File No. 70-09183
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 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, is hereby amended and restated to
read as follows:
Pursuant to Sections 9(a)(2) and 10 of the Public Utility Holding Company
Act of 1935 (the "1935 Act"), HoldCo, Inc., a Maine corporation ("Holding
Company"), hereby applies for the approval of the Securities and Exchange
Commission (the "Commission") to acquire all of the issued and outstanding
shares of common stock of Central Maine Power Company ("Central Maine"), a Maine
corporation, and, indirectly, of its utility subsidiaries. The acquisition will
be accomplished through the merger of a corporation that, when formed, will be a
wholly-owned subsidiary of Holding Company incorporated in Maine ("Merger-
Sub"), with and into Central Maine. In addition, Holding Company and Central
Maine hereby apply pursuant to Section 3(a)(1) of the 1935 Act for an order
exempting Holding Company and Central Maine from all provisions of the 1935 Act
(except for Section 9(a)(2) thereof).
Item 1 DESCRIPTION OF THE PROPOSED TRANSACTION
A. Parties to the Transaction
Holding Company has been and Merger-Sub will be incorporated under the laws
of Maine for the purpose of carrying out the proposed transactions described in
this application. Holding Company currently is a direct, wholly-owned subsidiary
of Central Maine, and, upon formation, Merger-Sub will be a direct,
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wholly-owned subsidiary of Holding Company. Holding Company does not currently
own any utility assets and currently is not a "public utility company" or a
"holding company" within the meaning of the 1935 Act. Upon its formation,
Merger-Sub will not own any utility assets and will not be a "public utility
company" or a "holding company" within the meaning of the 1935 Act.
Central Maine is an investor-owned Maine public utility incorporated in
1905. Central Maine is primarily engaged in the business of generating,
purchasing, transmitting, distributing and selling electric energy for the
benefit of retail customers in southern and central Maine and wholesale
customers, principally other utilities. Its principal executive offices are
located at 83 Edison Drive, Augusta, Maine 04336. Central Maine is currently a
public utility holding company exempt from regulation under the 1935 Act (except
for Section 9(a)(2) thereof) by reason of the annual exemption statements filed
by it pursuant to Rule 2 under the 1935 Act. Central Maine currently has three
subsidiaries that are public utility companies within the meaning of the 1935
Act: Maine Electric Power Company, Inc. ("MEPCo"), in which Central Maine owns a
78.3% interest; Aroostook Valley Electric Company ("AVEC"), a wholly-owned
subsidiary of Central Maine; and NORVARCO, also a wholly-owned subsidiary of
Central Maine.1
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1 Each of these companies will remain subsidiaries of Central Maine. A
description of each follows:
(a) MEPCo. MEPCo is a public utility organized in 1966, in which Bangor
Hydro-Electric Company ("Bangor Hydro") and Maine Public Service Company hold
the remaining voting stock. MEPCo owns and operates a 345-kV transmission
interconnection between Wiscasset, Maine and the Maine-New Brunswick
international border at Orient, Maine, where its line connects with the portion
of the interconnection constructed in the province of New Brunswick, Canada, by
The New Brunswick Power Corporation ("New Brunswick Power"). MEPCo also owns and
operates certain equipment, including microwave communication facilities, in
connection with the Hydro-Quebec Phase II ("Phase II") project described below.
Although MEPCo's transmission line interconnects with New Brunswick Power's
transmission line, neither Central Maine nor any of its utility subsidiaries
make any retail sales of electric power in Canada, nor have they ever made any
such sales.
(b) AVEC. AVEC owns and operates a 31-MW wood-fired generating plant in
Fort Fairfield, Maine, the output of which is sold to Central Maine. As
mentioned below, Central Maine has agreed to sell its interest in AVEC.
(c) NORVARCO. NORVARCO is one of two general partners with 50 percent
interests in Chester SVC Partnership, 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. 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.
Central Maine also owns a 38% common stock interest in Maine Yankee Atomic
Power Company ("Maine Yankee"), which owns the Maine Yankee nuclear electric
generating plant in Wiscasset, Maine. The Maine Yankee plant is not currently
operating. On August 6, 1997, the board of directors of Maine Yankee voted to
permanently shut down and begin to decommission the Maine Yankee plant.
Therefore, Maine Yankee is no longer a "public utility" under the 1935 Act.
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Central Maine is the largest electric utility in Maine. It serves
approximately 528,000 customers in its 11,000 square- mile service area in
southern and central Maine. Central Maine had $954 million in consolidated
electric operating revenues in 1997 (reflecting consolidation of financial
statements with MEPCo).
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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 ("PSNH") at the southerly end and at 115
kilovolts with Bangor Hydro at the northerly end of Central Maine's system.
Central Maine's system is also connected with the system of New Brunswick Power
and of Bangor Hydro through the 345-kilovolt interconnection constructed by
MEPCo.
Central Maine has interests in 31 hydroelectric generating stations 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, and
Mason Station in Wiscasset, Maine, with 145 megawatts of generating capacity.
Central Maine also has internal combustion generating facilities with an
estimated aggregate net capability of 42 megawatts.
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, 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,
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and a 4 percent common stock interest in Vermont Yankee Nuclear Power
Corporation, which owns a plant in Vernon, Vermont. In addition, pursuant to a
joint ownership agreement, Central Maine has a 2.5 percent direct ownership
interest in the Millstone 3 nuclear unit in Waterford, Connecticut, which has
been off-line for regulatory reasons since March 31, 1996.
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 hydropower assets to be included in the sale represent approximately
373 megawatts of generating capacity. Central Maine's interest in the
fossil-fueled generating assets included in the sale is 781 megawatts. The sole
biomass plant is the 31-megawatt unit in Fort Fairfield, Maine, owned by AVEC.
In addition, as part of its agreement with FPL Group, Central Maine entered
into energy buy-back agreements to assist in fulfilling its obligation to supply
its customers with power until March 1, 2000, the date when retail consumers in
Maine will be able to choose their electricity provider. See Section B, below,
for a discussion of Maine's new electric utility restructuring statute.
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Central Maine's interests in the power entitlements from approximately 50
purchased-power agreements with non-utility generators representing
approximately 488 megawatts and its interests in the five nuclear generating
facilities described above are not included in the sale.
The sale is subject to various closing conditions, including the approval
of state and federal regulatory agencies.
On November 12, 1997, Central Maine and New York State Electric & Gas
Corporation ("NYSEG") entered into an agreement to form a limited liability
company ("CMP Gas Company") for the purpose of constructing, owning and
operating a natural gas distribution business to provide gas distribution and
related services to customers in Maine. CMP Gas Company will be owned equally by
a new Holding Company subsidiary and NYSEG or its affiliate. Prior to commercial
operation, an Application on Form U-1 with respect to CMP Gas Company will be
filed.
Central Maine's unregulated subsidiaries are engaged in activities designed
to capitalize on core competencies of the Central Maine system. Descriptions of
these unregulated subsidiaries follow:
(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 and has divisions which provide (i) information
and research services and related consulting and (ii) engineering,
environmental, licensing and other technical services;
(b) Central Securities Corporation ("Central") and Cumberland Securities
Corporation ("Cumberland") both own real estate located in Central Maine's
service area;
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(c) Kennebec Hydro Resources, Inc. ("Kennebec Hydro") is the general
partner with a 50 percent interest in The Merimil Limited Partnership (the
limited partners of which are not affiliates of Central Maine), which owns
the Lockwood Hydroelectric Project, a qualifying facility located in
Waterville, Maine;
(d) MaineCom Services ("MaineCom") develops fiber-optic data service for
bulk carriers, provides other telecommunications services, and holds direct
or indirect voting interests in various entities that are in the business
of developing a fiber-optics network in New England;2
(e) TeleSmart provides collections and related accounts receivable
management services and has a division which collects charged-off accounts;
(f) The Union Water-Power Company ("Union Water") (i) provides river
facilities management, including the management of dams, reservoirs,
fishways and oxygenation facilities, (ii) provides utility support services
such as underground facility locating, infrared photography and workorder
ticket management, (iii) provides real estate management, development and
leasing, and land and modular housing sales, and (iv) owns 25% of the
voting stock of Androscoggin Reservoir Company (the remainder of the voting
stock is owned by PSNH and three paper companies), which owns a storage
reservoir and dam on the Androscoggin River and owns real estate and other
facilities at Aziscohos Dam in northwestern Maine that it leases to a
qualifying facility;
(g) Kennebec Water Power Company ("Kennebec Water"), in which Central Maine
owns a 24.8% equity interest, operates a business regulating the flow of
the Kennebec River and owns storage dams at the East and West Outlets of
Moosehead Lake in Maine;3 and
(h) the Gulf Island Pond Oxygenation Project ("GIPOP"), a Maine general
partnership in which Central Maine owns a 14% partnership interest (the
other three partners of which are
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2 On April 29, 1998, Central Maine petitioned the MPUC for authority to
reorganize these various entities into a simpler corporate structure. MaineCom
will remain a subsidiary of Central Maine or Holding Company regardless of the
outcome of this petition.
3 Effective January 1, 1995, Union Water, through a joint operating
agreement with Kennebec Water, assumed a large part of Kennebec Water's river
flow responsibilities with respect to the Kennebec River.
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paper companies), owns an oxygenation facility at Gulf Island Pond on the
Androscoggin River at Greene, Maine, which is operated by Union Water under
an operating agreement with GIPOP.
The current corporate structure is shown in Appendix A attached hereto.4
The following table shows electric operating revenues of each of Central
Maine's public utility subsidiaries for the year ended December 31, 1997, both
actual and as adjusted to eliminate sales to Central Maine (Central Maine sales
have been adjusted to eliminate sales to such subsidiaries), and both in total
dollars and as a percentage of the system's consolidated electric operating
revenue:
(Dollars in thousands)
Actual Adjusted
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MEPCO $ 24,473 2.5% $ 10,080 1.1%
NORVARCO 4 0.0 4 0.0
AVEC 8,567 0.9 0 0.0
Sub Total 33,044 3.4 10,084 1.1
Central Maine 944,389 96.6 944,096 98.9
TOTAL 977,433 100.0 954,180 100.0
Additionally, Maine Yankee had revenues of $238,586,000 in 1997 (during a
portion of which Maine Yankee was a public utility). The total revenue of all of
Central Maine's non-utility subsidiaries and affiliates other than Maine Yankee
for the year ended December 31, 1997 was $21,238,000.
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4 Central Maine's interests in Kennebec Hydro and GIPOP are included in the
proposed sale of generating assets to the FPL Group affiliate. Central Maine has
offered for sale its interest in Kennebec Water. If Central Maine does not
receive an acceptable bid for this interest, it will be retained by Central
Maine, and will not be transferred to Holding Company.
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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. The MPUC also regulates, in some respects,
MEPCO, NORVARCO, AVEC, Maine Yankee and MaineCom. Central Maine is also subject
to the jurisdiction of the Federal Energy Regulatory Commission ("FERC") under
Parts I, II and III of the Federal Power Act for some phases of its business,
including licensing of its hydroelectric stations, accounting, rates relating to
wholesale sales and to interstate transmission and sales of energy and certain
other matters.
B. Regulatory Background
On May 29, 1997, the Governor of Maine signed into law a bill enacted by
the Maine Legislature that will restructure the electric utility industry in
Maine by March 1, 2000. The principal restructuring provisions of the
legislation provide for customers to have direct retail access to generation
services and for deregulation of competitive electricity providers, commencing
March 1, 2000, with transmission and distribution companies continuing to be
regulated by the MPUC. By that date, investor-owned utilities are required to
divest all generation assets and generation-related business activities, with
two major exceptions: (1) non-utility generator contracts with qualifying
facilities and contracts with demand-side management or conservation providers,
brokers or hosts; and (2) ownership
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interests in nuclear power facilities. However, the MPUC can require Central
Maine to divest its interest in Maine Yankee on or after January 1, 2009 (a
provision that was enacted prior to the permanent shutdown of the Maine Yankee
plant on August 6, 1997, and was premised on the expiration of Maine Yankee's
operating license for the plant in 2008). The bill also requires investor-owned
utilities, after February 29, 2000, to sell their rights to the capacity and
energy from the purchased-power contracts that had not previously been divested
pursuant to the legislation, with certain minor exceptions. As noted in Section
A above, Central Maine has entered into an agreement to divest certain of its
generation assets.
C. Reorganization of Central Maine
Central Maine proposes to form a holding company structure pursuant to an
Agreement and Plan of Merger to be entered into among Central Maine, Holding
Company and Merger-Sub (the "Plan of Merger"), a form of which is filed as
Exhibit B-1 hereto. Under the terms of the Plan of Merger, Merger-Sub would be
merged with and into Central Maine (the "Merger"). Pursuant to the Plan of
Merger, each issued and outstanding share of Central Maine common stock, par
value $5 per share ("Central Maine Common Stock"), would be automatically
changed and converted into one share of Holding Company common stock, par value
$5 per share ("Holding Company Common Stock"). Each issued and outstanding share
of Central Maine Dividend Series Preferred Stock, par value $100 per share
("Central Maine Dividend Series Preferred Stock") and Central Maine 6% Preferred
Stock, par value
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$100 per share ("Central Maine 6% Preferred Stock", and together with Central
Maine Dividend Series Preferred Stock, "Central Maine Preferred Stock"), as well
as debt securities of Central Maine, will not be affected by the Plan of Merger
and will remain shares and securities of Central Maine, as the surviving
corporation of the Merger. The shares of Holding Company Common Stock owned by
Central Maine prior to the Merger will be cancelled. The outstanding shares of
Merger-Sub common stock will automatically be converted into a number of shares
of Central Maine Common Stock equal to the number of shares of Central Maine
Common Stock outstanding prior to the Merger. Upon consummation of the Merger,
each person that held shares of Central Maine Common Stock immediately before
the Merger would hold an equal number of shares of Holding Company Common Stock,
and Holding Company would hold all of the issued and outstanding shares of
Central Maine Common Stock. Except for any differences in shareholders' rights
under the Holding Company's charter, as compared to Central Maine's charter, the
Merger will have no significant effect on the holders of Central Maine Common
Stock; their interest and investment will change in form only and not in
substance.5
Concurrently with the Merger, or shortly thereafter, Central Maine will
transfer its existing equity interests in CMPI, MaineCom, TeleSmart and Union
Water by dividending the
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5 Such differences are discussed in Central Maine's proxy statement,
relating to this restructuring, prepared for Central Maine's annual meeting of
shareholders, which was held on May 21, 1998.
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stock it holds in those entities to the Holding Company. All such transactions,
including the Merger, are referred to herein as the "Reorganization."
Additionally, shortly after the Reorganization, other companies may possibly be
formed. These include (i) EnerMark, which will be a wholly-owned non-utility
subsidiary of Holding Company created to provide power supply planning and
procurement and energy portfolio management services to Central Maine until the
commencement of retail competition in Maine in March 2000 and to engage in
retail sales and marketing as soon as permitted in northeastern states with
retail access, including Maine beginning on March 1, 2000, (ii) CMP Gas Company,
and (iii) a wholly-owned corporate subsidiary of the Holding Company created to
hold a membership interest in CMP Gas Company.
The corporate structure after the Reorganization, including the possible
formation of these other companies, is shown in Appendix A attached hereto.
Prior to the Reorganization, Holding Company will apply to have its common
stock listed on the New York Stock Exchange, Inc. ("NYSE"). Upon consummation of
the Reorganization, Holding Company Common Stock will be listed and traded on
the NYSE, and Central Maine Common Stock will cease to be listed on the NYSE.
Additionally, Holding Company will be required to file reports with the
Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
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
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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").6 On 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.
The issues in Phase II, which relate to the creation of EnerMark and the
approval of the services agreements, are currenly being addressed in that
proceeding. Applications for approval of the Reorganization have been filed
with the FERC and the NRC.
Central Maine and Holding Company have filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), a copy of which is filed as
Exhibit C-1 hereto. The Registration Statement was declared effective by the
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6 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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Commission on April 13, 1998. The Proxy Statement and Prospectus contained in
the Registration Statement has been filed for the purpose of (i) registering the
shares of Holding Company Common Stock to be issued in exchange for Central
Maine Common Stock pursuant to the Merger and (ii) complying with the
requirements of the 1934 Act in connection with the solicitation of proxies of
shareholders of Central Maine Common Stock and Central Maine 6% Preferred Stock.
The effective time of the Merger will be the date of filing of Articles of
Merger with the Secretary of State of the State of Maine, pursuant to the Maine
Business Corporation Act, or at some other time within 60 days of such filing,
as specified in the Articles of Merger. Holding Company and Central Maine expect
to consummate the Reorganization as soon as possible after all regulatory
approvals and other conditions precedent contained in the Plan of Merger have
been fulfilled.
D. Purpose and Anticipated Effects of the Reorganization
The principal purpose of the Reorganization is to gain long-term advantages
through increased management and financial flexibility that will better position
Central Maine to operate in a changing business and regulatory environment by
allowing it to take advantage of emerging non-utility business opportunities
that are related to Central Maine's core business while maintaining the
principal business focus on its core transmission and distribution business. In
addition, the clearer separation of Central Maine's core utility business from
non-utility enterprises achieved by making Holding Company, rather than
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Central Maine, the parent of Central Maine's non-utility subsidiaries will
better segregate the operations, risks and costs associated with these
non-utility businesses from those involved in providing utility service and
provide greater financial flexibility in pursuing non-utility business
opportunities. As noted above, the recent changes in the Maine regulatory
structure require Central Maine to divest itself of its generation assets. The
Reorganization will aid Central Maine in dealing with the changes in its
business this will bring about. The flexibility provided by the holding company
structure permit more easily the establishment of a broad base of income
generation from related unregulated business activities that could enhance the
overall strength of Central Maine's enterprises for its customers and
shareholders.
An additional consideration exists for the Reorganization. As of March 1,
2000, Central Maine, as a transmission and distribution utility, will be
prohibited from selling electric energy to retail customers. Any retail sales of
electricity must be done through a separate corporate affiliate of Central Maine
that is licensed by the MPUC for that purpose. The new restructuring statute
contains numerous specific standards of conduct governing the conduct of a
transmission and distribution utility and its affiliated electricity 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
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that a holding company form of organization in which the holding company, rather
than Central Maine, is the parent company of the marketing affiliate was
required to facilitate compliance with the standards.
The Reorganization will have no effect, adverse or otherwise, upon the
electric utility operations of Central Maine, MEPCo, AVEC or NORVARCO. The
Reorganization will cause no real change in ownership of Central Maine, MEPCo,
AVEC or NORVARCO and, by itself, will not result in a transfer or acquisition of
any utility asset.7 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 growing business
whose objective will be to provide service effectively and efficiently.
Although the system's utility operations will not be affected, Central
Maine believes that a number of benefits will result from the Reorganization.
Central Maine's adoption of a holding company corporate structure will allow
Central Maine's affiliates to participate more easily in non-utility businesses
and to compete with non-regulated companies in providing energy-related
services. 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.
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7 As noted in Section A, above, Central Maine has agreed to sell its
interest in AVEC, including AVEC's 31 megawatt biomass plant. This sale, in
response to the Maine restructuring law, is occurring separate from the
Reorganization.
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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. And, by
operating such businesses in the proposed holding company structure, Central
Maine will be insulated from the performance of unregulated businesses.
There are additional benefits to the holding company structure. 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 capital structure or creditworthiness of Central Maine. By separating the
operations of regulated and unregulated businesses, the holding company
structure also provides a better structure for regulators to assure that there
is no cross-subsidization of costs or transfer of business risk from unregulated
to regulated lines of business, and provides legal protection against the
imposition of liability on regulated utilities for the results of unregulated
business activities. In addition, a holding company structure is preferred by
the investment community because it is easier to analyze and value
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the individual lines of business of an organization with such a structure.
Because of these benefits, the holding company structure is a highly
desirable form of conducting regulated and unregulated businesses within the
same corporate group.
E. Additional Information
No associate company or affiliate of Holding Company or Central Maine, or
any affiliate of any associate company of Holding Company or Central Maine, has
any direct or indirect material interest in the proposed transaction except as
stated herein.
For further information, reference is made to the financial statements and
other information in Exhibits G-1 through G-4 hereto.
Item 2 FEES, COMMISSION AND EXPENSES
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...........$181,010.16
New York Stock Exchange Listing Fee..........*
Auditors' Fees...............................*
Legal Fees...................................*
Proxy Solicitation...........................*
Stock Certificates...........................*
Miscellaneous................................*
TOTAL...............................*
* To be filed by amendment
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Item 3 APPLICABLE STATUTORY PROVISIONS
The following sections of the 1935 Act are directly or indirectly
applicable to the proposed transaction: Sections 3(a)(1), 9(a)(2) and 10.
A. Approval of the Reorganization under Section 9(a)(2)
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person ... to acquire, directly or indirectly, any security
of any public utility company, if such person is an affiliate ... of such
company and of any other public utility or holding company, or will by virtue of
such acquisition become such an affiliate." By virtue of the proposed
transaction, Holding Company will own, directly or indirectly, more than 5% of
the outstanding voting securities of four "public utility companies" -- Central
Maine, MEPCo, AVEC and NORVARCO -- thus becoming an affiliate of Central Maine,
MEPCo, AVEC and NORVARCO. Therefore, Section 9(a)(2) requires approval by the
Commission of the proposed transaction under Section 10. The relevant standards
under Section 10 are set forth in Section 10(b), 10(c) and 10(f). Holding
Company and Central Maine believe that the proposed transaction meets the
requirements of Sections 9(a)(2) and 10.
1. Section 10(b)
Section 10(b) provides that the Commission shall approve an acquisition
unless:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public- utility companies, of a kind
or to an extent detrimental to the public interest or the
interest of investors or consumers;
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(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of
the holding company system of the applicant or will be
detrimental to the public interest or the interest of investors
or consumers or the proper functioning of such holding company
system.
Central Maine and Holding Company respectfully submit that an adverse decision
should not be made under any of these paragraphs.
a. Section 10(b)(1)
In order to reject an application based on an adverse finding under Section
10(b)(1), the Commission must find that control is "of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers."
The Reorganization merely involves the formation of a holding company over
Central Maine and its subsidiaries. The relationship between Central Maine,
MEPCo, AVEC or NORVARCO, the public utility companies in the existing holding
company system, will not be changed as a result of the Reorganization, and the
Reorganization will not involve the acquisition of any utility assets not
already owned by Central Maine or its public utility subsidiaries. The
Reorganization will not affect the utility operations of Central Maine, MEPCo,
AVEC or NORVARCO. Consequently, the Reorganization should not, within the
meaning of Section 10(b)(1), be deemed to "tend towards interlocking
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<PAGE>
relations . . . of public utility companies, of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers."
While there may be certain common directors and officers of Holding Company
and the public utility subsidiaries, these relations normally exist in public
utility holding company systems among affiliated and associated companies, and
will not be detrimental to the public interest or the interest of investors or
consumers. See CIPSCO Inc., Holding Co. Act Release No. 25152, 47 SEC Docket 174
(Sept. 18, 1990).
Similarly, the Reorganization should not, within the meaning of Section
10(b)(1), be deemed to tend towards any "concentration of control of
public-utility companies" that might be detrimental to the public interest,
consumers or investors. The Reorganization will not involve the acquisition of
any utility assets not already owned by Central Maine or its public utility
subsidiaries and "will therefore have no effect on the concentration of control
of public utility companies." Wisconsin Energy Corp., Holding Co. Act Release
No. 24267, 37 SEC Docket 296, 300 (Dec. 18, 1986).
b. Section 10(b)(2)
Section 10(b)(2) of the 1935 Act requires the Commission to determine
whether the consideration in connection with a proposed acquisition of
securities is reasonable and bears a fair relation to the investment in and
earning capacity of the utility assets underlying the securities being acquired.
As discussed above, the Reorganization will involve the merger of
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<PAGE>
Merger-Sub, a subsidiary of Holding Company, with and into Central Maine, the
result of which will effectively convert each share of Central Maine Common
Stock into a share of Holding Company Common Stock. Because the proportion of
each shareholder's ownership will be unchanged, the consideration is fair and
reasonable. See Wisconsin Energy Corp., supra.
An estimate of the fees and expenses to be paid in connection with the
Reorganization is stated in Item 2 above. Such fees and expenses will be
reasonable and customary for a transaction of this kind and will not be material
when measured against Central Maine's consolidated book value or the earning
capacity of its assets.
c. Section 10(b)(3)
Section 10(b)(3) of the 1935 Act requires the Commission to determine
whether the transaction will unduly complicate the capital structure of the
holding company system, or will be detrimental to the public, investors or
consumers. No such effect will result from the Reorganization.
The Reorganization will not involve the creation of any ownership interests
other than those necessary to maintain the basic corporate relationships of the
holding company system to be established. Pursuant to the Reorganization,
Holding Company will acquire all of the Central Maine Common Stock, and the
existing debt of Central Maine and the Central Maine Preferred Stock will be
unaffected. The Central Maine 6% Preferred Stock will remain voting stock in
Central Maine, thereby preserving the preferred holders' investment in Central
Maine's transmission and
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<PAGE>
distribution assets. It is consistent with Commission precedent for a
transaction to result in a voting preferred stock interest remaining in the
utility subsidiary of a holding company. See Union Electric Co., Holding Co. Act
Release No. 18368, 4 SEC Docket 89 (April 10, 1974) (acquisition by exempt
holding company of all common stock, but not of voting preferred stock, of
electric and gas utility "warrants no adverse findings under Section 10(b)(3)");
Illinois Power Co., Holding Co. Act Release No. 16574 (Jan. 2, 1970) (same). As
is the case currently, control of the system will remain in the hands of the
existing holders of Central Maine Common Stock, who will become the common
shareholders of Holding Company. Consequently, as the Commission has found in
similar circumstances, the Reorganization will not result in any complexity of
capital structure contrary to Section 10(b)(3). See, e.g., CIPSCO Inc., supra;
Wisconsin Energy Corp., supra.
2. Section 10(c)
The relevant provisions of Section 10(c) of the 1935 Act state that the
Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is . . . detrimental to the carrying out of the
provisions of Section 11; or
(2) the acquisition of securities or utility assets of a public utility or
holding company unless the Commission finds that such acquisition will
serve the public interest by tending towards the economical and the
efficient development of an integrated public utility system.
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<PAGE>
Central Maine and Holding Company respectfully submit that an adverse decision
should not be made under either of these paragraphs.
a. Section 10(c)(1)
Section 10(c)(1) prohibits an acquisition of securities which is
"detrimental to the carrying out of the provisions of Section 11." For the
purposes of the Commission's review of a proposed holding company formation, the
relevant provision of Section 11 is Section 11(b)(2), which requires the
Commission to find that "the corporate structure . . . of any company in the
holding company system does not unduly or unnecessarily complicate the structure
. . . of such holding company system." In that connection, "[t]he Commission has
construed this requirement, in the context of the formation of a new holding
company over an existing public utility, to mean that the structural change must
result in significant benefits to the holding company system." CIPSCO Inc., 47
SEC Docket at 178.
As discussed above in Section D of Item 1, the holding company structure
resulting from the proposed reorganization will yield significant benefits. The
management and financial flexibility provided by the Reorganization will allow
Central Maine's affiliates to be more competitive in unregulated non- utility
businesses. Additionally, the clearer separation of Central Maine's core utility
business from non-utility enterprises under a holding company structure will
better segregate the financial and legal risks associated with the non- utility
businesses from those involved in providing utility
-24-
<PAGE>
service, provide greater financial flexibility for non-utility businesses, aid
regulators in assuring that there is no cross- subsidization of costs or
business risk, and aid the investment community in analyzing and valuing
individual lines of business. In cases involving similar corporate
reorganizations, the Commission has held that the existence of these kinds of
potential benefits satisfies the statutory standard of Section 10(c)(1). See,
e.g., Energy East Corp., Holding Co. Act Release No. 26834 (March 4, 1998);
Atlanta Gas Light Company, Holding Co. Act Release No. 26482, 61 SEC Docket 1057
(March 5, 1996); SIGCORP, Inc., Holding Co. Act Release No. 26431, 60 SEC Docket
90 (December 14, 1995); PP&L Resources, Inc., Holding Co. Act Release No. 26248,
58 SEC Docket 2634 (Mar. 10, 1995); CIPSCO Inc., supra; Wisconsin Energy Corp.,
supra.
b. Section 10(c)(2)
Under Section 10(c)(2), the Commission must find that the Reorganization
tends towards the economical and efficient development of Central Maine's
integrated public utility system. Holding Company and Central Maine respectfully
submit that such standard is met in this case.
(i) Economies and Efficiencies
A number of economies and efficiencies will result from the holding company
structure. A number of these benefits are referred to in Section D of Item 1,
above. Most importantly, however, the holding company structure will permit a
more efficient way to take advantage of competitive opportunities in the
electric utility industry. By separating the unregulated
-25-
<PAGE>
business activities of Central Maine from the regulated utility operations,
unregulated subsidiaries of Holding Company can avoid the delays and
uncertainties associated with utility regulation. As a result, these
subsidiaries may be able to compete more effectively in the marketplace.
While increasing the ability of the system to take advantage of unregulated
opportunities, the holding company structure also protects Central Maine
ratepayers and security holders from the associated risks by allowing
unregulated businesses to be conducted through subsidiaries of Holding Company
separated from Central Maine. "The insulation of the utility businesses . . .
from any risks of diversification and the resulting lower costs should tend
toward more efficient and economical operation of the utility businesses . . ."
CIPSCO Inc., 47 SEC Docket at 180. See also WPL Holdings, Inc., Holding Co. Act
Release No. 25377, 49 SEC Docket 1255 (Sep. 18, 1991).
The holding company structure will also increase financial flexibility. The
new corporate structure will permit the use of financing techniques that are
more directly suited to the requirements, characteristics and risks of
particular non- utility businesses generally 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
-26-
<PAGE>
flexibility is necessary to ensure that alternative financing strategies are
available to 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.
In previous similar cases, the Commission has found that similar financial
and organizational benefits can satisfy the requirements of Section 10(c)(2).
See KU Energy Corp., supra.; WPL Holdings, Inc., supra; CIPSCO Inc., supra.
(ii) Integrated Public Utility System
The electric utility system of Central Maine, MEPCo, AVEC and NORVARCO is
presently "integrated" within the meaning of Section 2(a)(29) of the 1935 Act
and will remain so after the Reorganization.
The standards that must be met for an electric utility system to be
integrated within the meaning of Section 2(a)(29) of the 1935 Act are:
(1) the utility assets are to be physically interconnected or capable of
physical interconnection and under normal conditions may be
economically operated as a single interconnected and coordinated
system;
(2) the operations of the system are confined to a single area or region,
that is not so large as to impair the advantages of localized
management, efficient operation, and the effectiveness of regulation.
The Reorganization will not affect the physical interconnection of the utility
system. Similarly, the area of operations of the system will not be affected by
the Reorganization and will continue to be confined to a single area in Maine
that is not so
-27-
<PAGE>
large as to impair the advantages of continuing localized management, efficient
operation and effective regulation. Consequently, the standards of Section
10(c)(2) are satisfied.
3. Section 10(f)
Section 10(f) provides that "[t]he Commission shall not approve any
acquisition . . . under this section unless it appears to the satisfaction of
the Commission that such State laws as may apply in respect of such acquisition
have been complied with, except where the Commission finds that compliance with
such State laws would be detrimental to the carrying out of the provisions of
section 11."
The Reorganization is conditioned on full compliance with the laws of
Maine. The MPUC has determined that the Reorganization is consistent with Maine
law. See Exhibit D-2 hereto. Finally, the Reorganization will be consummated in
compliance with all other applicable Maine laws.
B. The Exemption under Section 3(a)(1)
Section 3(a)(1) of the 1935 Act is also applicable. Upon consummation of
the Reorganization, Holding Company will become a "holding company" for purposes
of the 1935 Act because of its ownership interests in Central Maine, MEPCo, AVEC
and NORVARCO, all of which are "public utility companies" under the 1935 Act.
Additionally, Central Maine will remain a "holding company" because of its
continued interest in MEPCo, AVEC and NORVARCO. Consequently, in order to avoid
becoming registered holding companies under the 1935 Act, in this application,
Holding Company and Central Maine have requested that the
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<PAGE>
Commission, by order, grant them exemptions pursuant to Section 3(a)(1) of the
1935 Act. For the following reasons, Holding Company and Central Maine believe
that each of them meets the requirements for such an exemption.
Section 3(a)(1) of the 1935 Act makes available an exemption from all of
the provisions of the 1935 Act (except for Section 9(a)(2) thereof) to a
"holding company" if "such holding company, and every subsidiary company thereof
which is a public-utility company from which such holding company derives,
directly or indirectly, any material part of its income, are predominately
intrastate in character and carry on their business substantially in a single
State in which such holding company and every such subsidiary company thereof
are organized." Both Holding Company and Central Maine, and their public utility
subsidiaries, currently are, and will continue to be, predominantly intrastate
in character and will continue to carry on their business substantially in
Maine, the state in which they are all organized. Of $954,176,000 in total
revenues from electric operations in 1997, Central Maine and its utility
subsidiaries derived $929,610,000, or 97%, from sources in Maine, while only
$24,566,000, or 3%, were from operations outside of Maine, principally electric
energy sold at wholesale outside of Maine or at the state line. Additionally, of
the consolidated Central Maine system's $1,040,492,000 in net utility assets
(net electric plant in service) in 1997, $971,809,000, or 93%, were Maine
assets, while the remaining $68,683,000, or 7%, were assets of the Millstone
plant in Connecticut. Furthermore, only one of
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<PAGE>
Central Maine's approximately 528,000 retail customers is located outside of
Maine (a New Hampshire governmental agency).
Under Section 3(a) of the 1935 Act, if an applicant satisfies the objective
requirements for an exemption, the applicant shall be granted the exemption
"unless and except insofar as [the Commission] finds the exemption detrimental
to the public interest or the interest of investors or consumers." Holding
Company and Central Maine believe that the proposed Reorganization and the
granting of an exemption will not be detrimental in any respect to the public
interest or the interest of investors or consumers. Furthermore, the
Reorganization has been submitted to the MPUC for approval, and the MPUC will
review the Reorganization pursuant to its jurisdiction under Maine law. The
Commission has relied upon the public policy decisions of state public utility
commissions when granting approval of restructuring transactions. See, e.g., KU
Energy Corp., supra; CIPSCO Inc., supra. Moreover, Central Maine will continue
to be regulated under the utility laws of the State of Maine. Therefore, the
Commission should find that sufficient safeguards exist under State law to
ensure that no potential adverse consequences would occur as a result of the
Reorganization.
Item 4 REGULATORY APPROVAL
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
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<PAGE>
Phase I pursuant thereto is attached hereto as Exhibit D-2. As noted above,
Phase II of the MPUC case is proceeding. 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. A copy of the final NRC order pursuant thereto
will be filed as Exhibit D-6 by amendment hereto. Central Maine will, if
necessary, file an application for approval or waiver with the Connecticut DPUC,
a copy of which will be filed by amendment hereto. If approval or waiver by the
Connecticut DPUC is applied for, a copy of the final Connecticut DPUC order
pursuant thereto will be filed by amendment hereto. Other than such enumerated
approvals and the approval of the Commission hereunder, no other regulatory
approvals are required for the Reorganization.
Item 5 PROCEDURE
Central Maine and Holding Company hereby request that there be no hearing
on this application and that the Commission issue its order as soon as
practicable after the filing hereof. The Commission is respectfully requested to
issue and publish the requisite notice under Rule 23 with respect to the filing
of this application not later than June 12, 1998, such notice to specify a date
not later than July 7, 1998, by which comments may be entered and a date not
later than July 10, 1998, as the date after which an order of the Commission
granting and permitting
-31-
<PAGE>
this application to become effective may be entered by the Commission. A form of
Notice is filed herewith as Exhibit H-1.
Without prejudice to its right to modify the same if a hearing should be
ordered on this application, Central Maine and Holding Company hereby make the
following specifications required by paragraph (b) of Item 5 of Form U-1:
1. There should not be a recommended decision by a hearing officer or any
other responsible officer of the Commission.
2. There should not be a 30-day waiting period between issuance of the
Commission's order and the date on which the order is to become
effective.
3. Both Holding Company and Central Maine consent to the Division of
Investment Management assisting in the preparation of the Commission's
decision or order in this matter, unless such Division opposes this
application.
It is requested that the Commission send copies of all communications to
Central Maine and Holding Company as follows:
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
with a concurrent copy to:
E. Ellsworth McMeen, III, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-4513
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<PAGE>
Item 6 EXHIBITS AND FINANCIAL STATEMENTS
NO. DESCRIPTION METHOD OF FILING
A-1 Draft Articles of Incorporation Incorporated herein by reference
of Holding Company to be in to Appendix II to Pre-effective
effect on the effective date. Amendment No. 1 to Form S-4 filed
by Central Maine on April 10, 1998
(File No. 333-49677)
A-2 Draft By-Laws of Holding Company Incorporated herein by reference
to be in effect on the effective to Appendix III to Pre-effective
date. Amendment No. 1 to Form S-4 filed
by Central Maine on April 10, 1998
(File No. 333-49677)
A-3 Articles of Incorporation Incorporated herein by reference
of Central Maine, as amended. to the Form 10-K for the year
ended December 31, 1992 filed by
Central Maine (File No. 1-5139)
A-4 By-Laws of Central Maine, Previously filed.
B-1 Draft Agreement and Plan of Previously filed.
Merger.
C-1 Registration Statement of Incorporated herein by reference
Holding Company on Form S-4 to the Pre-effective Amendment
relating to the shares of No. 1 to Form S-4 filed by Central
Holding Company Common Stock to Maine on April 10, 1998
be issued in connection with the (File No. 333-49677)
Merger.
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<PAGE>
D-1 MPUC Application dated Previously filed.
December 8, 1997.
D-2 Order of the MPUC. Filed herewith.
D-3 Application for FERC Filed herewith.
authorization under Section 203
of the Federal Power Act.
D-4 Order of the FERC. To be filed by amendment.
D-5 Request for NRC Consent under Filed herewith.
Section 184 of the Atomic Energy
Act and 10 C.F.R. ss.ss. 50.80.
D-6 Order of the NRC. To be filed by amendment.
E-1 Map showing service territory of To be filed by amendment.
Central Maine.
F-1 Preliminary opinion of counsel. To be filed by amendment.
F-2 "Past-tense" opinion of counsel. To be filed by amendment.
G-1 Consolidated Balance Sheet of Incorporated herein by reference
Central Maine as of December 31, to the Form 10-K for the year
1997 and Consolidated Statements ended December 31, 1997 filed by
of Earnings, Cash Flows, Central Maine (File No. 1-5139)
Capitalization and Interim
Financing and Changes in Common
Stock Investment for the three
fiscal years ended December 31,
1997.
G-2 Consolidated Balance Sheet as Incorporated herein by reference
of March 31, 1998 and 1997 and to the Form 10-Q for the three
Consolidated Statements of months ended March 31, 1998 filed
Earnings and Cash Flows for the by Central Maine (File No. 1-5139)
three months ended March 31,
1998 and 1997
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<PAGE>
G-3 Pro forma Consolidated Balance Not applicable.
Sheets, Statements of Income and
Retained Earnings giving effect
to the Reorganization.
G-4 Form U-3A-2, "Statement of Incorporated herein by reference
Holding Company Claiming to the Form U-3A-2 dated February
Exemption under Rule U-3A-2 27, 1998 filed by Central Maine
from the Provisions of the Public (File No. 69-198)
Utility Holding Company Act of
1935," dated February 27, 1998,
filed by Central Maine
G-5 Financial Data Schedule. Previously filed.
H-1 Form of Notice. Previously filed.
Item 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this application and
declaration involves a "major federal action" nor do any of them "significantly
affect the quality of the human environment" as those terms are used in section
102(2)(C) of the National Environmental Policy Act. The transaction that is the
subject of this application will not result in changes in the operation of the
company that will have an impact on the environment. Neither Central Maine nor
Holding Company are aware of any federal agency that has prepared or is
preparing an environmental impact statement with respect to the transactions
that are the subject of this application.
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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: June 11, 1998 HOLDCO, INC.
By: /s/ Anne M. Pare
-----------------------------
Name: Anne M. Pare
Title: Treasurer, Corporate
Counsel and
Secretary
Date: June 11, 1998 CENTRAL MAINE POWER COMPANY
By: /s/ Anne M. Pare
-----------------------------
Name: Anne M. Pare
Title: Corporate Counsel and
Secretary
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<PAGE>
APPENDIX A
Current and Post-Reorganization Corporate Charts
<PAGE>
<TABLE>
<CAPTION>
CURRENT ORGANIZATION CHART
<S> <C>
CMP
|
|
|
------------------------------------------------------------------------------------------------------------------------
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
78.3% | | | | | | | | | |
MEPCO NOVARCO Maine Yankee 38% Central | Cumberland CMPI MaineCom Telesmart Union
50% | Yankee Atomic 9.5% Securities | Securities Water
| Ct. Yankee 6% |
Chester Vt. Yankee 4% |
|
|
|
|
(offered for sale) |
----------------------------------------
| | | |
| | | |
| | 24.8%| 14%|
AVEC Kennebec Kennebec GIPOP
Hydro Water
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROPOSED POST-REORGANIZATION CORPORATE STRUCTURE
<S> <C>
Holding Company
|
|
|
|
--------------------------------------------------------------------------
| | | | | | |
| | | | | | |
| CMPI MaineCom TeleSmart Union EnerMark GasCo
| Water |
CMP 50%|
| |
| CMP
| Gasco
|
|
|
|
|
--------------------------------------------------------------------------------------------
| | | | | | | | |
| | | | | | | | |
78.3% | | 38%| 9.5%| 6%| 4%| | | |
MEPCO NOVARCO Maine Yankee Ct. Vt. | Central Cumberland
| Yankee Atomic Yankee Yankee | Securities Securities
| |
50%| |
Chester |
|
|
|
(offered for sale) |
-----------------------------------
| | | |
| | | |
| | 24.8%| 14%|
AVEC Kennebec Kennebec GIPOP
Hydro Water
</TABLE>
STATE OF MAINE Docket No. 97-930
PUBLIC UTILITIES COMMISSION
May 1, 1998
CENTRAL MAINE POWER COMPANY ORDER
Application for Approval of
Reorganizations under
Section 708, of Transactions
with Affiliated Interests under
Section 707, and of Transfers
of Assets under Section 1101
of Title 35-A M.R.S.A.
- -----------------------------------------------------------------------------
I. SUMMARY
In this Order, we approve Central Maine Power Company's request for
approvals of a reorganization, affiliated interest transactions and transfers of
assets to allow it to reorganize under a holding company structure, subject to
certain conditions as specified below.
II. BACKGROUND
On December 8, 1997, Central Maine Power Company (CMP or the Company) filed
with the Commission its Application for Approvals of Reorganizations under
Section 708, of Transactions with Affiliated Interests under Section 707, and of
Transfers of Assets under Section 1101 of Title 35-A M.R.S.A. (the Application),
requesting approval of the reorganization of the Company into a holding company
structure and related approvals.1 As proposed, CMP and its non-utility
subsidiaries will become subsidiaries of a new Maine corporation (HoldCo) whose
primary function will be to coordinate the policies and direction of the
corporate group and provide capital for subsidiary operations. All transmission
and distribution plant used by CMP in connection with the transmission and
distribution of electricity will remain assets of CMP and will be unaffected by
the reorganization.
The following entities were allowed to intervene as parties to this
proceeding: 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).
- --------
1 At CMP's request, the Commission issued an order on Jaunary 27, 1998, granting
interim approval to incorporate a holding company for the limited purpose of
allowing CMP to make required Securities and Exchange Commission filings.
<PAGE>
Order -2- Docket No. 97-930
- -------------------------------------------------------------------------------
On January 29, 1998, the Hearing Examiner issued a Procedural Order
separating the requested reorganization approvals relating to HoldCo, CMP, and
CMP's existing utility and non-utility affiliates into Phase I. Approvals
relating to CMP's energy marketing affiliate, EnerMark, will be considered in
Phase II of this docket, while approvals relating to the natural gas
distribution business are being considered simultaneously in a separate
proceeding assigned Docket No. 98-077. Certain service agreements will be
addressed after the issues in Phases I and II have been decided.
Technical conferences were held on January 30 and February 20, 1998, at
which the parties asked questions on various aspects of the Application. The
Company responded to written and oral data requests submitted by the parties to
this proceeding. The Hearing Examiner afforded the parties time to negotiate a
resolution of the various issues in the case. On March 26, 1998, CMP informed
the Commission that although active negotiations had taken place, agreement was
not reached on all issues. On March 30, 1998, OPA, IECG, IEPM (the Joint
Parties) filed proposed findings and order describing the conditions it believed
necessary for the Commission to approve the reorganization. CSE later joined in
this filing. In its April 15 comments, CMP indicated where it agreed and
disagreed with the Joint Parties filing.
On April 21, 1998, the Commission held an evidentiary hearing in this
proceeding. Dr. Richard Bower testified on behalf of the Joint Parties. David
Brooks testified on behalf of CMP. At the close of the hearing, all parties were
given the opportunity to present oral arguments.
III. Standard of Review
The Commission is considering the following six requests of CMP in this
docket:
1. The creation of a corporation that will become the parent company of CMP
through its ownership of all the outstanding common stock of the Company
(HoldCo);
2. The creation of a corporation whose only purpose will be to facilitate
the corporate reorganization and which, when organized, will be a wholly-owned
subsidiary of HoldCo and will cease to exist once it has served its purpose
(MergeCo);
3. The conversion and exchange of all the outstanding shares of the
Company's common stock into an equal number of shares of HoldCo's common stock;
<PAGE>
Order -3- Docket No. 97-930
- -------------------------------------------------------------------------------
4. The merger of MergeCo into the Company, with the Company as the
surviving corporation, and the resulting conversion of the outstanding shares of
MergeCo common stock into a number of shares of the common stock of the Company
equal to the number of shares of the Company's common stock outstanding
immediately prior to the share conversion described in item 3 above, which will
be deemed issued by the Company for this purpose;
5. The dividend by CMP to HoldCo of the stock of specified non-utility
wholly-owned subsidiaries of CMP to carry out the reorganization;
6. The creation of one or more affiliated interests of HoldCo and
non-utility subsidiaries or other non-utility affiliates of HoldCo, including
joint ventures, general partnerships, limited partnerships, limited facility
companies and corporations, to enhance the ability of these entities to market
and furnish their services.
The Commission must find that the reorganizations are consistent with the
interests of the utility's ratepayers and investors. 35-A M.R.S.A. ss.
708(2)(A). In granting the approvals the Commission may impose terms, conditions
or requirements it determines are necessary to protect the interests of
ratepayers. These may include conditions to assure: 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 adequate service; the utility's credit is not impaired or adversely
affected; and reasonable limits on total level of investment in nonutility
business. 35-A M.R.S.A. ss. 708(2)(A)(1-9).
IV. ISSUES
This reorganization proceeding raises several important regulatory policy
questions. We discuss these issues in this section, as raised by the Joint
Parties and responded to by CMP.
A. Investment Level
The Joint Parties argue that HoldCo's investments in non-utility activities
should be limited to five percent of CMP's total capitalization, based on the
requirements in Chapter 820, Utility Requirements for Non-Core Activities
Transactions Between Affiliates.2 While they acknowledge that Chapter 820 does
not
- --------
2 The Commission provisionally adopted Chapter 820, which governs transactions
between affiliates, 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 proposals at issue here.
<PAGE>
Order -4- Docket No. 97-930
- -------------------------------------------------------------------------------
apply to investments by HoldCo because Chapter 820 limits the amount a regulated
Utility can invest in a subsidiary, they claim that the holding company
structure does not materially change the appropriate cap on investment. CMP's
total book capitalization (predivestiture) is $1,219 million and thus
non-utility investments would be limited to $60.95 million, under a 5% cap.
CMP believes that an investment limit is unnecessary. But would accept a
limit of $240 million (about 20% of pre- divestiture total book capitalization).
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 HoldCo's non- utility
affiliates. Nevertheless, some limit on HoldCo investment in non-utility
activities may provide useful additional protection for utility ratepayers. As
the testimony of Dr. Bower suggested, it is prudent to limit, at least to some
degree, the extent to which HoldCo management will be distracted from its
obligations to CMP by issues arising from its unregulated activities. We
conclude, however, that the 5% limit on investment by the utility itself is
unnecessarily restrictive in light of the insulating effect on the HoldCo
structure. A limit of $240 million on investments in non-utility subsidiaries
and other non-utility activities, excluding any such subsidiaries created for
the purpose of engaging, directly or indirectly, in the natural gas distribution
business, should protect ratepayers adequately.
The Joint Parties also recommended that CMP be permitted to transfer up to
$1,000,000 per year, for 3 years, of non-T&D related assets from CMP to any of
its affiliates without further Commission approval. CMP sought approval for a
5-year period. We conclude that, after 3 years, the affiliates should be able to
stand sufficiently on their own to alleviate the need for substantial additional
asset transfers from CMP. Therefore we adopt the condition proposed by the Joint
Parties. Moreover,
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Order -5- Docket No. 97-930
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we clarify that, even during the 3-year period, CMP must report any transfers
with a value above $20,000.
B. HoldCo Debt Issuance and Guarantees
The Joint Parties argue that HoldCo be restricted to issuing only
short-term debt, which would be capped at 5% of the total capitalization of
HoldCo and that HoldCo would not provide any "guarantees" on the obligations of
any non-utility affiliate of HoldCo.
CMP responds that it is unnecessary to impose any restrictions on HoldCo's
debt issuances but that it would accept, for a period of up to 5 years, a limit
of debt/total capital of 50%. CMP suggests that there should be no restrictions
on HoldCo's ability to provide guarantees. Because the T&D subsidiary of HoldCo
would not be allowed to provide guarantees to non-utility affiliates, CMP
believes that ratepayers are adequately protected.
Because this issue is related to the "double leverage" issue, it is useful
to review the Commission's policy on double leverage. The Commission's
"divisional cost of capital" practices were stated most recently in the last
Bell Atlantic (F/K/A NYNEX) rate case:
We will not use the double leverage approach in this case because there is
no evidence to suggest that: (1) the Company's actual capital structure is
unreasonable; (2) NYNEX Corp.'s policies (such as its payout ratio policy)
have been inappropriate; or (3) that the capital structure does not strike
an appropriate balance between low cost and financial integrity. Further,
double leverage theory ignores competition among subsidiaries for capital
from a parent company.
Unless we determine that there is substantial evidence that the Company's
capital structure is unreasonable, we will use the "divisional cost of
capital" model to determine the Company's appropriate overall cost of
capital. The divisional cost of capital approach is based on the principle
that different subsidiaries of a parent company are exposed to different
risks, as evidenced by the different bond ratings and debt costs. This same
principle holds for equity investments as well; the cost of equity will
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Order -6- Docket No. 97-930
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vary between divisions of the same parent company, depending upon the risk
profile of that division's operations. Using double leverage would
inappropriately obscure this fact. We have thus evaluated the Company's
capital structure using the divisional cost of capital approach.
Frederic A. Pease et al. v. New England Telephone and Telegraph Company d/b/a
NYNEX, Complaint Requesting Commission Investigation of the Level of Revenues
Being Earned by NYNEX and Determination of Whether Toll and Local Rates Should
be Reduced, Docket No. 94-254, Order at 7-8 (May 15, 1995); 162 PUR 4th 110
(1995).
Following this policy, the Commission will focus in any rate case on the
regulated subsidiaries of HoldCo and will use "divisional cost of capital"
concepts. Thus, if the regulated subsidiary has a reasonable capital structure,
the Commission will rely on that capital structure to determine the overall cost
of capital of the subsidiary. If the capital structure is not reasonable, the
Commission will use a "hypothetical" capital structure, based on a review of
industry averages, rating agency guidelines, and other data. The Commission will
use the utility subsidiary's embedded debt and preferred stock costs and
estimate the forward-looking cost of equity for the utility subsidiary (based on
a review of comparable market-traded companies).
The Commission will generally not review the debt issuances of the
non-regulated HoldCo. Because the assets are at the subsidiary level, lenders
will prefer lending at the subsidiary level. Nevertheless, we believe that the
50% restriction that CMP suggests provides an additional assurance that
ratepayers will not be harmed because of financial problems at the holding
company level and therefore we adopt it. We do not adopt CMP's suggested 5-year
"sunset" of this 50% debt restriction at the holding company level. Nor do we
adopt the Joint Parties's recommendation that the holding company not be allowed
to "guarantee" or provide credit enhancement to support its non-utility
subsidiaries. Because HoldCo's regulated utility subsidiaries cannot be used to
provide "guarantees" or credit enhancement to HoldCo's non-utility subsidiaries,
the utility ratepayers are sufficiently protected and therefore we will not
restrict HoldCo's ability to guarantee or credit-enhance the debt of its
non-utility subsidiaries or affiliates.
C. Dividends
The Joint Parties would restrict dividend payments by the T&D Company to
HoldCo to no more than 100% of "cash" income available for dividends calculated
on a 2-year rolling average
<PAGE>
Order -7- Docket No. 97-930
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basis but would not restrict payments resulting from divestiture. The T&D
company management would consult with "senior" PUC staff before paying a
dividend that exceeds these restrictions.
CMP states that dividend policy has not heretofore been regulated by the
PUC and that the HoldCo reorganization is not a basis to begin regulating
dividend policy. CMP notes that dividend policy is a "highly sensitive" area of
discretion for its Board of Directors and that the Commission has other ways to
assure that ratepayers are well-served by the T&D company (e.g., service quality
standards, Section 1303 investigations, rate cases, etc.).
We decline to place additional restrictions, in advance, on the dividend
policy of CMP. We will, however, require the Company to notify the Commission
within 30 days if a utility subsidiary pays a dividend to HoldCo that is more
than 100% of income available for dividends, calculated on a 2-year rolling
average basis. This notice should inform the Commission on the utility
subsidiary's financial condition. Moreover, the Commission reserves the right in
the future, should financial circumstances warrant, to impose limitations on the
dividend policy of the regulated CMP T&D Co.
D. Officers and Directors
The holding company structure can provide benefits by clearly separating
the non-utility activities from utility- related activities. The holding company
structure makes interaffiliate transactions more visible. This raises the issue
of whether CMP's board members or officers should be allowed to be on the boards
of non-utility entities.
The Joint Parties would restrict CMP's officers and board members from
serving as officers or board members of any affiliated competitive energy
provider or of any subsidiary or affiliate that has or will have significant
business dealings with CMP.
CMP states that it will not contest a provision that prevents officers and
members of CMP's board of directors from serving as officers or board members of
any affiliated competitive energy provider. CMP disputes extending that
prohibition to subsidiaries that are not competitive energy providers because it
would be difficult to provide appropriate board members and officers from
outside CMP.
We will not allow officers and members of CMP's board of directors to serve
as officers or board members of any affiliated competitive energy provider. We
believe that the highest degree of separation is required to avoid distorting
the
<PAGE>
Order -8- Docket No. 97-930
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nascant competitive energy markets. We will not, however, extend this
restriction to CMP's other non-utility activities.3 Extending the restriction is
unnecessary, and we are reluctant to reduce CMP's ability to achieve operational
economies.
E. Corporate Naming
CMP requests that "HoldCo" be named "Central Maine Power
Enterprises, Inc." and that it not be required to pay royalties to CMP for use
of its name as required by Chapter 820. The Joint Parties agreed that HoldCo
should be exempt from such payments to the extent it remains merely a holding
company.
We do not find that renaming HoldCo as "CMP Enterprises, Inc." would, in
itself, trigger a royalty payment under Chapter 820. Because HoldCo will be a
non-operating entity with no customers, markets or competitors, HoldCo will not
rely on CMP's established customer relationships and business reputation.
HoldCo's use of the name CMP Enterprises, Inc. will merely assist the financial
community and investors in identifying HoldCo's origin. While we will allow
HoldCo to change its name to CMP Enterprises, Inc., if it chooses to do so, it
is important to emphasize that we will not allow CMP to circumvent our rules
regarding royalty payments with any claim that the name being used is that of
the holding company rather than CMP.
F. Tax Treatment
The Joint Parties propose that we require CMP to calculate its taxes for
ratemaking purposes using a consolidated tax return. We decline to adopt this
condition. The Commission has consistently required that ratepayers obtain the
benefits (if any) of a consolidated filing; moreover, the conditions we impose
in this order clearly require that ratepayers be held harmless, to the extent
possible, from any adverse financial consequences of the new structure. There
is, in our judgment, no need to enshrine our policy concerning the treatment of
taxes for CMP in a condition here.
G. Costs of Reorganization
We agree that costs of the reorganization should be borne entirely by
shareholders. While, as CMP suggests, some of the impetus for the reorganization
may have come from the requirements to divest generation assets and conduct
unregulated business through separate subsidiaries, the structure proposed by
- --------
3 Chairman Welch dissents and would modify this condition. See attached dissent.
<PAGE>
Order -9- Docket No. 97-930
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CMP here goes beyond what the law and our regulations inquire and must be viewed
as a choice by CMP's management. We decline, however, to include specific
inferences to any bonuses or similar payments in the condition relating to
costs: such payments are not in any qualitative sense different from any other
reorganization-related cost.
V. FINDINGS AND ORDERING PARAGRAPHS
Based on our review of materials submitted by CMP in this proceeding, the
Comments and submissions of other parties, the evidence produced at the hearings
in this case and the oral arguments of the parties, we make the following
findings approving CMP's reorganization with necessary conditions to comply with
35-A M.R.S.A. ss. 708:
1. The creation of a corporation, referred to as HoldCo in the Application
[but that will likely be named Central Maine Power Enterprises, Inc.], that
will, if all other necessary regulatory and shareholder approvals are obtained,
become the parent company of CMP (the Company) through its ownership of all the
outstanding common stock of the Company, as provided in the Agreement and Plan
of Merger filed as Exhibit B to the Application (the Merger Plan), is consistent
with the interests of the Company's ratepayers and investors and is therefore
approved. The Commission notes that HoldCo has previously been organized as a
corporation under the laws of Maine for the purpose of filing application with
the Securities and Exchange Commission in furtherance of the proposed
reorganization of the Company into a holding company structure, as provided in
the Commission's Order dated January 27, 1998 in this Docket. HoldCo will not be
a "public utility" as defined in Section 102 of Title 35-A.
2. The creation of a corporation, referred to in the Application as
MergeCo, which, when organized, will be a wholly-owned subsidiary of HoldCo
whose only purpose will be to facilitate the corporate reorganization as
described in Section 4 below, is consistent with the interests of the Company's
ratepayers and investors and is therefore approved.
3. The conversion and exchange of all the outstanding shares of the
Company's common stock into an equal number of shares of HoldCo's common stock
as described in the Application and as provided in the Merger Plan is consistent
with the interests of the Company's ratepayers and investors and is therefore
approved.
4. The merger of MergeCo into the Company, with the Company as the
surviving corporation, and the resulting conversion of the outstanding shares of
MergeCo common stock into
<PAGE>
Order -10- Docket No. 97-930
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a number of shares of the common stock of the Company equal to the number of
shares of the Company's common stock outstanding immediately prior to the share
conversion described in Section 3 above, which will be deemed issued for that
purpose, as provided in Section 901 of Title 13-A M.R.S.A. and as reflected in
the Merger Plan, resulting in the Company's becoming a subsidiary of HoldCo, is
consistent with the interests of the Company's ratepayers and investors and is
therefore approved.
5. The Merger Plan, which reflects the transactions described in Sections 1
through 4 above and related provisions to carry out the reorganization of the
Company into a holding company structure, as required by Section 901 of Title
13-A M.R.S.A., is consistent with the interests of the Company's ratepayers and
investors and is therefore approved.
6. (a) The dividend by CMP to HoldCo of the stock of CMP International
Consultants (CMPI), MaineCom Services, and TeleSmart, each of which is currently
a wholly-owned corporate subsidiary of CMP and after such dividend will be a
wholly-owned subsidiary of HoldCo with HoldCo owning all of their outstanding
common stock, and the transfer by CMPI of its E/PRO division to Union
Water-Power Company (Union Water), are consistent with the interests of the
Company's ratepayers and investors, and are therefore approved.
(b) The dividend by CMP to HoldCo of Union, which is currently a
wholly-owned corporate subsidiary of CMP, and after such dividend will be a
wholly-owned subsidiary of HoldCo (with HoldCo owning all of Union Water's
outstanding common stock), is consistent with the interests of the Company's
ratepayers and investors and is therefore approved, subject to the following
conditions: (i) that this dividend shall be without prejudice to any party to
argue in Docket No. 97-580, Investigation by Central Maine Power Company's
Stranded Costs, Transmission and Distribution Utility Revenue Requirements and
Rate Design, that ratepayers should receive compensation for all or a portion of
the value of particular assets of Union Water to the extent costs or risks
associated with those assets have been borne by ratepayers; (ii) neither HoldCo
nor the Company shall contest the authority of the Commission to require that
ratepayers receive such compensation, notwithstanding the dividend by CMP to
HoldCo of Union Water pursuant to this reorganization; and (iii) HoldCo and the
Company will comply with any final, non-appealable order of the Commission
imposing such a requirement. A party seeking to exercise its rights under this
paragraph shall be permitted to conduct reasonable discovery in the rebuttal
phase of Docket No. 97-580 with respect to Union Water assets and relationships
with CMP. The Commission fully retains its authority to decide this compensation
issue in Docket No. 97-580 or any other docket.
<PAGE>
Order -11- Docket No. 97-930
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7. The creation of one or more affiliated interests, as defined in Section
707 of Title 35-A M.R.S.A., of HoldCo and of HoldCo's non-utility subsidiaries
and other non-utility affiliates, including joint ventures, general
partnerships, limited partnerships, limited liability partnerships, limited
liability companies, corporations and other forms of organization, to enhance
the ability to develop business ventures and market and furnish services, and
the investment by HoldCo in such entities within the authorized investment level
as provided in Section q. below and by its non-utility subsidiaries and other
non-utility affiliates is consistent with the interests of the Company's
ratepayers and investors and is therefore approved.
8. As required by Section 708 of Title 35-A, the following additional
conditions are necessary to protect the interests of ratepayers:
a. Asset Transfers at Time of Reorganization. The parties acknowledge
that approximately 10 officers and employees of the Company will
become officers and employees of HoldCo at the effective time of the
reorganization. In connection with the transfer of the E/PRO division
of CMPI to Union Water at that time, approximately nine to 11 Company
employees will be E/PRO employees. Furniture, personal computers and
other office equipment and materials currently used by the Company
officers and employees may be transferred to HoldCo and Union Water
(as the case may be) by the Company if the Company determines that
such transfers are in its best interests. HoldCo and Union Water must
pay market value for assets transferred to them by CMP. From and after
the effective date of the reorganization, HoldCo will report to the
Commission all transfers of assets by HoldCo above $20,000 in value to
any of its subsidiaries or other affiliates.
b. Subsequent Asset Transfers. During the 3-year period beginning on the
effective date of the reorganization, CMP may, without additional
Commission approval, transfer to any affiliated interest, as defined
in Section 707 of Title 35-A M.R.S.A., any assets that are not
specific and unique to the conduct of its transmission, and
distribution business, so long as the total of all transfers does not
exceed $1,000,000 in aggregate market value per calendar year,
including the assets described in paragraph (a), above. HoldCo, CMP
and any other regulated utility subsidiary will report to the
Commission all transfers of assets by HoldCo above $20,000 in value to
any of its subsidiaries or other affiliates. Such transfers are in the
public interest and are also hereby approved under Section 707
<PAGE>
Order -12- Docket No. 97-930
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of Title 35-A M.R.S.A. and under Section 1101 thereof to the extent
applicable. Any affiliated interest of CMP to which any such asset is
transferred will pay the market value of the asset. CMP may not
transfer to any affiliated interest or to any third party assets that
are specific and unique to the conduct of its transmission and
distribution business, including rights-of-way without authorization
of the Commission under Section 707 and/or Section 1101 of Title 35-A
M.R.S.A., as applicable. Prior to the expiration of the 3-year period,
CMP may apply to the Commission for an extension of the authority to
transfer assets to its affiliates on the terms set forth in this
Section 8(b). Transfers of assets beyond those specified herein are
prohibited without express Commission approval.
c. Access to Books and Records. The Commission will have access to books,
records and documents of all public utilities in the holding company
system, of HoldCo, and of non-utility subsidiaries and other
affiliates in which HoldCo directly or indirectly holds a majority
interest. On request of the Commission, HoldCo will use reasonable
efforts to produce books, records and documents of affiliates in which
it does not directly or indirectly hold a majority interest.
d. Testimony. On request of the Commission, HoldCo will direct any
employee or officer of HoldCo or of any subsidiary or other affiliate
in which HoldCo directly or indirectly holds a majority interest to
appear before the Commission for the purpose of giving testimony.
e. Financial Statements. HoldCo will provide to the Commission
quarterly and annual financial statements.
f. SEC Filings. HoldCo will provide to the Commission copies of all
periodic reports filed by HoldCo with the Securities and Exchange
Commission.
g. Confidentiality. HoldCo shall retain the right to request that
certain business, financial and proprietary information of HoldCo
or any of its subsidiaries or other affiliates should be treated
as confidential. Appropriate protections will be provided under
the Commission's rules or as otherwise provided by law, including
the issuance of appropriate protective orders.
h. Utilities Securities Issuance. Securities issued by the Company
will be done independently of HoldCo. The
<PAGE>
Order -13- Docket No. 97-930
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proceeds of any securities issued by the Company will be used
exclusively by the Company for its business.
i. Reorganization Costs. All costs arising from the reorganization
of the Company to a holding company system will be borne by
shareholders.
j. Ownership of CMP. Without prior Commission approval, HoldCo will
not sell, pledge or otherwise transfer any common stock of the
Company.
k. Political Activities. HoldCo will comply with the provisions of
Chapter 83 of the Commission's rules applicable to political and
lobbying contributions and expenses.
l. Standards of Conduct. The existence of HoldCo will not provide a
means to circumvent any of the provisions of 35-A M.R.S.A.
Section 3205 or the Commission's rules adopted pursuant to that
Section. Specifically, HoldCo may not engage in any conduct that
circumvents the standards set forth in 35-A M.R.S.A. Section
3205, including but not limited to actions that would assist in
or facilitate the provision of products, services or information
from CMP, as a transmission and distribution utility, to an
affiliated competitive provider, as defined in Section 3205, to
the extent that CMP is prohibited from directly providing such
products, services or information to its affiliated competitive
provider under the provisions of the law. Before any officer,
director or employee of HoldCo obtains from CMP any document or
copy thereof that includes information whose release or use by
CMP is restricted pursuant to Section 3205, he or she will sign
an appropriate agreement stating that he or she will not release
or use the information in any way that CMP could not release or
use it pursuant to Section 3205. HoldCo will promptly report any
known violation of this paragraph or other known violation of the
standards of conduct to the Commission.
m. Officers and Directors. Officers and members of the Board of
Directors of CMP will not serve as officers or members of the
Board of Directors of any affiliated competitive energy provider.
n. Physical Location. CMP, as a transmission and distribution
utility, and its affiliated competitive provider will be located
in separate buildings within 120 days of the effective date of
the reorganization. A non-utility affiliate of CMP with more than
ten (10)
<PAGE>
Order -14- Docket No. 97-930
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employees and annual revenues exceeding $200,000 may not be
located in the same office building as CMP. A subsidiary or other
affiliate not located at 83 Edison Drive, Augusta, Maine as of
the date of any approval of this reorganization by the Commission
will not be relocated to those premises.
o. 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.
p. Tax Effects. CMP will obtain a written opinion of tax counsel for
CMP, providing assurances that carrying out the reorganizations
will not result in any tax effects for CMP. To the extent that
any such tax effects occur, ratepayers will not bear any cost of
such tax effects.
q. Investment Limits in Subsidiaries and Affiliates. HoldCo may,
without further Commission approval, invest up $240 million in
non-utility subsidiaries and other non-utility affiliates,
excluding any such subsidiaries or other affiliates created for
the purpose of engaging, directly or indirectly, in the natural
gas distribution business.
r. Financial Integrity of T&D Co. To protect and maintain the
financial integrity of the regulated T&D Company:
(i) HoldCo may issue debt of any maturity provided that the
aggregate principal amount of debt outstanding at any one time
does not exceed 50% of HoldCo's capitalization.
(ii) Except as expressly authorized in (i) above, the debt of the
Company will be raised by CMP and will not be derived from
HoldCo.
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Order -15- Docket No. 97-930
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(iii) The T&D Co. will not make loans to HoldCo or any of the
unregulated subsidiaries and affiliates; guarantee the
obligations of either the HoldCo or any or the unregulated
subsidiaries and affiliates; or pledge its assets as security for
the indebtedness of HoldCo or any subsidiary or affiliate.
(iv) In any given year if the T&D Company pays out more than 100%
of income available for dividends calculated on a two-year
rolling average basis, the T&D Company shall notify the
Commission within 30 days of that dividend payment. The
Commission reserves the right, in the future, to limit dividends,
of this regulated CMP T&D Co., should financial or related
circumstances warrant.
s. Prior Commission Orders. Because of the conditions set forth
above, the Order of the Commission dated November 23, 1994 in
Docket 94-147 providing for above-the-line treatment of the
income and expenses of CMPI and limiting investments in CMPI to
$1.5 million will be modified as follows and will have no further
force and effect from and after the effective date of the
reorganization: CMPI's income and expenses will no longer be
reported above the line and HoldCo may invest in CMPI within the
limits authorized in Section 8(q) above. In addition, the
Commission's Order Approving Stipulation dated September 9, 1995
in Docket No. 95- 251 and its Order dated March 4, 1997 in Docket
No. 97- 025 providing for above-the-line treatment of TeleSmart's
income and expenses, limiting investments in TeleSmart to $2.5
million, and requiring a 45-day review period for the creation of
non-utility affiliated interests of TeleSmart will be modified as
follows and will have no further force and effect from and after
the effective date of the reorganization: TeleSmart's income and
expenses will no longer be reported above the line, HoldCo may
invest in TeleSmart within the limits authorized in Section 8(q),
above, and TeleSmart may create non-utility affiliates as
provided in Section 7.
t. Use of Corporate Name/Royalty Payments. With respect to the
naming of HoldCo as "Central Maine Power Enterprises, Inc." there
is good cause for waiver by the Commission of the provision of
Chapter 820, Utility Requirements for Non-Core Activities and
Transactions between Affiliates, that may otherwise require
HoldCo to pay royalties to CMP for use of the CMP name. Because
HoldCo will be a non-operating entity with no customers, markets,
or competitors, it will not rely on
<PAGE>
Order -16- Docket No. 97-930
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CMP's established customer relationships and business reputation
for the purpose of promoting a fledgling business enterprise.
Since HoldCo will be a corporation whose shares are widely held
by its shareholders, HoldCo's use of this name will assist the
financial community and investors in identifying HoldCo's origin.
HoldCo may not, however, in the future claim that use of the CMP
name by other subsidiaries is not subject to royalty payments
because the name of the holding company is being used rather than
the name of CMP itself. For the purposes of applying the royalty
requirement, the use of "CMP" or "Central Maine Power" - whether
referring to CMP (the regulated entity) or Central Maine Power
Enterprises, Inc. - will be considered use of the regulated
company's name.
Accordingly, we
O R D E R
1. That CMP's proposed reorganization filed in this docket be approved
pursuant to the conditions and requirements set forth herein.
2. That the reorganization of CMP on the conditions set forth in this Order
and the transactions described herein to implement the reorganization, are
consistent with the interests of the CMP's ratepayers and investors under
Section 708 of Title 35-A M.R.S.A.
<PAGE>
Order -17- Docket No. 97-930
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3. That the transfers of assets by the Company to certain affiliates as
described herein are consistent with the public interest under Sections 707
and 1101 of Title 35-A M.R.S.A.
Dated at Augusta, Maine this 1st day of May, 1998.
BY ORDER OF THE COMMISSION
Dennis L. Keschl
Administrative Director
COMMISSIONERS VOTING FOR: WELCH: Dissenting in part. See
attached Dissenting Opinion.
HUNT
NUGENT
<PAGE>
Order -18- Docket No. 97-930
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Chairman Welch, dissenting in part.
I recognize that, as a practical matter, information is likely to flow
among members of the HoldCo board of directors in ways that may frustrate the
prophylactic intent of any prohibition concerning multiple board memberships. I
am also sympathetic to CMP's assertion that board expertise is a scarce
resource, and there are efficiencies in assigning individuals who serve as CMP
board members and officers to fulfill similar functions in unregulated
affiliates. If we are to take the notion of separation seriously, however, it
seems to me that we should insist that those who are responsible for the
operation of the regulated utility should be distracted as little as possible by
the Siren song of unregulated activities. The level of distraction, and the loss
to rate payers' interests, will be impossible to quantify. The injury may be
slight, but so would be the burden on HoldCo's shareowners of finding the
necessary expertise for the unregulated affiliates outside of the regulated
company. I would, therefor, preclude any board member or officer of CMP from
also serving as a director or officer of any unregulated affiliate (other than
HoldCo itself).
<PAGE>
Order -19- Docket No. 97-930
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NOTICE OF RIGHTS TO REVIEW OR APPEAL
5 M.R.S.A. ss. 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. ss. 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. ss. 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.
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
)
CENTRAL MAINE POWER COMPANY ) Docket No. EC98-___________
)
APPLICATION FOR COMMISSION
APPROVAL OF CORPORATE REORGANIZATION
E. Ellsworth McMeen Anne M. Pare
H. Liza Moses Central Maine Power Company
Catherine P. McCarthy 83 Edison Drive
Alexander K. Sudnik Augusta, ME 04336
LeBoeuf, Lamb, Greene Telephone: (207) 623-3521
& MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Telephone: (212) 424-8000
April 3, 1998
<PAGE>
UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
)
CENTRAL MAINE POWER COMPANY ) Docket No. EC98-___________
)
APPLICATION FOR COMMISSION
APPROVAL OF CORPORATE REORGANIZATION
I. INTRODUCTION
Pursuant to Section 203 of the Federal Power Act ("FPA") (16 U.S.C. ss.
824b) and Part 33 of the Commission's regulations (18 C.F.R. Part 33), Central
Maine Power Company ("Central Maine" or "Applicant") hereby submits this
Application for Commission Approval of Corporate Reorganization ("Application").
Central Maine seeks the Commission's authorization pursuant to Section 203 to
implement a corporate reorganization ("Reorganization") which will result in the
creation of a holding company, HoldCo,1 over Central Maine. The creation of a
holding company over a Commission-jurisdictional entity is deemed to result in a
"disposition of facilities" under Section 203 of the FPA as that term has been
interpreted by the Commission in various proceedings involving similar corporate
reorganizations.2 Because the Reorganization
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1 The name of the holding company has not yet been determined. HoldCo has
been incorporated in the State of Maine with the name "HoldCo, Inc." for the
purpose of making required applications for approval of the proposed
Reorganization.
2 See, e.g., New York State Electric & Gas Corporation, 81 FERC P. 62,201
(1997); Consolidated Edison Company of New York, Inc., 81 FERC P. 62,070 (1997);
Boston Edison Company, BEC Energy, 80 FERC P. 61,274 (1997); Pennsylvania Power
& Light Company, 60 FERC P. 62,267 (1994); Commonwealth Edison Company, 68 FERC
P. 62,049 (1994); and Central Vermont Public Service Corporation, 39 FERC P.
61,295 (1987).
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<PAGE>
will have no effect on the jurisdictional facilities, rates or service of
Central Maine, and will be consistent with the public interest, Central Maine
respectfully requests that the Commission approve this Application.
The proposed Reorganization is anticipated to be implemented as soon as
practicable after Central Maine's annual meeting of stockholders in May 1998. To
facilitate this restructuring, Central Maine requests that the Commission
proceed on an expedited basis, provide a thirty-day period for comments and
issue an order in this proceeding by June 1, 1998. A thirty- day notice period
is appropriate since this Application does not involve a merger or similar
transaction.
II. BACKGROUND
Central Maine is an investor-owned Maine public utility incorporated in
1905. Central Maine is primarily engaged in the business of generating,
transmitting, distributing and selling electric energy to retail customers in
southern and central Maine and to various wholesale customers, principally other
utilities. Central Maine is the largest electric utility in Maine. It serves
approximately 528,000 customers in its 11,000 square-mile service area in
southern and central Maine. Its principal executive offices are located at 83
Edison Drive, Augusta, Maine 04336.
Central Maine is a public utility as defined in Section 201(e) of the FPA.
It sells electric energy at wholesale to, and transmits electric energy in
interstate commerce for, other
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electric utilities under rate schedules and tariffs on file with the Commission.
Central Maine has three subsidiaries that are public utility companies within
the meaning of the FPA: Maine Electric Power Company, Inc. ("MEPCo"), in which
Central Maine owns a 78.3% interest; Aroostook Valley Electric Company ("AVEC"),
a wholly-owned subsidiary of Central Maine; and NORVARCO, also a wholly-owned
subsidiary of Central Maine.3
The electric properties of Central Maine are 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
also is connected with the system of The New Brunswick Power Corporation and of
Bangor Hydro through the 345-kilovolt interconnection constructed by MEPCo.
Central Maine has direct or indirect ownership interests in 31 hydroelectric
generating facilities representing 373 megawatts of generating capacity, two
oil-fired steam-electric generating stations, and internal combustion generating
facilities representing 783 megawatts of fossil-fueled generation capacity.
Central Maine also has ownership interests in five nuclear generating facilities
in New England.4 On December 31,
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3 MEPCo owns and operates a 345-kV transmission interconnection between
Wiscasset, Maine and the Maine-New Brunswick international border at Orient,
Maine, where its line connects with the portion of the interconnection
constructed in the province of New Brunswick, Canada, by The New Brunswick Power
Corporation. AVEC owns and operates a 31 MW wood- fired generating plant in Fort
Fairfield, Maine, the output of which is sold at wholesale to Central Maine.
NORVARCO is one of two general partners (each with a 50 percent interest) in
Chester SVC Partnership, a general partnership which owns a static var
compensator facility located in Chester, Maine, adjacent to MEPCo's transmission
interconnection with New Brunswick.
4 Central Maine owns a 9.5 percent interest in Yankee Atomic Electric
Company, a 6 percent interest in Connecticut Yankee Atomic Power Company, a 38
percent interest in Maine Yankee Atomic Power Company, and a 4 percent interest
in Vermont Yankee Nuclear Power Coroporation. Central Maine also owns a 2.5
percent undivided ownership interest as a tenant in common in the Millstone Unit
No. 3 nuclear plant in Waterford, Connecticut.
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1997, Central Maine had approximately 2,293 circuit-miles of overhead
transmission lines, 19,514 pole-miles of overhead distribution lines, and 1,384
miles of underground and submarine cable.
Central Maine has interests in several non-utility companies: CMP
International Consultants ("CMPI"), Central Securities Corporation ("Central
Securities"), Cumberland Securities Corporation ("Cumberland Securities"),
MaineCom Services ("MaineCom"), TeleSmart, The Union Water-Power Company ("Union
Water"), Kennebec Hydro Resources, Inc. ("Kennebec Hydro"), Kennebec Water Power
Company ("Kennebec Water") and the Gulf Island Pond Oxygenation Project
("GIPOP"). A chart of Central Maine's current corporate structure and a
description of its non-utility subsidiaries are provided in Appendix A attached
hereto.
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 currently an "exempt
holding company" under the Public Utility Holding Company Act of 1935, as
amended ("PUHCA"), and is therefore subject to limited regulation by the
Securities and Exchange Commission ("SEC").
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<PAGE>
On May 29, 1997, the Governor of Maine signed into law a bill enacted by
the Maine Legislature that will restructure the electric utility industry in
Maine. The principal restructuring provisions of the legislation provide for
customers to have direct retail access to generation services and for
deregulation of competitive electricity providers, commencing March 1, 2000,
with transmission and distribution companies continuing to be regulated by the
MPUC. By that date, investor-owned utilities are required to divest all
generation assets and generation-related business activities, with two major
exceptions: (1) non-utility generator contracts with qualifying facilities and
contracts with demand-side management or conservation providers, brokers or
hosts; and (2) ownership interests in nuclear power facilities. The bill also
requires investor-owned utilities, after February 28, 2000, to sell their rights
to the capacity and energy from the purchased-power contracts that had not
previously been divested pursuant to the legislation, with certain minor
exceptions.
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.5 In addition, as part of its agreement with FPL Group, Central Maine
entered into energy buy-back agreements to assist in fulfilling its obligation
to supply its customers with power until March 1, 2000, the date when retail
consumers in Maine will be able
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5 As part of this transaction, Central Maine has agreed to sell its
interest in AVEC.
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<PAGE>
to choose their electricity provider. The sale is subject to various closing
conditions, including the approval of state and federal regulatory agencies.
Certain aspects of the sale transaction will be the subject of a separate
application to the Commission.
III. THE PROPOSED REORGANIZATION
Central Maine proposes to form a holding company structure pursuant to an
Agreement and Plan of Merger (the "Plan of Merger") to be entered into among
Central Maine, HoldCo and a Maine corporation to be formed for the purpose of
implementing the transaction ("MergeCo"). At the time it is formed, MergeCo will
be wholly owned by HoldCo. A form of the Plan of Merger is filed as Exhibit H
hereto. Under the terms of the Plan of Merger, MergeCo will be merged with and
into Central Maine, with Central Maine as the surviving corporation (the
"Merger"). Pursuant to the Plan of Merger, each issued and outstanding share of
Central Maine common stock, par value $5 per share ("Central Maine Common
Stock"), will be automatically changed and converted into one share of HoldCo
common stock, par value $5 per share ("HoldCo Common Stock"). Each issued and
outstanding share of Central Maine Dividend Series Preferred Stock, par value
$100 per share and Central Maine 6% Preferred Stock, par value $100 per share,
as well as debt securities of Central Maine, will not be affected by the Plan of
Merger and will remain shares and securities of Central Maine, as the surviving
corporation of the Merger. The shares of HoldCo Common Stock owned by Central
Maine prior to the Merger will be cancelled. The outstanding shares of MergeCo
common stock will automatically be converted into a number of shares of Central
Maine Common Stock equal to the number of shares of Central Maine Common Stock
outstanding prior to the Merger.
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<PAGE>
Upon consummation of the Merger, each person that held shares of Central
Maine Common Stock immediately before the Merger will hold an equal number of
shares of HoldCo Common Stock, and HoldCo will hold all of the issued and
outstanding shares of Central Maine Common Stock. After the Merger, Central
Maine Common Stock will cease to be listed on the New York Stock Exchange, and
HoldCo Common Stock will be listed and traded there instead.
Concurrently with the Merger or shortly thereafter, and subject to approval
of the MPUC, Central Maine intends to transfer its existing equity interests in
CMPI, Central Securities, Cumberland Securities, MaineCom, TeleSmart and Union
Water, all of which are non-utility entities, by dividending the stock it holds
in those entities to HoldCo. Additionally, concurrently with or shortly after
the Reorganization, other companies may be formed as subsidiaries of HoldCo. The
corporate structure after the Reorganization, including the possible formation
of these other companies, is shown in Appendix A attached hereto.
HoldCo and Central Maine expect to consummate the Reorganization as soon as
possible after all regulatory and shareholder approvals and other conditions
precedent contained in the Plan of Merger have been fulfilled.
IV. THE PUBLIC INTEREST
The Commission has held that the transfer of a public utility's common
stock from its existing shareholders to a holding company constitutes a transfer
of the ownership and control of the utility's jurisdictional facilities and is
thus a "disposition of facilities" subject to Commission review and approval
under Section 203 of the FPA.6 Because Central Maine's
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6 See note 2, supra, and accompanying text.
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<PAGE>
proposed Reorganization would entail the transfer of the ownership of its common
stock from existing shareholders to HoldCo, Central Maine is seeking approval
under Section 203 and the Commission's regulations thereunder.
The Commission must approve a proposed disposition of facilities under
Section 203 if it will be "consistent with the public interest". The applicant
need not show a positive public benefit. Central Vermont Public Service Corp.,
39 FERC P. 61,295 at p. 61,960, n.14. "Only an absence of negative detriment [to
the public interest] is required." Id. See also Pacific Power and Light Co. v.
F.P.C., 111 F.2d 1014, 1016 (9th Cir. 1962). The Commission routinely has found
that reorganizations involving the creation of holding companies are consistent
with the public interest.7
Central Maine submits that its proposed Reorganization is consistent with
the public interest. The Reorganization will permit Central Maine to gain
long-term advantages through increased management and financial flexibility that
will better position Central Maine to operate in a changing business and
regulatory environment by allowing it to take advantage of emerging non-utility
business opportunities that are related to Central Maine's core business while
maintaining the principal business focus on its core transmission and
distribution business. In addition, the clearer separation of Central Maine's
core utility business from non-utility enterprises achieved by making HoldCo,
rather than Central Maine, the parent of Central Maine's non-utility
subsidiaries will better segregate the operations, risks and costs associated
with these
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7 See, e.g., New York State Electric & Gas Corporation, 81 FERC P. 62,201
(1997); Consolidated Edison Company of New York, Inc., 81 FERC P. 62,070 (1997);
Pennsylvania Power & Light Company, 69 FERC P. 62,267 (1994); Commonwealth
Edison Company, 63 FERC P. 62,049 (1994); Illinois Power Company, 67 FERC P.
61,136 (1994).
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<PAGE>
non-utility businesses from those involved in providing utility service and
provide greater financial flexibility in pursuing non-utility business
opportunities. As noted above, the recent changes in the Maine regulatory
structure require Central Maine to divest itself of its non-nuclear generation
assets. The Reorganization will aid Central Maine in dealing with the changes in
its business this will bring about. Central Maine believes that diversified
earnings from existing non-utility businesses and proposed new business
activities can help to mitigate the limitations inherent in engaging primarily
in the transmission and distribution business.
An additional consideration exists for the Reorganization. As of March 1,
2000, Central Maine, as a transmission and distribution utility, will be
prohibited by state law from selling electric energy to retail customers. Any
retail sales of electricity must be done through a separate corporate affiliate
of Central Maine that is licensed by the MPUC for that purpose. Maine's new
restructuring statute contains a number of specific standards of conduct
governing the relationship between a transmission and distribution utility and
its affiliated electricity provider and requires the MPUC to adopt rules to
implement the standards. Central Maine believes that a holding company form of
organization in which the holding company, rather than Central Maine, is the
parent company of its retail marketing affiliate will facilitate compliance with
these standards of conduct.
The proposed Reorganization also is consistent with the public interest as
evaluated under the three factors set forth in the Commission's Merger Policy
Statement. These factors are: (1) effect on competition, (2) effect on rates,
and (3) effect on regulation.8
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8 Inquiry Concerning the Commission's Merger Policy Under the Federal Power
Act; Policy Statement, Order No. 592, Docket No. RM96-6-000, 61 Fed. Reg.
68,595, 68,605 (December 18, 1996), order on reconsideration, Order No. 592-A,
62 Fed. Reg. 33,341, 79 FERC P. 61,321 (1997) ("Merger Policy Statement"). The
Merger Policy Statement addresses public utility mergers subject to the
Commission's jurisdiction under Section 203(a) of the FPA. The instant
Application does not involve a "merger" between electric public utilities, but
rather the reorganization of an electric public utility. Central Maine has
addressed the three factors to demonstrate that the Reorganization is in the
public interest.
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<PAGE>
A. The Proposed Reorganization Will Not Have An Adverse Effect On Competition.
Central Maine's proposed Reorganization will have no adverse effect on
competition. While the Reorganization is deemed to result in a change in
ownership or control of jurisdictional facilities by virtue of the creation of a
new holding company, the Reorganization involves only Central Maine and its
affiliates. The Reorganization does not result in the any change in the
operation of Central Maine's facilities or any change in the concentration of
control over assets for generation, transmission, or inputs to generation that
could be used as barriers to entry. Accordingly, the Reorganization will have no
effect on competition in any relevant market. As noted above, the sale of
certain of Central Maine's generation assets to FPL Group is occurring
separately from the Reorganization. Even before the sale of these generation
assets, the Commission determined that Central Maine could not exercise market
power in generation or transmission and could not erect any other barriers to
competition and the Commission authorized Central Maine to make wholesale power
sales at market-based rates.9 Accordingly, Central Maine does not believe that
additional market power analysis is necessary in this proceeding.
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9 Central Maine Power Company, 80 FERCP. 61,246 (1997).
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<PAGE>
The Reorganization will, moreover, facilitate the establishment in the
future of separate businesses to engage in competitive, unregulated activities.
By more clearly separating the utility business from non-utility enterprises,
the proposed holding company structure will help to insulate utility ratepayers
from the financial risks that may be associated with non-utility ventures. In
this respect, the effect of the proposed structure on competition in the
electric power industry either will be neutral or will offer positive benefits
by enhancing competition.
B. The Proposed Reorganization Will Not Affect Operating Costs Or Rate Levels.
The proposed reorganization will have no effect on either Central Maine's
operating costs or its rate levels. The transaction costs of the Reorganization
will not affect Central Maine's retail or wholesale rates because these costs
will not be included in rates. Any future changes in Central Maine's wholesale
power or transmission rates will continue to be subject to Commission review and
acceptance under the FPA.
C. The Proposed Reorganization Will Not Impair The Effectiveness Of State Or
Federal Regulation.
The proposed Reorganization will not impair effective regulation of Central
Maine's utility operations by either state or federal agencies. The
Reorganization is subject to the jurisdiction of the MPUC, which can exercise
its authority to protect state regulatory interests, and following the
Reorganization, Central Maine will continue to be subject to the jurisdiction of
both this Commission and the MPUC. Central Maine expects to continue qualifying
for exemption from registration under PUHCA, and HoldCo is also expected to
qualify for exemption from PUHCA registration. Since CMP and HoldCo will not be
registered holding
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<PAGE>
companies, there will be no shift of regulatory authority from the Commission to
the SEC, and the Commission will continue to have jurisdiction over Central
Maine and its public utility subsidiaries. See Long Island Lighting Company, 80
FERC P. 61,035 (1997); Enron Corporation and Portland General Corporation, 78
FERC P. 61,179 (1997) (impairment of regulation relating to the SEC's
jurisdiction over registered holding companies is not an issue where the utility
qualifies as an exempt holding company under PUHCA). Indeed, because of the
increase in the existing operational delineation between the utility and its
unregulated subsidiaries, which would result from the contemplated transfer of
such subsidiaries to HoldCo, the proposed reorganization will enhance the
auditing of utility costs and revenues.
V. INFORMATION REQUIRED UNDER SECTION 33.2
The following information is required by Section 33.2 of the Commission's
regulations:
(a) The Exact Name And Address Of The Principal Business Office Of The
Applicant.
The Applicant's exact name and principal business office is:
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
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<PAGE>
(b) Names And Addresses Of Persons Authorized To Receive Notices And
Communications In Respect To Application.
The following persons are authorized to receive notices and communications
with respect to this application:
Anne M. Pare
Corporate Counsel and Secretary
Central Maine Power Company
83 Edison Drive
Augusta, Maine 04336
and
H. Liza Moses Catherine A. McCarthy
LeBoeuf, Lamb, Greene LeBoeuf, Lamb, Greene
& MacRae, L.L.P. & MacRae, L.L.P.
125 West 55th Street 1875 Connecticut Ave. N.W.
New York, New York 10019 Washington, D.C. 20009
(212) 424-8224 (202) 986-8253
(c) Designation Of Territories Served, By Counties And States.
Central Maine's retail service territory is entirely within the State of
Maine. Central Maine serves more than 528,000 customers in 11,000 square miles
of southern and central Maine. Its service area includes part or all of the
following counties:
Androscoggin Oxford
Cumberland Penobscot
Franklin Piscataquis
Hancock Sagadahoc
Kennebec Somerset
Knox Waldo
Lincoln York
(d) A General Statement Briefly Describing The Facilities Owned Or Operated For
The Transmission Of Electric Energy In Interstate Commerce Or The Sale Of
Electric Energy At Wholesale In Interstate Commerce.
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<PAGE>
As of December 31, 1997, Central Maine's transmission system consisted of
2,293 circuit miles of line and its distribution system consisted of 19,514
pole-miles of overhead lines. In addition, Central Maine's system includes 1,384
miles of underground and submarine cables. Central Maine owns eight (8) 345 kV
substations and over sixty (60) 115 kV substations. The electric properties of
Central Maine are 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 at the northerly end of Central Maine's system.
Central Maine's system is also connected with the system of The New Brunswick
Power Corporation and the system of Bangor Hydro through the 345 kilovolt
interconnection constructed by MEPCo.
(e) Whether The Application Is For Disposition Of Facilities By Sale, Lease, Or
Otherwise, A Merger Or Consolidation Of Facilities, Or For Purchase Or
Acquisition Of Securities Of A Public Utility, Also A Description Of The
Consideration, If Any, And The Method Of Arriving At The Amount Thereof.
As described above, this application is for authorization to implement a
corporate reorganization. There is no consideration or sales price involved.
Attached hereto as Exhibits C, E and F are pro forma historical balance sheet,
income statements and retained earning statements for Central Maine and HoldCo.
(f) Statement Of Facilities To Be Disposed Of And A Description Of Their
Proposed Use After Disposition, And Whether The Proposed Transaction
Includes All Of The Operating Facilities Of The Parties To The Transaction.
The creation of HoldCo is deemed to be a "disposition" of Central Maine's
facilities for purposes of the FPA. However, after the Reorganization, title,
possession and use of all utility property will be held by Central Maine, or its
subsidiaries, which will be direct and indirect subsidiaries of HoldCo.
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<PAGE>
(g) Statement (In The Form Prescribed By The Commission's Uniform System Of
Accounts For Public Utilities And Licensees) Of The Cost Of The Facilities
Involved In The Sale, Lease, Or Other Disposition Or Merger Or
Consolidation.
The cost of Central Maine's net utility plant in the form prescribed by the
Uniform System of Accounts is shown in Central Maine's FERC Form No. 1 for the
year ended December 31, 1997, at pages 110, 200-214. Those pages are attached
hereto as Appendix D.
(h) Statement Of The Effect Of The Proposed Transaction Upon Any Contract For
The Purchase, Sale, Or Interchange Of Electric Energy.
The proposed Reorganization will have no effect on any of Central Maine's
contracts for the purchase, sale or interchange of electric energy.
(i) Statement As To Whether Or Not Any Application With Respect To The
Transaction Is Required To Be Filed With Any Other Federal Or State
Regulatory Body.
The proposed Reorganization requires the approval or consent of the MPUC,
the Nuclear Regulatory Commission ("NRC") and the SEC. On December 8, 1997,
Central Maine filed an application for approval of the Reorganization with the
MPUC. On March 4, 1998, Central Maine and HoldCo filed an Application and
Declaration on Form U-1 with the SEC for approval of the Reorganization under
PUHCA. Also on March 4, 1998, Central Maine requested the NRC's consent to the
Reorganization under the Atomic Energy Act of 1954, as amended. Copies of these
applications are attached hereto as Exhibit G. Approval or waiver by the
Connecticut Department of Public Utility Control (the "Connecticut DPUC") may
also be required due to Central Maine's ownership of a 2.5% interest in the
Millstone No. 3 nuclear unit, which is located in Waterford, Connecticut. No
other applications with respect to the Reorganization are
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<PAGE>
required to be filed with any other State or Federal regulatory body.
(j) The Facts Relied Upon By Applicant To Show That The Proposed Transaction
Will Be Consistent With The Public Interest.
The facts relied upon are set forth above in Sections I through IV of this
Application.
(k) Statement Of Franchises Held.
The franchises held by Applicant and their dates of expiration are listed
in Appendix B hereto.
(l) Form Of Notice Suitable For Publication In The Federal Register.
A draft form of notice of this filing, suitable for publication in the
Federal Register, is attached as Appendix C hereto. An electronic version of the
draft notice is also submitted on a 3 1/2@ diskette in Wordperfect 5.2 for
Windows format.
VI. REQUIRED EXHIBITS
The following exhibits required by Section 33.3 of the Commission's
regulations are filed herewith, except as noted. All Exhibits are relevant only
to, and therefore address only, Central Maine:
Exhibit A Resolution of the Board of Directors of Central Maine Power
Company, dated January 5, 1998, authorizing the proposed
Reorganization.
Exhibit B Statement of the measure of control or ownership exercised by or
over Central Maine and the nature and extent of any intercorporate
relationships.
Exhibits C Balance sheets and supporting plant schedules as of December 31,
E and F actual and pro forma, and Central Maine's income statement and
retained earnings statement for the 12 months ended December 31,
1997, actual and pro forma.
Exhibit D A statement of known contingent liabilities, excepting minor
items, as of the date of this Application.
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Exhibit G Copies of applications or requests for approval filed with the
MPUC, the NRC and the SEC. A copy of the application filed with the
Connecticut DPUC, if filed, and copies of agency orders will be filed
with the Commission after they have been issued.
Exhibit H Copy of the Draft Agreement and Plan of Merger
Exhibit I Maps showing Central Maine's properties and interconnections, and
the principal cities in the area served. Central Maine is the only
party to the proposed transaction for which a map is relevant.
VII. CONCLUSION
The corporate restructuring to be accomplished by the merger satisfies the
standards of Section 203 of the Federal Power Act and consequently should be
approved by the Commission. Such approval by June 1, 1998, assuming
contemporaneous receipt of MPUC, SEC and NRC approvals, would enable Central
Maine to proceed expeditiously with its restructuring plans.
Respectfully submitted,
CENTRAL MAINE POWER COMPANY
By__________________________
E. Ellsworth McMeen
H. Liza Moses
LeBoeuf, Lamb, Greene & MacRae. L.L.P.
125 W. 55th Street
New York, New York 10019-5389
Attorneys for
Central Maine Power Company
Of Counsel:
Catherine P. McCarthy
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Alexander K. Sudnik
Date: April 3, 1998
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[Letterhead of Morgan,
Lewis & Bockius LLP]
March 4, 1998
10 C.F.R. ss. 50.80
VIA HAND DELIVERY
U.S. Nuclear Regulatory Commission
Attention: Document Control Desk
One White Flint North
11555 Rockville Pike
Rockville, MD 20852
Re: NRC Docket Nos. 50-423 (Millstone Unit 3), 50-309 (Maine Yankee) 50-29
(Yankee Rowe), 50-213 (Haddam Neck), and 50-271 (Vermont Yankee); Proposed
Reorganization of Central Maine Power Company
Dear Sir/Madam:
This letter is to (a) advise the Nuclear Regulatory Commission (NRC or
Commission) of the proposed reorganization of Central Maine Power Company (CMP)
which will result in the creation of a new holding company structure for CMP,
and (b) request NRC's consent to any indirect transfer of control of NRC
Operating License NPF-49 for Millstone Unit 3, or any NRC license held by the
various Yankee companies in which CMP owns an equity interest, to the extent
that the Commission believes that such consent is required in connection with
this reorganization pursuant to Section 184 of the Atomic Energy Act of 1954, as
amended (AEA), and 10 C.F.R. ss. 50.80.
CMP currently holds an undivided 2.5% ownership interest in Millstone Unit 3 and
is an NRC licensee with respect to this interest. CMP also owns (a) a 38% equity
interest in Maine Yankee Atomic Power Company, the licensed owner and operator
of the Maine Yankee plant, (b) a 9.5% equity interest in Yankee Atomic Electric
Company, the licensed owner and operator of the Yankee Rowe plant, (c) a 6%
equity interest in Connecticut Yankee Atomic Power Company, the licensed owner
and operator of the Haddam Neck plant, and (d) a 4% equity interest in the
Vermont Yankee Nuclear Power Corporation, the licensed owner and operator of the
Vermont Yankee plant. The Maine Yankee, Yankee Rowe, and Haddam Neck plants have
all been permanently shut down and are undergoing or preparing for
decommissioning.
The CMP reorganization is being undertaken in response to (a) the widespread
regulatory and market changes that have occurred throughout the electric utility
industry in the United States as a result of the enactment of the Energy Policy
Act of 1992 and recent decisions by the Federal
<PAGE>
U.S. Nuclear Regulatory Commission
March 4, 1998
Page 2
Energy Regulatory Commission (FERC) promoting additional competition at the
wholesale level, including Order Nos. 888 and 889 mandating open access to
transmission services, and (b) the enactment of the Maine Electric Industry
Restructuring Act of 1997 which provides for the transition to a competitive
market for electricity generation services at the retail level in the State of
Maine by March l, 2000.
Under the proposed reorganization, CMP and its existing non-utility subsidiaries
will become subsidiaries of a new holding company (HoldCo) organized under the
laws of the State of Maine. The ultimate ownership of CMP will remain unchanged
since (a) the current holders of all of the issued and outstanding shares of
common stock of CMP will become the holders of all of the issued and outstanding
shares of common stock of HoldCo, and (b) the current holders of shares of the
preferred stock and debt securities of CMP will retain these interests. CMP will
continue to hold its existing ownership interests in Millstone Unit 3 and the
Yankee companies after the reorganization. CMP believes that converting to this
type of holding company structure will provide long-term advantages through
increased management and financial flexibility that will better position CMP and
its existing non-utility subsidiaries to compete effectively in a changing
commercial and regulatory environment. This structure will also serve to
insulate CMP's utility business from business risks associated with the
activities of the non-utility subsidiaries and be consistent with the corporate
structure used by many other utilities in the United States.
While CMP does not believe that NRC approval of the proposed reorganization is
required under the AEA or NRC regulations, CMP recognizes that the NRC has taken
the position that its consent is required under 10 C.F.R. ss. 50.80 in
connection with corporate reorganizations involving "the formation of a new
holding company over an existing licensee." See NRC Final Policy Statement on
the Restructuring and Economic Deregulation of the Electric Utility Industry, 62
Fed. Reg. 44071, 44077 (Aug. 19, 1997). In this regard, the NRC has recently
consented to a number of corporate reorganizations by other licensees which are
comparable to CMP's proposed reorganization. See e.g., Letter from NRC to Boston
Edison Company (Feb. 11, 1998) (NRC Docket No. 50-293); Letter from NRC to
Pacific Gas & Electric Company (Oct. 18, 1996) (NRC Docket Nos. 50-275, 50-323,
50-133); Letter from NRC to San Diego Gas & Electric Company (April 21, 1995)
(Docket Nos. 50-206, 50-361, 50-362); Letter from NRC to Detroit Edison Company
(Aug. 30, 1995) (Docket Nos. 50-16, 50-341); and Letter from NRC to Illinois
Power Company, (Jan. 31, 1994) (Docket No. 50-461).
Additional information pertaining to the proposed reorganization, including the
information required under 10 C.F.R. ss. 50.80 and NRC Administrative Letter
96-02, is included in Attachment A. As this information demonstrates, CMP's
reorganization will not (1) have any adverse impact on the ownership or
operation of Millstone Unit 3 or any of the Yankee plants, (2) affect the
managerial, technical, or financial qualifications of the licensed owners and
operators of these plants; (3) affect CMP's existing financial qualifications
and status as an "electric utility" under NRC regulations; (4) result in foreign
ownership, control or domination
<PAGE>
U.S. Nuclear Regulatory Commission
March 4, 1998
Page 3
over any of these licenses or licensees; or (5) have any adverse impact on
competition or require any additional NRC antitrust review.
In summary, the proposed reorganization will not be inimical to the common
defense and security or result in any undue risk to public health and safety,
and any indirect transfer of any NRC license associated with CMP's
reorganization will be consistent with the requirements set forth in the AEA,
NRC regulations, and any relevant NRC orders and licenses.
The consummation of the corporate transactions associated with the
reorganization is dependent upon the receipt of various regulatory and
shareholder approvals and is currently scheduled to occur shortly after the May
21, 1998 Annual Meeting of CMP's Shareholders. Accordingly, CMP respectfully
requests that the NRC expedite its review of the proposed reorganization and
provide any required consents by that date.
In the event that NRC has any questions about CMP's proposed reorganization or
wishes to obtain any additional information about the reorganization, please
contact me directly at 202-467-7462.
Sincerely,
/s/ Kevin P. Gallen
Kevin P. Gallen
Counsel for Central Maine Power Company
Enclosure
cc: Attached List
<PAGE>
U.S. Nuclear Regulatory Commission
March 4, 1998
Page 4
LIST OF ADDITIONAL ADDRESSEES
Hubert J. Miller
Regional Administrator, Region I
U.S. Nuclear Regulatory Commission
475 Allendale Road
King of Prussia, PA 19406-1415
Stephen Dembek
NRR Project Manager, Millstone 3
NRR Project Manager, Haddam Neck
United States Nuclear Regulatory
Commission
Mail Stop 14-D4
Washington, DC 20555
Morton B. Fairtile
NRR Project Manager, Yankee-Rowe
United States Nuclear Regulatory
Commission
Mail Stop 11-B20
Washington, DC 20555
Daniel H. Dorman
NRR Project Manager, Vermont Yankee
NRR Project Manager, Maine Yankee
United States Nuclear Regulatory
Commission
Mail Stop 14-B20
Washington, DC 20555
Antone Cerne
NRC Senior Resident Inspector, Millstone 3
United States Nuclear Regulatory
Commission
P.O. Box 513
Niantic, CT 06357
Edward C. Knutson
NRC Senior Resident Inspector,
Vermont Yankee
Vermont Yankee Nuclear Power Station
P.O. Box 176
Vermont, VT 05354
William J. Raymond
NRC Senior Resident Inspector,
Haddam Neck
Haddam Neck Nuclear Power Station
361 Injun Hollow Road
East Hampton, CT 06424
Richard Rasmussen
NRC Senior Resident Inspector,
Maine Yankee
Maine Yankee
P.O. Box E
Wiscasset, Maine 04578
<PAGE>
10 C.F.R. ss. 50.80
ATTACHMENT A
ADDITIONAL INFORMATION RELATED TO
THE PROPOSED REORGANIZATION OF
CENTRAL MAINE POWER COMPANY TO
CREATE A NEW HOLDING COMPANY STRUCTURE
TABLE OF CONTENTS
Page
I. GENERAL INFORMATION CONCERNING CMP..............................1
II. GENERAL INFORMATION CONCERNING HOLDCO...........................5
III. DESCRIPTION OF THE PROPOSED REORGANIZATION AND REASONS FOR
THE REORGANIZATION..............................................6
IV. CMP COMPLIANCE WITH THE MAINE ELECTRIC INDUSTRY
RESTRUCTURING ACT OF 1997.......................................8
V. SUMMARY OF THE IMPACT OF THE REORGANIZATION ON CMP,
MILLSTONE UNIT 3 AND THE YANKEE PLANTS.........................10
VI. OTHER REGULATORY AND SHAREHOLDER APPROVALS.....................12
VII. OTHER NUCLEAR REGULATORY CONSIDERATIONS........................12
VIII. EFFECTIVE DATE OF THE REORGANIZATION...........................16
IX. REQUESTED NRC ACTION...........................................16
<PAGE>
10 C.F.R. ss. 50.80
ATTACHMENT A
ADDITIONAL INFORMATION RELATED TO
THE PROPOSED REORGANIZATION OF
CENTRAL MAINE POWER COMPANY TO
CREATE A NEW HOLDING COMPANY STRUCTURE
I. GENERAL INFORMATION CONCERNING CMP
(1) NAME
Central Maine Power Company
(2) ADDRESS
83 Edison Drive
Augusta, Maine 04336
(3) DESCRIPTION OF BUSINESS
Central Maine Power Company (CMP) is a Maine corporation which is currently
a vertically integrated public utility company engaged in the generation,
transmission, sale, and distribution of electricity in the state of Maine. CMP
also has several non-utility subsidiaries engaged in other diversified business
enterprises. CMP is a "public utility" subject to regulation by the Maine Public
Utilities Commission (MPUC) under the laws of the State of Maine and the Federal
Energy Regulatory Commission (FERC) under the Federal Power Act (FPA). CMP is
currently exempt from regulation by the Securities and Exchange Commission (SEC)
under the Public Utility Holding Company Act of 1935, as amended (PUHCA), except
Section 9(a)(2) of PUHCA, pursuant to Section 3(a)(2) of PUHCA. Upon the
completion of the reorganization, CMP will be a transmission and distribution
utility subject to regulation by the MPUC and FERC.
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<PAGE>
Additional information concerning the business and operations of CMP is set
forth in CMP's 1996 Annual Report on Form 10-K filed with the SEC in March 1997,
CMP's most recent Quarterly Report on Form 10-Q filed with the SEC on November
14, 1997, and the Form 8-K filed with the SEC on January 12, 1998, copies of
which are contained in Exhibit 1 hereto.
(4) NRC LICENSE HELD BY CMP
Millstone Unit 3 (NRC Operating License NPF-49, Docket No. 50-423). CMP
holds a 2.5% undivided ownership interest in Millstone Unit 3 as a tenant in
common with 13 other electric utilities in New England which own the remaining
97.5% of this unit. Northeast Utilities is the licensed operator of Millstone
Unit 3.
(5) CMP INTERESTS IN YANKEE COMPANIES
The Yankee companies each own a nuclear power plant in New England which is
licensed by the NRC. The name of each Yankee company in which CMP owns an equity
interest, the nuclear plant which is owned by that company, the relevant NRC
licensing information with respect to each plant, and the extent of CMP's equity
interest in each Yankee company is as follows:
<TABLE>
<CAPTION>
Yankee Company Plant NRC License No. NRC Docket No. CMP's Percentage
Equity Interest in
Company
<S> <C> <C> <C> <C>
Maine Yankee Maine Yankee DPR-36 50-309 38%
Atomic Power
Company
Yankee Atomic Yankee Rowe DPR-3 50-29 9.5%
Electric Company
Connecticut Yankee Haddam Neck DPR-61 50-213 6%
Atomic Power
Company
-2-
<PAGE>
Vermont Yankee Vermont Yankee DPR-28 50-271 4%
Nuclear Power
Corporation
</TABLE>
CMP is not an NRC licensee with respect to any of these plants; however,
CMP has entered into power purchase agreements with each of the Yankee companies
which entitle CMP to a pro rata share of the electrical output of each of these
plants and obligate CMP to pay a pro rata share of the costs of each of the
plants, based on CMP's percentage equity interest in the individual Yankee
company that owns and operates the plant. These power purchase agreements have
been filed with FERC and the rates and charges in these agreements have been
determined to be just and reasonable in accordance with Section 205 of the FPA.
The Maine Yankee, Yankee Rowe, and Haddam Neck plants have all been permanently
shut down and are undergoing or preparing for decommissioning. The Vermont
Yankee plant is the only plant owned by one of the Yankee companies which is
currently authorized to operate under the terms of its NRC license.
(6) ORGANIZATION AND MANAGEMENT OF CMP
CMP is a Maine corporation which is currently a publicly traded company
listed on the New York Stock Exchange.
(a) CMP Officers
The names and titles of the current officers of CMP, all of whom are
citizens of the United States, are as follows:
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<PAGE>
Name Title
David M. Jagger Chairman of the Board of Directors
Charles H. Abbott Vice Chairman of the Board of Directors
David T. Flanagan President and Chief Executive Officer
Arthur W. Adelberg Executive Vice President
David E. Marsh Chief Financial Officer
Sara J. Burns Chief Operating Officer, Distribution Services
Gerald C. Poulin Chief Operating Officer, Energy Services
Michael R. Cutter Vice President, Operations Support
F. Michael McClain Vice President, Corporate Development
Curtis A. Mildner Vice President, Retail Marketing and Sales
Curtis I. Call Treasurer
Anne M. Pare Secretary and Clerk
The names and titles of the principal officers of CMP upon the completion
of the reorganization will be as follows:
Name Title
Sara J. Burns President
Curtis I. Call Treasurer
Anne M. Pare Secretary
The mailing addresses for all of the officers of CMP, except Messrs. Jagger
and Abbott, before and after the reorganization is: Central Maine Power Company,
83 Edison Drive, Augusta, Maine 04336.
(b) CMP Directors
The names and addresses of the current directors of CMP, all of whom are
citizens of the United States, are set forth below:
Name Address
Charles H. Abbott Skelton, Taintor & Abbott, 95 Main Street,
P.O. Box 3200, Auburn, ME 04212
Charleen M. Chase Community Concepts, Inc., P.O. Box 278,
Market Square, South Paris, ME 04281
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<PAGE>
Duane D. Fitzgerald 1002 Washington Street, Bath, ME 04530
David T. Flanagan Central Maine Power Company, 83 Edison Drive,
Augusta, ME 04336
Robert H. Gardiner Maine Public Broadcasting Corporation,
1450 Lisbon Street, Lewiston, ME 04240
David M. Jagger Jagger Brothers, P.O. Box 188, Water Street,
Springvale, ME 04083
Peter J. Moynihan UNUM Corporation, Two Canal Plaza,
Portland, ME 04101
William J. Ryan Peoples Heritage Financial Group, Inc., One Portland
Square, P.O. Box 9540, Portland, ME 04112
Kathryn M. Weare The Cliff House, P.O. Box 2274, Bald Head Cliff,
Shore Road, Ogunquit, ME 03907
Lyndel J. Wishcamper Wishcamper Properties, Inc., 177 High Street,
Portland, ME 04101
Upon the completion of the reorganization, the CMP Board of Directors will
consist of all of the current CMP directors, plus Sara J. Burns, the current
Chief Operating Officer, Distribution Services, who will become the President of
CMP after the reorganization.
II. GENERAL INFORMATION CONCERNING HOLDCO
HoldCo is a new corporation organized under the laws of the State of Maine
with offices located at 83 Edison Drive, Augusta, Maine 04336. Upon the receipt
of all necessary regulatory and shareholder approvals, HoldCo will be renamed
and become a publicly traded company listed on the New York Stock Exchange. CMP
will promptly advise NRC of HoldCo's new name when the name change occurs.
HoldCo will become the parent holding company of CMP and CMP's existing
non-utility subsidiaries.
-5-
<PAGE>
Upon the completion of the reorganization, individuals who are currently
principal officers of CMP will become officers of HoldCo. The names and titles
of the HoldCo officers will be:
Name Title
David T. Flanagan President and Chief Executive Officer
Arthur W. Adelberg Executive Vice President
David E. Marsh Chief Financial Officer
F. Michael McClain Vice President, Corporate Development
Anne M. Pare Treasurer, Corporate Counsel and Secretary
The mailing address of the HoldCo officers will be 83 Edison Drive,
Augusta, Maine 04336.
Upon the completion of the reorganization, the current directors of CMP
will become directors of HoldCo. The names and addresses of these individuals
are provided in Section I(6)(b) above.
Additional information concerning the management, business and operations
of HoldCo is set forth below and in the exhibits attached hereto.
III. DESCRIPTION OF THE PROPOSED REORGANIZATION AND REASONS FOR THE
REORGANIZATION
The proposed reorganization will involve the creation of a new holding
company structure for CMP including a new holding company (HoldCo) organized
under the laws of the State of Maine which will become the parent company of CMP
and CMP's existing non-utility subsidiaries. HoldCo has already been formed. In
order to accomplish this reorganization, CMP will form another new corporation,
MergeCo, the sole purpose of which will be to serve as a vehicle to create the
holding company structure. CMP, HoldCo, and MergeCo will then enter into an
Agreement and Plan of Merger. Upon the consummation of the merger transactions
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<PAGE>
contemplated in the Agreement and Plan of Merger, CMP's existing shares of
common stock will be converted into an equal number of shares of common stock of
HoldCo, CMP's existing shareholders will own 100% of the common stock of HoldCo,
and CMP and CMP's existing non- utility subsidiaries will become subsidiaries of
HoldCo. The current holders of preferred stock and debt securities in CMP will
continue to hold these interests in CMP.
Upon the completion of the reorganization, CMP will continue to hold its
existing 2.5% undivided ownership interest in Millstone 3 and its existing
equity interests in the Yankee companies and continue to be a party to the power
purchase agreements with the Yankee companies. The new holding company structure
is being adopted to provide CMP with long-term advantages through increased
management and financial flexibility that will better position CMP and its
non-utility subsidiaries to operate in a changing business and regulatory
environment, while maintaining CMP's principal business focus on its core
utility business. In addition, the clearer separation of CMP's core utility
business from non-utility enterprises by making HoldCo, rather than CMP, 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 providing utility service and provide greater flexibility in
pursuing non-utility business opportunities. As shown below, the reorganization
will also facilitate CMP's compliance with the requirements imposed under the
Maine Electric Industry Restructuring Act of 1997.
Additional information related to the proposed reorganization and the
Agreement and Plan of Merger is set forth in the Application for Approval of the
Reorganization which CMP filed with the MPUC, a copy of which is contained in
Exhibit 2 hereto.
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<PAGE>
IV. CMP COMPLIANCE WITH THE MAINE ELECTRIC INDUSTRY RESTRUCTURING ACT OF 1997
The proposed reorganization will be consistent with the requirements
imposed under the Maine Electric Industry Restructuring Act of 1997, 35-A MRSA
ss. 3201 et seq. (the Restructuring Act), which was signed into law on May 29,
1997, and facilitate CMP's compliance with these requirements. Under the terms
of the Restructuring Act, all investor-owned utilities in the state of Maine,
including CMP, must (a) divest most of their non-nuclear generating assets and
generation-related activities by March 1, 2000, the date on which all retail
customers in Maine will have the right to purchase generating services directly
from competitive electricity providers licensed by the MPUC, (b) generally limit
their electric utility operations to transmission and distribution services
after that date, and (c) create separate corporate entities to market
electricity to retail customers. The Restructuring Act expressly excludes
ownership interests in nuclear power facilities from the divestiture
requirement, but authorizes the MPUC to order divestiture of Maine Yankee
interests on or after January 1, 2009. This provision was enacted prior to the
permanent shutdown of the Maine Yankee plant on August 6, 1997, and was premised
on the expiration of Maine Yankee's operating license in 2008. Such a
divestiture would, of course, be subject to receipt of all required federal
regulatory approvals. The Restructuring Act also contains provisions addressing
the recovery of stranded costs associated with both nuclear and non-nuclear
generation assets by investor-owned utilities in future rates.
Although the Restructuring Act does not require divestiture of generating
assets until March 1, 2000, on April 28, 1997, CMP announced a plan to seek
proposals for the purchase of its generation assets through an auction process.
CMP believed that market conditions were such that it would be advantageous to
seek proposals earlier than the time for divestiture mandated by the
Restructuring Act.
-8-
<PAGE>
Pursuant to requirements of Maine law, on August 11, 1997, CMP filed its
application with the MPUC for approval of the auction process for the sale. The
MPUC approved the process for divestiture of CMP's generation assets selected by
CMP by Order dated January 14, 1998 in Docket No. 97-523. As part of the auction
process, CMP received final bids on December 10, 1997. On January 6, 1998, CMP
announced that it had reached agreement to sell all of its hydro, fossil and
biomass generation 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. While CMP offered other generation assets for sale in the auction,
including its interests in Millstone 3 and Vermont Yankee, these assets
attracted insufficient interest at the auction and are not included in the
proposed sale to the FPL Group affiliate. Any future sale of these assets would
be subject to receipt of all required federal regulatory approvals. The sale of
CMP's hydro, fossil, and biomass generating assets to the FPL Group affiliate is
subject to various closing conditions, including the approval of the MPUC and
FERC. On February 20, 1998, CMP filed its application with the MPUC for approval
of the sale.
CMP's remaining utility operations will still be subject to rate regulation
by MPUC and FERC. Moreover, under Section 3209 of the Restructuring Act, CMP
will be specifically authorized to recover in its rates the decommissioning
expenses associated with its interests in any nuclear facilities "as required by
federal law, order, or regulation."
While the Restructuring Act prohibits CMP from selling electricity to
retail customers on or after March 1, 2000, a separate corporate affiliate of
CMP, licensed by the MPUC, may sell electricity at retail as of that date. CMP
has requested the approval of the MPUC to establish such a separate corporate
affiliate (EnerMark) as part of the reorganization. The Restructuring Act
contains numerous specific standards of conduct governing the conduct of a
transmission and
-9-
<PAGE>
distribution utility and its affiliated electricity provider and requires the
MPUC to adopt rules to implement the standards. Because of the numerous
constraints imposed by the standards of conduct on dealings between a
transmission and distribution utility and its marketing affiliate, CMP
determined that a holding company form of organization in which the holding
company, rather than CMP, is the parent company of both the transmission and
distribution utility and the separate marketing affiliate would facilitate
compliance with the standards. Accordingly, upon the completion of the
reorganization, HoldCo will become the parent holding company of CMP and
EnerMark.
Additional information concerning CMP's compliance with the requirements
imposed under the Restructuring Act is contained in Exhibits 1 and 2. A copy of
the Maine Electric Industry Restructuring Act of 1997 is contained in Exhibit 3
hereto.
V. SUMMARY OF THE IMPACT OF THE REORGANIZATION ON CMP, MILLSTONE UNIT 3 AND
THE YANKEE PLANTS
The proposed reorganization will have no adverse impact on the ownership or
operation of Millstone 3 or any of the Yankee plants or the managerial,
technical, or financial qualifications of the licensed owners and operators of
these plants. Upon the completion of the reorganization:
(1) HoldCo will be a publicly traded company listed on the New York Stock
Exchange and the common stock of HoldCo will be widely held;
(2) CMP's existing shareholders will hold 100% of the issued and
outstanding shares of common stock of HoldCo;
(3) HoldCo will hold 100% of the issued and outstanding shares of common
stock of CMP;
-10-
<PAGE>
(4) CMP's directors will continue to hold their current positions and also
become directors of HoldCo;
(5) CMP's principal officers will assume similar positions at HoldCo and
the CMP officer currently responsible for Distribution Services will become the
President of CMP and a director of CMP;
(6) All of the directors and officers of HoldCo and CMP will be U.S.
citizens;
(7) CMP will continue to hold its existing 2.5% undivided ownership
interest in Millstone Unit 3 and its existing equity interests in the Yankee
companies, and CMP's existing power purchase agreements with the Yankee
companies will remain unchanged by the reorganization;
(8) CMP will continue to be an "electric utility" within the meaning of 10
C.F.R. ss. 50.2 subject to regulation by MPUC and FERC, and there will be no
change in CMP's ability to obtain funds to support its financial obligations
with respect to Millstone Unit 3 and the Yankee companies as a result of the
reorganization;
(9) The CMP reorganization will have no adverse impact on the management,
ownership, operation or technical and financial qualifications of the other
Millstone Unit 3 licensees or the Yankee companies; and
(10) The Millstone Unit 3 licensees and the Yankee companies will continue
to own and operate Millstone Unit 3 and the Yankee plants, respectively, in
accordance with the terms and conditions set forth in their respective NRC
licenses.
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<PAGE>
VI. OTHER REGULATORY AND SHAREHOLDER APPROVALS
The other major regulatory approvals required in connection with the
proposed reorganization include the approval of the MPUC under various
provisions in the Maine utility laws, the approval of the SEC under Section
9(a)(2) of PUHCA, the approval of the FERC under Section 203 of the FPA, and,
possibly, the approval or waiver of the Connecticut Department of Public Utility
Control. The reorganization is also subject to the approval of CMP's
shareholders. CMP intends to seek the approval of its shareholders at its 1998
Annual Meeting of Shareholders scheduled for May 21, 1998 and plans to
consummate the merger transactions necessary to complete the reorganization as
soon as possible after all regulatory and shareholder approvals have been
obtained. Additional information concerning these other regulatory and
shareholder approvals is contained in Exhibit 2.
VII. OTHER NUCLEAR REGULATORY CONSIDERATIONS
(1) FOREIGN OWNERSHIP, CONTROL, OR DOMINATION
CMP is not currently subject to foreign ownership, control, or domination
within the meaning of Section 103 of the AEA. The shares of common stock of CMP
are widely held and all of the directors and officers of CMP are U.S. citizens.
Upon the completion of the reorganization, CMP's existing shareholders will own
100% of the common stock of HoldCo. HoldCo, in turn, will own 100% of the common
stock of CMP, and all of the directors and officers of HoldCo and CMP will be
U.S. citizens. Neither HoldCo nor CMP will be owned, controlled, or dominated by
any alien, foreign corporation, or foreign government.
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<PAGE>
(2) CMP's FINANCIAL QUALIFICATIONS
CMP is licensed pursuant to Section 103 of the AEA and 10 C.F.R. Part 50 to
hold an undivided 2.5% ownership interest in Millstone Unit 3. "Electric
utilities" licensed pursuant to Section 103 of the AEA are exempt from the
requirement to demonstrate financial qualifications. CMP is and will remain an
"electric utility" within the meaning of 10 C.F.R. ss. 50.2 following completion
of the reorganization, since its rates will continue to be subject to regulation
by MPUC and FERC and it will remain an "entity that generates or distributes
electricity and which recovers the cost of this electricity, either directly or
indirectly, through rates established by the entity itself or by a separate
regulatory authority."
The reorganization, therefore, will not adversely affect CMP's ability to
obtain the funds necessary to cover its pro rata share of costs for the
operation, maintenance, repair, decontamination, and decommissioning of
Millstone Unit 3 and the Yankee plants. CMP's liability for such costs and for
its obligations under 10 C.F.R. Part 140 and 10 C.F.R. ss. 50.54(w) will not be
affected by the reorganization.
(3) DECOMMISSIONING FUNDING
As explained above, the financial qualifications of CMP will not be
adversely affected by the proposed reorganization. The reorganization will not
affect the ability of CMP to provide the funds necessary to cover its pro rata
share of costs for the decontamination and decommissioning of Millstone Unit 3
and the Yankee plants. As noted previously, Section 3209 of the Restructuring
Act specifically requires the MPUC to include "decommissioning expenses
associated with a nuclear unit" in CMP's rates "as required by federal law,
rule, or order." There will be no change in CMP's existing decommissioning
funding arrangements for its pro rata share
-13-
<PAGE>
of the projected decommissioning costs for Millstone Unit 3, or the
decommissioning funding arrangements under the FERC-approved power purchase
agreements for CMP's pro rata shares of the projected decommissioning costs of
the Yankee plants, as a result of the proposed reorganization. However, to
provide additional assurance of the availability of funds for decommissioning,
CMP agrees to provide the Director of Nuclear Reactor Regulation with a copy of
any additional application to any other regulatory authority, at the time it is
filed, to transfer (excluding grants of a security interest or liens) from CMP
to HoldCo, or any other affiliated company, facilities for the production,
transmission or distribution of electric energy having a depreciated book value
exceeding ten percent (10%) of CMP's consolidated net utility plant, as recorded
on CMP's books of account.
(4) TECHNICAL QUALIFICATIONS
The proposed reorganization will not result in any change in the design or
operation of Millstone Unit 3 or any of the Yankee plants, nor any change in the
terms and conditions of the existing licenses or technical specifications
related to these plants. The personnel at the plants having control over
licensed activities will not change as a result of the reorganization. There
will also be no other changes in the management or operation of any of these
plants as a result of the reorganization.
(5) ANTITRUST CONSIDERATIONS
CMP is currently entitled to 2.5% of the electrical output of Millstone
Unit 3 based upon its 2.5% ownership interest in that unit. CMP is also entitled
to 4% of the electrical output of the Vermont Yankee plant under its power
purchase agreement with Vermont Yankee Nuclear Power
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<PAGE>
Corporation based upon its 4% ownership interest in that company. The other
Yankee plants have been permanently shut down and no longer produce power. CMP's
percentage entitlement to the output of Millstone Unit 3 and Vermont Yankee are
de minimis generation interests (i.e., less than 200 megawatts) which will not
be affected by the reorganization. The submission of antitrust information is
not required in connection with licensing actions which do not affect the
ownership of a nuclear generating facility or entitlement to the power output
from such a facility, particularly if they involve de minimis interests. See
e.g., SECY-91-246 (Aug. 7, 1991) "Antitrust Considerations for License
Amendments Authorizing New Operating Entities." Moreover, if "the transaction is
deemed to be an indirect transfer, with no new 1icensee added to the license, a
Section 105 antitrust review (including a significant changes review) is not
authorized by the [AEA]." NRC Standard Review Plan for Antitrust Reviews at 3-2
(Nov. 1997). The proposed reorganization of CMP will -- at most -- constitute an
indirect transfer which will not result in any new licensee being added to any
NRC license and will therefore not require an antitrust review by the NRC.
(6) ACCESS TO RESTRICTED DATA
This request does not contain any Restricted Data or other Classified
Defense Information or any change in access to such Restricted Data or
Classified Defense Information. Any existing restrictions on access to
Restricted Data and Classified Defense Information related to the licenses for
Millstone Unit 3 and the Yankee plants will be unaffected by the proposed
reorganization.
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<PAGE>
(7) ENVIRONMENTAL IMPACT
The proposed reorganization does not involve any change to nuclear plant
operations or equipment and does not change any environmental impact previously
evaluated in prior environmental reviews for Millstone Unit 3 and the Yankee
plants. Accordingly, there is no significant environmental impact associated
with the reorganization.
VIII. EFFECTIVE DATE OF THE REORGANIZATION
The reorganization requires the approval of the other regulatory agencies
identified in Section V above. CMP intends to consummate the merger transactions
necessary to complete the reorganization as soon as possible after all
regulatory and shareholder approvals have been obtained. CMP's 1998 Annual
Meeting of Shareholders is scheduled for May 21, 1998. CMP requests that the NRC
expedite its review of this request on a schedule that will permit the issuance
of any required NRC consents as promptly as possible and, in any event, by May
21, 1998.
IX. REQUESTED NRC ACTION
For the reasons stated above, CMP respectfully submits that the proposed
reorganization is consistent with the applicable provisions of the AEA, NRC
regulations and NRC orders issued pursuant thereto. CMP therefore respectfully
requests that, to the extent required by Section 184 of the AEA and 10 C.F.R.
ss. 50.80, the NRC consent to any indirect transfer of control of any NRC
licenses that may occur in connection with this reorganization.
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LIST OF EXHIBITS
NO. TITLE
1 (a) CMP Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1996
(w/o exhibits); (b) CMP Quarterly Report
on Form 10-Q for the Quarter ending
September 30, 1997; and (c) CMP Report
on Form 8-K, dated January 6, 1998.
2 CMP Application for Approval of
Reorganization Filed With MPUC, dated
December 8, 1997 (w/o exhibits).
3 Maine Electric Industry Restructuring Act
of 1997.
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