File No. 70-9183
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM U-1
APPLICATION AND DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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HOLDCO, INC.
CENTRAL MAINE POWER COMPANY
83 Edison Drive
Augusta, Maine 04336
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(Name of companies filing this statement and
address of principal executive offices)
None
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(Name of top registered holding company
parent of each applicant or declarant)
HoldCo, Inc.
Central Maine Power Company
c/o Anne M. Pare
Corporate Counsel and Secretary
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
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(Name and address of agent for service)
The Commission is requested to mail copies of
all orders, notices and communications to:
E. Ellsworth McMeen, III, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-4513
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The Form U-1 Application and Declaration in this proceeding, originally
filed with the Commission on March 4, 1998, and amended and restated on June 11,
1998, is hereby amended to the extent indicated below.
1. The fourth paragraph of footnote 1 in Item 1.A is restated as follows:
"(c) NORVARCO. NORVARCO is one of two general partners with 50
percent interests in Chester SVC Partnership ("Chester"), a 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. As a condition
to approval of increased imports over the high-voltage direct current
tie line from Hydro-Quebec to New England (the "HVDC line"), in the
1980's, the Department of Energy required the SVC Facility to be
constructed by participants in the New England Power Pool to protect
MEPCo's 345-kV transmission line against system disturbances and
outages caused by the shifting of load to the MEPCo line from the HVDC
line in the event of outages on the HVDC line or in Hydro-Quebec's
system. Under a support agreement, MEPCO agreed to construct and
maintain the SVC Facility and New England Hydro-Transmission
Corporation agreed to reimburse MEPCo for all construction and
maintenance costs incurred by MEPCo. Total design and construction
costs for the SVC Facility were approximately $35 million. After
construction of the SVC Facility, MEPCo transferred it to Chester and
entered into a ground lease with Chester, since the SVC Facility is
located on MEPCo's transmission corridor. In turn, Chester entered into
an agreement with MEPCo under which MEPCo agreed to operate and
maintain the SVC Facility by monitoring it and making settings. MEPCo
has subcontracted these obligations to Bangor Hydro. All of these
agreements have been approved by the Federal Energy Regulatory
Commission ("FERC"). Chester is a Maine general partnership whose 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."
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2. Footnote 4 in Item 1.A is restated as follows: "Central Maine's interests in
Kennebec Hydro, Kennebec Water and GIPOP are included in the proposed sale of
generating assets to the FPL Group affiliate. If Kennebec Hydro is sold, such
sale would include Kennebec Hydro's interest in The Merimil Limited
Partnership."
3. The last paragraph of Item 1.A is restated as follows:
"Central Maine 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. Central Maine is also subject to the
jurisdiction of the 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 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
utility 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
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<PAGE>
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; it provides such service under contracts which are filed with
the MPUC as rate schedules."
4. The fifth paragraph of Item 1.C is restated as follows:
"The consummation of the Merger pursuant to the Plan of Merger is subject
to a number of conditions. One condition is approval of the Reorganization by
the Commission under Sections 9(a)(2) and 10 of the 1935 Act and the granting by
the Commission of an exemption to Holding Company and Central Maine under
Section 3(a)(1) of the 1935 Act as requested by this application. The Plan of
Merger is subject to approval by the affirmative vote of a majority of the
outstanding shares of Central Maine Common Stock and Central Maine 6% Preferred
Stock, voting together as a single class, and a majority of the outstanding
shares of Central Maine Common Stock voting separately. At Central Maine's
Annual Meeting of Shareholders held on May 21, 1998, Central Maine's
shareholders approved the Plan of Merger. The Reorganization is also subject to
approval by the MPUC, the FERC, the Nuclear Regulatory Commission (the "NRC")
and, possibly, the Connecticut Department of Public Utility Control
("Connecticut DPUC").1 On
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1 Approval or waiver by the Connecticut DPUC may be required due to Central
Maine's ownership of a 2.5% interest in the Millstone No. 3 nuclear unit.
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<PAGE>
May 1, 1998, the MPUC granted its approval of the Reorganization in Phase I of
the Maine proceeding. This approval in Phase I of the proceeding is sufficient
to close the Reorganization. On June 30, 1998, the MPUC resolved Phase II of the
Reorganization proceeding, which concerns the creation of EnerMark and the
approval of certain support services agreements. The NRC issued its order
approving the Reorganization on June 2, 1998. Application for approval of the
Reorganization has been filed with the FERC. Application for approval or waiver
has been filed with the Connecticut DPUC.
5. Item 2 is restated as follows:
"The fees, commission and expenses to be paid or incurred by Holding
Company and Central Maine in connection with the Reorganization, including the
solicitation of proxies, 1933 Act registration and other related matters are
estimated as follows:
Commission filing fee relating to the
Registration Statement on Form S-4.....................................$ 181,010
New York Stock Exchange Listing Fee....................................$ 5,300
Auditors' Fees.........................................................$ 20,000
Legal Fees.............................................................$ 300,000
Proxy Solicitation.....................................................$ 11,700
Stock Certificates.....................................................$ 30,000
Miscellaneous..........................................................$ 100,000
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TOTAL.................................................... ...$ 648,010"
6. Item 4 is restated as follows:
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<PAGE>
"The Reorganization requires the approval of the MPUC, the FERC, the NRC,
and possibly the Connecticut DPUC. Central Maine filed an application with the
MPUC, a copy of which is attached hereto as Exhibit D-1, and a copy of the MPUC
order in Phase I pursuant thereto is attached hereto as Exhibit D-2. A copy of
the MPUC order in Phase II is attached hereto as Exhibit D-2A. Central Maine has
filed an application with the FERC, a copy of which is attached hereto as
Exhibit D-3. A copy of the final FERC order pursuant thereto will be filed as
Exhibit D-4 by amendment hereto. Central Maine has filed an application with the
NRC, a copy of which is attached hereto as Exhibit D-5 and a copy of the NRC
order pursuant thereto is attached hereto as Exhibit D-6. Central Maine has
filed an application with the Connecticut DPUC, a copy of which is attached
hereto as Exhibit D-7. A copy of the final order or other dispositive decision
pursuant thereto will be filed as Exhibit D-8 by amendment hereto. Other than
such enumerated approvals and the approval of the Commission hereunder, no other
regulatory approvals are required for the Reorganization."
7. The following exhibits are added to Item 6 or filed herewith.
D-2A Phase II Order of the MPUC. Filed herewith.
D-6 Order of the NRC. Filed herewith.
D-7 Connecticut DPUC Application. Filed herewith.
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<PAGE>
D-8 Decision of Connecticut DPUC. To be filed by amendment.
E-1 Map showing service territory of Filed under cover of Form SE.
Central Maine.
F-1 Preliminary opinion of counsel. Filed herewith.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this application and
declaration to be signed on their behalf by the undersigned thereunto duly
authorized.
Date: July 8, 1998 HOLDCO, INC.
By: /s/ Anne M. Pare
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Name: Anne M. Pare
Title: Treasurer, Corporate
Counsel and Secretary
Date: July 8, 1998 CENTRAL MAINE POWER COMPANY
By: /s/ Anne M. Pare
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Name: Anne M. Pare
Title: Corporate Counsel and
Secretary
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EXHIBIT D-2A
STATE OF MAINE Docket No. 97-930
PUBLIC UTILITIES COMMISSION
July 6, 1998
CENTRAL MAINE POWER COMPANY ORDER
Request for Approval of Affiliated Interest
Transaction and Reorganization and Transfer
of Assets (Phase II)
WELCH, Chairman; and NUGENT Commissioner
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I. SUMMARY
In this Order we approve the creation of MainePower. MainePower will be a
subsidiary of CMP HoldCo and an energy marketing affiliate of Central Maine
Power Company (CMP or the Company). We also approve, as to form, certain
contracts between CMP, MainePower and the holding company.
II. BACKGROUND
On December 8, 1998, CMP filed its application for approval of a
reorganization of the Company into a holding company structure and other related
approvals. On January 26, 1998, the Hearing Examiner issued a procedural order
establishing separate proceedings for certain of the approvals. Approvals
relating to establishing an energy marketing affiliate would be considered in a
Phase II proceeding following a Commission decision on other aspects of the
reorganization. Approvals related to the provision of natural gas were removed
to a separate docket. The following entities were made parties to these
proceedings: Bangor Gas, Bangor- Hydro Electric Company, Coalition for Sensible
Energy, Enron, Industrial Energy Consumer Group (IECG), Independent Energy
Producers of Maine (IEPM), Maritimes and Northeast Pipeline, Maine Oil Dealers
Association, Northern Utilities and the Public Advocate (OPA).
The Commission issued its Order on May 1, 1998, approving the
reorganization, except for the energy market affiliate. The formation of a
natural gas affiliate was also approved on May 1, 1998, in Docket No. 98-077.
Central Maine Power Company, Application for Approval of Reorganization,
Affiliated Interest Transaction and Sale in Connection with Gas Ventures.
By Procedural Order issued on April 1, 1998, the Hearing Examiner
established a schedule for processing Phase II issues. Parties filed comments on
Phase II issues on May 1, 1998. A technical conference was held on May 11 to
allow the parties and the Advisors to ask CMP questions about its requests. The
only active parties to Phase II have been CMP, OPA, IEPM, and IECG. All further
references to the parties in this Order are to these active parties.
Following the technical conference, at least two issues appeared to be
unresolved. These included:
1. whether the CMP's competitive energy marketing affiliate can use the
name MainePower, and, if it does so, must it pay royalties to CMP; and
2. whether the energy marketing affiliate can provide certain services to
CMP prior to March 2000 without violating the standards of conduct
contained in 35-A M.R.S.A. Section 3205.
The parties and Advisors conducted additional discovery. On June 1, 1998,
the parties filed a stipulation addressing all issues except the naming issue.
Parties filed simultaneous briefs on the naming issue on June 3. Another
technical conference was held on June 11 where the Advisors again raised
concerns about the potential for violating the standards of conduct by sharing
information between CMP and its marketing affiliate under both the support
services and management services agreements. CMP agreed to discuss with other
parties possible additional conditions to address these concerns.
On June 18, 1998, CMP filed a list of additional conditions agreed to by
CMP, the OPA and IEPM.
III. REQUESTS TO BE CONSIDERED IN PHASE II
The Commission is considering the following five requests of CMP in Phase
II of this docket:
1. Approval of the creation of a new energy marketing affiliate of CMP
which will be a wholly-owned corporate subsidiary of the holding
company;
2. Approval of a management services agreement between the energy
marketing affiliate and CMP under which the energy marketing affiliate
would manage CMP's energy portfolio until the commencement of retail
access in March 2000 (Attachment A to CMP's May 1 filing);
3. Approval of the energy marketing affiliate's using the name MainePower
without paying royalties to CMP;
4. Approval of the form support services agreements to be used by CMP and
the energy marketing affiliate and CMP and the other entities in the
holding company (excluding Maine Natural Gas) (Attachments B-1 and B-2
to CMP's May 1 filing);
5. Approval of a form audit services agreement under which the holding
company would provide audit services to entities in the holding
company group. Three current CMP employees will be transferred to the
holding company for this purpose (Attachment C of CMP's May 1 filing).
The proposed energy marketing affiliate will become an "affiliated
competitive provider" as defined in 35-A M.R.S.A. Section 3205(1)(A) upon the
commencement of retail access in March 2000. CMP proposes that employees
currently providing supply planning and procurement functions be transferred to
the energy marketing affiliate as part of this reorganization (approximately 13
employees). CMP further proposes that until March 2000, this energy portfolio
management group will manage CMP's power supply portfolio to serve CMP's
franchise customers. This group will also continue to pursue various business
activities in preparation for retail competition in both Maine and in other
states. Employees who perform retail sales and marketing functions in CMP's
current Energy Services business unit will also become employees of the energy
marketing affiliate after the reorganization (approximately 41 employees). These
employees will not perform work for CMP either prior to or after March 2000. CMP
also proposed transferred its Purchase Power Administrative Department to the
energy marketing affiliate with CMP continuing to use those employees to manage
QF contracts that remain with CMP (9 employees).
IV. STANDARD OF REVIEW
The Commission must find that this reorganization is consistent with the
interests of CMP's ratepayers and investors. 35-A M.R.S.A. Section 708(2)(A). In
granting its approval the Commission may impose terms, conditions or
requirements it determines are necessary to protect the interests of ratepayers.
These may include conditions to ensure: reasonable access to books and records;
the continued ability of the Commission to regulate transactions between
affiliated interests; the utility's continued ability to provide safe,
reasonable, and adequate service; the utility's credit is not impaired or
adversely affected; and reasonable limits on total level of investment in
nonutility businesses. 35-A M.R.S.A. Section 708(2)(A)(1-9)
To grant approval of the contracts and arrangements proposed by CMP, the
Commission must find that they are not adverse to the public interest. The
Commission may impose terms and conditions necessary to safeguard the public
interest. 35-A M.R.S.A. Section 707(3). Specifically with regard to CMP's energy
marketing affiliate, the Commission must ensure compliance with the standards of
conduct governing the conduct of CMP and its affiliated competitive provider as
described in 35-A M.R.S.A. Section 3205(3) and Chapter 820's provisions
applicable to affiliated interests./1/
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1 The Commission provisionally adopted Chapter 820 on February 18, 1998. The
Legislature approved this major substantive rule, with certain amendments,
by resolve enacted on March 30, 1998. Therefore, the rule will be effective
following the Commission's adoption of it with the required amendments
after June 30, 1998, the effective date of the resolve. However, CMP has
agreed to abide by Chapter 820's provisions in the context of the requests
at issue here.
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V. DISCUSSION
A. Name of Energy Marketing Affiliate
CMP has chosen the name "MainePower" for its energy marketing affiliate. It
claims that "the name is intended to capture positive perceptions of the State
of Maine by residents of other Northeastern states." CMP further claims that the
name does not rely on established business reputation or good will of CMP. Its
logo also is distinct from that of CMP. For these reasons, CMP argues that the
Commission should require no royalty payments for the use of the MainePower
name. Both IEPM and the Public Advocate oppose the use of the name MainePower.
The OPA argues that the Legislature indicated its concern about marketing
linkages between an energy marketing affiliate and its affiliated T&D company
when it adopted 35-A M.R.S.A. Section 3205. The Public Advocate also cites 35-A
M.R.S.A. Section 713 which requires the Commission to "attempt to ensure that
the utility or affiliated interest does not have an undue advantage in any
competitive market as a result of its regulated status or its affiliation with a
regulated utility." Id. The OPA claims that given those limitations the
Commission should be cautious in approving a name that is dangerously close to
that of the ongoing regulated [utility] even absent hard evidence indicating a
competitive advantage will actually accrue as a result." OPA argues that the
names are so similar that absent some study or other contrary indication that
the MainePower will not provide a competitive advantage to its marketing
affiliate, that the name not be authorized. In the alternative, if the name is
authorized, the OPA suggests the Commission open a separate proceeding to
explore the market value of the name in order to compensate CMP for its use.
IEPM argues that the Legislature adopted codes of conduct and restrictions
in 35-A M.R.S.A. Section 3025(2) and (3) in lieu of totally banning a T&D
marketing affiliate from marketing in its affiliate T&D company's service
territory. The codes of conduct (which are also currently the subject of a
Commission rulemaking in Docket No. 98-457) prohibit the T&D company from giving
any preferences to its marketing affiliate customers; prohibit the T&D company
from sharing customer information with its marketing affiliate without customer
permission; prohibit joint advertising by a T&D company and its marketing
affiliate; and prohibit the sharing of employees. The purpose of such codes is
to deter the T&D company from leveraging its monopoly power into the competitive
market, thereby deterring entry by potential competitors, or giving the
affiliates an undue advantage over other competitors through the use of
non-public information. According to IEPM, the use of the name MainePower is so
close to that of Central Maine Power Company that it gives the appearance of
joint marketing and gives the affiliate an undue advantage in southern Maine
where the CMP name is well-known.
Whether the name is used or not, IEPM claims payments for the use of the
good will associated with CMP's reputation are warranted. IEPM suggests that one
or two methods, both different from the presumption contained in Chapter 820,
could be used to establish the good will value. One option is to require
MainePower to pay CMP the difference between MainePower's advertising and
marketing costs per customer and the costs incurred by its competitors from any
customers served in the CMP service territory. The second option proposed by
IEPM is to require MainePower to pay 50% of its profits to CMP as a revenue
requirement offset.
Both IEPM and OPA direct the Commission to certain confidential marketing
studies and internal documents developed by CMP as evidence that MainePower will
benefit from customers associating the MainePower name with the CMP name brand.
In reviewing the documents, it is obvious that CMP had a number of business
reasons for choosing the MainePower name including benefiting from the positive
association with the State of Maine and use of "Power" to reflect the services
the new company will provide. However, CMP was also aware of certain benefits
associated with a name similar to CMP's.
Based on the information provided, we do not find the name, in and of
itself, to be so similar to CMP's to create a likelihood of confusion among
customers or an undue advantage over other competitors. Nor do we find the name
so similar to CMP's so that the affiliate will accrue good will benefits from
CMP's reputation, thus triggering royalty payments under Chapter 820. We will
monitor any marketing by the affiliate to ensure that it does not imply an
affiliation with CMP. Such an implication would, in our view, trigger the
royalty provision of Chapter 820; we would consider at that time what value to
place on the transfer of good will, including whether we should adopt the method
of valuing good will suggested by IEPM. Advertising or communications designed
to create the impression of an association with CMP could also constitute
illegal joint advertising and marketing pursuant to 35-A M.R.S.A. Section
3205(3)(J).
We do not prohibit CMP from truthfully representing that MainePower is an
affiliate of CMP. CMP has agreed to the following conditions to address its
identification with MainePower:
MainePower will not identify its affiliation with CMP in its marketing
materials; however, nothing shall prohibit MainePower from disclosing
its affiliation in response to questions from outside parties or in
non-marketing contexts such as shareholder communications and
regulatory filings, provided that in any oral or writing disclosure of
its affiliation to a potential or actual retail customer in CMP's
service territory in response to a question, MainePower shall also
disclose that it is a separate company from CMP, that neither it nor
its customers will receive preferential treatment from CMP and that
the customer does not have to do business with MainePower in order to
receive service from CMP.
We find this condition is reasonable except that MainePower should provide this
additional information in oral as well as written disclosures about its
affiliation. This change appears underlined in the above quoted language.
Subject to these conditions and the other conditions described elsewhere in this
Order, we will permit the marketing affiliate to use the MainePower name.
B. Relationship of CMP and its Energy Marketing Affiliate
The Advisors raised concerns that for MainePower employees to perform
energy supply services for CMP it will be necessary for CMP to share certain
information with MainePower that it will not be permitted to share after retail
competition begins, such as load forecasts and individual customer information.
In response to these concerns, CMP has agreed to a number of conditions
including:
1. Non-public written information obtained by CMP solely by virtue of its
role as a regulated entity ("CMP Information") communicated to the
energy marketing and trading personnel of MainePower ("EMT") will be
used by EMT solely to fulfill their obligation to CMP to manage its
power supply needs until March 1, 2000.
2. Within 30 days of the effective date of any order which includes these
conditions, EMT will file a report with the Commission identifying all
CMP information EMT has in its possession. No less frequently than
once every 4 months thereafter, until March 1, 2000, EMT will file a
report with the Commission identifying all CMP Information received
since the last report.
3. No later than April 1, 2000, EMT shall notify all NEPOOL Participants
and marketing affiliates of a Maine utility, by letter, that they have
the right to view all CMP Information previously provided to EMT and
to obtain copies thereof upon payment of reasonable copying and
handling costs. Any party, upon payment of such costs may obtain this
information without regard to whether they were contacted by EMT under
this paragraph.
4. EMT will not disclose any CMP Information to non-EMT personnel of
MainePower unless such information is also disclosed to nonaffiliated
competitive providers.
5. EMT offices will be physically separate from offices of non-EMT
personnel of MainePower.
6. CMP shall not request customer consent to disclose Customer Specific
Information to non-EMT personnel of EnerMark without requesting
consent to disclose such information to nonaffiliated marketers, and,
should such consent be obtained, CMP will not disclose the information
to MainePower without making reasonable arrangements simultaneously to
disclose the information to such non-affiliated marketers.
7. No employees of EMT will be transferred to any other division of
MainePower before March 1, 2000.
8. Unless specifically approved by the Commission after notice and an
opportunity to be heard by interested parties no employees of CMP will
transfer to EMT, nor will any employees of EMT transfer to CMP, until
such time as the Commission issues rules implementing the Standards of
Conduct, and any subsequent transfers will be in accordance with those
rules.
CMP also agrees to retain the Purchase Power Administration personnel within the
CMP organization and not transfer those personnel or functions to MainePower.
These conditions should ensure that CMP and MainePower do not improperly
share information to the disadvantage of other generation providers. We amend
condition number 1 to limit the use of all non-public information, not just
non-public written information.
With these conditions we find that the creation of MainePower, and the
functions it intends to perform for CMP until March 2000, will be consistent
with both CMP's ratepayers and investors' interests. CMP's marketing affiliate
can begin operation prior to March 2000, as will other competitive providers.
The conditions proposed by CMP will ensure that MainePower receives no undue
advantage over other competitors because its relationship with CMP. CMP's
current customers will benefit from having experienced employees continue to
manage CMP's supply portfolio. We address the provisions of the Management
Services Agreement between CMP and MainePower in the following section.
C. Management Services Agreement Between CMP and MainePower
In order for MainePower to undertake the power supply and resource
acquisition activities described above, CMP requests approval of a form
Management Services Agreement between CMP and Enermark (MainePower) (Attachment
A to CMP's May 1 filing). The form agreement appears to be reasonable and
comport with Chapter 820. We note, however, that CMP will compensate MainePower
for the performance of these services at the market price for such services. To
the extent market prices exceed CMP's embedded costs, CMP's ratepayers should
pay no more than CMP's embedded cost for those services that would be performed
within CMP if we did not permit those employees to be transferred to MainePower.
CMP's ARP will generally protect ratepayers from any such excess costs. However,
if earning sharing should occur, ratepayers could be at risk for any such excess
costs. We will allow the agreement to go into effect as proposed. However, if
CMP should request a rate increase due to earnings sharings, we will require a
showing that CMP ratepayers are only reimbursing MainePower the lower of the
market or CMP's embedded cost for such services associated with CMP's provision
of regulated utility services until March 2000.
D. Support Services Agreements
CMP asks the Commission to approve proposed Support Services Agreements
between CMP and other entities in the holding company group (except with Maine
Natural Gas). In our May 1 Phase I Order in this Docket, section V.8.(o), we
found:
Support Services. Except as otherwise provided herein, CMP may provide
support services in the following areas to any unregulated competitive
energy provider with which it is affiliated: accounting, payroll, tax,
shareholder services, insurance, financial reporting, financial
planning and analysis, human resources, regulatory and governmental
affairs, legal, information systems, purchasing, audit, transportation
and treasury. All such services will be provided in conformance with
the provisions of Chapter 820, Utility Requirements for Non- Core
Activities and Transactions between Affiliates, of the Commission's
Rules and with the provisions of any final rule governing transactions
with an affiliated competitive provider. CMP may not provide other
support services to any unregulated competitive energy provider with
which it is affiliated without express Commission approval.
1. Support Services Agreement between CMP and affiliates other than
MainePower.
First, we address the form support services agreement (Attachment B-2 of
CMP's May 1 filing) that will be used by CMP's affiliates other than MainePower.
The affiliate will compensate CMP at market price for services of the type
listed above in paragraph in section V.8.(o) of our May 1 Order. Under the
Stipulation filed on June 1, 1998 (attached and incorporated into the Order as
Attachment 1), OPA and CMP agreed that the form of this Support Services
Agreement was reasonable. In the Stipulation, CMP agreed to incorporate any more
specific cost allocation principles developed in any other dockets into the
methodology described in Appendix A of the Agreement. Under provision 6 of the
Stipulation, if CMP's Operations Support Division revenues exceed 25% of its
costs, CMP must demonstrate why it should not establish a separate service
company as a wholly owned subsidiary of the holding company to provide such
services.
We find that the form of the proposed agreement is not adverse to the
public interest pursuant to 35-A M.R.S.A. Section 707(3) and is consistent with
the provisions of Chapter 820. Therefore, the Support Services Agreement
provided as Attachment B-2 to CMP's May 1, 1998 filing is approved for use by
CMP and its affiliates.
2. Support Services Agreement between CMP and MainePower
CMP also asks for approval of a form support services agreement between
MainePower and CMP (Attachment B-1 to CMP's May 1 filing). Such approval was
required in our May 1 Order in section V.8(o). The agreement is identical in
form to the standard support services agreement we approved above for other
affiliates. The Advisors raised a concern that providing certain services such
as legal and governmental affairs could result in conflicts with the standards
of conduct requirements. In particular, 35-A M.R.S.A. Section 3205(3)(G)
prohibits the sharing of market information between the affiliated competitive
provider and employees of the distribution company. Under 35-A M.R.S.A. Section
3205 (3)(C), T&D employees may not be "shared with" an affiliated competitive
provider unless the Commission grants an exemption upon certain findings.
To address those concerns, CMP has agreed to see the following conditions:
1. Notwithstanding paragraph 8(o) of the May 1, 1998, Order in this
matter, governmental affairs services shall be excluded from the
support services which CMP is permitted to provide to MainePower.
2. With respect to legal services provided by CMP to MainePower
under its Support Services Agreement (other than services
relating to MainePower's management of CMP's power supply needs
prior to March 1, 2000), CMP shall designate a single lawyer from
its staff who shall be primarily responsible for such services
("MainePower Staff Attorney"), and the MainePower Staff Attorney,
as well as every other CMP staff lawyer, shall not disclose to
MainePower personnel any CMP Information to which s/he may be
privy, more particularly described as follows:
a) the MainePower Staff Attorney shall not have access to CMP
Information which is subject to the Standards of Conduct and
rules promulgated thereunder;
b) CMP staff lawyers shall not disclose to the MainePower Staff
Attorney CMP Information which is subject to the Standards
of Conduct and rules promulgated thereunder;
c) CMP staff lawyers, exclusive of the MainePower Staff
Attorney, shall not provide legal services to MainePower on
matters which require the disclosure to MainePower of CMP
Information which is subject to the Standards of Conduct and
rules promulgated thereunder.
These conditions will address the actual or appearance of sharing
information not permitted by the standards of conduct. We approve the proposed
support services agreement with the understanding that CMP and MainePower will
abide by the spirit as well as the letter of these conditions and the rules
finally adopted pursuant to 35-A M.R.S.A. Section 3205(4).
3. Audit Services Between HoldCo and Entities in Holding
Company Group
CMP requests a proposed audit services agreement under which the holding
company will provide audit services to entities in the holding company group
(Attachment C to CMP's May 1 filing). The three CMP employees who now perform
this function will be transferred to the holding company. CMP and its affiliates
will then contract with HoldCo for these services pursuant to the agreement. The
agreement is modeled after the standard support service agreement we approved
above. We approve it as consistent with the requirements of 35-A M.R.S.A.
Section 707(3) and Chapter 820.
Accordingly, we
O R D E R
1. That the creation of a new energy marketing affiliate of CMP, which
will become an affiliated competitive provider of CMP as defined in
35-A M.R.S.A. Section 3205, and be wholly owned by CMP Holding Company
is approved, subject to the conditions described in the body of this
Order;
2. That the Stipulation filed by OPA and CMP on June 1, 1998 is approved;
3. That CMP's energy marketing affiliate may use the name MainePower
subject to the conditions described in the body of the Order;
4. That the form support services agreements, audit agreement, and
management services agreement, which were attached to CMP's May 1,
1998 filing, are approved subject to the conditions contained in the
body of this Order; and
5. That CMP shall report to the Commission within 30 days of the date of
this Order on the status of the reorganizations approved in this Order
and the May 1 Order in this Docket.
Dated at Augusta, Maine this 6th day of July, 1998.
BY ORDER OF THE COMMISSION
---------------------------
Dennis L. Keschl
Administrative Director
COMMISSIONERS VOTING FOR: Welch
Nugent
NOTICE OF RIGHTS TO REVIEW OR APPEAL
5 M.R.S.A. Section 9061 requires the Public Utilities Commission to give
each party to an adjudicatory proceeding written notice of the party's rights to
review or appeal of its decision made at the conclusion of the adjudicatory
proceeding. The methods of adjudicatory proceedings are as follows:
1. Reconsideration of the Commission's Order may be requested under
Section 6(N) of the Commission's Rules of Practice and Procedure
(65-407 C.M.R.11) within 20 days of the date of the Order by filing a
petition with the Commission stating the grounds upon which
consideration is sought.
2. Appeal of a final decision of the Commission may be taken to the Law
Court by filing, within 30 days of the date of the Order, a Notice of
Appeal with the Administrative Director of the Commission, pursuant to
35-A M.R.S.A. Section 1320(1)-(4) and the Maine Rules of Civil
Procedure, Rule 73 et seq.
3. Additional court review of constitutional issues or issues involving
the justness or reasonableness of rates may be had by the filing of an
appeal with the Law Court, pursuant to 35-A M.R.S.A. Section 1320(5).
Note: The attachment of this Notice to a document does not indicate the
Commission's view that the particular document may be subject to review
or appeal. Similarly, the failure of the Commission to attach a copy of
this Notice to a document does not indicate the Commission's view that
the document is not subject to review or appeal.
EXHIBIT D-6
United States
NUCLEAR REGULATORY COMMISSION
Washington, D.C. 20555-0001
June 2, 1998
Mr. Martin L. Bowling, Jr.
Recovery Officer - Technical Services
Northeast Nuclear Energy Company
c/o Ms. Patricia A. Loftus
Director - Regulatory Affairs
P. O. Box 128
Waterford, CT 06385
SUBJECT: ORDER APPROVING THE APPLICATION REGARDING THE PROPOSED
RESTRUCTURING OF CENTRAL MAINE POWER COMPANY
(TAC NO. MA1236)
Dear Mr. Bowling:
By letter dated March 4, 1998, Central Maine Power Company (CMP), by and through
its counsel, Morgan, Lewis, and Bockius, submitted an application for consent
pursuant to Section 50.80 of Title 10 of the Code of Federal Regulations
regarding the proposed restructuring of CMP, which will result in CMP becoming a
subsidiary of a new holding company. The enclosed Order was issued in response
to that application. The staff's Safety Evaluation in support of the Order is
also enclosed.
The Order has been forwarded to the Office of the Federal Register for
publication.
If you have any questions, please contact me at 301-415-1437.
Sincerely,
James W. Andersen, Project Manager
Special Projects Office - Licensing
Office of Nuclear Reactor Regulation
Docket No. 50-423
Enclosures: 1. Order
2. Safety Evaluation
cc w/encls: See next page
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<PAGE>
Millstone Nuclear Power Station
Unit 3
cc:
Lillian M. Cuoco, Esquire
Senior Nuclear Counsel
Northeast Utilities Service Company
P. O. Box 270
Hartford, CT 06141-0270
Mr. Kevin T. A. McCarthy, Director
Monitoring and Radiation Division
Department of Environmental
Protection
79 Elm Street
Hartford, CT 06106-5127
Regional Administrator, Region I
U.S. Nuclear Regulatory Commission
475 Allendale Road
King of Prussia, PA 19406
First Selectmen
Town of Waterford
Hall of Records
200 Boston Post Road
Waterford, CT 06385
Mr. Wayne D. Lanning
Deputy Director of Inspections
Special Projects Office
475 Allendale Road
King of Prussia, PA 19406-1415
Mr. M. H. Brothers
Vice President - Millstone Unit 3
Northeast Nuclear Energy Company
P. O. Box 128
Waterford, CT 06385
Mr. M. R. Scully, Executive Director
Connecticut Municipal Electric
Energy Cooperative
30 Stott Avenue
Norwich, CT 06360
Mr. David Amerine
Vice President - Human Services
Northeast Utilities Service Company
P. O. Box 128
Waterford, CT 06385
Joseph R. Egan, Esquire
Egan & Associates, P.C.
2300 N Street, NW
Washington, DC 20037
Mr. F.C. Rothen
Vice President - Work Services
Northeast Utilities Service Company
P. O. Box 128
Waterford, CT 06385
Ernest C. Hadley, Esquire
1040 B Main Street
P. O. Box 549
West Wareham, MA 02576
Mr. John Buckingham
Department of Public Utility Control
Electric Unit
10 Liberty Square
New Britain, CT 06051
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<PAGE>
Millstone Nuclear Power Station
Unit 3
cc:
Mr. James S. Robinson, Manager
Nuclear Investments and
Administration
New England Power Company
25 Research Drive
Westborough, MA 01582
Mr. John Streeter
Recovery Officer - Nuclear Oversight
Northeast Utilities Service Company
P. O. Box 128
Waterford, CT 06385
Deborah Katz, President
Citizens Awareness Network
P. O. Box 83
Shelburne Falls, MA 03170
Mr. Allan Johanson, Assistant
Director
Office of Policy Management
Policy Development and Planning
Division
450 Capitol Avenue - MS# 52ERN
P. O. Box 341441
Hartford, CT 06134-1441
Citizens Regulatory Commission
ATTN: Ms. Susan Perry Luxton
180 Great Neck Road
Waterford, CT 06385
The Honorable Terry Concannon
Nuclear Energy Advisory Council
Room 4035
Legislative Office Building
Capitol Avenue
Hartford, CT 06106
Mr. Evan W. Woollacott
Co-Chair
Nuclear Energy Advisory Council
128 Terry's Plain Road
Simsbury, CT 06070
Mr. John W. Beck, President
Little Harbor Consultants, Inc.
Millstone - ITPOP Project Office
P. O. Box 0630
Niantic, CT 06357-0630
Mr. B. D. Kenyon (Acting)
Chief Nuclear Officer - Millstone
Northeast Nuclear Energy Company
P. O. Box 128
Waterford, CT 06385
Mr. Daniel L. Curry
Project Director
Parsons Power Group Inc.
2675 Morgantown Road
Reading, PA 19607
Mr. Don Schopfer
Verification Team Manager
Sargent & Lundy
55 E. Monroe Street
Chicago, IL 60603
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<PAGE>
Millstone Nuclear Power Station
Unit 3
cc:
Mr. G. D. Hicks
Director - Unit 3
Northeast Nuclear Energy Company
P. O. Box 128
Waterford, CT 06385
Senior Resident Inspector
Millstone Nuclear Power Station
c/o U.S. Nuclear Regulatory
Commission
P. O. Box 513
Niantic, CT 06357
Mr. William D. Meinert
Nuclear Engineer
Massachusetts Municipal Wholesale
Electric Company
P. O. Box 426
Ludlow, MA 01056
Attorney Nicholas J. Scobbo, Jr.
Ferriter, Scobbo, Caruso, Rodophele,
PC
1 Beacon Street, 11th Floor
Boston, MA 02108
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<PAGE>
7590-01-P
UNITED STATES OF AMERICA
NUCLEAR REGULATORY COMMISSION
In the Matter of )
)
CENTRAL MAINE POWER COMPANY ) Docket No. 50-423
)
(Millstone Nuclear Power Station Unit 3) )
ORDER APPROVING APPLICATION REGARDING THE RESTRUCTURING
OF CENTRAL MAINE POWER COMPANY
BY ESTABLISHMENT OF A HOLDING COMPANY
I.
Central Maine Power Company(CMP), a 2.5 percent owner of the Millstone
Nuclear Power Station, Unit 3 (Millstone Unit 3), one of the 13 other owners of
Millstone Unit 3, is a co-holder of Facility Operating License No. NPF-49 issued
by the U.S. Nuclear Regulatory Commission (NRC) pursuant to Part 50 of Title 10
of the Code of Federal Regulations (10 CFR Part 50) on January 31,1986. Under
this license, Northeast Nuclear Energy Company (NNECO), has the exclusive
authority to operate Millstone Unit 3. Millstone Unit 3 is located in New London
County, Connecticut.
II.
By an application dated March 4,1998, CMP, by and through its counsel,
Morgan, Lewis, and Bockius, requested consent pursuant to 10 CFR 50.80
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<PAGE>
regarding the proposed restructuring of CMP. Under the restructuring, CMP would
become a wholly owned subsidiary of a newly created holding company but would
continue to hold its 2.5 percent ownership interest in Millstone Unit 3. No
direct transfer of the license would occur. NNECO, which is not involved in the
proposed transaction, would continue to be the licensed operator for Millstone
Unit 3. The holders of CMP common stock would automatically become holders of
common stock of the new holding company on a share-for-share basis, according to
the application.
Notice of this application for consent was published in the FEDERAL
REGISTER on April 24,1998 (63 FR 20434); and an Environmental Assessment and
Finding of No Significant Impact was published in the FEDERAL REGISTER on May 4,
1998 (63 FR 24576).
Under 10 CFR 50.80, no license shall be transferred, directly or
indirectly, through transfer of control of the license unless the Commission
shall give its consent in writing. Upon review of the information submitted in
the application dated March 4,1998, the NRC staff has determined that the
proposed restructuring of CMP by creation of a holding company will not affect
the qualifications of CMP as a holder of Facility Operating License No. NPF-49,
and that the transfer of control of the license, to the extent effected by the
proposed restructuring, is otherwise consistent with applicable provisions of
law, regulations, and orders issued by the Commission, subject to the conditions
set
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<PAGE>
forth herein. These findings are supported by a Safety Evaluation dated June 2,
1998.
III.
Accordingly, pursuant to Sections 161b, 161i, 161o, and 184 of the Atomic
Energy Act of 1954 as amended; 42 U.S.C. Subsections 2201(b), 2201(i), 2201(o),
and 2234; and 10 CFR 50.80, IT IS HEREBY ORDERED that the Commission approves
the application regarding the proposed restructuring of CMP subject to the
following: (1) CMP shall provide the Director of the Office of Nuclear Reactor
Regulation a copy of any application, at the time it is filed, to transfer
(excluding grants of security interests or liens) from CMP to its proposed
parent or to any other affiliated company, facilities for the production,
transmission, or distribution of electric energy having a depreciated book value
exceeding 10 percent (10%) of CMP's consolidated net utility plant, as recorded
on CMP's books of account; and (2) should the restructuring of CMP not be
completed by December 31,1998, this Order shall become null and void, provided,
however, on application and for good cause shown, such date may be extended.
This Order is effective upon issuance.
IV.
By July 13th , 1998, any person adversely affected by this Order may file a
request for a hearing with respect to issuance of the Order. Any person
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<PAGE>
requesting a hearing shall set forth with particularity how that interest is
adversely affected by this Order and shall address the criteria set forth in 10
CFR 2.714(d).
If a hearing is to be held, the Commission will issue an order designating
the time and place of such hearing.
The issue to be considered at any such hearing shall be whether this Order
should be sustained.
Any request for a hearing must be filed with the Secretary of the
Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001,
Attention: Rulemakings and Adjudications Staff, or may be delivered to the
Commission's Public Document Room, The Gelman Building, 2120 L Street, NW.,
Washington, DC by the above date. Copies should be also en to the Office of the
General Counsel and to the Director, Office of Nuclear Reactor Regulation, U.S.
Nuclear Regulatory Commission, Washington, DC 20555-0001; Lillian M. Cuoco,
Esq., Northeast Utilities Service Company, P.O. Box 270, Hartford, Connecticut,
06106-5127, Senior Nuclear Counsel to NNECO; and to Kevin P. Gallen, Esq.,
Morgan, Lewis, and Bockius, 1800 M Street, NW., Washington, DC 20036-5869,
Counsel for CMP.
For further details with respect to this action, see the application for
approval regarding the corporate restructuring dated March 4,1998, the NRC
staff's Safety Evaluation dated 1998, and Environmental Assessment and Finding
of No Significant Impact dated April 24,1995, which are available for public
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<PAGE>
inspection at the Commission's Public Document Room, The Gelman Building, 2120 L
Street, NW., Washington, DC, and at the local public document room located at
the Learning Resources Center, Three Rivers Community-Technical College, 574 New
London Turnpike, Norwich, Connecticut, and at the Waterford Library, ATTN: Vince
Juliano, 49 Rope Ferry Road, Waterford, Connecticut.
Dated at Rockville, Maryland, this 2nd day of June 1998.
FOR THE NUCLEAR REGULATORY COMMISSION
Samuel J. Collins, Director
Office of Nuclear Reactor Regulation
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<PAGE>
UNITED STATES
NUCLEAR REGULATORY COMMISSION
WASHINGTON, D.C. 20555-0001
SAFETY EVALUATION BY THE OFFICE OF NUCLEAR REACTOR REGULATION
PROPOSED CORPORATE RESTRUCTURING
OF CENTRAL MAINE POWER COMPANY
DOCKET NO. 50-423
MILLSTONE NUCLEAR POWER STATION, Unit 3
1.0 INTRODUCTION
By application dated March 4,1998, Central Maine Power Company (CMP), through
its counsel, Mr. Kevin P. Gallen, of Morgan, Lewis and Bockius, informed the
U.S. Nuclear Regulatory Commission (NRC) that a corporate restructuring of CMP
had been proposed that will result in the creation of a holding company (under
the temporary name HoldCo) organized under the laws of the State of Maine. CMP
and its existing nonutility subsidiaries will become wholly owned subsidiaries
of HoldCo. CMP owns a 2.5 percent interest in the Millstone Nuclear Power
Station, Unit 3 (Millstone 3). Under the restructuring, the holders of CMP
common stock will become the holders of common stock of the holding company on a
share-for-share basis. After the restructuring, CMP will continue to be a public
utility providing the same utility services as it did immediately before the
reorganization. CMP will continue to be a licensee of Millstone 3, and no direct
transfer of the license or interests in the Unit will result from the proposed
restructuring. Approval for the indirect transfer of control of the license
resulting from the restructuring is being sought from the NRC pursuant to Title
10 of the Code of Federal Regulations (10 CFR) Section 50.80.
Pursuant to 10 CFR 50.80, the Commission may approve the transfer of the control
of a license, after notice to interested persons. Such action is contingent upon
the Commission's determination that the holder of the license following the
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<PAGE>
transfer of control is qualified to hold the license and the transfer is
otherwise consistent with applicable provisions of law, regulations, and orders
of the Commission.
2.0 FINANCIAL QUALIFICATIONS ANALYSIS
According to CMP's application, following the proposed restructuring, CMP will
continue as a 2.5 percent owner of Millstone 3 and will remain an electric
utility as defined in 10 CFR 50.2, engaged in the generation, transmission, and
distribution of electric energy for wholesale and retail markets. The Federal
Energy Regulatory Commission will still regulate CMP's wholesale electric rates,
and the Maine Public Utilities Commission (MPUC) will also maintain jurisdiction
over the licensee's retail electric rates.
The application states that the proposed restructuring will have no impact on
the revenues and expenses of CPM regarding the operation of Millstone 3 and that
decommissioning funding will not be affected. As an electric utility, CMP is
exempt from further financial qualifications review, pursuant to 10 CFR
50.33(f). However, in view of the NRC's concern that restructuring can lead to a
diminution of assets necessary for the safe operation and decommissioning of a
licensee's nuclear power plant, the NRC's practice has been to condition license
transfer approvals upon a requirement that the licensee not transfer significant
assets from the licensee to an affiliate without first notifying the NRC. This
requirement assists the NRC in assuring that a licensee will continue to
maintain adequate resources to contribute to the safe operation and
decommissioning of its facility. Thus, the following should be made a condition
of the Order approving the application regarding the proposed restructuring:
CMP shall provide the Director of the Office of Nuclear Reactor
Regulation a copy of any application, at the time it is filed, to
transfer (excluding grants of security interests or liens) from
CMP to its proposed parent, or to any other affiliated company,
facilities for the production, transmission, or distribution of
electric energy having a depreciated book value exceeding 10
percent (10%) of CMP's consolidated net utility plant, as
recorded on CMP's books of accounts.
3.0 TECHNICAL QUALIFICATIONS
Northeast Nuclear Energy Company (NNECO), a co-owner of Millstone 3, has
exclusive authority under the license to operate the facility. NNECO is not
involved in the proposed restructuring of CMP. CMP confirmed in its application
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<PAGE>
that there will be no change as a result of the proposed restructuring in the
operational or management personnel of Millstone 3. Since the proposed
restructuring does not involve any transfer of operational authority under the
license to CMP or its proposed holding company, a review of its technical
qualifications is not necessary.
4.0 ANTITRUST REVIEW
Section 105 of the Atomic Energy Act of 1954, as amended (the Act), requires the
Commission to conduct an antitrust review in connection with an application for
a license to construct or operate a facility under Section 103. Although HoldCo
may become the holding company of CMP, a licensee for Millstone 3, i.e., may
indirectly acquire control of the license (to the extent held by CMP), CMP's
application does not indicate that Hold Co will be performing activities for
which a license is needed. Since approval of the application would not involve
the issuance of a license, the procedures under Section 105 regarding antitrust
reviews do not apply, including the making of any -significant changes"
determination.
5.0 FOREIGN OWNERSHIP, CONTROL, OR DOMINATION
The licensee indicated in its application that after restructuring is
implemented, HoldCo will become the sole holder of CMP outstanding common stock
and that the current holders of CMP's common stock will become holders of the
common stock of HoldCo on a share-for-share basis. Thus, the previous holders of
CMP common stock will own HoldCo common stock in the same proportion as they
held CMP common stock. The application also states all of the directors and
officers of HoldCo and CMP will be U.S. citizens. According to the application,
CMP is not now, and will not be following the proposed restructuring, owned,
controlled, or dominated by an alien, foreign corporation, or foreign
government. The staff does not know or have reason to believe otherwise.
6.0 CONCLUSIONS
In view of the foregoing, the NRC staff concludes that the proposed
restructuring of CMP by creation of a holding company will not adversely affect
the financial qualifications of CMP with respect to the operation and
decommissioning of Millstone 3. Also, there do not appear to be any problematic
antitrust or foreign ownership considerations that would result from the
proposed restructuring. Thus, the proposed restructuring will not affect the
qualifications of CMP as a holder of the license for Millstone 3, and the
transfer of control of the license, to the extent effected by the proposed
restructuring, is otherwise consistent with
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<PAGE>
applicable provisions of law, regulations, and orders issued by the Commission
pursuant thereto. Accordingly, the NRC should approve the application regarding
the proposed restructuring, subject to the condition discussed above concerning
significant asset transfers.
Principal Contributor: A. F. McKeigney
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EXHIBIT D-7
STATE OF CONNECTICUT Docket No. ______
DEPARTMENT OF PUBLIC UTILITY CONTROL
APPLICATION OF CENTRAL MAINE POWER COMPANY
CONCERNING HOLDING COMPANY RESTRUCTURING
I. INTRODUCTION AND JURISDICTIONAL STATEMENT
1. Central Maine Power Company ("Central Maine") hereby files this
Application Concerning Holding Company Restructuring requesting any necessary
authorization of the Connecticut Department of Public Utility Control (the
"Department") for the formation of a Maine-based holding company that would
become the parent of Central Maine and several of its subsidiaries.
2. Under a holding company structure, Central Maine and its non-utility
subsidiaries will be subsidiaries of a new ordinary business corporation whose
primary function will be to coordinate the policies and direction of the
corporate group and provide capital for subsidiary operations. Central Maine
believes that a holding company structure will provide the opportunity to
respond more effectively and efficiently to competitive market changes occurring
in the electric utility industry nationally and, in particular, in the State of
Maine under electric utility restructuring legislation signed into law by the
Governor of Maine in May 1997, while maintaining the principal business focus on
Central Maine's core transmission and distribution business. In addition, the
clearer separation of Central Maine's core utility business from non-utility
enterprises achieved by making the holding company, rather than Central Maine,
the parent of the non-utility subsidiaries will better segregate the operations,
risks and costs associated with these non-utility businesses from those involved
in
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providing utility services and provide greater financial flexibility in pursuing
non-utility business opportunities.
3. Central Maine applied, and after a comprehensive proceeding lasting
several months in which the Office of the Public Advocate, industrial and
residential consumer groups and other interested parties intervened, on May 1,
1998, received, approval of the Maine Public Utilities Commission (the "MPUC")
to form a holding company and to carry out the transactions by which Central
Maine and certain of its subsidiaries will become subsidiaries of the holding
company. A copy of the detailed, all-encompassing May 1 MPUC Order in Docket No.
97-930 is attached to this Application as Appendix A. In addition, Central Maine
has applied to the Securities and Exchange Commission (the "SEC") and the
Federal Energy Regulatory Commission (the "FERC") and also applied to the
Nuclear Regulatory Commission ("NRC") for required approvals for its holding
company restructuring. On June 2, 1998, the NRC issued its Order approving
Central Maine's holding company restructuring after concluding that "the
proposed restructuring of [Central Maine] by creation of a holding company will
not adversely affect the financial qualifications of [Central Maine] with
respect to the operation and decommissioning of Millstone 3." See Safety
Evaluation by the Office of Nuclear Reactor Regulation -- Proposed Corporate
Restructuring of Central Maine Power Company, Docket No. 50-423, at 3 (June 2,
1998), appended to Order Approving the Application Regarding the Proposed
Restructuring of Central Maine Power Company, all of which are attached to this
Application as Appendix B. Further information concerning these requests for
regulatory approvals is contained in Part VII below. At its May 21, 1998, Annual
Meeting of Shareholders, Central Maine's shareholders also approved the holding
company
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<PAGE>
restructuring. See Part VII below for further information concerning approval of
Central Maine's shareholders.
4. Central Maine, a Maine corporation organized in 1905, is an
investor-owned electric utility engaged in the business of generating,
purchasing, transmitting, distributing and selling electric energy. Central
Maine serves approximately 528,000 retail customers in its 11 ,000 square mile
service territory in southern and central Maine and provides service to
wholesale customers, principally other utilities.
5. Central Maine provides no retail or wholesale utility service in the
State of Connecticut. Although it provides no electric service to retail or
wholesale customers in Connecticut, Central Maine is a "foreign electric
company" under Section 16-246c of the Connecticut General Statutes ("CGS") that
is subject to the Department's supervision as an "electric company" and a
"public service company," each as defined in Section 16-1 CGS, by virtue of
Central Maine's ownership of a 2.5 percent undivided interest as a tenant in
common in the Millstone No. 3 nuclear unit in Waterford, Connecticut.
6. For this reason, either or both CGS Section 16-47 and Section 16-43 may
arguably apply to the holding company restructuring of Central Maine. For the
reasons set forth below, Central Maine believes, however, that neither Section
properly applies to this transaction. Accordingly, Central Maine respectfully
suggests that the Department should not exercise jurisdiction over the formation
of a holding company by Central Maine.
7. Section 16-47(c) provides,
No corporation . . . shall take any action that causes it to become a
holding company with control over a gas, electric, water, telephone or
community antenna television company engaged in the business of
supplying service within this state . . . without
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first making written application to and obtaining the approval of the
department.
In this instance, there will be no holding company with "control," as defined in
Section 16- 47(a), "over a gas, electric, water, telephone or community antenna
television company engaged in the business of supplying service within this
state." Section 16-47(a) defines "control" as follows:
As used in this section, 'control' means the possession of the power
to direct or cause the direction of the management and policies of a
gas, electric, water, telephone or community antenna television
company or a holding company, whether through the ownership of its
voting securities, the ability to effect a change in the composition
of its board of directors or otherwise . . . .
The definition of "electric company" is contained in Section 16-1(8) CGS, which
states that an electric company
includes every corporation, company, association, joint stock
association, partnership or person, or lessee thereof, owning,
leasing, maintaining, operating, managing or controlling poles, wires,
conduits or other fixtures, along public highways or streets, for the
transmission or distribution of electric current for sale for light,
heat or power within this state, or engaged in generating electricity
to be so transmitted or distributed for such purpose . . . .
In this case, the holding company that will become the parent company of Central
Maine will not "control," within the meaning of Section 16-47(a), an electric
company "engaged in the business of supplying service within this state," which
is a necessary jurisdictional element under Section 16-47. The proposed holding
company will own all of the common stock of Central Maine, which provides no
retail or wholesale electric service in Connecticut. Central Maine will continue
to own its 2.5 percent interest in the Millstone No. 3 nuclear unit, but this
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mere minority interest in the Millstone 3 plant does not qualify Central Maine
as an electric company "engaged in the business of supplying service within this
state." Accordingly, Central Maine respectfully suggests that there is no
provision of Section 16-47 giving the Department jurisdiction over the proposed
holding company restructuring of Central Maine. Additional supporting facts are
set forth below.
8. Section 16-43(a) provides, "A public service company shall obtain the
approval of the Department of Public Utility Control to directly or indirectly
(1) merge, consolidate or make common stock with any other company. . . ." In
this instance, a subsidiary of the holding company incorporated in Maine
(hereinafter referred to as "MergeCo") will be created solely as a vehicle to
effectuate the holding company restructuring by merging into Central Maine,
which will be a subsidiary of the holding company after the merger, with MergeCo
ceasing to exist once it has accomplished its limited purpose. The outstanding
shares of MergeCo common stock (that is, shares issued to the holding company at
the time MergeCo is formed) will, as a result of the merger of MergeCo into
Central Maine with Central Maine as the surviving corporation, be converted by
operation of law1 into the number of shares of Central Maine common stock
specified in the Agreement and Plan of Merger, a copy of which is included as
Appendix I to Central Maine's Proxy Statement for its 1998 Annual Meeting of
Shareholders attached to this Application as Appendix C. The Agreement and Plan
of Merger
- --------
1 Under Sections 901 and 905 of the Maine Business Corporation Act, Title
13-A M.R.S.A., shareholder approval of a plan of merger that sets forth
this conversion transaction as one of its terms and the subsequent filing
of the articles of merger with the Maine Secretary of State effectuates the
conversion.
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is a necessary mechanism under Maine law to carry out the intended corporate
restructuring.2 Additional supporting facts are set forth below. This form of
transaction involving Central Maine, the holding company and MergeCo to carry
out the intended corporate reorganization is referred to as a reverse phantom
subsidiary merger" (also referred to as a "reverse triangular merger"). In
states such as Maine where there is no mandatory share exchange statute, this
form of transaction is necessary to accomplish the restructuring and avoid the
potential for a minority common share interest remaining outstanding in the
utility. As noted, however, it is merely a mechanism for implementing the
holding company reorganization, and does not represent any substantive change in
the business of Central Maine.
II. THE EXISTING CENTRAL MAINE ORGANIZATION
9. The existing Central Maine organization is as shown on Appendix D
attached to this Application. Central Maine owns interests in both utility and
non-utility businesses as shown on Appendix D and as described below.
A. Central Maine and Its Utility Business Interests
10. The electric properties of Central Maine form a single integrated
system which is connected at 345 kilovolts and 115 kilovolts with the lines of
Public Service Company of New Hampshire at the southerly end and at 115
kilovolts with Bangor Hydro-Electric Company ("Bangor Hydro") at the northerly
end of Central Maine's system. Central Maine's system is also connected with the
systems of The New Brunswick Power Corporation ("New Brunswick Power") and
Bangor Hydro through the 345-kilovolt interconnection constructed by Maine
Electric Power Company, Inc. ("MEPCO"), a Maine transmission utility in which
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2 See note 1 above.
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Central Maine has a 78.3 percent equity interest and the remaining interests are
owned by Bangor Hydro and Maine Public Service Company. (See further information
about MEPCO in Paragraph 14 below.)
11. Central Maine has interests in 31 hydroelectric generating stations,
all of which are located in the State of Maine, with an estimated net capability
of 373 megawatts. Central Maine also operates two oil-fired steam-electric
generating stations -- William F. Wyman Station in Yarmouth, Maine, of which
Central Maine's entitlement is 594 megawatts,3 and Mason Station in Wiscasset,
Maine, with 145 megawatts of generating capacity. An additional 42 megawatts are
provided by internal combustion generating facilities owned by Central Maine.
12. Central Maine has direct or indirect ownership interests in five
nuclear generating facilities in New England. The largest is a 38 percent common
stock interest in Maine Yankee Atomic Power Company, which owns a nuclear
generating plant in Wiscasset, Maine, that has been permanently shut down since
August 6, 1997. In addition, Central Maine owns a 9.5 percent common stock
interest in Yankee Atomic Electric Company, which has permanently shut down its
plant located in Rowe, Massachusetts, a 6 percent common stock interest in
Connecticut Yankee Atomic Power Company, which has permanently shut down its
plant in Haddam, Connecticut, and a 4 percent common stock interest in Vermont
Yankee Nuclear Power Corporation, which owns a plant in Vernon, Vermont. As
previously noted, Central Maine has a 2.5 percent direct ownership interest in
the Millstone No. 3 nuclear
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3 Wyman Station includes Units 1, 2 and 3, which are owned solely by Central
Maine, and Unit 4, which is jointly owned by Central Maine and other New
England electric utilities. Central Maine has an approximate 59 percent
joint ownership interest in Unit 4.
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unit pursuant to a joint ownership agreement. Central Maine's interests in these
five nuclear facilities are referred to herein as the "Nuclear Interests."
13. Central Maine has three electric utility subsidiaries: MEPCO, Aroostook
Valley Electric Company ("AVEC"), and NORVARCO, all of which are incorporated
and located in Maine. AVEC and NORVARCO are wholly-owned by Central Maine.
14. 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 New Brunswick by New Brunswick Power. MEPCO transmits power
between New Brunswick Power and various New England utilities pursuant to
MEPCO's Open Access Transmission Tariff. MEPCO also owns and operates certain
equipment, including microwave communication facilities, in connection with the
Hydro-Quebec Phase II ("Phase II") project described in Paragraph 16 below.
15. AVEC owns and operates a 31-megawatt wood-fired generating plant in
Fort Fairfield, Maine, the entire output of which is sold to Central Maine.
16. NORVARCO is one of two general partners with 50 percent interests in
Chester SVC Partnership, a Maine general partnership that owns a static var
compensator facility (the "SVC Facility") located in Chester, Maine, adjacent to
MEPCO's 345-kV transmission line. The SVC Facility provides necessary
transmission system reinforcements that support the Phase II transmission line
expansion constructed for New England Hydro-Transmission Corporation in New
Hampshire and that allow the Phase II facilities and the MEPCO transmission line
to operate at their maximum capabilities simultaneously.
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17. Neither Central Maine nor any of its public utility subsidiaries
provides retail electric service in the State of Connecticut.
18. Central Maine has interests in other entities that operate or
participate in businesses associated with the generation of electricity. These
entities are as follows:
a. Kennebec Hydro Resources, Inc. ("Kennebec Hydro"), a wholly-owned
subsidiary of Central Maine incorporated in Maine, is the general
partner with a 50 percent interest in a "qualifying facility"
under the Public Utility Regulatory Policies Act of 1978, located
in Waterville, Maine.
b. Kennebec Water Power Company ("Kennebec Water"), in which Central
Maine has a 24.8 percent equity interest, is a Maine corporation
whose business is to regulate the flow of the Kennebec River.
Through a joint operating agreement with The Union Water-Power
Company ("Union Water"), a wholly-owned corporate subsidiary of
Central Maine located in Lewiston, Maine, Union Water assumed a
substantial part of Kennebec Water's river-flow responsibilities
effective January 1, 1995. (See further information about Union
Water in Paragraph 19.f below.)
c. Gulf Island Pond Oxygenation Project ("Gulf Island") is a Maine
general partnership whose business is to operate and maintain an
oxygenation facility at Gulf Island Pond on the Androscoggin
River at Greene, Maine. Central Maine, which owns a hydroelectric
generating facility at Gulf Island Dam, holds a 14 percent
interest in the partnership, with the remaining interests held by
three paper companies with plants on the Androscoggin River. The
oxygenation
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facility is operated by Union Water under an operating agreement
with Gulf Island.
B. Central Maine's Non-Utility Affiliates
19. Central Maine has several existing subsidiaries that are engaged in
non-electric business activities designed to capitalize on core competencies of
the Central Maine system. These subsidiaries, which are wholly-owned by Central
Maine and are all incorporated in Maine, are as follows:
a. CMP International Consultants ("CMPI") provides consulting,
planning, training and project management services to foreign and
domestic utilities and government agencies in various aspects of
utility operations and utility support services. CMPI has a
division that provides information and research and related
consulting services and a separate division that provides
engineering, environmental, licensing and other technical
services.
b. Central Securities Corporation ("Central Securities") owns real
estate in Central Maine's service area, including service
buildings district offices, that it leases to Central Maine.
c. Cumberland Securities Corporation ("Cumberland Securities") also
owns similar facilities in other locations in Central Maine's
service area that it leases to Central Maine.
d. MaineCom Services ("MaineCom") develops fiber-optic data service
for bulk carriers, provides other telecommunications services in
Maine, and holds direct
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or indirect voting interests in various companies that are in the
business of developing a fiber-optics network in New England.
e. TeleSmart provides collections and related accounts receivable
management services and has a division that collects charged-off
accounts.
f. Union Water provides (i) river facilities management, including
the management of dams, reservoirs, fishways and oxygenation
facilities, (ii) utility support services such as underground
facility locating, infrared photography and workorder ticket
management, and (iii) real estate management, development and
leasing services and land and modular housing sales. In addition,
Union Water owns 25 percent of the voting stock of Androscoggin
Reservoir Company (the remainder of which is owned by Public
Service Company of New Hampshire 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.
C. Sale of Central Maine Generation-Related Assets
20. On April 28, 1997, Central Maine announced a plan to seek proposals for
the purchase of its generating assets and, as part of an auction process,
received final bids on December 10, 1997. On January 6, 1998, Central Maine
announced that it had reached agreement to sell all of its hydro, fossil and
biomass generating assets with a combined generating capacity of 1,185 megawatts
to an affiliate of Florida-based FPL Group, the winning bidder in the auction
process. The proposed sale also includes Central Maine's equity interests in
AVEC, Kennebec Hydro and Kennebec Water and its partnership interest in Gulf
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Island and Union Water's interest in Androscoggin Reservoir Company. Central
Maine's power entitlements from approximately 50 purchased-power agreements with
non-utility generators representing approximately 488 megawatts and its Nuclear
Interests are not included in the sale. The sale is subject to various closing
conditions, including the approval of state and federal regulatory agencies.
III. MAINE REGULATORY BACKGROUND
21. The Maine electric utility restructuring law enacted in 1997 by the
Maine Legislature requires investor-owned utilities to divest all of their
generating assets and generation-related business activities other than
purchased-power agreements with non-utility generators, demand side management
contracts, and ownership interests in nuclear facilities by March 1, 2000, but
Central Maine elected to conduct an earlier sale. The law also requires
utilities to sell their rights to the energy and capacity from purchased-power
agreements with non-utility generators beginning March 1, 2000. As of that date,
Maine electric utility customers will be free to choose among competitive
electricity suppliers who will be licensed but otherwise unregulated by the
MPUC. Transmission and distribution utilities, including Central Maine, will
continue to be regulated by the MPUC in all respects.
22. When retail access begins in Maine on March 1, 2000, Central Maine, as
a transmission and distribution utility, will be prohibited from selling
electric energy to retail customers; any energy marketing and sales must be done
through a separate corporate affiliate of Central Maine. Under the restructuring
law, any energy marketing affiliate of Central
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Maine, referred to in the restructuring law as an "affiliated competitive
provider,"4 would be limited to providing not more than 33 percent of the total
kilowatt-hours sold within Central Maine's service territory, but would not be
so limited under Maine law with respect to any extra-territorial sales. The new
restructuring statute contains numerous specific standards of conduct governing
the conduct of a transmission and distribution utility and its affiliated
competitive provider and requires the MPUC to adopt rules to implement those
standards.
23. In addition to providing a "reasonable opportunity" to recover stranded
costs,5 the Maine restructuring law mandates the recovery of nuclear plant
decommissioning costs established by federal law, rule or order through
transmission and distribution utility rates and charges.
IV. THE RESTRUCTURED CENTRAL MAINE ORGANIZATION
24. The restructured Central Maine organization is shown on Appendix E
attached to this Application.
A. Central Maine
25. As of the effective date of the restructuring, the new corporate
organization will include a non-operating holding company of which Central Maine
will be a subsidiary, with all of Central Maine's common stock outstanding being
held by the holding company. Following the reorganization, Central Maine's core
utility business will continue to be the principal business focus of the
combined enterprise and of efforts to operate a financially sound and
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4 See 35-A M.R.S.A. ss.ss.3205.1, 3201.
5 "Stranded costs" are defined as the legitimate, verifiable and unmitigable
costs made unrecoverable as a result of the restructuring required by the
new Maine law, as determined by the MPUC. 35-A M.R.S.A. ss.3208.1.
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growing business whose objective will be to provide service effectively and
efficiently. Maintenance and improvement in the quality of Central Maine's
service will continue to be top priorities. From a business standpoint, the
focus must remain on Central Maine's business reputation as a predominant
component of the entire corporate group. In addition, the overwhelming portion
of invested capital will continue to be invested in assets in Central Maine's
service area dedicated to providing service to its Maine customers. Central
Maine will not compromise its ability to perform its public service obligation
or its relationship with regulators or risk invested capital by retaining
insufficient talent or resources to manage those assets effectively and
efficiently.
26. Central Maine's outstanding debt securities, which include bonds issued
under its General and Refunding Mortgage Indenture, medium-term notes,
industrial revenue and pollution control notes and the note held by the Finance
Authority of Maine in connection with the buyout of a non-utility generator
contract, and all of Central Maine's outstanding Preferred Stock will remain as
outstanding securities of Central Maine. The terms thereof will not be altered
by the reorganization. Information concerning these securities is contained in
Central Maine's Form 10-K for the year ended December 31, 1997, filed with the
SEC on March 27, 1998, and attached as Appendix F to this Application, and in
Central Maine's Form 10-Q for the quarter ended March 31,1998, filed with the
SEC on May 15, 1998, and attached to this Application as Appendix G.
27. Likewise, other obligations of CMP relating to its electric utility
business will be retained by Central Maine, unaffected by the reorganization.
These obligations include Central Maine's share of decommissioning costs
relating to its Nuclear Interests.
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28. After the effective date of the reorganization, Central Maine will
continue to finance its business operations by issuing its own securities
(subject to obtaining necessary regulatory approvals). The proceeds of
securities issuances by Central Maine will be used exclusively for Central
Maine's electric utility business.
29. All transmission and distribution plant owned or used by Central Maine
in its electric utility business will remain assets of Central Maine and will
not be affected by the reorganization.
30. On the effective date of the reorganization, Central Maine will
continue to hold all generation assets it now owns, including (i) any assets
that are covered by the purchase and sale agreement with the FPL Group
affiliate,6 (ii) the Nuclear Interests, and (iii) contracts with non-utility
generators and demand-side management providers or brokers.
31. As part of the arrangement with the FPL Group affiliate who will
purchase Central Maine's generating assets, Central Maine entered into energy
buy-back agreements with respect to the hydro and fossil generating assets being
sold to assist in fulfilling its obligation to supply its customers with power
until March 1, 2000, the date that retail consumers in Maine will be able to
choose their electricity provider as discussed above. Until the beginning of
retail access, this energy portfolio will be managed for the sole benefit of
Central Maine and its customers by a new wholly-owned unregulated energy and
marketing subsidiary of the holding company that will, after the commencement of
retail access, be an "affiliated competitive provider" (hereinafter referred to
as "EnerMark"). Energy portfolio
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6 Central Maine's application for approval of the sale of its generation
assets is currently before the MPUC in a separate proceeding in Docket No.
98-058. The asset sale also requires FERC approval.
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management services, as well as supply planning and procurement services, will
be provided by EnerMark to Central Maine under a Management Services Agreement.
Central Maine's request for approval of the creation of EnerMark and of the
Management Services Agreement is pending before the MPUC.
B. Central Maine's Existing Affiliates
32. After the reorganization, Central Maine will continue to hold its
existing interests in all of its electric utility affiliates, including MEPCO,
AVEC (subject to the closing of the sale to the FPL Group affiliate), NORVARCO
and all of its Nuclear Interests, without change. Central Maine and its electric
utility affiliates will continue to be regulated by the MPUC. As operating
utilities, they will be subject to regulation with respect to rates, securities
issuances, transactions with affiliates, accounting, customer service, asset
transfers and other matters. The holding company structure will not in any way
impair the ability of any regulator to protect the public interest in connection
with the utility operations of Central Maine or its utility affiliates.
33. In addition, Central Maine will continue to hold all of the stock of
Central Securities and Cumberland Securities after the reorganization.
34. Central Maine's interests in Kennebec Hydro, Kennebec Water and Gulf
Island will stay with Central Maine pending the closing of the sale of Central
Maine's generating assets.
35. To carry out the corporate reorganization, Central Maine will transfer
its equity interests in CMPI, MaineCom, TeleSmart and Union Water, each of which
is now a wholly-owned subsidiary of Central Maine, by dividending the stock of
those entities to the holding
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company. After such transfer, CMPI, MaineCom, TeleSmart and Union Water will be
wholly-owned subsidiaries of the holding company. The May 1 MPUC Order also
authorizes Central Maine's transfer of these subsidiaries to the holding
company.
36. If the reorganization is completed, investments in these subsidiaries
will be made by the holding company rather than Central Maine. The holding
company will make investments in its subsidiaries by using one or more of the
following sources of funds, downstreamed as capital contributions: the proceeds
of holding company equity issuances to the public, of borrowings under a bank
credit facility at the holding company level or of other debt issuances by the
holding company, or through dividends from subsidiaries. In addition, the
holding company may guarantee borrowings by its non-utility subsidiaries or
enter into keepwell agreements to maintain a specified minimum subsidiary net
worth. Sources of financing of non-utility subsidiary business ventures may also
include nonrecourse project financing, internally-generated funds from those
businesses, loans from sister companies other than Central Maine or its public
utility affiliates, subsidiary securities issuances, or investments by third
parties. Debt and equity issuances by the holding company and its non-utility
subsidiaries to finance non-utility activities will be the obligation of the
issuing entity and not Central Maine and therefore will not impact the Company's
credit or affect its ratings. Central Maine will continue to be responsible for
issuing its own debt and preferred equity securities. Its creditworthiness will
be based on an evaluation of its earnings, property, interest coverage, capital
structure and overall ability to meet its obligations. The proceeds of
securities issuances by the Company will be used exclusively by Central Maine
for its electric utility business.
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37. By more clearly separating utility operations from non-utility
enterprises, the new corporate structure will afford financial flexibility that
will permit the use of financing techniques that are more directly suited to the
requirements, characteristics and risks of particular non-utility operations
without affecting the creditworthiness of Central Maine. The ability to access
different capital markets quickly with a broad range of financial instruments
and maturities will allow a financing to be tailored to the type of investment
being made on the most attractive possible terms, taking into account the
appropriate capitalization ratio for a particular subsidiary. Financial
flexibility is necessary to ensure that alternative financing strategies are
available to the holding company and its non-utility subsidiaries since
different types of investments and their attendant ownership structures, cash
flows, tax considerations and risks require different financing techniques to
optimize the economic benefit of the investment.
38. In contrast to a holding company structure, Central Maine's current
corporate structure cannot accommodate the same degree of financial flexibility
or separation because all business activities must be either part of Central
Maine itself or conducted in entities downstream from Central Maine. As a
result, under the present corporate organization, any debt financing by Central
Maine's subsidiaries for diversification purposes is reflected, through
consolidation, on Central Maine's balance sheet, and related income or loss is
consolidated on Central Maine's income statement. Consequently, the financial
structure of these non-utility enterprises becomes commingled with the structure
of the electric utility business. The holding company structure provides a
mechanism to isolate formally the differing investment risks.
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39. The holding company structure also provides better insulation for
regulated operations from the performance of unregulated businesses. Conducting
non-utility businesses through wholly-owned subsidiaries of the holding company
rather than through subsidiaries of Central Maine and the financing of their
activities separately and independently from Central Maine will effectively
insulate Central Maine from the potential earnings volatility of these
businesses since their activities will not be reflected in Central Maine's
financial statements and any unfavorable financial results of these non-utility
enterprises will not adversely affect Central Maine's credit and cost of
capital. The separate delineation of non-utility operations in this manner helps
to prevent cost of capital cross subsidies since Central Maine's balance sheet
and income statement will be unaffected by financings and financial results of
other holding company subsidiaries.
40. The May 1, 1998 Order of the MPUC approving Central Maine's holding
company reorganization recognizes this benefit of a holding company structure.
The Order states,
We find that a basic advantage of the holding company
organizational structure is that non-utility activities can be
more cleanly separated from utility activities. In particular,
the capital structures of utility entities are separated from
non-utility entities with the holding company form, which
better 'insulates' ratepayers from the activities of the
[holding company's] nonutility affiliates.
Docket No. 97-930, Order at 4 (May 1, 1998). The MPUC's Order permits the
holding company to invest up to $240 million in non-utility activities7 without
further MPUC approval.
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7 The MPUC's Order in Docket No. 98-077, also issued on May 1, 1998, permits
an additional $10 million investment in the natural gas distribution
business in Maine. It also authorizes the creation of a wholly-owned
subsidiary ("GasCo") of the holding company and a new limited liability
company ("CMP Natural Gas LLC") that will be a local distribution carrier
in which GasCo will hold a 50 interest, with the remaining 50 percent
interest being held by New York State Electric & Gas Corporation or its
affiliate. The MPUC currently is considering the issuance of a certificate
of public convenience and necessity to the LLC to provide gas service to
Maine communities not currently receiving natural gas service in Docket No.
96-786.
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41. With respect to financings by the holding company, the May 1 Order of
the MPUC adopted Central Maine's suggestion that debt issuances by the holding
company be limited to debt-to-total capital of 50 percent. The MPUC noted that
it would not review holding company debt issuances within this limit and also
stated, "Because [the holding company's regulated utility subsidiaries cannot be
used to provide 'guarantees' or credit enhancement to [the holding company's]
non-utility subsidiaries, the utility ratepayers are sufficiently protected and
therefore we will not restrict [the holding company's] ability to guarantee or
credit-enhance the debt of its non-utility subsidiaries or affiliates." Id. at
6.
C. New Central Maine Affiliates
42. The holding company will continue to develop the non-utility businesses
that are now carried out by Central Maine's subsidiaries. It will also pursue
the business activities of EnerMark and, to provide another energy option to
Maine consumers who do not have access to gas service, a new gas distribution
limited liability company ("CMP Gas Company LLC" through a new wholly-owned
corporate subsidiary of the holding company ("GasCo") that will hold a 50
percent membership interest in CMP Gas Company.8
43. To enhance the ability to market and furnish its services, a
non-utility subsidiary may explore opportunities for appropriate affiliations
with one or more firms providing similar
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8 See note 7 above.
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or complementary services in the targeted markets. While such affiliations may
be in the nature of contracts or subcontracts, under the MPUC's Order of May 1,
1998, the subsidiary will have the option of entering into one or more joint
ventures, general partnerships, limited partnerships, membership interests in
limited liability companies, or other affiliations (including without limitation
stock ownership in corporations) with one or more such entities.
44. Although at this point other investment opportunities for the holding
company have nob been identified, it may seek to develop or acquire other
businesses that are related to energy and telecommunications services. Central
Maine believes that it is desirable in the long run to pursue non-utility
business opportunities that build on core competencies, such as the management
and operation of an extensive delivery infrastructure, and other related
business opportunities that are complementary to Central Maine's core business
or to these non-utility businesses. This approach creates a more cohesive,
focused and efficient investment policy for the entire holding company system.
Other criteria for investment in non-utility businesses will be based on the
assessment of opportunities and risks relating to prospects for earnings growth,
competition, required capital outlays, available resources, and the ability of
the enterprise to be self-financing. The May 1 MPUC Order permits such business
development and acquisition within the $240 million investment limit established
by the Order.
45. To maintain separation from Central Maine's core business and provide
financing flexibility, when a new business opportunity arises, the new business
will be operated through a subsidiary of the holding company rather than the
Central Maine. The holding company structure will facilitate the analysis and
evaluation of new as well as existing lines of business by the investment
community.
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V. REASONS FOR THE HOLDING COMPANY RESTRUCTURING
46. Over the past several years, the electric utility industry has been
affected by regulatory and market changes resulting from adoption of the Energy
Policy Act of 1992; decisions of the Federal Energy Regulatory Commission
including Orders 888 and 889 issued in April 1996 mandating open access to
transmission services; and in Maine in particular, enactment of the new
restructuring law, which will limit Central Maine primarily to the transmission
and distribution of electricity and require the creation of a separate entity to
market energy and capacity to retail consumers. In addition, expanding energy
options for consumers, due in part to the deregulation of the natural gas
industry, have also created competitive challenges for electric utilities. The
novel challenges and related opportunities presented by the new environment
caused Central Maine to assess comprehensively its business strategies, its
direction and focus, and its structure for continuing to provide regulated
utility service in the most efficient and competitive fashion for Maine
customers. At the same time, Central Maine seeks to attain greater financial,
managerial and organizational flexibility to adapt to and take advantage of the
changing utility business and emerging business opportunities that, while
related to the Central Maine's core business, are non-utility in nature. That
flexibility will facilitate initiatives into existing and new energy and
telecommunications-related businesses, which will create a broad but related
base of income generation that could contribute to corporate growth and buttress
overall profitability.
47. As a result of this assessment, Central Maine identified a stronger
need to increase its long-term growth potential through investment in related
businesses while continuing to develop efficiencies and economies in its core
business for the benefit of Maine
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consumers. The move to a competitive energy industry, together with the
revolution in energy and telecommunications-related technologies, have created
significant new opportunities for energy and telecommunications service
providers to participate in non-utility business ventures that are related to
but separate from traditional regulated businesses. Although such non-utility
investments will be a relatively small component of the entire system, pursuit
of these business opportunities will play an important role in maintaining the
long-term financial viability necessary for Central Maine to continue to provide
reliable service to its customers as well as enhance shareholder value. To
respond timely, effectively and prudently to these business challenges and
opportunities, Central Maine concluded that it should reorganize the structure
of its business to a holding company form of organization.
48. Central Maine believes that diversified earnings from existing
non-utility businesses and proposed new business activities will mitigate the
limitations inherent in engaging solely in the transmission and distribution
business. By engaging in several complementary businesses with different, but
acceptable, risk exposures and business cycles, the risks resulting from
operating in a single regulated business will be reduced and opportunities for
earnings growth will be created. A lower risk profile for the utility business
and the potential for improved and more stable earnings offered by an expanded
business base could result in a better position in the capital markets and lower
capital costs, enhancing the overall financial strength of the new organization.
On the other hand, by operating such businesses in the proposed holding company
structure, Central Maine will be insulated from the performance of unregulated
businesses, as discussed above.
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49. The separation of utility and marketing functions into legally separate
entities will also facilitate compliance by Central Maine with the standards of
conduct imposed by the new Maine electric utility restructuring law. See 35-A
M.R.S.A. ss.3205. The restructuring statute imposes numerous specific standards
governing the conduct of a transmission and distribution utility and its
affiliated competitive provider and requires the MPUC to adopt rules to
implement the standards. Because of numerous constraints imposed by the
standards of conduct on dealings between a transmission and distribution utility
and its marketing affiliate, Central Maine determined that a holding company
form of organization in which the holding company, rather than Central Maine, is
the parent of the marketing affiliate was required to comply fully with the
standards.
VI. DESCRIPTION OF MECHANICS TO CARRY OUT RESTRUCTURING
50. The first step in accomplishing the reorganization is the formation of
two new corporations: a holding company that will ultimately become the parent
company of Central Maine and of specified non-utility subsidiaries of Central
Maine, owning all the outstanding common stock of these companies, and another
corporation whose sole purpose will be to serve as a vehicle in creating the
holding company structure ("MergeCo") and which will no longer exist when it has
accomplished its limited purpose. The holding company and MergeCo will not be
public utilities at any time before or after the reorganization. The corporation
that will ultimately become the holding company has been incorporated in Maine.
When MergeCo is organized, it will also be a Maine corporation.
51. At this time Central Maine owns all the outstanding common stock of the
corporation that will ultimately be the holding company. When MergeCo is formed,
the
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holding company will initially own all of its outstanding common stock. The
authorized capital stock of the holding company will consist of 80 million
shares of common stock, which is equal to the authorized number of shares of
Central Maine's common stock, and 5 million shares of preferred stock, which is
approximately twice the authorized amount of Central Maine Preferred Stock.
MergeCo's authorized capital stock will be 1,000 shares of common stock, shares
of which will be issued at the time of MergeCo's formation to the corporation
that will become the holding company.
52. Next, Central Maine, the holding company and MergeCo will enter into an
Agreement and Plan of Merger, in the form contained in Appendix B to this
Application (the "Merger Plan"). Under the Merger Plan, Central Maine will
become a subsidiary of the holding company.
53. The steps necessary to achieve this result are as follows:
a. MergeCo will merge into Central Maine, with Central Maine being the
surviving corporation. On the filing of the Articles of Merger with
the Maine Secretary of State or on the date specified in the Articles
of Merger, MergeCo will cease to exist (the "Effective Date").
b. On the Effective Date, each outstanding share of Central Maine common
stock (excluding shares held by dissenting shareholders who have
complied with the requirements of Maine corporate law9) will be
converted by operation of law10 into one share of holding company
common stock. Holders of Central Maine
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9 See 13-A M.R.S.A. ss.ss. 908, 909, included as Appendix IV to Central
Maine's 1998 Proxy Statement, which is filed as Appendix C to this
Application.
10 See note 1 above.
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common stock before the merger will automatically become holders of
holding company common stock, holding the same number of shares, and
will cease to be owners of Central Maine's common stock. Central
Maine's shareholders will not be required to exchange their stock
certificates; rather, their stock certificates will represent an
identical number of shares of holding company common stock.
c. Also on the Effective Date, the outstanding shares of MergeCo common
stock (that is, shares issued to the holding company corporation at
the time MergeCo was formed) will, as a result of the merger of
MergeCo into Central Maine with Central Maine as the surviving
corporation, be converted by operation of law11 into a number of
shares of Central Maine common stock equal to the number of shares of
Central Maine common stock outstanding immediately prior to the share
conversion described in the preceding paragraph b. Each share of
common stock issued to Central Maine when the holding company
corporation was formed will be cancelled by the holding company.
Because the MergeCo shares converted to Central Maine shares will be the shares
originally issued to and owned by the holding company, the merger of MergeCo
into Central Maine will result in Central Maine's becoming a subsidiary of the
holding company.
VII. REGULATORY AND SHAREHOLDER APPROVALS
54. Under the Merger Plan, completion of the corporate reorganization is
subject to shareholder and regulatory approvals, listing of the holding
company's common stock on the
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11 See note 1 above.
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New York Stock Exchange, and a satisfactory tax ruling or opinion with respect
to the tax consequences of the transaction.
55. The reorganization also requires approval by the SEC under the Public
Utility Holding Company Act of 1935. Section 9(a)(2) of the Public Utility
Holding Company Act of 1935 ("PUHCA") prohibits the acquisition of five percent
or more of the securities of a public utility by any person or entity that
already owns at least five percent of the securities of another public utility
and also prohibits the acquisition of five percent or more of two public
utilities unless the SEC has approved the acquisition. Because Central Maine has
at least one public utility subsidiary, SEC approval of the holding company's
acquisition of Central Maine and its public utility affiliates is required.
Central Maine expects that, as is the case with Central Maine, the holding
company will qualify for an exemption from the provisions of PUHCA except those
relating to the acquisition of the securities of public utility companies. This
exemption will be based on HoldCo and each of its utility subsidiaries from
which it derives a material part of its income being predominantly intrastate
and carrying on their utility business substantially in Maine. A copy of the
latest version of the Form U-1 filed with the SEC is attached to this
Application as Appendix H. Based on SEC review of material filed to date, SEC
action is expected shortly after July 14,1998.
56. Approval of the FERC under the Federal Power Act is also required.
Section 203 of the Federal Power Act requires approval of the FERC for the
disposition or merger of jurisdictional facilities, which include facilities
used in interstate commerce. Under existing FERC policy, the transfer of Central
Maine's common stock to the holding company in the conversion transaction
described above triggers FERC jurisdiction. Central Maine's
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application to FERC, without its voluminous exhibits, is attached to this
Application as Appendix I. FERC action on Central Maine's application is also
anticipated in July.
57. As previously mentioned, Central Maine also filed an application for
approval of its holding company reorganization with the NRC. A copy of the
application to the NRC is included as an exhibit to the current version of the
Form U-1 application to the SEC, which is attached to this Application as
Appendix H. The Order of the NRC approving the holding company reorganization is
attached to this Application as Appendix B.
58. The holding company reorganization also required the approval of the
holders of Central Maine's common stock and 6% Preferred Stock outstanding,
voting together as a single class, and of the holders of Central Maine's common
stock, voting separately. Central Maine obtained the required approval of its
shareholders at its 1998 Annual Meeting of Shareholders held on May 21, 1998.
The Proxy Statement for the Annual Meeting is attached to this Application as
Appendix C. In addition, shareholders received with proxy materials a copy of
Central Maine's 1997 Summary Annual Report to Shareholders, a copy of which is
attached to this Application as Appendix J.
59. As of the Effective Date, the common stock of the holding company will
be listed on the New York Stock Exchange and the common stock of Central Maine
will no longer be listed on an exchange since it will be owned entirely by the
holding company.
VIII. CONCLUSION
60. For the reasons set forth in this Application, Central Maine
respectfully suggests that the Department should conclude that neither Section
16-47 nor Section 16-43 CGS properly applies to Central Maine's holding company
restructuring. Under Section 16-47,
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there will be no holding company with control over an electric company "engaged
in the business of supplying service" within Connecticut. Under Section 16-43,
there will be no merger that effects any substantive change in Central Maine or
its business; rather, the merger is merely a necessary mechanism under Maine law
to carry out the holding company reorganization. The Department should therefore
not exercise jurisdiction under either Section. If the Department concludes that
either or both Section 16-47 and Section 16-43 provide a jurisdictional basis,
then Central Maine requests that in light of (i) the comprehensive review of
Central Maine's holding company restructuring by the MPUC and the favorable MPUC
order concluding that the restructuring is in the public interest, (ii) the NRC
approval and specific conclusion that the holding company restructuring will not
adversely affect Central Maine's ability to pay its share of Millstone 3
expenses, including decommissioning costs, and (iii) the detailed review of the
SEC and the FERC of the holding company reorganization, the Department review
Central Maine's Application on a limited and expedited basis and grant its
approval within thirty (30) days of the date of its filing.
________________________________________
Anne M. Pare
Corporate Counsel and Secretary
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
Tel. no.: (207) 621-4795
Attorney for Central Maine Power Company
DATED: June 24, 1998
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EXHIBIT F-1
[Letterhead of Central Maine Power Company]
July 8, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Application and Declaration on Form U-1 of HoldCo, Inc. and
Central Maine Power (File No. 70-9183)
Ladies and Gentlemen:
I have acted as a counsel to HoldCo, Inc. ("HoldCo") and Central Maine
Power Company ("Central Maine") in connection with the preparation of an
Application and Declaration on Form U-1 (the "Application") which was filed with
the Securities and Exchange Commission (the "Commission") on March 4, 1998, as
amended on June 11, 1998 and July 8, 1998. In the Application, HoldCo and
Central Maine are seeking an order of Commission under the Public Utility
Holding Company Act of 1935, as amended (the "Act") (i) authorizing HoldCo,
pursuant to sections 9(a)(2) and 10 of the Act, to acquire all of the
outstanding shares of common stock of Central Maine and indirectly all of
Central Maine's interests in Maine Electric Power Company, Aroostook Valley
Electric Company and NORVARCO, in connection with the proposed formation of a
holding company structure for Central Maine, and (ii) exempting HoldCo and
Central Maine, pursuant to Section 3(a)(1) of the Act, from all provisions of
the Act, except for Section 9(a)(2) thereof. The holding company structure will
be formed upon consummation of a merger (the "Merger") pursuant to an Agreement
and Plan of Merger by and among Central Maine, HoldCo and a wholly-owned
subsidiary of HoldCo to be formed for the purpose of effecting the transaction
(the "Merger Agreement").
In rendering my opinion, I have examined such agreements, documents,
instruments and records as I deemed necessary or appropriate under the
circumstances for me to express my opinion. In making all of my examinations, I
assumed the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, the conformity to the original documents of all
documents submitted to me as copies and the due execution and delivery of all
documents by any persons or entities other than Central Maine or HoldCo where
due execution and delivery by such persons or entities is a prerequisite to the
effectiveness of such documents.
I am a member of the Bar of the State of Maine and am duly qualified to
practice in that state. My opinion expressed herein is limited to the laws of
the State of Maine and the Federal laws of the United States.
Based upon and subject to the foregoing, I am of the opinion that:
1. HoldCo and Central Maine are corporations validly existing under the
laws of the State of Maine.
2. If the transactions contemplated by the Application are consummated as
set forth in the Application and in accordance with the Merger Agreement: (i)
all laws of the State of Maine applicable to implementation of the transactions
contemplated by the Application will have been complied with; (ii) the shares of
common stock of HoldCo to be issued in accordance with the Merger Agreement will
be legally issued, fully paid and non-assessable, and the holders thereof will
be entitled to the rights appertaining thereto set forth in HoldCo's Articles of
Incorporation, as amended from time to time; (iii) upon consummation of the
transactions contemplated by the Merger Agreement, the outstanding shares of
common stock of Central Maine will be owned by HoldCo; and (iv) the consummation
of the transactions proposed in the Application will not violate the legal
rights of the holders of any securities issued by HoldCo, Central Maine or any
associate company thereof.
I hereby consent to the filing of this letter as an exhibit to the
Application.
Very truly yours,
Anne M. Pare
