File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
DECLARATION WITH RESPECT TO A GUARANTY BY
EASTERN EDISON COMPANY OF THE OBLIGATIONS OF
MONTAUP ELECTRIC COMPANY UNDER A
POWER PURCHASE AND SALE AGREEMENT
UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EASTERN EDISON COMPANY
110 Mulberry Street, Brockton, Massachusetts 02403
(Name of company filing this statement and address of its principal executive
office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company parent of the declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies of
all orders, notices and communications to:
ARTHUR I. ANDERSON, P.C.
McDermott, Will & Emery
28 State Street
Boston, MA 02109
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTIONS.
I. Introduction.
A. Background of the Declarant. This Declaration is filed with
the United States Securities and Exchange Commission (the "Commission") by
Eastern Edison Company ("Eastern"), a Massachusetts corporation and wholly-
owned subsidiary of Eastern Utilities Associates ("EUA"). EUA is a
Massachusetts voluntary association and a registered public utility holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Act").
II. Overview of the Proposed Transactions.
A. Background. Montaup Electric Company, a Massachusetts
corporation and wholly-owned subsidiary of Eastern ("Montaup"), is engaging in
the complete divestiture of its generation assets and purchase power
entitlements in accordance with the terms of comprehensive restructuring
settlement agreements among Montaup, its retail affiliates and regulatory and
other parties in Massachusetts and Rhode Island (the "Settlement Agreements"),
which Settlement Agreements were approved by the Federal Energy Regulatory
Commission (the "FERC") in Docket Nos. ER97-2800-000, ER97-3127-000 and ER97-
2338-000. In conjunction with said complete divestiture, Montaup has agreed
to sell to Constellation Power Source, Inc., a Delaware corporation (the
"Purchaser"), pursuant to a Power Purchase and Sale Agreement (the
"Agreement"), the economic benefits and performance obligations associated
with certain power purchase agreements Montaup has previously entered into
with third party power suppliers (the "Existing Power Purchase Agreements"),
subject to Montaup's continuing obligations to make certain payments under the
Existing Power Purchase Agreements. The Agreement contemplates that Eastern
would unconditionally, absolutely and irrevocably guaranty to the Purchaser
the prompt, full and faithful payment of all of the obligations of Montaup due
or which may become due under and pursuant to the Agreement (the "Guaranty").
Eastern would also be responsible for payment, pursuant to the Guaranty, of
all reasonable attorneys' fees and costs incurred by the Purchaser in
enforcing the Guaranty. Pending Commission authorization of the Guaranty,
Montaup will obtain a letter of credit supporting its obligations under and
pursuant to the Agreement. The Agreement is filed under separate cover as
Exhibit B-1, and the form of the Guaranty is filed under separate cover as
Exhibit B-2, each under a request for confidential treatment.
B. Potential and Actual Payment Obligations of Montaup under the
Agreement. Potential and actual payment obligations of Montaup under the
Agreement include, without limitation, (i) timely payment of all amounts due by
Montaup under the Existing Power Purchase Agreements, including amounts
received by Montaup from the Purchaser pursuant to the Agreement, until the
earlier of (a) the expiration or termination of the Existing Power Purchase
Agreements, and (b) their assignment to the Purchaser, (ii) the difference
between the per unit price of power to be supplied pursuant to the Existing
Power Purchase Agreements and the price for replacement power obtained by the
Purchaser in the event Montaup fails to deliver, in accordance wit h the
Agreement, power received pursuant to the Existing Power Purchase Agreements,
(iii) if mutually agreed to by Montaup and the Purchaser, accelerated payments
of the monthly amounts described in Clause II.B.(i) above, discounted by a
certain percentage due to such acceleration, in the event any one of the
Existing Power Purchase Agreements expires or is amended, assigned or
terminated, (iv) any amounts to be paid by Montaup pursuant to the Agreement
which result from or arise out of an Event of Default (as such term is defined
in the Agreement), (v) indemnification of the Purchaser for certain defined
losses suffered by the Purchaser which result from or arise out of: (1) a
breach by Montaup of any covenant or agreement made by Montaup in the Agreement
or the Existing Power Purchase Agreements, or a material breach of any
representation or warranty made by Montaup in the Agreement; or (2) a claim by
any third party to the extent arising out of acts or omissions of Montaup or
any of its agents or employees, and (vi) amounts awarded by an arbitrator as a
result of dispute resolution proceedings described in and instituted pursuant
to the Agreement.
C. Potential Terminations and Reinstatements of the Guaranty. If,
at any time during the term of the Agreement, Montaup could demonstrate to the
Purchaser that it meets certain creditworthiness criteria described and defined
in the Agreement, or if Montaup were to grant to the Purchaser a first priority
security interest in certain transition costs for which Montaup is permitted to
charge and collect, in accordance with the terms of the Settlement Agreements
as approved by the FERC , the Guaranty could be terminated. However, if, at
any time after termination of the Guaranty, Montaup could no longer demonstrate
to the Purchaser that it meets said creditworthiness criteria and Montaup had
not granted a first priority security interest in said transition costs to the
Purchaser, or if Montaup's right to charge and collect said transition costs
were to be materially amended or modified and Montaup could not demonstrate to
the Purchaser that it meets said creditworthiness criteria, then the Agreement
would require reinstatement of the Guaranty.
III. Request for Authorization to Enter into and Reinstate the Guaranty.
Eastern requests authorization to enter into the Guaranty, to guarantee the
prompt payment of Montaup's payment obligations described in Section II.B.
above, to promptly pa y said obligations, and to promptly pay any reasonable
attorneys' fees and costs incurred by the Purchaser in enforcing the Guaranty,
all as more fully described in Section II above and in the aforementioned
Exhibits B-1 and B-2. In addition, Eastern requests authorization, in the
event of a termination of the Guaranty, to reinstate its guaranty of the prompt
payment of Montaup's obligations and to perform its obligations thereunder,
upon the same terms and conditions set forth in the initially executed
Guaranty, as necessary and under the circumstances described in Section II.C.
above, all as more fully set forth in the aforementioned Exhibit B-1.
IV. Analysis
For the reasons set forth in paragraphs (i) and (ii) below, Eastern
believes that the transactions proposed in this Declaration should be
authorized.
(i) The Agreement will assist Montaup in fulfilling its obligations
under the Settlement Agreements to completely divest its purchase power
entitlements and to mitigate its stranded cost obligations.
(ii) In negotiating the Agreement, the Purchaser required the
Guaranty or a Letter of Credit by Montaup. It is expected that Montaup would
incur significant costs associated with securing and maintaining a long-term
Letter of Credit for the purpose of supporting the performance of Montaup over
the term of the Agreement. Montaup would expect to incur expenses of two
percent (2%) per annum or greater of the face amount of a Letter of Credit in
addition to the lengthy implementation time associated with the internal credit
review process of the providing financial institution. In order to eliminate
the significantly greater costs and administrative effort required in
connection with securing a Letter of Credit, Eastern requests authorization to
issue the Guaranty. Montaup will be able to support its obligations under and
pursuant to the Agreement as a result of certain provisions of the Settlement
Agreements. Upon the FERC's approval of the Agreement, Montaup will enter a
liability on its books for its obligations under the Agreement. Under a FERC
approved tariff, Montaup's revenue stream from Contract Termination Charges
(CTC) will support its obligations under the Agreement. Because the revenue
stream from the CTC is non-bypassable, Eastern believes that Montaup will be
able to perform all of its obligations under the Agreement and that it is
highly unlikely that Eastern will be required to make any payment under the
Guaranty.
V. EWGs and FUCOs.
Neither the Declarant nor its subsidiary, Montaup, has acquired
an ownership interest in any EWG or FUCO, or now is or as a consequence of the
transactions proposed herein will become a party to or has or will as a
consequence of the transactions proposed herein have any right under a service,
sales or construction contract with an EWG or FUCO, except in accordance with
the provisions of the Act. The Declarant, for itself and for Montaup, will not
acquire any such interest or right without first obtaining any necessary
Commission authorization. All applicable conditions contained in Rule 53(a)
are, and assuming the consummation of the proposed transactions will be,
satisfied, and none of the conditions contained in Rule 53 (b) exist or will
exist as a result of the proposed transactions making Rule 53(c) inapplicable.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
The fees, commissions and expenses of Eastern expected to be paid or
incurred, directly or indirectly, in connection with the transactions described
above are estimated as follows:
Legal Fees $5,000
Miscellaneous $1,000
TOTAL $6,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
The sections of the Act and rules or exemptions thereunder that Eastern
considers applicable to the transactions, or the basis for exemption therefrom,
are set forth below:
Eastern's execution, delivery and Sections 6(a), 7 and 12(b); Rule 45(a)
performance of the Guaranty and any
reinstatements thereof
ITEM 4. REGULATORY APPROVALS.
An application was filed with the FERC on February 1, 1999 requesting
approval of the Agreement, as corrected in a subsequent filing on February 4,
1999 (FERC Docket No. ER99-1663-000). In addition to the Commission's approval
requested here in, notice to and an order by the Massachusetts Department of
Telecommunications and Energy approving the Guaranty that is the subject of
this Declaration also is required.
ITEM 5. PROCEDURE.
(a) In order to enable Eastern to make the Guaranty and Montaup to
close on the Agreement promptly, Eastern hereby requests that this Declaration
become effective at the earliest convenient date.
(b) It is not considered necessary that there be a recommended
decision by a hearing officer or by any other responsible officer of the
Commission. The Office of Public Utility Regulation may assist in the
preparation of the decision of the Commission, and it is believed that a thirty
(30) day waiting period between the issuance of the order of the Commission and
the day on which the order is to become effective would not be appropriate.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
* Filed separately under confidential treatment request.
** To be filed by Amendment.
(a) Exhibits.
* Exhibit B-1 Power Purchase and Sale Agreement
* Exhibit B-2 Form of Guaranty
** Exhibit F Opinion of Counsel
** Exhibit H Proposed Form of Notice
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The transactions described in Item 1 do not involve major federal
actions significantly affecting the quality of the human environment. No
federal agency has prepared or is preparing an environmental impact statement
with respect to the proposed transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned Declarant has duly caused this statement to be signed
on its behalf by the undersigned duly authorized individual.
EASTERN EDISON COMPANY
By: /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
Date: February 16, 1999
**FILED SEPARATELY UNDER CONFIDENTIAL TREATMENT REQUEST**
**FILED SEPARATELY UNDER CONFIDENTIAL TREATMENT REQUEST**
