness"
or a "huge, complex or irrational system" because the acquisition by CMP Group,
through New England Gas, of up to 50% of the voting securities of Maine GasCo,
which will own a small local gas distribution system, will not materially
increase the size of CMP Group.5 The Transaction is not detrimental to the
public interest or the interest of investors or consumers, but rather, as
discussed in more detail below, will afford Maine GasCo the opportunity to
achieve the economies of scale and efficiencies that the Act's framers intended
to preserve for the benefit of investors and consumers.
The Transaction will not have a detrimental effect on competition in
Maine. To the contrary, the Applicants believe that the Transaction will enhance
competition in the natural gas market in Maine. The Transaction will have no
effect on the competitive environments in which CMP Group's electric business
operates. Following the Transaction, CMP Group's electric business will face the
same competitive forces from other electric suppliers as prior to the
Transaction.6 Because CMP's competitive behavior is shaped by competition with
energy "peers," CMP Group's electric business and Maine GasCo will rarely engage
in direct competition and, in any event, the Transaction will have no adverse
effect on competition in a manner or to an extent detrimental to the public
interest or the interests of investors or consumers. In addition, since Maine
GasCo will provide natural gas service in areas not currently receiving natural
gas service on a non-exclusive basis, consumers will benefit from the existence
of competition among gas companies and by having more energy choices.
CMP Group's electric business will not compete directly with Maine
GasCo for several reasons. First, there is little substitution between gas and
electricity as energy sources in most industrial and commercial applications.
Generally, gas cannot be substituted for electricity on an instantaneous basis
because most industrial and commercial processes are energy-specific. Thermal
processes most often employ natural gas, while motor and machine driven
processes employ electricity. Where an industrial or commercial application
permits the use of either fuel, the substitution of one fuel for another
requires equipment investment and other expense that does not allow substitution
in response to relatively insignificant price changes. Most often, the choice of
fuel is dictated by numerous considerations in addition to fuel prices, such as
quality control, safety and environmental concerns. For residential users,
natural gas cannot be substituted for electricity in lighting, refrigeration,
and most household appliances. The amount of fuel used for residential cooking
is very small, and the choice of equipment tends to be dictated by personal
preference rather than by fuel price. Residential customers generally choose
fuel sources for heating based on many factors, including equipment prices,
reliability, service, the size of the home, perceptions of energy efficiency and
matters of comfort, convenience and aesthetics, and not solely based on relative
fuel price.
Second, there will be competition in the retail market for industrial
and commercial customers of natural gas in Maine because gas will be transported
in Maine on an open-access basis. There also will be competition between local
distribution companies and interstate pipelines, such as PNGTS and M&N, to serve
commercial and industrial load in Maine. Interstate pipelines and local
distribution companies (including Maine GasCo) presently are competing with one
another over the construction of laterals between the interstate pipeline and
the end-user, which are necessary in order to be able to serve certain
end-users. The natural gas transported over both the interstate pipelines and
the laterals will be transported to industrial and commercial customers on an
open-access basis. Such transportation effectively will permit retail
competition for these customers among pipelines, gas marketers, brokers and
producers, as well as the local distribution companies. These customers will be
able to purchase gas from many independent marketing companies which will
participate in the expanding spot market. Suppliers of natural gas in Maine must
also compete with other fossil fuels, including oil, propane, coal, and
petroleum coke, which can be employed in some of the thermal applications for
which natural gas is used.
Finally, electric and gas rates in Maine presently are regulated and
set by the MPUC. Beginning March 1, 2000, the MPUC will regulate the
distribution of electric energy and, under Maine's open-access statute,
generation will be unregulated. The MPUC will continue to regulate bundled
natural gas rates to small residential customers and transportation rates to
open-access customers. Thus, ample regulatory authority exists to protect
against any possible abuse, including any discriminatory or anti-competitive
behavior.
The Transaction is not undertaken for the purpose of extending CMP
Group's control over regulated public utilities and will not lead to the type of
concentration of control over utilities, unrelated to operating efficiencies,
that Section 10(b)(1) was intended to prevent. By acquiring an interest in Maine
GasCo, CMP Group would position itself to participate, through Maine GasCo, in
the growing and increasingly deregulated New England energy market and to
provide natural gas service to areas in Maine that do not currently receive
natural gas service. As explained below, the Transaction would combine the
strengths of CMP and Maine GasCo which would enable them to offer customers a
broader array of energy products and services than either company alone could
offer, and at the same time create a larger and more diverse asset and customer
base, which would create opportunities for operating efficiencies.
By virtue of the Transaction, CMP and Maine GasCo will be in a position
to realize the "opportunities for economies of scale, the elimination of
duplicate facilities . . . and generally more efficient operation" described by
the Commission in American Electric Power Co., 46 SEC 1299, 1309 (1978). Among
other things, the Applicants expect the Transaction to create significant
operational and administrative economies and efficiencies in the areas of
accounting, financial planning and analysis, financial reporting, human
resources, regulatory affairs, information systems, insurance, legal, payroll,
purchasing, tax, training, treasury, transportation, billing support,
telecommunications, meter installation and reading, real estate, facilities
management, call center services, engineering, construction and environmental
services, and other administrative and general services.7 In addition, as a
result of the Transaction, CMP Group is expected to be better positioned to
remain competitive as the utility industry evolves. These factors should prove
beneficial to the interests of investors and consumers as well as the public
interest in general. Finally, the Manager will be located in Maine and Maine
GasCo will have its own local management team and work force. The only
management interlocks that may be created are those which would be necessary and
desirable in order to integrate Maine GasCo fully into CMP Group.
b. Section 10(b)(2)
Section 10(b)(2) provides that an acquisition should be approved unless the
price paid:
is not reasonable or does not bear a fair relation to the
sums invested in or the earning capacity of the utility
assets to be acquired or the utility assets underlying the
securities to be acquired.
In its determinations as to whether or not a price meets such standard, the
Commission has considered whether the price was decided as the result of arm's
length negotiations,8 whether the purchaser's Board of Directors has approved
the purchase price,9 the opinions of investment bankers10 and the earnings,
dividends, and the book and market value of the shares of the company to be
acquired.11
In this case, CMP Group, through New England Gas, and EEC, through EEC
Enterprises, would each make initial capital contributions in proportion to
their respective ownership interests so that the total initial capital
contribution would equal $20 million. Since Maine GasCo is a newly formed,
privately held entity and, as part of the parties' efforts to minimize costs, no
outside investment bankers are involved in the Transaction, the Commission
cannot look to investment banker opinions or publicly traded stock information
to review the reasonableness of the price. However, the amounts to be invested
were determined as a result of arm's length negotiations based on an evaluation
of what facilities would be necessary to serve natural gas customers in Maine
and were reviewed by the respective Boards of Directors of each party to the
Joint Venture Agreement. Furthermore, these financing arrangements have been
approved by the MPUC. The MPUC can continue to monitor Maine GasCo's
expenditures through its ratemaking proceedings and regulation with regard to
other matters. In addition, each party's contribution is to be used to finance
the construction and start up of the Maine GasCo System and effectively amounts
to a purchase made at cost. In summary, the following factors all lead to the
conclusion that the amount to be invested by CMP Group would be fair and would
not warrant any of the negative findings that call for disapproval under Section
10(b)(2) of the Act: (i) the amount of the equity contributions to be made have
been approved by the MPUC as being in the public interest, (ii) these
arrangements were negotiated among the parties on an arm's length basis; and
(iii) as discussed below, the investment would constitute a very small portion
of CMP Group's overall capital investments.
c. Section 10(b)(3)
Section 10(b)(3) directs approval of an acquisition unless the Commission
finds that:
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant ...
or will be detrimental to ... the proper functioning of such
holding company system.
Section 10(b)(3) (along with Section 11(c)(1) discussed below) relates to the
corporate simplification standards of Section 11(b)(2), which require that each
registered holding company take the necessary steps to ensure that the corporate
or continued existence of any company in the holding-company system does not
unduly or unnecessarily complicate the structure ... of such holding-company
system.
The intent of these requirements is to assure the financial soundness of the
holding company system, with a proper balance of debt and equity. No such
complexities would result from the Transaction. The Transaction would have a
very minimal impact on the capitalization and earnings of CMP Group. CMP Group's
investment in Maine GasCo, through New England Gas, would take the form of a
straightforward equity contribution which would not complicate CMP Group's
capital structure.
As set forth more fully in the discussion of the standards in Section
10(c)(2), below and elsewhere herein, the Transaction will create opportunities
for CMP and Maine GasCo to achieve significant economies of scale and
efficiencies, chiefly in the area of management expertise. CMP Group
subsidiaries may also provide services in connection with accounting, financial
planning and analysis, financial reporting, human resources, regulatory affairs,
information systems, insurance, legal, payroll, purchasing, tax, training,
treasury, transportation, billing support, telecommunications, meter
installation and reading, real estate, facilities management, call center
services, engineering, construction and environmental services and general
administrative support. In addition, since Maine GasCo will provide, on a
non-exclusive basis, natural gas service in areas not currently receiving
natural gas service, consumers will benefit from the existence of competition
among gas companies and by having more energy choices. The Transaction will
therefore be in the public interest and the interest of investors and consumers,
and will not be detrimental to the proper functioning of CMP Group's holding
company system. Moreover, as noted by the Commission in Entergy Corporation, et
al., 55 SEC Docket 2035 at 2045 (December 17, 1993), "concerns with respect to
investors' interests have been largely addressed by developments in the federal
securities laws and the securities markets themselves." CMP Group is a reporting
company subject to the continuous disclosure requirements of the Securities
Exchange Act of 1934 and will continue to be so following completion of the
Transaction, which will provide investors with readily available information
concerning CMP Group. Furthermore, the Transaction is subject to state
regulatory approvals, which have been obtained (see Item 4 - Regulatory
Approvals, below). For these reasons, the Applicants submit that the Commission
would have no basis for making a negative finding under Section 10(b)(3).
2. Section 10(c)
The relevant provisions of Section 10(c) of the Act state that the
Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of section
8 or is detrimental to the carrying out of the provisions of
section 11; or
(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system.
The Applicants respectfully submit that the requirements of Section 10(c) are
satisfied.
a. Section 10(c)(1)
Section 10(c)(1) requires that the proposed acquisition not be
"unlawful under the provisions of Section 8" or "detrimental to the carrying out
of the provisions of Section 11." Section 8, by its terms, only applies to
registered holding companies and thus, the Transaction could not be unlawful
under Section 8 because, after consummation of the Transaction, CMP Group will
continue to be an exempt public utility holding company. However, even if
Section 8 were applied to exempt holding companies, the Transaction would not be
unlawful since there is no state law, regulation or policy against combination
gas and electric companies and the MPUC has specifically authorized CMP Group to
provide, through Maine GasCo, natural gas service on a non-exclusive basis in
certain areas of Maine.
Section 10(c) also requires that such acquisition not be detrimental to the
carrying out of the provisions of Section 11. Section 11 of the Act relates to
the simplification of holding company systems. Section 11(b)(1) sets forth the
principal elements of Section 11's simplification standard. It specifically
mandates that the Commission require each registered holding company to limit
the operations of the holding company system to a single integrated public
utility system. Section 11(b)(1) also provides for the acquisition and retention
of more than one integrated system only if the requirements of Section
11(b)(1)(A)-(C) ("ABC clauses") are satisfied. By its terms, however, Section
11(b)(1) applies only to registered holding companies. However, the Commission
has previously determined that a holding company may acquire utility assets that
will not, when combined with the acquiring company's existing utility assets,
make up an integrated system or comply fully with the ABC clauses, provided that
there is de facto integration of contiguous utility properties and the holding
company will be exempt from registration under Section 3 of the Act following
the acquisition. See, e.g., BL Holding Corp., Holding Co. Act Release No. 26875
(May 15, 1998); TUC Holding Company, et al., Holding Co. Act Release No. 26749
(August 1, 1997). Following consummation of the Transaction, CMP Group's utility
operations will be located substantially in the same geographic region within
Maine and will be integrated to the extent that there will be a significant
degree of centralized services within the CMP Group holding company system, as
discussed in more detail below. Specifically, with the exception of Maine
GasCo.'s possible service territory near Presque Isle (which would constitute a
deminimus portion of Maine GasCo.'s customer base), CMP's service territory will
either overlap or will be contiguous with Maine GasCo.'s service territory.
Moreover, CMP Group will be an exempt holding company and Maine GasCo. will be
locally managed.
Despite the believed inapplicability of Section 11, the Transaction
does, in any event, meet the conditions of Section 11(b)(1). Specifically,
following consummation of the Transaction, the CMP Group system will consist of
a large integrated electric utility system and a smaller integrated gas utility
system which together will operate on a coordinated basis offering services to
customers in substantially the same area in the State of Maine (see Exhibit E-1
hereto for maps depicting the service territories of CMP and of Maine GasCo).
The entire CMP Group system will be operated as a single coordinated system to
the extent that there will be a significant degree of centralized services
(including accounting, financial planning and analysis, financial reporting,
human resources, regulatory affairs, information systems, insurance, legal,
payroll, purchasing, tax, training, treasury, transportation, billing support,
telecommunications, meter installation and reading, real estate, facilities
management, call center services, engineering, construction and environmental
services and general administrative services) provided by CMP Group
subsidiaries. In addition, the MPUC has approved the formation of New England
Gas and Maine GasCo and the initial capitalization of Maine GasCo and has
authorized CMP Group, through Maine GasCo, to provide on a non-exclusive basis
natural gas service in certain areas of Maine and Maine GasCo will be subject to
MPUC regulation with regard to rates, affiliate transactions, accounting,
service standards, territory served, the issuance of securities maturing more
than one year after the date of issuance, and various other matters. Thus, the
Transaction will not give rise to any of the abuses, such as ownership of
scattered utility properties, inefficient operations, lack of local management
or evasion of state regulation, that Section 11(b)(1), and the Act generally,
were intended to address.
Furthermore, the term "integrated public-utility system" is defined in
Section 2(a)(29) in the context of an electric company and in the context of a
gas company. Section 2(a)(29) states:
As applied to electric utility companies, a system consisting
of one or more units of generating plants and/or distributing
facilities, whose utility companies are physically
interconnected or capable of physical interconnection and
which under normal conditions may be economically operated as
a single interconnected and coordinated system confined in its
operations to a single area or region, in one or more states,
not so large as to impair (considering the state of the art
and the area or region affected) the advantage of localized
management, efficient operation, and the effectiveness of
regulation;
and
As applied to gas utility companies, a system consisting of
one or more gas utility companies which are so located and
related that substantial economies may be effectuated by being
operated as a single coordinated system confined in its
operations to a single area or region, in one or more states,
not so large as to impair (considering the state of the art
and the area or region affected) the advantages of localized
management, efficient operation, and the effectiveness of
regulation: Provided, that gas utility companies deriving
natural gas from a common source of supply may be deemed to be
included in a single area or region.
First, it should be noted that the Act does not contain a definition of
integrated public utility system in the context of a combination gas and
electric company and the Act does not specifically prohibit ownership by an
exempt holding company of both electric and gas utility properties.12 Second,
existing Commission precedent demonstrates that Section 10(c)(1) does not
require that the resulting exempt holding company constitute "a single
integrated system." In the Matter of Gaz Metropolitain et al., Holding Co.
Act Release No. 26170 (Nov. 23, 1994), the Commission considered and approved a
Section 10 application where the resulting exempt holding company would own two
gas utilities which would not constitute a single integrated system within the
meaning of the Act.13 In issuing this order, the Commission stated that Section
10(c)(1) does not mandate that Section 11's integration requirement be met. The
Commission stated that exempt holding companies are not directly subject to
Section 11(b)(1)'s integration standards, and also indicated that acquisitions
may be approved even if the combined system will not be a single integrated
system.14 Thus, subject to certain conditions discussed below, it is consistent
with the Act for the Commission to approve an application under Section 10 where
the resulting exempt holding company system contains both an integrated electric
system and an integrated gas system.
Section 10 does, however, require that the transaction, and the
resulting holding company system, be consistent with the basic principles of
Section 11 of the Act, which is often referred to as the "heart" of the Act.
Thus, the primary issue with respect to the Transaction is whether, under
Section 10(c), the creation of an exempt holding company system as a result of
the acquisition by an electric system of a gas system is detrimental to the
carrying out of the provisions of Section 11 and not whether it complies
strictly with the integration standards of Section 11. In analyzing whether or
not a transaction would be detrimental to the carrying out of the provisions of
Section 11, it is important to focus on the purpose of Section 11, which
according to legislative history, is to:
Break-down dangerous and unnecessary nation-wide financing interlockings in
the essentially local operating utility business, ... to reduce utility
enterprises to a size and power which can be successfully regulated by
local and Federal regulatory commissions, ... to confine the operations and
the interest of each public utility system to the actual utility business
of a given region.15
This overarching concern of the Act clearly focuses on the need to concentrate
the geographic scope of the system to a reasonable geographic area (as
determined by a variety of factors, including technological developments) to
ensure that management will be sensitive and accountable to a given region, that
there will be adequate local regulation of the holding company system and that
the holding company structure is beneficial to the operating utilities. Thus, a
transaction is not detrimental to the provisions and policies of Section 11
where the resulting system will be an exempt holding company and the applicants
can demonstrate that adequate regulatory authority exists to protect local
ratepayers, that the resulting system is a coherent system and not one where
great and irrational distances divide the operating utilities, and there are
benefits to be gained by at least one of the operating utilities as a result of
the transaction. Indeed, in the Gaz Metropolitain case, the Commission
specifically noted that the two systems were in a geographically concentrated
area, that the Vermont regulators had expressed their belief that they could
protect the public interest in Vermont after the consummation of the transaction
and that the Vermont gas system had experienced and could be expected to
continue to experience significant savings as a result of its association with
the holding company system. As discussed below, following consummation of the
Transaction, CMP Group will meet all of the above criteria in a similar manner.
The Commission has taken the position, since 1974, that combination gas
and electric exempt holding companies are consistent with the requirements and
policies of the Act and are not detrimental to Section 11. See Union Electric
Company, 45 SEC 489 (1974). In addition, in 1988, the Commission decided two
important cases in this area, Dominion Resources, Inc., Holding Co. Act Release
No. 24618 (April 5, 1988) and WPL Holdings, Inc. , Holding Co. Act Release No.
24590 (February 26, 1988). In Dominion Resources, a combination gas and electric
holding company was permitted to acquire a gas utility. Pursuant to Section 10,
the Commission expressly held that "the provisions of Section 11 are not
applicable to exempt holding companies such as [Dominion Resources.]" The
Commission went on to find not merely that Section 11 by its terms applies only
to registered holding companies, but that such an acquisition did not violate
Section 10(c) of the Act. Moreover, since Dominion Resources did not acquire any
new electric properties, there was no direct effect upon its electric system, as
is also the case in the proposed Transaction. Similarly, in WPL Holdings the
Commission stated that the "pro-competitive thrust of the Act" did not express
an absolute Federal policy against combination gas and electric operations.
More recently, in TUC Holding Company et al., supra and BL Holding
Corp., supra, the Commission granted exemptions and authorized transactions
pursuant to which, in the case of TUC Holding Company, an entity providing
electric service in a given area acquired an entity providing gas service in
substantially the same area, and, in the case of BL Holding Corp., an entity
providing gas service in a given area acquired an entity providing electric and
gas service in an adjacent area. In granting the exemptions and authorizing the
transactions, the Commission noted that there would be de facto integration of
the combined utility properties, that the systems would be coordinated
administratively, that the transactions would not give rise to any of the abuses
that Section 11(b) was intended to address, and that the transactions would have
no effect on the ability of regulatory authorities to carry out their duties,
all of which are true with respect to the proposed Transaction.
Furthermore, subsequent to 1974, and especially since 1988, the
Commission has issued a number of orders authorizing the creation and/or
continued exemption of new or larger combination gas and electric exempt holding
company systems, whether through the formation of a new holding company16 or via
the acquisition of a gas and/or electric company by an existing combination gas
and electric system.17 Throughout this period, the Commission's decisions have
focused on whether "both the electric and gas operations that [the holding
company] proposes to acquire constitute an integrated public-utility system,"18
consistent with the analysis which should be applied in the present case. In
other words, while the policies and basic protections underlying Section 11
(i.e., deference to state regulatory authority with respect to combination
companies, provided the resulting holding company system in any case will not be
the type of holding company system which the Act was designed to prevent) apply
to exempt holding company acquisitions, a strict reading of Section 11 is not
required.
Another factor that must be included in any Section 10 and Section 11
analysis is current utility industry conditions. As the Commission noted in its
Union Electric Company decision, the courts have attached "great weight ... to
[the Commission's] expertise in the administration of the Act."19 The Commission
historically has applied its expertise in administering the Act, taking into
account changes in legal, regulatory and economic circumstances, including
market and regulatory changes. As the Division of Investment Management noted in
the Division Report, "the SEC must continue to respond flexibly to the
legislative, regulatory and technological changes that are transforming the
structure and shape of the utility industry,"20 especially since "Section 11
does not impose `rigid concepts' but rather creates a `flexible' standard
designed to accommodate changes in the electric utility industry."21
Such concerns have influenced Commission decisions under the Act, and
under Section 10 in particular, in the past.22 Utility companies, exempt holding
companies, registered holding companies and related entities are presently in
the midst of, or have completed, restructurings or major transactions designed
to permit them to become complete energy services companies, offering customers
across the nation an array of fuels to meet their complete energy needs through
a "one-stop" energy company, an industry shift that the Commission has expressly
recognized. Recently the following companies have entered into, or announced,
strategic transactions: Portland General Corporation, an electric utility
holding company and Enron Corporation, a large gas pipeline and electric and gas
marketer; NorAm Energy, Inc., a gas utility company, and Houston Industries,
Inc., an electric utility holding company; Pacific Enterprises, a gas utility
holding company and Enova Corp., a combination holding company with primary
emphasis on electric operations; PanEnergy Corp., a large pipeline company and
Duke Power Company, an electric utility and an electric utility holding company;
and KeySpan Energy Corporation, a gas utility holding company and Long Island
Lighting Company, an electric utility. All of these transactions demonstrate
that market forces are pushing for the convergence of electric and gas
operations in one corporate entity; namely, a full service utility company.
Thus, the traditional model of a vertically integrated gas or electric utility
company is becoming obsolete and evidence continues to mount that the model
utility company of the near future will be the one-stop energy company. Evidence
of this trend in Maine is the restructuring bill, discussed above, that was
signed into law by the Governor of Maine on May 29, 1997, which is intended to
promote competition and a movement to a free market in Maine.
Taking this industry evolution into account, it becomes clear that the
Transaction will provide CMP Group with an efficient basis for entering into the
natural gas business and provide Maine GasCo with greater financial and other
resources, allowing the CMP Group system of utilities to remain competitive with
the emerging one-stop energy services companies. CMP Group anticipates that it
will be able to offer its customers a choice of fuels (gas and/or electricity)
to meet their energy needs at competitive prices in the most economical and
efficient manner.
It is clear that the Transaction will result in a combined system that
will not be detrimental to the carrying out of Section 11. The electric utility
system of CMP (including MEPCo, AVEC and NORVARCO) is presently "integrated"
within the meaning of Section 2(a)(29) of the Act and will remain so after the
Transaction. The Transaction will not affect the physical interconnection of
such electric utility system. Similarly, the area of operations of such system
will not be affected by the Transaction and will continue to be confined to a
single area in Maine that is not so large as to impair the advantages of
continuing localized management, efficient operation and effective regulation.
Following consummation of the Transaction, the entire CMP Group system will be
operated as a single coordinated system to the extent that there will be a
significant degree of centralized services (including accounting, financial
planning and analysis, financial reporting, human resources, regulatory affairs,
information systems, insurance, legal, payroll, purchasing, tax, training,
treasury, transportation, billing support, telecommunications, meter
installation and reading, real estate, facilities management, call center
services, engineering, construction and environmental services and general
administrative services) provided by CMP Group subsidiaries. Thus, following
consummation of the Transaction, the CMP Group system will consist of a large
integrated electric utility system and a smaller integrated gas utility system
which together will operate on a coordinated basis offering services to
customers in substantially the same area in the State of Maine (see Exhibit E-1
hereto for maps depicting the service territories of CMP and of Maine GasCo).
It is also clear that the Transaction will not be detrimental to the
carrying out of the provisions of Section 11 inasmuch as CMP Group will carry
out its utility operations within the State of Maine, and its utility operations
will be subject to adequate regulatory authority in Maine and will not be the
type of nationwide, complex system that Section 11 was designed to prevent.
Moreover, CMP Group will be an exempt holding company and exempt holding
companies have generally been permitted to retain or acquire combination systems
so long as combined ownership of gas and electric operations is permitted by
state law and is supported by the interested regulatory authorities. Maine law
does not prohibit combination gas and electric utility companies, and the MPUC
has specifically authorized the Transaction. The fact that CMP Group will be an
exempt holding company and the Transaction is subject to the Act's less
restrictive standard with regard to electric and gas combinations, taken
together with the facts that CMP Group's utility operations will be located in
substantially the same geographic region within Maine, and that the MPUC has
approved the formation of New England Gas and Maine GasCo and the initial
capital contribution to Maine GasCo and has authorized CMP Group, through Maine
GasCo, to provide on a non-exclusive basis natural gas service in certain areas
of Maine, all lead to the conclusion that the Transaction should be authorized
under the Act.
b. Section 10(c)(2)
Section 10(c)(2) requires that an acquisition not be approved unless the
Commission finds that:
[S]uch acquisition will serve the public interest by tending
towards the economical and efficient development of an integrated
public-utility system.
The Commission has stated on numerous occasions, that under Section
10(c)(2) an exempt holding company may consist of more than one integrated
system.23 In essence, Section 10(c)(2) requires that (i) each utility system
within the exempt holding company system be an integrated system and (ii) the
acquisition tend toward the economical and efficient development of an
integrated system. The economies and efficiencies expected to accrue to the
Maine GasCo and CMP Group systems as a result of the Transaction are sufficient
to satisfy the standards of Section 10(c)(2). The Commission has noted that
economies and efficiencies that cannot be quantified should be taken into
account in this analysis, as "specific dollar forecasts of future savings are
not necessarily required; a demonstrated potential for economies will suffice
even when these are not precisely quantifiable."24 The value of such expertise
and services is not readily quantifiable. However, although the parties have not
tried to quantify the value of these services, they believe that having
experienced management advice readily available to Maine GasCo will increase the
efficiency of Maine GasCo's operations significantly and will also permit CMP
Group to utilize its personnel in a more efficient manner.
The parties continue to identify areas of operations which could be the
source of potential economies of scale and efficiencies. It is currently
expected that, following consummation of the Transaction, economies and
efficiencies will result largely from the fact that the service territories of
CMP and Maine GasCo will overlap and therefore CMP Group's utility system will
be able to streamline many operations when it functions as a single system, such
as: (i) meter installation and reading operations; (ii) information systems and
telecommunications; (iii) billing support; and (iv) customer call center
operations. The Applicants also expect significant administrative economies and
efficiencies to result from the provision by CMP Group's subsidiaries of
corporate services, such as accounting, financial planning and analysis,
financial reporting, human resources, regulatory affairs, insurance, legal,
payroll, purchasing, tax, training, treasury, transportation, real estate,
facilities management and engineering, construction and environmental services.
These economies of scale and efficiencies will result from the
Applicants' provision of services on a coordinated basis that the evolving
energy marketplace demands, and are consistent with the economies of scale and
efficiencies that the Commission has found sufficient in connection with other
applications under Section 10(c)(2) of the Act. For example, in WPL Holdings,
supra, the Commission focused on benefits that would result from:
a structure that could more efficiently address the growing
national competition in the energy industry, refocus various
utility activities, facilitate selective diversification into
non-utility businesses, ... and provide additional flexibility
for financing.
The CMP Group system will also meet the requirement that it be "not so
large as to impair (considering the state of the art and the area or region
affected) the advantages of localized management, efficient operation and the
effectiveness of regulation." In the Matter of American Natural Gas Company,
Holding Co. Act Release No. 15620 (Dec. 12, 1966), the Commission found that the
American Natural Gas system would meet the above requirement after its
acquisition of an Indiana gas utility:
Although American Natural will provide certain central
facilities, equipment and personnel ... Central Indiana will
retain its own local management and board of directors, a
majority of whom will be residents of Indiana. Central Indiana
will continue to be subject to regulation by the Public
Service Commission of Indiana.
Maine GasCo will be operated in a similar manner. While, as discussed above,
Maine GasCo may receive a number of centralized services from CMP Group
subsidiaries allowing it to capture economies and efficiencies for the Maine
GasCo System, the Maine GasCo System will be operated on a day-to-day basis by a
local operator (Maine GasCo), and the Maine GasCo System will be regulated by
the MPUC with regard to rates, affiliate transactions, accounting, service
standards, territory served, the issuance of securities maturing more than one
year after the date of issuance, and various other matters. Thus, the Maine
GasCo System will be locally operated and locally regulated, but will have the
economic advantage of certain centralized services.
3. Section 10(f)
Section 10(f) provides that: The Commission shall not approve any
acquisition ... under this section unless it appears to the satisfaction of
the Commission that such State laws as may apply in respect of such
acquisition have been complied with, except where the Commission finds that
compliance with such State laws would be detrimental to the carrying out of
the provisions of section 11.
As explained below in Item 4 - Regulatory Approvals, certain aspects of
the Transaction require approval of the MPUC. The MPUC has authorized CMP Group,
through Maine GasCo, to provide on a non-exclusive basis natural gas service in
certain areas in Maine, and has approved the formation and initial
capitalization of Maine GasCo. Copies of such orders are attached hereto as
Exhibits D-1 and D-2, respectively.
B. The Exemption under Section 3(a)(1)
As demonstrated below, CMP Group and New England Gas respectfully
submit that the Commission should confirm CMP Group's status as an exempt public
utility holding company under Section 3(a)(1) of the Act and that New England
Gas should be granted an exemption under Section 3(a)(1) of the Act. Section
3(a)(1) of the Act exempts a "holding company" from all of the provisions of the
Act (except for Section 9(a)(2) thereof) if:
such holding company, and every subsidiary company thereof
which is a public-utility company from which such holding
company derives, directly or indirectly, any material part of
its income, are predominately intrastate in character and
carry on their business substantially in a single State in
which such holding company and every such subsidiary company
thereof are organized.
CMP Group and New England Gas will satisfy such requirements. The public utility
subsidiaries of CMP Group and New England Gas will be predominantly intrastate
in character and will carry on their business substantially in Maine, the state
in which they are all organized. Of $954,176,000 in total revenues from CMP
Group's electric operations in 1997, $929,610,000, or 97%, was derived from
sources in Maine, while only $24,566,000, or 3%, were from operations outside of
Maine, principally electric energy sold at wholesale outside of Maine or at the
state line. Additionally, of the $1,040,492,000 in net utility assets (net
electric plant in service) in 1997, $971,809,000 or 93%, were Maine assets,
while the remaining $68,683,000, or 7%, were Connecticut assets associated with
the Millstone No. 3 plant. The indirect acquisition and ownership of Maine GasCo
voting securities by CMP Group would have no impact on the continuing
entitlement of CMP to its exemption under Section 3(a)(1) of the Act since CMP
will remain a holding company because of its continued ownership of MEPCo, AVEC
and NORVARCO.
Section 3(a) of the Act provides that, if an applicant satisfies the
objective requirements for an exemption, the applicant shall be granted the
exemption, "unless and except insofar as [the Commission] finds the exemption
detrimental to the public interest or the interest of investors or consumers."
In assessing whether a proposed exemption is "detrimental," the Commission has
focused upon the presence of state regulation, establishing that federal
intervention is unnecessary when state control is adequate. See, e.g., KU Energy
Corp., Holding Co. Act Release No. 25409 ( Nov. 13, 1991); CIPSCO Inc., Holding
Co. Act Release No. 25152 (Sept. 18, 1990).25
The Commission should find that sufficient safeguards exist under state
law to ensure that no potential adverse consequences would result from the
Transaction. As discussed above, the MPUC has approved the formation and initial
capitalization of Maine GasCo and the MPUC will regulate Maine GasCo with regard
to rates, affiliate transactions, accounting, service standards, territory
served, the issuance of securities maturing more than one year after the date of
issuance, and various other matters. In addition, as discussed above, CMP,
MEPCo, AVEC and NORVARCO will continue to be regulated under the laws of the
State of Maine and will continue to be subject to FERC jurisdiction.
Item 4. Regulatory Approvals.
The formation of Maine GasCo and the construction and financing of
Maine GasCo's natural gas distribution system are subject to the jurisdiction of
the MPUC. The MPUC has issued orders authorizing CMP Group to provide natural
gas service on a non-exclusive basis,26 through Maine GasCo, in certain areas of
Maine not currently receiving natural gas service and has also authorized the
formation and initial capitalization of Maine GasCo. Copies of such orders are
attached hereto as Exhibits D-1 and D-2, respectively. No other state or federal
commission has jurisdiction over the Transaction.
Item 5. Procedure.
The Applicants hereby request that the Commission publish a notice
under Rule 23 with respect to the filing of this Application as soon as
practicable and that the Commission's order be issued as soon as possible in
order that Maine GasCo can begin serving Maine customers. A form of notice
suitable for publication in the Federal Register is attached hereto as Exhibit
H-1.
The Applicants do not believe that there should be a recommended
decision by a hearing officer or any other responsible officer of the Commission
or that there should be a 30-day waiting period between the issuance of the
Commission's order and the date on which it is to become effective. The
Applicants request that the Commission's order become effective immediately upon
the entry thereof. The Applicants consent to the Division of Investment
Management assisting in the preparation of the Commission's decision or order in
this matter, unless such Division opposes this application.
Item 6. Exhibits and Financial Statements.
NO. DESCRIPTION METHOD OF FILING
(a) Exhibits
A-1 Articles of Organization of Maine GasCo. Previously filed.
B-1 Joint Venture Agreement dated as of November Previously filed.
12, 1997 between Central Maine Power
Company ("CMP") and New York State Electric
& Gas Corporation.
D-1 Order of the MPUC in Docket No. 96-786 Previously filed.
authorizing CMP Group to furnish through
Maine GasCo, natural gas service in
certain areas of Maine.
D-2 Order of the MPUC in Docket No. 98-077 Previously filed.
authorizing the formation and capitalization
of Maine GasCo.
E-1 Maps of service territory of CMP and Previously filed.
natural gas service area of Maine GasCo. (paper format filing)
F-1 Preliminary opinion of Huber Lawrence & Filed herewith
Abell, special counsel to CMP Group, Inc.
and New England Gas Development Corporation.
F-2 Past-tense opinion of Huber Lawrence & To be filed by amendment
Abell, special counsel to CMP Group, Inc.
and New England Gas Development Corporation.
<TABLE>
<S> <C> <C>
H-1 Proposed form of Federal Register Notice. Previously filed.
(b) Financial Statements
1.1 Balance sheet of CMP Incorporated herein by reference to
(consolidated) as of September 30, 1998. Form 10-Q for the quarter ended
September 30, 1998 filed by CMP
File No. 1-5139.
1.2 Statement of Income and Retained Incorporated herein by reference to
Earnings of CMP (consolidated) Form 10-Q for the quarter ended
as of September 30, 1998. September 30, 1998 filed by CMP
File No. 1-5139.
</TABLE>
Item 7. Information as to Environmental Effects.
The Applicants do not believe that the Transaction would involve a
"Major federal action" nor would it "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 only federal actions related to the Transaction
pertain to the Commission's approval of this application and confirmation and
granting of the exemptions requested herein. The Transaction would not result in
changes in the operations of CMP Group that would have any impact on the
environment. No Federal agency has prepared or is preparing an environmental
impact statement with respect to the Transaction.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this Amendment No. 1 to be
signed on their behalf by the undersigned thereunto duly authorized.
CMP Group, Inc.
Date: January 29, 1999 By: /s/ Anne M. Pare
----------------
Anne M. Pare
Treasurer, Corporate Counsel
and Secretary
New England Gas Development Corporation
Date: January 29, 1999 By: /s/ Arthur W. Adelberg
----------------------
Arthur W. Adelberg
President
<PAGE>
APPENDIX A
PROPOSED SERVICE AREAS
Rumford
Hampden
Bath
Mexico
Orrington
Freeport
Dixfield
Bucksport
Yarmouth
Bethel
Clinton
North Yarmouth
Farmington
Waterville
Baileyville
(Woodland)
Wilton
Winslow
Bridgton
Jay
Fairfield
Casco
Livermore
Madison
Durham
Livermore Falls
Oakland
Gray
Millinocket
Skowhegan
Harrison
East Millinocket
Norridgewock
Naples
Medway
Augusta
Norway
Lincoln
Gardiner
Otisfield
Howland
Randolph
Oxford
Orono
Hallowell
Paris
Old Town
Farmingdale
Pownal
Milford
Manchester
Raymond
Veazie
Winthrop
Standish
Bangor
Topsham
Windham
Brewer
Brunswick
1 EEC is filing a contemporaneous application on Form U-1 in connection with
the Transaction.
2 As discussed below, CMP has agreed to sell its interest in AVEC in
connection with the sale of its generating assets. If AVEC is sold prior to
consummation of the Transaction, CMP Group would be an affiliate of four
public utility companies and would still require 9(a)(2) approval in
connection with the Transaction.
3 On January 6, 1998, CMP announced that it had reached agreement to sell
substantially all of its hydro, fossil and biomass generating assets with a
combined generating capacity of 1,185 megawatts, and certain other assets,
to an affiliate of Florida-based FPL Group, the winning bidder in the
auction process. CMP's interests in the power entitlements from
approximately 50 purchased-power agreements with non-utility generators
representing approximately 488 megawatts and its interests in the five
nuclear generating facilities described below are not included in the sale.
The sale is subject to various closing conditions, including the approval
of state and federal regulatory agencies.
4 MEPCo is a public utility organized in 1966, in which Bangor Hydro-Electric
Company ("Bangor Hydro") and Maine Public Service Company hold the
remaining voting stock. MEPCo owns and operates a 345-kV transmission
interconnection between Wiscasset, Maine and the Maine-New Brunswick
international border at Orient, Maine, where its line connects with the
portion of the interconnection constructed in the province of New
Brunswick, Canada, by New Brunswick Power Corporation ("New Brunswick
Power"). MEPCo also owns and operates certain equipment, including
microwave communication facilities, in connection with the Hydro-Quebec
Phase II ("Phase II") project described below.
AVEC owns and operates a 31-MW wood-fired generating plant in Fort
Fairfield, Maine, the output of which is sold to CMP.
NORVARCO is one of two general partners with 50 percent interests in
Chester SVC Partnership ("Chester"), a Maine general partnership which owns
a static var compensator facility (the "SVC Facility") located in Chester,
Maine, adjacent to MEPCo's 345-kV transmission interconnection with New
Brunswick, Canada. Chester's sole business is to own and, through operating
agreements with other entities, operate the SVC Facility. Its two partners,
each with a 50% interest, are NORVARCO and Bangor VAR Co., a wholly-owned
subsidiary of Bangor Hydro. Under the partnership agreement, NORVARCO is
the managing partner, with responsibility for directing MEPCo's operation
and maintenance of the SVC Facility.
CMP's non-utility subsidiaries are as follows:
Central Securities Corporation and Cumberland Securities Corporation both
own real estate located in CMP's service area.
Kennebec Hydro Resources, Inc. ("Kennebec Hydro") is the general partner
with a 50 percent interest in The Merimil Limited Partnership (the limited
partners of which are not affiliates of CMP), which owns the Lockwood
Hydroelectric Project, a qualifying facility located in Waterville, Maine.
Kennebec Water Power Company ("Kennebec Water"), in which CMP owns a 24.8%
equity interest, operates a business regulating the flow of the Kennebec
River and owns storage dams at the East and West Outlets of Moosehead Lake
in Maine.
The Gulf Island Pond Oxygenation Project ("GIPOP") a Maine general
partnership in which CMP owns a 14% partnership interest (the other three
partners of which are paper companies), owns an oxygenation facility at
Gulf Island Pond on the Androscoggin River at Greene, Maine, which is
operated by Union Water under an operating agreement with GIPOP.
As part of its agreement to sell substantially all of its generating assets
to an affiliate of FPL Group, CMP has agreed to sell its interests in AVEC,
Kennebec Hydro, Kennebec Water and GIPOP.
5 Specifically, it is projected that Maine GasCo's revenues in 1999, 2000 and
2001 will account for less than 1.6% of CMP Group's consolidated revenues.
6 On May 29, 1997, the Governor of Maine signed into law a bill enacted by
the Maine Legislature that will restructure the electric utility industry
in Maine by March 1, 2000. The purpose of the restructuring bill is to
promote competition and a movement to a free market in Maine. The principal
restructuring provisions of the legislation provide for customers to have
direct retail access to generation services and for deregulation of
competitive electricity providers, commencing March 1, 2000, with
transmission and distribution companies continuing to be regulated by the
MPUC. By that date, vertically integrated investor-owned utilities, such as
CMP, are required to divest all generation assets and generation-related
business activities, with two major exceptions: (1) non-utility generator
contracts with qualifying facilities and contracts with demand-side
management or conservation providers, brokers or hosts; and (2) ownership
interests in nuclear power facilities. The bill also requires
investor-owned utilities, after February 29, 2000, to sell their rights to
the capacity and energy from the purchased-power contracts that had not
been divested pursuant to the legislation, with certain minor exceptions.
As noted above, CMP has entered into an agreement to divest certain of its
generation assets.
7 Although the parties have not tried to quantify the value of all the
resulting economies and efficiencies, they believe that having experienced
management and certain centralized services will increase the efficiency of
Maine GasCo's operations significantly. It is expected that NYSEG's
experience in the market for gas supply and access to gas supplies will
prove useful to Maine GasCo. By increasing the purchasing power as a result
of its providing gas and other purchasing services to Maine GasCo, the
addition of the Maine GasCo System to NYSEG's existing gas system will
create a larger combined system able to capture greater economies of scale
and scope in such purchasing activities which is necessary in today's
competitive energy market. In addition, it is currently contemplated that
Maine GasCo will use NYSEG's Gas Control system ("GC System") to monitor
its operations around the clock. Significant day-to-day centralization
between the Maine GasCo System and the existing NYSEG gas system can occur
via NYSEG's GC System. The GC System's main function is to monitor
pressures and gas flow on the distribution company's system. This ensures
that the distribution system is not over pressurized and that actual gas
usage is in balance with pipeline nominations. Gas control, through the use
of electronic measurement equipment, gathers transportation customer usage
via electronic meters and checks usage against customer nominations. This
information is critical for both balancing and billing purposes. Gas
control is also responsible for reaching the appropriate operational
personnel to respond to emergency situations when necessary. The GC System
and personnel are responsible for over 80 connection points with interstate
pipelines and local gas production. The additional interconnection points
which Maine GasCo anticipates having will be integrated into the existing
software and hardware applications. The Maine GasCo System will have a
direct line to the GC System and large customer or marketer inquiries can
be handled through an internet Electronic Bulletin Board. Moreover, NYSEG's
GC System personnel can provide frequent consulting services to the Maine
GasCo personnel on how to operate their link with the GC System and how to
handle other customer service related matters. If Maine GasCo were to
attempt to develop its own GC System, it would incur significant start-up
costs. The parties have estimated that the cost to Maine GasCo of
developing its own comparable GC System would be approximately $1 million.
In addition, Maine GasCo would have to hire additional employees to operate
the system and would also incur other personnel and personnel training
costs.
8 In the Matter of American Natural Gas Company, Holding Co. Act Release No.
15620 (Dec. 12, 1966).
9 Consolidated Natural Gas Company, Holding Co. Act Release No. 25040 (Feb.
14, 1990).
10 Id.
11 In the Matter of Northeast Utilities, Holding Co. Act Release No. 15448
(April 13, 1966).
12 Union Electric Company, 45 SEC 489 (1974) ("Nowhere does the Act ban
combination systems in so many words.")
13 The definition of integrated system with respect to a gas utility requires
that the system be located in one or more states (defined as a state of the
United States) and, in this case, one of the utilities in the system was
located in Canada. Therefore, although integrated, the system would
arguably not be a single integrated system.
14 Citing Union Electric Company, 45 SEC 489 (1974) at 495, n. 20; Eastern Gas
and Fuel Associates, 30 SEC 834, 848 (1950).
15 S. Rep. No. 651, 74th Cong., 1st Sess. 22 (1935).
16 See e.g., CIPSCO Incorporated, Holding Co. Act Release No. 25152, (Sept.
18, 1990) (authorizing acquisition and granting exemption for the formation
of new holding company over existing combination gas and electric utility
and electric utility); Illinova Corporation, Holding Co. Act Release No.
26054 (May 18, 1994) (authorizing formation of holding company and granting
exemption for holding company over existing combination gas and electric
utility); WPS Resources Corporation, Holding Co. Act Release No. 26101
(Aug. 10, 1994) (authorizing formation and exemption for holding company
over existing combination gas and electric and electric utilities);
SIGCORP, Inc., Holding Co. Act Release No. 26431 (Dec. 14, 1995)
(authorizing formation and granting exemption for holding company over
existing combination gas and electric utility and two gas utilities);
Energy East Corporation, Holding Co. Act Release No. 26834 (March 4, 1998)
(authorizing formation of holding company and granting exemption for
holding company over existing combination gas and electric utility).
17 See e.g., IE Industries, Inc. Holding Co. Act Release No. 25325 (June 3,
1991) (authorizing acquisition of large electric utility by a holding
company with a combination gas and electric utility subsidiary); NIPSCO
Industries, Inc., Holding Co. Act Release No. 25470 (Feb. 2, 1992)
(authorizing acquisition of gas utility by holding company with existing
combination gas and electric utility subsidiary); NIPSCO Industries, Inc.
Holding Co. Act Release No. 25766 (March 25, 1993) (authorizing acquisition
of gas utility by holding company with existing combination gas and
electric and gas utility subsidiaries); Southern Indiana Gas and Electric
Company, Holding Co. Act Release No. 26075 (June 30, 1994) (authorizing
acquisition of gas utility by combination gas and electric utility company
with a gas utility subsidiary).
18 CIPSCO Incorporated, Holding Co. Act Release No. 25152 (Sept. 18, 1990).
19 Union Electric Company, 45 SEC at 509 n. 77.
20 Division Report at 70.
21 Division Report at 75.
22 See Union Electric Company, 45 SEC 489 (1974); UNITIL Corp., Holding Co.
Act Release No. 25524 (Apr. 24, 1992), and Mississippi Valley Generating
Co., 36 SEC 159 (1955).
23 The United Gas Improvement Company, 9 SEC 52 (1941), Union Electric
Company, 45 SEC 489 (1974) and In the Matter of Gaz Metropolitain et al.,
Holding Co. Act Release No. 26170 (November 23, 1994). In Gaz
Metropolitain, the Commission stated "[W]e have indicated in the past that
acquisitions may be approved even if the combined system will not be a
single integrated system. Section 10(c)(2) requires only that the
acquisition tend "towards the economical and the efficient development of
an integrated public-utility system" (emphasis added.)"
24 Centerior Energy Corp., Holding Co. Act Release No. 24073 (April 29, 1986).
25 Furthermore, the Commission Staff has stated its support for greater
flexibility in the administration of existing exemptions in consultation
and cooperation with state regulators. See, Division of Investment
Management, The Regulation of Public Utility Holding Companies, supra, at
119-20.
26 In authorizing CMP Group, through Maine GasCo, to provide natural gas
service on a non-exclusive basis, the MPUC noted at page 5 of its order in
Docket No. 96-786:
"[A]s a general matter, authorizing more than one LDC to serve an area
will result in beneficial competition to obtain adequate customer load
to build and serve an area in a manner that may very likely "grow the
market" so that system expansion may ultimately be greater than it
would be if only a single entity was authorized to serve. Nor do we
expect that market inefficiencies, such as uneconomic duplication of
facilities and lost economies of scale, will predominate or
necessarily result in higher prices to end-users. We expect that the
efficiencies and product diversification that are the hallmarks of
competition will result in system expansion that is at least as
socially beneficial as that which could be achieved by traditional
means as a regulated monopoly service.
Moreover, we do not believe that, if customers are the selecting
mechanism, benefits would accrue to only the largest customers to the
detriment of smaller customers. Beneficial deals and discounts to
large customers may make it more imperative for the entity to obtain
additional small customers in order to increase throughput and achieve
an adequate return on infrastructure development. Consequently,
competition among providers could ultimately drive deeper penetration
levels within a given area.
Consequently, we conclude that economic efficiencies and the public
interest in safe and adequate service and facilities and orderly
infrastructure development will be amply served by allowing multiple
gas utilities to compete to serve an area... The policy has encouraged
aggressive and innovative proposals for development of service to
previously unserved areas. We see no benefit in cutting off
competition at this point and foreclosing further benefits that it may
provide."
<PAGE>
Exhibit F-1
January 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel for CMP Group, Inc. and its wholly-owned
subsidiary, New England Gas Development Corporation (the "Applicants") in
connection with their Application on Form U-1 (File No. 70-9367) (the
"Application"), filed with the Securities and Exchange Commission (the
"Commission") under the Public Utility Holding Company Act of 1935, as amended.
The Application requests that the Commission issue an order authorizing the
acquisition by the Applicants of up to 50% of the membership interests of CMP
Natural Gas, L.L.C., a Maine limited liability company, which will be a natural
gas utility company operating in the State of Maine.
As counsel to the Applicants, we are generally familiar with their
corporate proceedings and have examined the Application, the Joint Venture
Agreement dated as of November 13, 1997, as amended, between New England Gas
Development Corporation and Energy East Enterprises, Inc., a wholly-owned
subsidiary of Energy East Corporation, and such other documents as we have
deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In addition, we have made such other and further investigations as we have
deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
With respect to all matters of law of the State of Maine, insofar as
they relate to this opinion, we have relied upon an opinion of even date
herewith of Anne M. Pare, Esq., Treasurer, Corporate Counsel and Secretary of
CMP Group, Inc., a copy of which is attached hereto.
Based on the foregoing and upon such further examination of corporate
records and documents and matters of law as we have considered necessary or
desirable for the purposes of this opinion, it is our opinion that:
(a) CMP Group, Inc. and CMP Natural Gas, L.L.C. are validly organized
and duly existing under the laws of the State of Maine;
(b) when the Commission has taken the action requested in the
Application (i) all state laws applicable to the transactions
contemplated in the Application will have been complied with; (ii) the
Applicants may legally acquire the membership interests in CMP Natural
Gas, L.L.C.; and (iii) the consummation of the transactions proposed
in the Application will not violate the legal rights of the holders of
any securities issued by the Applicants or any associate company
thereof.
The opinion expressed herein is limited to the laws of the State of New
York and to applicable United States federal law and we express no opinion as to
the laws of any other jurisdiction, except as to the State of Maine for which we
are relying on the opinion of Anne, M. Pare, Esq. referred to herein and
attached hereto.
We hereby consent to the filing of this opinion as Exhibit F-1 to the
Application.
Very truly yours,
Huber Lawrence & Abell
January 29, 1999
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
Ladies and Gentlemen:
I am Treasurer, Corporate Counsel and Secretary of CMP Group, Inc., and
am an attorney licensed to practice law in the State of Maine. This opinion is
rendered in connection with the applications on Form U-1 of CMP Group, Inc. and
New England Gas Development Corporation (File No. 70-9367) and of Energy East
Corporation and Energy East Enterprises, Inc. (File No. 70-9369) (collectively,
the "Applications"), filed with the Securities and Exchange Commission (the
"Commission") under the Public Utility Holding Company Act of 1935, as amended,
in connection with the acquisition of membership interests in CMP Natural Gas,
L.L.C. (the "Transaction") pursuant to a Joint Venture Agreement dated November
13, 1997, as amended (the "Joint Venture Agreement").
For purposes of this opinion, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of (i) the Joint Venture
Agreement, (ii) the Articles of Incorporation of CMP Group, Inc., as amended and
as in effect on the date hereof, (iii) the Articles of Organization of CMP
Natural Gas, L.L.C. as in effect on the date hereof, and (iv) such other
documents, certificates and records as I have deemed necessary or appropriate.
In such examination, I have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted as originals, the conformity to original documents of all documents
submitted as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based on the foregoing, it is my opinion that:
(a) CMP Group, Inc. and CMP Natural Gas, L.L.C. are validly organized
and duly existing under the laws of the State of Maine; and
(b) (i) all laws of the State of Maine applicable to the Transaction
will have been complied with; (ii) CMP Group, Inc. and New
England Gas Development Corporation may legally acquire the
membership interests in CMP Natural Gas, L.L.C.; and (iii) the
consummation of the Transaction will not violate the legal rights
of the holders of any securities issued by CMP Group, Inc. or New
England Gas Development Corporation or any associate company
thereof.
The opinion expressed herein is subject to the condition that the
Commission shall have duly entered an appropriate order or orders granting and
permitting the Applications to become effective with respect to the Transaction
and that the Transaction shall be effected in accordance with all required
approvals, authorizations, consents, certificates and orders of any state or
federal commission or regulatory authority with jurisdiction over the
Transaction and that such required approvals, authorizations, consents,
certificates and orders shall have been obtained and remain in full force and
effect.
The opinion expressed herein is limited to the laws of the State of
Maine. I understand you are delivering opinions of approximately even date
herewith to the Commission. I hereby consent to the filing of this opinion as an
attachment to your opinions filed as Exhibit F-1 to the respective applications.
I hereby consent to reliance on this opinion with respect to Maine law by Huber
Lawrence & Abell.
Very truly yours,
Anne M. Pare
