UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION AND DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
HOLDCO, INC.
CENTRAL MAINE POWER COMPANY
83 Edison Drive
Augusta, Maine 04336
(Name of companies filing this statement and
address of principal executive offices)
None
(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
(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
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. After its organizational meeting, Holding Company will be a
direct, wholly-owned subsidiary of Central Maine, and, upon formation,
Merger-Sub will be a direct, 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 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 to Central Maine. As mentioned below, Central Maine has agreed to
sell its interest in AVEC. NORVARCO is one of two general partners 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. 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.
Central Maine is the largest electric utility in Maine. It serves
approximately 527,000 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).
The electric properties of Central Maine form a single integrated system
which is connected at 345 kilovolts and 115 kilovolts with the lines of Public
Service Company of New Hampshire at the southerly end and at 115 kilovolts with
Bangor Hydro-Electric Company ("Bangor Hydro") at the northerly end of Central
Maine's system. Central Maine's system is also connected with the system of The
New Brunswick Power Corporation 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,
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.
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. One such
subsidiary, MaineCom Services ("MaineCom"), develops fiber-optic data service
for bulk carriers and provides other telecommunications services. Other
unregulated affiliates of Central Maine include CMP International Consultants
("CMPI"), which 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 information and research services and related consulting and
engineering, environmental, licensing and other technical services; Central
Securities Corporation ("Central") and Cumberland Securities Corporation
("Cumberland"), both of which own real estate located in Central Maine's service
area; Kennebec Hydro Resources, Inc., which owns a 50 percent interest in a
qualifying facility located in Waterville, Maine; TeleSmart, which provides
collections and related accounts receivable management services; The Union
Water-Power Company ("Union Water"), which provides (i) river facilities
management, including the management of dams, reservoirs, fishways and
oxygenation facilities, (ii) utility support services such as underground
facility locating, infrared photography and workorder ticket management and
(iii) real estate management, development and leasing, and land and modular
housing sales.
The current corporate structure is shown 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 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 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. 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 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. 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 $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./2
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2 Any such differences would be discussed in Central Maine's proxy statement,
relating to this restructuring, prepared for Central Maine's annual meeting
of shareholders, to be held in May 1998.
Concurrently with the Merger, or shortly thereafter, Central Maine will
transfer its existing equity interests in CMPI, Central, Cumberland, MaineCom,
TeleSmart and Union Water by dividending the 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, procurement and 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 9(a)(2) and 10 of the 1935 Act and the granting by the
Commission of an exemption 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. These votes will be taken at the annual meeting of shareholders of
Central Maine to be held in May, 1998. 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").3/
Central Maine and Holding Company will be filing 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 will be
filed as Exhibit C-1 by amendment hereto. The Proxy Statement and Prospectus
contained in the Registration Statement will be 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 Voting Stock.
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3 Approval or waiver by the Connecticut Department of Public Utility Control
may be required due to Central Maine's ownership of a 2.5% interest in the
Millstone No. 3 nuclear unit.
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 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 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./4 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.
Absent restrictions that could possibly be imposed by the MPUC, 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. 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.
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4 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.
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 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.............*
New York Stock Exchange Listing Fee............*
Auditors' Fees.................................*
Legal Fees.....................................*
Proxy Solicitation.............................*
Stock Certificates.............................*
Miscellaneous..................................*
TOTAL.................................*
* To be filed by amendment
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;
(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 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 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 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.
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 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., 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 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 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 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. Central Maine has filed an application with the MPUC, a copy of which is
filed as Exhibit D-1 hereto, and a copy of the MPUC's determination will be
filed as Exhibit D-2 by amendment 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 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. In fact, Central Maine and its
public utility subsidiaries derive substantially all of their consolidated
utility revenues from Maine operations.
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 will require the approval of the MPUC, the FERC, the
NRC, and possibly the Connecticut DPUC. Central Maine has filed an application
with the MPUC, a copy of which is attached hereto as Exhibit D-1. A copy of the
final MPUC order pursuant thereto will be filed as Exhibit D-2 by amendment
hereto. Central Maine will file an application with the FERC, a copy of which
will be filed as Exhibit D-3 by amendment hereto. A copy of the final FERC order
pursuant thereto will be filed as Exhibit D-4 by amendment hereto. Central Maine
will file an application with the NRC, a copy of which will be filed as Exhibit
D-5 by amendment hereto. 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 March 13, 1998, such notice to specify a date
not later than April 7, 1998, by which comments may be entered and a date not
later than April 9, 1998, as the date after which an order of the Commission
granting and permitting 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
Item 6 EXHIBITS AND FINANCIAL STATEMENTS
NO. DESCRIPTION METHOD OF FILING
A-1 Draft Articles of Incorporation
of Holding Company to be in effect
on the effective date. To be filed by amendment.
A-2 Draft By-Laws of Holding Company
to be in effect on the effective
date. To be filed by amendment.
A-3 Articles of Incorporation of
Central Maine, as amended. Incorporated herein by reference 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, as
amended. Filed herewith
B-1 Draft Agreement and Plan of
Merger. Filed herewith.
C-1 Registration Statement of
Holding Company on Form S-4
relating to the shares of
Holding Company Common Stock to
be issued in connection with the
Merger. To be filed by amendment.
D-1 MPUC Application dated
December 8, 1997. Filed herewith.
D-2 Order of the MPUC. To be filed by amendment.
D-3 Application for FERC
authorization under Section 203
of the Federal Power Act. To be filed by amendment.
D-4 Order of the FERC. To be filed by amendment.
D-5 Request for NRC Consent under
Section 184 of the Atomic Energy
Act and 10 C.F.R. ss.ss. 50.80. To be filed by amendment.
D-6 Order of the NRC. To be filed by amendment.
E-1 Map showing service territory
of Central Maine. To be filed by amendment.
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
Central Maine as of December 31,
1996 and Consolidated Statements
of Earnings, Cash Flows,
Capitalization and Interim
Financing and Changes in Common
Stock Investment for the three
fiscal years ended
December 31, 1996. Incorporated herein by reference
to the Form 10-K for the year ended
December 31, 1996 filed by Central
Maine (File No. 1-5139)
G-2 Pro forma Consolidated Balance
Sheets, Statements of Income and
Retained Earnings giving effect
to the Reorganization. Not applicable.
G-3 Form U-3A-2, "Statement of
Holding Company Claiming
Exemption under Rule U-3A-2
from the Provisions of the
Public Utility Holding
Company Act of 1935," dated
February 27, 1998, filed
by Central Maine Incorporated herein by reference to
the Form U-3A-2 dated February 27,
1998 filed by Central Maine (File No.
69-198)
G-4 Financial Data Schedule. Filed herewith.
H-1 Form of Notice. Filed herewith.
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.
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: March 3, 1998 HOLDCO, INC.
By: /s/ Anne M. Pare
Name: Anne M. Pare
Title: Treasurer, Corporate
Counsel and
Secretary
Date: March 3, 1998 CENTRAL MAINE POWER COMPANY
By: /s/ Anne M. Pare
Name: Anne M. Pare
Title: Corporate Counsel and
Secretary
APPENDIX A
Current and Post-Reorganization Corporate Charts
CURRENT ORGANIZATION CHART
CMP
|
|
-----------------------------------------------------------------------
| | | | | | |
78.3%| | | | | | |
| | | | | | |
MEPCO NORVARCO Maine Yankee 38% Central Cumberland CMPI |
| Yankee Atomic 9.5% |
50% Ct. Yankee 6% |
| Vt. Yankee 4% |
Chester |
|
-------------------------------------------------------------------------
| | | | | 24.8% | 14% |
MaineCom TeleSmart Union Water AVEC Kennebec Hydro Kennebec Water GIPOP
PROPOSED POST-REORGANIZATION CORPORATE STRUCTURE
Holding Company
|
|
-----------------------------------------------------------------------------
| | | | | | | | |
CMP Central Cumberland CMPI MaineCom TeleSmart Union Water EnerMark GasCo
| |
| 50%|
| |
| CMP
| Gasco.
|
-----------------------------------------------------------------------
| | | | | | |
| | | | | | |
78.3% | 38% | 9.5%| 6% | 4% | |
| | | | | | |
MEPCO NORVARCO Maine Yankee Yankee Atomic Ct. Yankee Vt. Yankee |
| |
50% | (interests offered for sale) |
| ------------------------------------------------
Chester | 24.8% | 14% | |
Kennebec Hydro Kennebec Water GIPOP AVEC
EXHIBIT A-4
BY-LAWS
CENTRAL MAINE POWER COMPANY
As Revised and Amended Through
June 20, 1996
BY-LAWS
of
CENTRAL MAINE POWER COMPANY
SECTION 1. ARTICLES OF INCORPORATION
The name of the Company and its location shall be as set forth in the
Articles of Incorporation (sometimes referred to in these By-Laws as the
"Charter"). References in these By-Laws to the Articles of Incorporation or the
Charter shall mean the Articles of Incorporation as from time to time in effect.
References in these By-Laws to the Maine Business Corporation Act and to
particular sections of said Act are to said Act and said sections as from time
to time in effect.
SECTION 2. STOCKHOLDERS' MEETINGS
2.1. Annual Meeting. An annual meeting of the stockholders for the purpose
of electing Directors and transacting such other business as may properly come
before the annual meeting shall be held on the third Thursday in May in each
year, at such hour as may be fixed by the Chairman of the Board of Directors, by
the President or by a majority of the members of the Board of Directors then in
office. If that day be a legal holiday, the meeting shall be held on the next
succeeding day not a legal holiday. Purposes for which an annual meeting is to
be held, additional to the election of directors and those prescribed by law, by
the Articles of Incorporation or by these By-Laws, may be specified by the
Chairman of the Board of Directors, by the President or by a majority of the
members of the Board of Directors then in office.
2.2. Special Meeting in Place of Annual Meeting. In case an annual meeting
of the stockholders shall be omitted through inadvertence or otherwise, the
business of such meeting may be transacted at a special meeting duly called in
lieu thereof and any action taken at such special meeting shall have the same
force and effect as if taken at the annual meeting, and in such case all
references in these By-Laws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting. Any such special meeting shall be
called as provided in Section 2.3.
2.3. Special Meetings. A special meeting of the stockholders may be called
at any time by the Chairman of the Board of Directors, by the President, by a
majority of the members of the Board of Directors then in office, unless
otherwise provided by law, by the holders of not less than 10% of the
outstanding shares of the Company entitled to vote at the meeting or as
otherwise provided in the Articles of Incorporation. Each call of a special
meeting shall state the place, date, hour and purposes of the meeting.
2.4. Organization of Meetings. At each meeting of the stockholders the
Chairman of the Board of Directors, or in his absence the Vice Chairman of the
Board of Directors, or in their absence the President, shall act as chairman of
the meeting. Procedure at the meeting shall be established by the chairman of
the meeting.
2.5. Place of Meetings. All meetings of the stockholders shall be held at
the principal office of the Company in the State of Maine, Edison Drive,
Augusta, Maine, or at such other place in the State of Maine as shall be fixed
by the Chairman of the Board of Directors, by the President or by a majority of
the members of the Board of Directors then in office.
2.6. Notice of Meetings. Written notice of each meeting of stockholders
shall be given in accordance with the provisions of the Maine Business
Corporation Act, including, without limitation, Section 604 of said Act, unless
such notice shall be waived as provided in said Act, including, without
limitation, Section 605 of said Act.
2.7. Quorum of Stockholders. At all stockholders' meetings, unless
otherwise specifically provided in these By-Laws, a representation of shares
entitled in the aggregate to a majority of the total votes to which the
outstanding shares of capital stock of the Company of all classes are then
entitled shall be necessary to constitute a quorum for the transaction of
business other than (a) adjourning from time to time until a quorum shall be
present, or (b) adjourning sine die, and for any such adjournment a majority
vote of whatever stock shall be represented shall be sufficient; provided, that
such quorum requirement shall be applicable to stockholders' meetings only when
the outstanding Preferred Stock of all classes and series are not entitled to
vote as a class for the election of a majority of the Directors of the Company;
and, provided further, that, at stockholders' meetings when the outstanding
Preferred Stock of all classes and series are entitled to vote as a class for
the election of a majority of the Directors, the foregoing quorum requirement
shall be reduced from a majority of such total votes to one-third of such total
votes. When a quorum is present at any meeting, a majority of the votes to which
stock represented thereat and voting is entitled shall, except when a larger
vote is required by law, by the Charter or by these By-Laws, decide any question
brought before such meeting.
At all meetings of stockholders held: (i) for any of the purposes specified
in Section B.6(b) of the Capital Stock Provisions of the Articles of
Incorporation the presence in person or by proxy of the holders of shares, of
the Common Stock and other stock having the general right to vote with the
Common Stock, entitled in the aggregate to not less than one-third of the total
votes to which all outstanding shares of such capital stock of the Company are
then entitled, shall be required to constitute a quorum of such class for the
election of Directors; and (ii) for any of the purposes specified in Section
B.6(b) and in Section B.8 of the Capital Stock Provisions of the Articles of
Incorporation, the presence in person or by proxy of the holders of a majority
of the total number of shares of all classes and series of the Company's
Preferred Stock then issued and outstanding shall be necessary to constitute a
quorum of such classes, provided, for the purposes specified in said Section
B.6(b), that if such quorum shall not have been obtained at such meeting, or at
any adjournment thereof, within ninety (90) days from the date of such meeting
as originally called, the presence in person or by proxy of the holders of
one-third of the total number of shares of all classes and series of the
Company's Preferred Stock then issued and outstanding shall then be sufficient
to constitute a quorum of such classes. The absence of a quorum of the holders
of stocks of either class shall not prevent the election at any such meeting, or
any adjournment thereof, of Directors by the other such class, if the necessary
quorum of the holders of stock of such other class is present in person or by
proxy at such meeting. In the absence of a quorum of the holders of stocks of
either class, a majority of those holders of the stocks of such class who are
present in person or by proxy shall have power to adjourn such meeting from time
to time (without notice, other than announcement at the meeting, if for thirty
(30) days or less) until the requisite amount of holders of stock of such class
shall be present in person or by proxy, but such adjournment shall not be made
to a date beyond the date for the mailing of notice of the next annual meeting
or special meeting in lieu thereof.
2.8. Voting. At all stockholders' meetings, holders of record of stock
entitled to vote on any question or at any election shall be entitled to one
vote for each share of stock held by them respectively, except that holders of
Common Stock shall be entitled to one-tenth vote for each share of said stock
held by them. In elections of Directors by the stockholders, when, and only
when, the Preferred Stocks are not entitled to vote as a class for the election
of a majority of the full Board of Directors, each stockholder having the right
to vote shall be entitled to as many votes as pertain to his shares of stock
multiplied by the number of Directors to be elected, and he may cast all such
votes for a single Director or may distribute them among the number to be voted
for, or any two or more of them, as he may see fit. Such vote may, in all cases,
be given by proxy duly authorized in writing; but no proxy granted more than six
months before the meeting, which shall be named therein, shall be accepted, and
no proxy shall be valid after the final adjournment of such meeting.
2.9. Voting Inspectors. At all meetings of stockholders there shall be one
or more voting inspectors as provided in the Maine Business Corporation Act,
including, without limitation, Section 609 of said Act.
SECTION 3. BOARD OF DIRECTORS
3.1. Number and Term of Office. Except as otherwise fixed in or pursuant to
provisions of the Articles of Incorporation with respect to the right of the
holders of any class or series of capital stock having a preference over Common
Stock as to dividends or upon liquidation to elect Directors under specified
circumstances, the Company shall have a Board of Directors consisting of not
fewer than nine members nor more than eighteen members, the exact number (i) to
be twelve persons upon adoption of this Section 3.1, subject to change
exclusively by the Board of Directors as provided in this Section 3.1, and (ii)
if to be changed from twelve persons to some other number not fewer than nine
nor more than eighteen persons subsequent to the adoption of this Section 3.1,
to be fixed from time to time exclusively by the Board of Directors pursuant to
a resolution adopted by a majority of the total number of authorized Directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board for adoption).
No person shall be a Director or executive officer of the Company who is
also a director or executive officer of Central Vermont Public Service
Corporation, of Public Service Company of New Hampshire, or of any corporation
which may succeed to all or substantially all of the property and business of
either. A majority of the Directors shall at all times be persons who are not
employees of the Company. The provisions of this paragraph shall not apply to
the election of Directors by the holders of Preferred Stock when, in accordance
with the provisions of the Articles of Incorporation, they shall be entitled to
elect the smallest number of Directors necessary to constitute a majority of the
full Board of Directors.
3.2. Term of Directors, Vacancies and Resignations and Removals. Each
Director shall hold office as provided in the Maine Business Corporation Act,
including, without limitation, Section 704 of said Act. The term of office for
each Director elected by the holders of the Preferred Stock of the Company as
provided in Section B.6 of the Capital Stock Provisions of the Articles of
Incorporation shall be as provided in said Section B.6.
At the annual meeting of stockholders of the Company at which this Section
3.2 is adopted, the Directors shall be classified, with respect to the time for
which they severally hold office, into three classes, Class I, Class II and
Class III, as nearly equal in number as possible, Class I to hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 1988, Class II to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1989, and Class III to hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 1990, with the members of each class to hold office until their successors
are elected and qualified. At each annual meeting of stockholders of the Company
following the annual meeting of stockholders at which this Section 3.2 is
adopted, the successors to the class of Directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in the third year following the year of their
election.
Except as otherwise fixed in or pursuant to provisions of the Articles of
Incorporation with respect to the right of the holders of any class or series of
capital stock having a preference over Common Stock as to dividends or upon
liquidation to elect Directors under specified circumstances, newly created
directorships resulting from any increase in the authorized number of Directors
or any vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the Directors then in office, though less than a quorum of the
Board of Directors, acting at a regular or special meeting. If any applicable
provision of the Maine Business Corporation Act expressly confers power on
stockholders to fill such a directorship at a special meeting of stockholders,
such a directorship may be filled at such a meeting only by the affirmative vote
of at least 80 percent of the combined voting power of all of the then
outstanding shares of Voting Stock, voting together as a single class. Any
Director elected in accordance with the two preceding sentences shall hold
office for the remainder of the full term of the class of Directors in which the
new directorship was created or the vacancy occurred and until such Director's
successor shall have been elected and qualified. If the number of authorized
Directors is changed by resolution of the Board of Directors pursuant to this
Section 3.2, any increase or decrease shall be apportioned among the classes so
as to maintain the number of Directors in each class as nearly equal as
possible, but in no case shall a decrease in the number of Directors shorten the
term of any incumbent Director.
Subject to any controlling provision of Maine law and subject to the right
of the holders of any class or series of capital stock having a preference over
Common Stock as to dividends or upon liquidation to elect Directors under
specified circumstances, any Director, or the entire Board of Directors, may be
removed from office at any time by the holders of the stock of all classes and
series of the Company entitled to vote generally (the "Voting Stock"), but only
for cause and only by the affirmative vote of the holders of at least 80 percent
of the combined voting power of all of the then outstanding shares of the Voting
Stock, voting together as a single class (it being understood that, for all
purposes of these By-Laws, each share of the Voting Stock shall have the number
of votes granted to it pursuant to these By-Laws or the Capital Stock Provisions
of the Articles of Incorporation or any designation of the rights, powers and
preferences of any class or series of the capital stock of the Company fixed in
or made pursuant to the Articles of Incorporation). The Company must notify the
Director of the grounds of his impending removal and the Director shall have an
opportunity, at the expense of the Company, to present his defense to the
stockholders by a statement which accompanies or precedes the Company's
solicitation of proxies to remove him. The term "entire Board of Directors" as
used in these By-Laws means the total number of Directors which the Company
would have if there were no vacancies.
3.3. Powers. The business and affairs of the Company shall be managed by
the Board of Directors. The Board of Directors may exercise all of the powers of
the Company and do and perform, or cause to be done and performed, all such
lawful acts and things as are not by law, by the Articles of Incorporation, or
by these By-Laws, required to be exercised or done by the stockholders.
3.4. Committees. The Board of Directors, by a resolution adopted by a
majority of the full Board of Directors, may designate from among its members an
Executive Committee and other Committees, each consisting of two or more
Directors, and may delegate to such Committee or Committees all the authority of
the Board of Directors except those which by the Maine Business Corporation Act,
including, without limitation, Section 713 of said Act, the Articles of
Incorporation, or these By-Laws, may not be exercised by such Committee or
Committees. Alternate members of such Committee or Committees may also be
appointed as specified in said Section 713. Except as the Board of Directors may
otherwise determine, the business of such Committee or Committees shall be
conducted as nearly as may be in the same manner as is provided by these By-Laws
for the conduct of business by the Board of Directors. Each such Committee shall
report its actions to the Board of Directors.
3.5. Regular Meetings. A regular meeting of the Board of Directors may be
held without call or notice immediately after and at the same place as the
annual meeting of the stockholders. Other regular meetings of the Board of
Directors may be held without call or notice if the time and place of such
meetings are fixed by the Board of Directors, provided that notice of the first
regular meeting following any such determination shall be given to each
Director.
3.6. Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, by the President, or, if he is
absent or is unable to act, by any Vice President, or by any two Directors. The
person or persons calling the special meeting shall set the time and place
thereof.
Notice of each special meeting of the Board of Directors shall be given by
the Clerk, the Secretary or the person or persons calling the meeting.
It shall be sufficient notice to a Director of a special meeting to send
notice by mail at least forty-eight hours or by telegram at least twenty-four
hours before the meeting addressed to him at his usual or last known business or
residence address or to give notice to him in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given to
any Director who signs a waiver of notice, either before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice of the
meeting except as otherwise required by the Articles of Incorporation, these
By-Laws or the Maine Business Corporation Act.
3.7. Action Without A Meeting. Action may be taken by the Board of
Directors without a meeting as provided in the Maine Business Corporation Act,
including, without limitation, Sections 708, 711 and 712 of said Act.
3.8. Quorum. At any meeting of the Directors a majority of the Directors
then in office shall constitute a quorum for the transaction of business. The
Directors present at a duly called or held meeting at which a quorum was once
present may continue to do business at the meeting notwithstanding the
withdrawal of enough Directors to leave less than a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice if the time and place to which it is adjourned are fixed
and announced at such meeting.
3.9. Action by Vote. The vote of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors
unless the vote of a greater number is required by the Articles of
Incorporation, these By-Laws or the Maine Business Corporation Act.
SECTION 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification. The officers of the Company shall consist
of a Chairman of the Board of Directors, a President, one or more Vice
Presidents, a Treasurer, a Clerk, a Secretary and such other officers, if any,
as the Board of Directors from time to time may in their discretion elect or
appoint. The President shall be elected from the Board of Directors, and the
Chairman of the Board of Directors and any Vice Chairman of the Board shall be
elected from those Directors who are not employees of the Company. The Clerk
shall be a resident of the State of Maine. Any two or more offices may be held
by the same person. Any officer may be required by the Board of Directors to
give bond for the faithful performance of his duties to the Company in such
amount and with such sureties as the Board of Directors may determine.
4.2. Powers. Subject to the Maine Business Corporation Act, the Articles of
Incorporation and the other provisions of these By-Laws, each officer shall have
such duties and powers as are usually incident to his respective office and such
other duties and powers as may be prescribed from time to time by the Board of
Directors.
4.3. Election. The Chairman of the Board of Directors, the President and
the Clerk shall be elected annually by the Board of Directors at their first
meeting following the annual meeting of the stockholders. Other officers may be
elected or appointed by the Board of Directors at said meeting or at any other
time.
4.4. Tenure. Except as otherwise provided by the Maine Business Corporation
Act, by the Articles of Incorporation or by these By-Laws, the Chairman of the
Board of Directors, the President and the Clerk shall hold office until the
first meeting of the Board of Directors following the next annual meeting of
stockholders and until their respective successors are chosen and qualified, and
each other officer shall hold office until the first meeting of the Directors
following the next annual meeting of stockholders unless, in any case, a shorter
period shall have been specified by the terms of his election or appointment, or
until he sooner dies, resigns, is removed or becomes disqualified.
SECTION 5.
RESIGNATION, VACANCIES AND REMOVALS
Any Director or officer may resign at any time by delivering his
resignation in writing to the Chairman of the Board of Directors, the President
or the Clerk or to a meeting of the Board of Directors. Such resignation shall
be effective upon receipt unless specified to be effective at some other time.
Any vacancy, however occurring, in the office of any officer may be filled by
the Board of Directors. The Board of Directors may remove any officer as
provided in the Maine Business Corporation Act including, without limitation,
Section 715 of said Act.
SECTION 6. STOCK CERTIFICATES,
TRANSFERS OF SHARES AND RECORD DATES
6.1. Stock Certificates. Each stockholder, upon payment in full for his
shares, shall be entitled to a certificate certifying the number and the class
and the designation of the series, if any, of the shares owned by him, in such
form as shall, in conformity to law, be prescribed from time to time by the
Board of Directors. Such certificate shall conform with the provisions of the
Maine Business Corporation Act and be signed by any two of the President or any
Vice President and by the Treasurer or any Assistant Treasurer, and may be
sealed with the seal of the Company or a facsimile thereof. If the certificate
is countersigned by the Clerk, a transfer agent or any assistant transfer agent,
or registered by a registrar, other than the Company itself or an employee of
the Company, any other signature on the certificate may be a facsimile. In case
any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Company with the same effect as if he were such
officer at the date of its issue.
6.2. Loss of Certificates. In the case of the alleged loss or destruction
or the mutilation of a certificate of stock, a duplicate certificate may be
issued in place thereof, upon such terms as the Directors may prescribe.
6.3. Transfer on Books. Subject to the restrictions, if any, stated or
noted on the stock certificates, shares of stock may be transferred on the books
of the Company by the surrender to the Company or one of its transfer agents of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
Board of Directors or the particular transfer agent may reasonably require.
Except as may be otherwise required by law, by the Articles of Incorporation or
by these By-Laws, the Company shall be entitled to treat the record holder of
stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to receive notice and to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock until the shares have been transferred on the books of the Company in
accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Company of his post
office address.
6.4. Record Date. The Board of Directors may by resolution fix in advance a
record date not exceeding sixty (60) days nor less than ten (10) full days prior
to (a) the date of any stockholders' meeting for the purpose of determining
stockholders entitled to notice of and to vote at such meeting and any
adjournment thereof, or (b) the date of the payment of any dividend, other
distribution, right or other benefit, including the issuance of rights to
subscribe for securities, for the purpose of determining stockholders entitled
to receive such dividend, other distribution, right or other benefit; and may by
resolution, subject to such time limitations, fix a record date for any other
proper purpose.
SECTION 7. INDEMNIFICATION
7.1. To the extent permitted and in the manner provided by the Maine
Business Corporation Act, the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer or
employee of the Company or is or was serving at the request of the Company as a
director, officer, trustee, partner, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan, or other enterprise, against expenses (including attorneys' fees),
judgments, fines, assessments, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding.
Expenses incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the Company in advance
of the final disposition of such action, suit or proceeding, as authorized in
the specific case in the manner provided by the Maine Business Corporation Act,
upon receipt of an undertaking by or on behalf of the person seeking
indemnification to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Company.
The foregoing rights of indemnification shall not be deemed exclusive of
any other rights to which any person seeking indemnification may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, and shall continue as to a person who has ceased to be a director,
officer, trustee, partner, fiduciary, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
7.2. The Company shall have power to purchase and maintain insurance, in
such amounts as the Board of Directors may deem appropriate, on behalf of any
person who is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer, trustee,
partner, fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan, or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Company would
have the power to indemnify him against such liability under applicable
provisions of law.
SECTION 8. AMENDMENTS
These By-Laws may be altered, amended or repealed, except as may be
otherwise expressly provided by law or in other sections of these By-Laws or in
the Articles of Incorporation, at any annual or special meeting of the
stockholders called for the purpose, of which the notice shall include the
proposed action, by vote of stockholders holding shares entitled in the
aggregate to a majority of the total votes to which the outstanding shares of
capital stock of the Company of all classes are then entitled, except that in
the case of the provisions of the first paragraph of Section 2.7 relating to the
requirements for a quorum and in the case of the provisions of Section 2.8
relating to cumulative voting such vote shall be by the affirmative vote of
stockholders holding shares entitled in the aggregate to two-thirds of the total
votes to which the outstanding shares of capital stock of the Company of all
classes are then entitled and except that in the case of the provisions of
Section 2.8 relating to the rights of the Company's Preferred Stock to vote such
vote shall be by the affirmative vote of two-thirds in interest of each class of
the Company's Preferred Stock then outstanding which is affected by the change,
voting separately as a class. These By-Laws may also be altered, amended or
repealed by vote of a majority of the Board of Directors then in office, except
that the Board of Directors shall not alter, amend or repeal the provisions of
the first paragraph of Section 2.7 relating to the requirements for a quorum,
the provisions of Section 2.8 relating to cumulative voting, the provisions of
the second paragraph of Section 3.1 relating to the qualification of Directors,
the provisions of the first paragraph of Section 3.1 relating to the number of
Directors and the provisions of Section 3.2 relating to the classification and
term of Directors, the filling of vacancies and the resignation and removal of
Directors from office and any provision of this Section 8 pertaining to the
foregoing sections. Notwithstanding any other provision in these By-Laws or any
provision of law that might otherwise permit a lesser vote, but in addition to
any affirmative vote of the holders of any particular class or series of stock
required by law, the Articles of Incorporation or these By-Laws, the affirmative
vote of the holders of at least 80 percent of the combined voting power of all
of the then outstanding shares of Voting Stock (as defined in the Corporate
Governance Provisions of the Articles of Incorporation) of the Company, voting
together as a single class, shall be required to alter or repeal the first
paragraph of Section 3.1 relating to the number of Directors and the provisions
of Section 3.2 relating to the classification and term of Directors, the filling
of vacancies and the resignation and removal of Directors from office and any
provision of this Section 8 pertaining to the foregoing sections.
SECTION 9. TITLES OF SECTIONS
All titles of sections are inserted for convenience only, and are not a
part of these By-Laws or to be used in the construction thereof.
EXHIBIT B-1
FORM OF AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made as of _________,
1998, by and among CENTRAL MAINE POWER COMPANY, a Maine corporation ("Central
Maine"), CMP MERGER CO., a Maine corporation ("MergeCo"), and HOLDCO, INC., a
Maine corporation ("HoldCo").
WHEREAS, Central Maine has authorized capital consisting of (i) 80,000,000
shares of Common Stock, with a par value of $5 per share ("Central Maine Common
Stock"), of which 32,442,752 shares are issued and outstanding as of the date
hereof; (ii) 2,000,000 shares of Preferred Stock, with a par value of $25 per
share ("Central Maine $25 Preferred Stock"), no shares of which are issued and
outstanding as of the date hereof; (iii) 5,713 shares of 6% Preferred Stock,
with a par value of $100 per share ("Central Maine 6% Preferred Stock"), all of
which shares are issued and outstanding as of the date hereof; and (iv)
2,300,000 shares of Dividend Series Preferred Stock, with a par value of $100
per share ("Central Maine Dividend Series Preferred Stock"), of which 1,115,275
shares are issued and outstanding as of the date hereof; the number of shares of
outstanding Central Maine Common Stock being subject to increase to the extent
shares may be issued pursuant to Central Maine's Dividend Reinvestment and
Common Stock Purchase Plan prior to the Merger Date (as defined below), and the
number of shares of outstanding Central Maine Dividend Series Preferred Stock
being subject to decrease to the extent shares are redeemed or purchased and
retired by Central Maine prior to said Merger Date; and
WHEREAS, MergeCo has authorized capital consisting of 1,000 shares of
Common Stock, with a par value of $5 per share ("MergeCo Common Stock"), of
which 100 shares are issued and outstanding and are owned beneficially and of
record by HoldCo; and
WHEREAS, HoldCo has authorized capital consisting of 80,000,000 shares of
Common Stock, with a par value of $5 per share ("HoldCo Common Stock"), of which
100 shares are issued and outstanding and are owned beneficially and of record
by Central Maine; and
WHEREAS, the Boards of Directors of the respective parties hereto deem it
advisable to merge MergeCo with and into Central Maine (the "Merger") in
accordance with the Maine Business Corporation Act ("Maine BCA"), this Agreement
and the Articles of Merger attached hereto as Exhibit A (the "Articles"), for
the purpose and with the effect of establishing HoldCo as the parent corporation
of Central Maine in a transaction intended to qualify for tax-free treatment;
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, the parties agree that (i) MergeCo shall be merged with and into Central
Maine, said action constituting the "Merger", (ii) Central Maine shall be the
corporation surviving the Merger, and (iii) the terms and conditions of the
Merger, the means of carrying it into effect and the manner of converting and
exchanging shares of capital stock shall be as follows:
ARTICLE 1
THE MERGER
1.1 Plan of Merger. This Agreement shall constitute a plan of merger
between Central Maine and MergeCo (Central Maine and MergeCo being sometimes
referred to herein as the "Participating Corporations") in accordance with
Section 901 of the Maine BCA.
1.2 Articles of Merger. Subject to and in accordance with the provisions of
this Agreement, the Articles shall be executed by the Participating Corporations
and delivered to the Secretary of State of the State of Maine for filing, as
provided in Section 903 of the Maine BCA.
1.3 Merger Date. The Merger shall become effective upon the filing of the
Articles with the Secretary of State of the State of Maine or on such later date
not more than 60 days after such filing as may be specified in the Articles
(such effective date being herein called the "Merger Date"). On the Merger Date,
the separate existence of MergeCo shall cease and MergeCo shall be merged with
and into Central Maine, which shall continue its corporate existence as the
surviving corporation (Central Maine, as the surviving corporation, being
sometimes referred to herein as the "Surviving Corporation"). Central Maine, as
the Surviving Corporation, shall succeed, without other transfer, to all the
rights and property of MergeCo and shall be subject to all the debts and
liabilities of MergeCo in the same manner as if Central Maine had itself
incurred them. All rights of creditors and all liens upon the property of each
of Central Maine and MergeCo shall be preserved unimpaired.
1.4 Appropriate Actions. Prior to, at and after the Merger Date, HoldCo,
Central Maine and MergeCo, respectively, shall take all such actions as may be
necessary or appropriate in order to effectuate the Merger. In this connection,
HoldCo shall issue the shares of HoldCo Common Stock for which outstanding
shares of Central Maine Common Stock will be exchanged and surrendered on a
share-for-share basis to the extent provided in Article 2 of this Agreement. In
case at any time after the Merger Date any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full title to all properties, assets, privileges, rights,
immunities and franchises of either of the Participating Corporations, the
officers and directors of each of the Participating Corporations as of the
Merger Date shall take all such further action.
ARTICLE 2
TERMS OF CONVERSION AND EXCHANGE OF SHARES
On the Merger Date:
2.1 Central Maine Common Shares. Each share of Central Maine Common Stock
issued and outstanding immediately prior to the Merger shall be automatically
changed and converted into and exchanged for one share of HoldCo Common Stock,
which shall thereupon be issued and fully-paid and non-assessable; provided,
however, that such conversion and exchange shall not affect shares of holders,
if any, who perfect their rights as dissenting shareholders under Sections 908
and 909 of the Maine BCA.
2.2 Central Maine Preferred Shares. Shares of Central Maine $25 Preferred
Stock, Central Maine 6% Preferred Stock and Central Maine Dividend Series
Preferred Stock issued and outstanding immediately prior to the Merger shall not
be converted or otherwise affected by the Merger. Each such share shall continue
to be (i) issued and outstanding and (ii) a fully-paid and non-assessable share
of Central Maine $25 Preferred Stock, Central Maine 6% Preferred Stock or
Central Maine Dividend Series Preferred Stock, as the case may be, of the
Surviving Corporation.
2.3 MergeCo Shares. The shares of MergeCo Common Stock issued and
outstanding immediately prior to the Merger shall be automatically changed and
converted into a number of shares of common stock, par value $5.00 per share, of
the Surviving Corporation (which shall thereupon be issued and fully-paid and
non-assessable), equal to the number of shares of Central Maine Common Stock as
are issued and outstanding immediately prior to the Merger Date.
2.4 HoldCo Shares. Each share of HoldCo Common Stock issued and outstanding
and held by Central Maine immediately prior to the Merger shall be cancelled.
2.5 Central Maine Stock Options. Each outstanding option to purchase shares
of Central Maine Common Stock will be assumed by HoldCo. Each such option will
be exercisable in accordance with its existing terms for the same number of
shares of HoldCo Common Stock as the number of shares of Central Maine Common
Stock subject to such option.
ARTICLE 3
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Central Maine's Articles of Incorporation. From and after the Merger
Date, and until thereafter amended as provided by law, the Articles of
Incorporation of Central Maine as in effect immediately prior to the Merger
shall be and continue to be the Articles of Incorporation of the Surviving
Corporation.
3.2 Central Maine's Bylaws. From and after the Merger Date, and until
thereafter amended as provided by law, the Bylaws of Central Maine as in effect
immediately prior to the Merger shall be and continue to be the Bylaws of the
Surviving Corporation.
ARTICLE 4
DIRECTORS AND OFFICERS
4.1 Central Maine's Directors and Officers. The persons who are directors
and officers of Central Maine immediately prior to the Merger shall continue as
directors and officers, respectively, of the Surviving Corporation and shall
continue to hold office as provided in the Bylaws of the Surviving Corporation.
If, at or following the Merger Date, a vacancy shall exist in the Board of
Directors or in the position of any officer of the Surviving Corporation, such
vacancy may be filled in the manner provided in the Bylaws of the Surviving
Corporation.
ARTICLE 5
STOCK CERTIFICATES
5.1 Pre-Merger Central Maine Common Stock. Following the Merger Date, each
holder of an outstanding certificate or certificates that, prior to the Merger
Date, represented shares of Central Maine Common Stock may, but shall not be
required to, surrender the same to HoldCo for cancellation or registration of
transfer, and each such holder or transferee will be entitled to receive in
exchange a certificate or certificates representing the same number of shares of
HoldCo Common Stock as the shares of Central Maine Common Stock previously
represented by the stock certificate(s) surrendered.
5.2 Outstanding Certificates. Until surrendered or presented for
registration of transfer in accordance with Section 5.1 above, each outstanding
certificate that, prior to the Merger Date, represented Central Maine Common
Stock shall be deemed and treated for all corporate purposes to represent the
ownership of the same number of shares of HoldCo Common Stock as though such
surrender and exchange had taken place.
5.3 Post-Merger Rights of Holders. Following the Merger Date, the holders
of certificates representing Central Maine Common Stock outstanding immediately
prior to the Merger Date shall cease to have any rights with respect to stock of
the Surviving Corporation and their sole rights shall be with respect to the
HoldCo Common Stock into and for which their shares of Central Maine Common
Stock shall have been converted and exchanged in the Merger, subject to the
rights of any dissenting shareholders under Section 909 of the Maine BCA.
ARTICLE 6
CONDITIONS TO THE MERGER
Completion of the Merger is subject to the satisfaction of the following
conditions:
6.1 Shareholder Approval. The principal terms of this Agreement and the
transactions provided for herein shall have been approved by holders of capital
stock of each of the Participating Corporations as and to the extent required by
their respective Articles of Incorporation and the Maine BCA.
6.2 HoldCo Common Stock Listed. The HoldCo Common Stock to be issued and to
be reserved for issuance pursuant to the Merger shall have been approved for
listing, upon official notice of issuance, by the New York Stock Exchange.
6.3 Tax Ruling or Opinion. There shall have been obtained a ruling or
rulings of the Internal Revenue Service, or an opinion of tax counsel, in form
and substance satisfactory to the Board of Directors of Central Maine and its
counsel, with respect to certain tax consequences of the Merger and related
matters.
6.4 Regulatory Approvals. All authorizations by and approvals of any
governmental or public authority or agency deemed necessary or advisable by the
Board of Directors of Central Maine in connection with the Merger and other
related transactions shall have been obtained, shall be in full force and
effect, shall not have been revoked and shall be legally sufficient to authorize
the transactions contemplated by this Agreement.
ARTICLE 7
AMENDMENT AND TERMINATION
7.1 Amendment. The parties to this Agreement, by mutual consent of their
respective Boards of Directors, may amend, modify or supplement this Agreement
in such manner as may be agreed upon by them in writing at any time before or
after approval of this Agreement by the pre-Merger shareholders of Central Maine
(as provided in Section 6.1 above); provided, however, that no such amendment,
modification or supplement shall, if agreed to after such approval by the
pre-Merger shareholders of Central Maine, change any of the principal terms of
this Agreement.
7.2 Termination. This Agreement may be terminated and the Merger and other
transactions provided for by this Agreement may be abandoned at any time,
whether before or after approval of this Agreement by the pre-Merger
shareholders of Central Maine, by action of the Board of Directors of Central
Maine if such Board of Directors determines for any reason that the completion
of the transactions provided for herein would for any reason be inadvisable or
not in the best interests of Central Maine or its shareholders. The parties
hereto, and any officers or directors thereof, shall not have liability to any
person, including, without limitation, any shareholder of Central Maine, in the
event of such termination.
ARTICLE 8
ASSUMPTION OF OBLIGATIONS UNDER CENTRAL MAINE STOCK PLANS
8.1 Assumption of Plans. HoldCo shall take all required corporate action to
assume as of the Merger Date the obligations of Central Maine under the Central
Maine 1987 Executive Incentive Plan and the Central Maine Long-Term Incentive
Plan.
ARTICLE 9
MISCELLANEOUS
9.1 Approval of HoldCo Shareholder. By its execution and delivery of this
Agreement, Central Maine, as the sole pre- Merger shareholder of HoldCo,
consents to, approves and adopts this Agreement and approves the Merger, subject
to approval of this Agreement by pre-Merger shareholders of Central Maine (as
provided in Section 6.1 above).
9.2 Approval of MergeCo Shareholder. By its execution and delivery of this
Agreement, HoldCo, as the sole pre-Merger shareholder of MergeCo, consents to,
approves and adopts this Agreement and approves the Merger, subject to approval
of this Agreement by pre-Merger shareholders of Central Maine (as provided in
Section 6.1 above).
9.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maine.
IN WITNESS WHEREOF, Central Maine, HoldCo and MergeCo, pursuant to approval
and authorization duly given by resolutions adopted by their respective Boards
of Directors, have each caused this Agreement to be executed by its President or
one of its Vice Presidents and its corporate seal affixed hereto and attested by
its Secretary or one of its Assistant Secretaries.
Central Maine:
CENTRAL MAINE POWER COMPANY, [Corporate Seal]
a Maine corporation
By: Attest:_________________
Name:
Its: Title:
HoldCo: [Corporate Seal]
HOLDCO, INC.,
a Maine corporation
By: Attest:________________
Name:
Its: Title:
MergeCo: [Corporate Seal]
CMP MERGER CO.,
a Maine corporation
Attest:_______________
By: Name:
Title:
Its:
EXHIBIT A
STATE OF MAINE
ARTICLES OF MERGER
OF
CMP MERGER CO.
A Maine Corporation
INTO
CENTRAL MAINE POWER COMPANY*
A Maine Corporation
*A QUASI-PUBLIC CORPORATION HAVING THE RIGHT
TO ENGAGE IN BUSINESS AS AN ELECTRIC COMPANY
Pursuant to Title 13-A M.R.S.A. ss.903, the undersigned corporations adopt the
following Articles of Merger:
FIRST: The plan of merger is set forth in Exhibit A attached hereto and
made a part hereof.
SECOND: As to each participating corporation, the number of shares
outstanding and the number of shares entitled to vote on such plan, and the
number of such shares voted for and against the plan, are as follows:
Number of
Number of Shares Shares Shares
Name of Shares Entitled Voted Voted
Corporation Outstanding to Vote For Against
CMP Merger Co. 100 shs. of 100 100 0
Common Stock
Central Maine 32,442,752 _____ ____
Power Company shs. of 32,442,752
Common Stock
5,713 shs. _____ ____
of 6% 5,713
Preferred
Stock
THIRD: Holders of Central Maine Common Stock and 6% Preferred Stock were
entitled to vote together as a single class, and holders of Central Maine Common
Stock were entitled to vote as a separate class.
FOURTH: The address of the registered office in Maine of CMP Merger Co.,
herein designated as the merged corporation, is c/o Secretary and Clerk, Central
Maine Power Company, 83 Edison Drive, Kennebec County, Augusta, Maine 04336.
The address of the registered office in Maine of Central Maine Power
Company, herein designated as the surviving corporation, is 83 Edison Drive,
Kennebec County, Augusta, Maine 04336.
Dated CENTRAL MAINE POWER COMPANY*
(Surviving Corporation)
I certify that I have custody
of the minutes showing the above By
action by the shareholders of
Central Maine Power Company (type of print name and capacity)
(Clerk, Secretary or Asst. By
Secretary)
(type of print name and capacity)
I certify that I have custody
of the minutes showing the above
action by the shareholders of CMP CMP MERGER CO.
Merger Co.
By
(Clerk, Secretary or Asst. (type of print name and capacity)
Secretary)
By
CENTRAL MAINE POWER COMPANY*
(Surviving Corporation) (type of print name and capacity)
- -------------
* The name of the corporation should be typed, and the document must be signed
by (1) the Clerk or (2) the President or a Vice-President and the Secretary or
an Assistant Secretary or such other officer as the bylaws may designate as a
second certifying officer.
EXHIBIT D-1
STATE OF MAINE Docket No. 97-___
PUBLIC UTILITIES COMMISSION
Re: CENTRAL MAINE POWER COMPANY, )
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. INTRODUCTION AND SUMMARY
1. In this Application, Central Maine Power Company, a "public utility" as
defined in 35-A M.R.S.A. Section 102 ("CMP" or the "Company"), requests approval
by the Maine Public Utilities Commission (the "Commission") of the formation of
a Maine-based holding company. Under a holding company structure, the Company
and its non-utility subsidiaries will each become subsidiaries of a new ordinary
business corporation whose primary function will be to coordinate the policies
and direction of the corporate group and provide capital for subsidiary
operations. The Company believes that a holding company structure will provide
long-term advantages through increased management and financial flexibility that
will better position the Company to operate in a changing business environment,
while maintaining the principal business focus on the Company's core
transmission and distribution business. In addition, the clearer separation of
the Company's core utility business from non-utility enterprises achieved by
making the holding company, 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 financial flexibility in pursuing non-utility
business opportunities.
2. This Application contains five additional sections, as follows:
Section II, Reasons for and Benefits of Holding Company Structure,
describes the impetus for the Company's holding company initiative and
discusses the Company's strategic objectives and the benefits to customers
and shareholders of a holding company structure.
Section III, Description of Proposed Transactions, describes the corporate
mechanics and related approvals necessary to put the holding company
organization in place.
Section IV, The Organization, provides details concerning the Company's
business and the organizational relationships and businesses of existing
and proposed new subsidiaries and other affiliates after the
reorganization.
Section V, Conditions of Reorganization, proposes a set of conditions to
the reorganization to ensure the protection of ratepayer interests while
providing opportunities for the creation of shareholder value.
Section VI, Approvals Requested, lists the specific transactions and
arrangements for which approvals are requested in this proceeding.
II. REASONS FOR AND BENEFITS OF HOLDING COMPANY STRUCTURE
3. Over the past several years, the electric utility industry has been
affected by regulatory and market changes resulting from adoption of the Energy
Policy Act of 1992; decisions of the Federal Energy Regulatory Commission
including Orders 888 and 889 issued in April 1996 mandating open access to
transmission services; and in Maine in particular, enactment of the new
restructuring law, which will limit the Company primarily to the transmission
and distribution of electricity and require the creation of a separate entity to
market energy and capacity to retail consumers. In addition, expanding energy
options for consumers, due in part to the deregulation of the natural gas
industry, have also created competitive challenges for electric utilities. The
novel challenges and related opportunities presented by the new environment, as
well as earnings pressure in the Company's core business, have caused the
Company to assess comprehensively its business strategies, its direction and
focus, and its structure for continuing to provide regulated utility service in
the most efficient and competitive fashion for Maine customers. At the same
time, the Company seeks to attain greater financial, managerial and
organizational flexibility to adapt to and take advantage of the changing
utility business and emerging business opportunities that, while related to the
Company's core business, are non-utility in nature. That flexibility will
facilitate initiatives into existing and new energy and
telecommunications-related businesses, which will create a broad but related
base of income generation that could contribute to corporate growth and buttress
overall profitability.
4. As a result of this assessment, the Company has identified a stronger
need to increase its long-term growth potential through investment in related
businesses while continuing to develop efficiencies and economies in its core
business for the benefit of Maine consumers. The move to a competitive energy
industry, together with the revolution in energy and telecommunications-related
technologies, have created significant new opportunities for energy and
telecommunications service providers to participate in non-utility business
ventures that are related to but separate from traditional regulated businesses.
Although such non-utility investments will be a relatively small component of
the entire system, pursuit of these business opportunities will play an
important role in maintaining the long-term financial viability necessary for
the Company to continue to provide reliable service to its customers as well as
enhance shareholder value. To respond timely, effectively and prudently to these
business challenges and opportunities, the Company has concluded that it should
reorganize the structure of its business. Therefore, the Company proposes to
create a holding company structure as described in this Application./1
5. Following the reorganization, the Company'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. Maintenance and improvement
in the quality of the Company's service will continue to be top priorities. From
a business standpoint, the focus must remain on CMP's business reputation as a
predominant component of the entire corporate group. In addition, the
overwhelming portion of invested capital will continue to be invested in assets
in CMP's service area dedicated to providing service to its Maine customers. The
Company will not compromise its ability to perform its public service obligation
or its relationship with regulators or risk invested capital by retaining
insufficient talent or resources to manage those assets effectively and
efficiently./2
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1/ Similar considerations have led other utilities to form holding companies
over the past few years. A partial listing of these companies is attached
as Exhibit A.
2/ For further discussion of the Company's business after the reorganization,
see section IV.A below.
6. The holding company ("HoldCo") will continue to develop the non-utility
businesses that are now carried out by the Company's subsidiaries. It will also
pursue the intended business activities of a new, wholly-owned subsidiary of
HoldCo in the business of selling energy and related unregulated products and
services ("EnerMark", discussed in section IV.D below), and, to provide another
energy option to Maine consumers who do not have access to gas service, a new
gas distribution limited liability company ("CMP Gas Company", discussed in
section IV.D below) through a new wholly-owned corporate subsidiary of HoldCo
("GasCo", discussed in section IV.D below) that will hold a 50 percent
membership interest in CMP Gas Company. In addition, HoldCo may participate in
the local gas distribution business in New Hampshire through one or more
additional entities (discussed in section IV.D below). HoldCo may also, through
a different wholly-owned subsidiary or other affiliate ("PipelineCo", discussed
in section IV.D below), acquire an equity interest in the pipeline proposed by
Maritimes & Northeast Pipeline L.L.C.
7. To enhance the ability to market and furnish its services, a non-utility
subsidiary may explore opportunities for appropriate affiliations with one or
more firms providing similar or complementary services in the targeted markets.
While such affiliations may be in the nature of contracts or subcontracts, the
subsidiary should have the option of entering into one or more joint ventures,
general partnerships, limited partnerships, membership interests in limited
liability companies, or other affiliations (including without limitation stock
ownership in corporations) with one or more such entities.
8. Although the Company has not at this point identified other investment
opportunities for HoldCo, HoldCo may seek to develop or acquire other businesses
that are related to energy and telecommunications services. The Company believes
that it is desirable in the long run to pursue non-utility business
opportunities that build on core competencies, such as the management and
operation of an extensive delivery infrastructure, and other related business
opportunities that are complementary to the Company's core business or to these
non- utility businesses. This approach creates a more cohesive, focused and
efficient investment policy for the entire holding company system. Other
criteria for investment in non-utility businesses will be based on the
assessment of opportunities and risks relating to prospects for earnings growth,
competition, required capital outlays, available resources, and the ability of
the enterprise to be self-financing.
9. To maintain separation from the Company's core business and provide
financing flexibility, when a new business opportunity arises, the new business
will be operated through a subsidiary of HoldCo rather than the Company. The
holding company structure will facilitate the analysis and evaluation of new as
well as existing lines of business by the investment community.
10. Moreover, the use of a holding company structure will enhance legal
protections against the imposition of liability on the Company for unregulated
business activities since the Company will no longer be the parent of the
non-utility enterprises.
11. Such separation of business functions will facilitate the development
of new non-utility business opportunities, as well as existing non-utility
businesses, while helping to insulate the Company from any risks associated with
these activities and will also broaden access to available financing techniques.
12. The Company believes that diversified earnings from existing
non-utility businesses and proposed new business activities will mitigate the
limitations inherent in engaging solely in the transmission and distribution
business. By engaging in several complementary businesses with different, but
acceptable, risk exposures and business cycles, the risks resulting from
operating in a single regulated business will be reduced and opportunities for
earnings growth will be created. A lower risk profile for the utility business
and the potential for improved and more stable earnings offered by an expanded
business base could result in a better position in the capital markets and lower
capital costs, enhancing the overall financial strength of the new organization.
On the other hand, by operating such businesses in the proposed holding company
structure, the Company will be insulated from the performance of unregulated
businesses, as discussed in the following paragraphs.
13. If the proposed reorganization is completed, investments in existing
and any new subsidiaries of HoldCo, including EnerMark, GasCo and PipelineCo,
will be made by HoldCo rather than the Company. HoldCo will make investments in
its subsidiaries by using one or more of the following sources of funds,
downstreamed as capital contributions: the proceeds of HoldCo equity issuances
to the public, of borrowings under a bank credit facility at the HoldCo level or
of other debt issuances by HoldCo, or through dividends from subsidiaries. In
addition, HoldCo may guarantee borrowings by its non-utility subsidiaries or
enter into keepwell agreements to maintain a specified minimum subsidiary net
worth. Sources of financing of non-utility subsidiary business ventures may also
include non-recourse project financing, internally-generated funds from those
businesses, loans from sister companies other than the Company, subsidiary
securities issuances, or investments by third parties. Debt and equity issuances
by HoldCo and its non-utility subsidiaries to finance non-utility activities
will be the obligation of the issuing entity and not the Company and therefore
should generally not impact the Company's credit or affect its ratings. The
Company will continue to be responsible for issuing its own debt and preferred
equity securities. Its creditworthiness will be based on an evaluation of its
earnings, property, interest coverage, capital structure and overall ability to
meet its obligations. The proceeds of securities issuances by the Company will
be used exclusively by the Company for its electric utility business.
14. 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
generally without affecting the creditworthiness of the Company. The ability to
access different capital markets quickly with a broad range of financial
instruments and maturities will allow a financing to be tailored to the type of
investment being made on the most attractive possible terms, taking into account
the appropriate capitalization ratio for a particular subsidiary. Financial
flexibility is necessary to ensure that alternative financing strategies are
available to HoldCo 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.
15. In contrast to a holding company structure, the Company's current
corporate structure cannot accommodate the same degree of financial flexibility
or separation because all business activities must be either part of the Company
itself or conducted in entities downstream from the Company. As a result, under
the present corporate organization, any debt financing by CMP's subsidiaries for
diversification purposes is reflected, through consolidation, on the Company's
balance sheet, and related income or loss is consolidated on the Company's
income statement. Consequently, the financial structure of these non-utility
enterprises becomes commingled with the structure of the electric utility
business. Existing covenants between CMP and its preferred shareholders and debt
holders could restrict the Company from taking full advantage of the best
financing techniques for non-utility business ventures. The holding company
structure formally isolates the differing investment risks and avoids the
restraints which normal utility covenants place on financing flexibility.
16. The holding company structure also provides better insulation for
regulated operations from the performance of unregulated businesses. Conducting
non-utility businesses through wholly-owned subsidiaries of HoldCo rather than
through subsidiaries of the Company and the financing of their activities
separately and independently from the Company will effectively insulate the
Company from the potential earnings volatility of these businesses since their
activities will not be reflected in the Company's financial statements and any
unfavorable financial results of these non-utility enterprises will generally
not adversely affect the Company's credit and cost of capital.
17. The separate delineation of non-utility operations in this manner helps
to prevent cost of capital cross-subsidies since the Company's balance sheet and
income statement will be unaffected by financings and financial results of other
HoldCo subsidiaries. Other cross- subsidization issues may be further diminished
through the creation of a wholly-owned corporate subsidiary of HoldCo to provide
support services to entities in the holding company group ("ServeCo").
Currently, the Company provides a variety of support services to its utility and
non-utility subsidiaries and other affiliates under separate contracts with each
such entity. In the reorganized corporate structure, it may be in the Company's
best interests for ServeCo rather than the Company to provide support services
to HoldCo's direct and indirect subsidiaries requesting such services. These
services would be provided by ServeCo on an arms-length, ordinary course of
business basis under a written agreement between ServeCo and the requesting
entity.3 By shifting the responsibility for providing support services to
ServeCo in this manner and as further described in section IV.D of this
Application, the frequency of transactions requiring the allocation of common
costs between utility and non-utility activities may be significantly
diminished. Finally, as discussed in this Application in section V, "CONDITIONS
OF REORGANIZATION," the Commission will be entitled to receive the information
it needs to monitor and address cost allocation and cross-subsidization issues.
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3/ Additional information concerning ServeCo and its potential services and
service contract provisions is contained in section IV.D of this
Application.
18. The separation of utility and marketing functions into legally separate
entities will also facilitate compliance by the Company with the new standards
of conduct imposed by 35-A M.R.S.A. ss. 3205.3. By the same token, by
formalizing the lines of separation between these entities, it should make the
Commission's job of monitoring compliance with those standards easier.
III. DESCRIPTION OF PROPOSED TRANSACTIONS
19. The first step in accomplishing the proposed reorganization will be the
formation of two new corporations: a holding company ("HoldCo") that will
ultimately become the parent company of CMP and of CMP's non-utility
subsidiaries, owning all the outstanding common stock of these companies, and
another corporation whose sole purpose will be to serve as a vehicle in creating
the holding company structure ("MergeCo") and which will no longer exist when it
has accomplished its limited purpose. HoldCo and MergeCo will not be public
utilities at any time before or after the reorganization. Both HoldCo and
MergeCo will be Maine corporations.
20. When HoldCo and MergeCo are formed, CMP will initially own all the
outstanding common stock of HoldCo, and HoldCo will own all the outstanding
common stock of MergeCo. At that time, the authorized capital stock of HoldCo
will consist of 80 million shares of common stock, which is equal to the
authorized number of shares of the Company's common stock. HoldCo will issue 100
shares of its common stock to CMP when HoldCo is formed. MergeCo's authorized
capital stock will be 1,000 shares of common stock, of which 100 shares will be
issued to HoldCo at the time MergeCo is formed.
21. Next, the Company, HoldCo and MergeCo will enter into an Agreement and
Plan of Merger, substantially in the form filed as Exhibit B to this Application
(the "Merger Plan"). Under the Merger Plan, the Company will become a subsidiary
of HoldCo.
22. The steps necessary to achieve this result are as follows:
a. MergeCo will merge into CMP, with CMP being the surviving corporation.
On the filing of the Articles of Merger with the Maine Secretary of
State or on the date specified in the Articles of Merger, MergeCo will
cease to exist (the "Merger Date").
b. On the Merger Date, each outstanding share of CMP's common stock
(excluding shares held by dissenting shareholders who have complied
with the requirements of Maine corporate law4) will be converted by
operation of law5 into one share of HoldCo common stock. Holders of
Company common stock before the merger will automatically become
holders of HoldCo common stock, holding the same number of shares, and
will cease to be owners of the Company's stock. CMP's shareholders
will not be required to exchange their stock certificates, but rather,
their stock certificates will represent an identical number of shares
of HoldCo common stock.
c. Also on the Merger Date, the outstanding shares of MergeCo common
stock (that is, shares issued to HoldCo at the time MergeCo was
formed) will, as a result of the merger of MergeCo into CMP with CMP
as the surviving corporation, be converted by operation of law6 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 part b. above, which will
be deemed issued by the Company for this purpose.
d. Each share of HoldCo common stock issued to CMP when HoldCo was formed
will be cancelled by HoldCo. Because the MergeCo shares converted to
CMP shares will be the shares originally issued to and owned by
HoldCo, the merger of MergeCo into the Company will result in the
Company becoming a subsidiary of HoldCo.7
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4/ See 13-A M.R.S.A. ss.ss. 908, 909.
5/ See 13-A M.R.S.A. ss.ss. 901, 905.
6/ See note 5 above.
7/ The form of transaction involving the Company, HoldCo and MergeCo described
in this Application to carry out the intended corporate reorganization is
referred to as a "reverse phantom subsidiary merger" (also referred to as a
"reverse triangular merger"). In states such as Maine where there is no
mandatory share exchange statute, this form of transaction is necessary to
avoid the potential for a minority common share interest remaining
outstanding in the utility.
23. Under the Merger Agreement, completion of the corporate reorganization
is subject to shareholder and regulatory approvals, listing of HoldCo's common
stock on the New York Stock Exchange, and a satisfactory tax ruling or opinion
with respect to the tax consequences of the merger.
24. As of the Merger Date, the common stock of HoldCo will be listed on the
New York Stock Exchange and the common stock of the Company will no longer be
listed on an exchange since it will be owned entirely by HoldCo.
25. The proposed corporate reorganization will require the approval of the
holders of the Company's common stock and 6% Preferred Stock outstanding, voting
together as a single class, and of the holders of the Company's common stock,
voting separately. The Company intends to present the proposed corporate
reorganization to the shareholders at its 1998 Annual Meeting of Shareholders,
scheduled for May 21, 1998. The reorganization also requires approval by the
Securities and Exchange Commission ("SEC") under the Public Utility Holding
Company Act of 1935/8 and the Federal Energy Regulatory Commission under the
Federal Power Act./9 In addition, approval or waiver by the Connecticut
Department of Public Utility Control/10 and approval by the Nuclear Regulatory
Commission may be required./11 The anticipated schedule for obtaining required
approvals and for the closing of transactions to carry out the reorganization is
attached to this Application as Exhibit C.
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8/ Section 9(a)(2) of the Public Utility Holding Company Act of 1935 ("PUHCA")
prohibits the acquisition of five percent or more of the securities of a
public utility by any person or entity that already owns at least five
percent of the securities of another public utility and also prohibits the
acquisition of five percent or more of two public utilities unless the SEC
has approved the acquisition. Because CMP has at least one public utility
subsidiary, SEC approval of HoldCo's acquisition of CMP and its public
utility affiliates and of an interest in a new gas distribution utility
through a wholly-owned subsidiary is required.
The Company expects that, as is the case with the Company, HoldCo will
qualify for an exemption from the provisions of PUHCA except those relating
to the acquisition of the securities of public utility companies. This
exemption will be based on HoldCo and each of its utility subsidiaries from
which it derives a material part of its income being predominantly
intrastate and carrying on their utility business substantially in Maine.
9/ Section 203 of the Federal Power Act requires approval of the Federal
Energy Regulatory Commission ("FERC") for the disposition or merger of
jurisdictional facilities, which include facilities used in interstate
commerce. In this case, the effective transfer of CMP's common stock to
HoldCo in the conversion transaction described above triggers FERC
jurisdiction.
10/ Approval or waiver may be required due to the Company's ownership of a 2.5
percent interest in the Millstone No. 3 nuclear unit.
11/ The effective transfer of CMP's common stock to HoldCo in the conversion
transaction described above may require approval of the Nuclear Regulatory
Commission.
IV. THE ORGANIZATION
A. CMP
26. As of the Merger Date, the new corporate organization, which is
illustrated on the chart attached to this Application as Exhibit D, will include
HoldCo, a non-operating holding company of which CMP will be a subsidiary, with
all of CMP's common stock outstanding being held by HoldCo.
27. The Company's debt securities, which include bonds issued under the
Company's General and Refunding Mortgage Indenture, medium-term notes,
industrial revenue and pollution control notes and the note held by the Finance
Authority of Maine in connection with the buyout of a non-utility generator
contract, and all of its Preferred Stock will remain as outstanding securities
of the Company. The terms thereof will not be altered or otherwise affected by
the corporate reorganization. In addition, the terms and provisions of the
indentures, credit agreements and other debt instruments and the authorized
number of shares of Preferred Stock and related capital stock provisions in the
Company's Articles of Incorporation (the "Charter") will also not be altered or
affected by the reorganization. The reorganization will also not require any
changes in the Company's Charter.
28. After the Merger Date, the Company will continue to finance its
business operations by issuing its own debt, such as the medium-term notes
approved by the Commission in Docket No. 97-493, and preferred equity
securities. The proceeds of securities issuances by the Company will be used
exclusively by the Company for its electric utility business. Actual financings
will depend on specific needs and will take into account capitalization ratios
and market conditions. Commission approval will be sought for any other
issuances of debt or equity securities by the Company.
29. As of September 30, 1997, the outstanding indebtedness of the Company
was as follows:
TYPE OUTSTANDING PRINCIPAL
General and Refunding Mortgage Bonds:
Series U, due 4/15/98 $ 25,000,000
Series S, due 8/15/98 $ 60,000,000
Series T, due 11/1/98 $ 75,000,000
Series O, due 1/1/99 $ 50,000,000
Series P, due 1/15/2000 $ 75,000,000
Series N, due 9/15/2001 $ 11,000,000
Series Q, due 3/1/2008 $ 75,000,000
Series R, due 6/1/2023 $ 50,000,000
------------
$421,000,000
Medium-Term Notes $ 43,000,000
FAME Note $ 60,129,000
Long-Term Lease Obligations $ 34,985,000
Industrial Revenue and Pollution
Control Notes $ 30,305,000
Short-Term Notes $ 50,000,000
30. As of the same date, equity balances for the Company were as follows:
SHARES ISSUED AND
TYPE AUTHORIZED SHARES OUTSTANDING
Common Stock, $5 par 80,000,000 32,442,752
value
Preferred Stock, $25 par 2,000,000 0
value
6% Preferred Stock, $100 5,713 5,713
par value
Dividend Series Preferred 2,300,000 220,000
Stock, $100 par value: 30,000
50,000
3.50% Series 50,000
4.60% Series 300,000
4.75% Series 70,000
5.25% Series 395,275
7 7/8% Series
8 7/8% Series
Flexible Money Market 1,115,275
Preferred Stock,
Series A - 7.999%
31. Likewise, other obligations of CMP relating to its electric utility
business will be retained by the Company, unaffected by the reorganization.
These obligations include the Company's share of decommissioning and other costs
relating to nuclear units and potential liability in connection with
contaminated sites.
32. All transmission and distribution plant, including all real estate,
fixtures and personal property owned, leased, operated or otherwise used by the
Company in connection with the transmission and distribution of electricity
prior to the Merger Date will remain assets of CMP and will not be affected by
the reorganization.
33. On the Merger Date, which will occur shortly after the May 21, 1998,
Annual Meeting of the Company's shareholders if all necessary approvals have
been obtained by that date, CMP will continue to hold all generation assets now
owned by the Company, including (i) any assets that are the subject of a binding
purchase and sale agreement between the Company and a third party,/12 (ii) any
asset for which the Company does not receive an acceptable bid in connection
with its current solicitation of bids for the sale of its generation assets,/13
(iii) interests in a nuclear electric generating plant and in companies owning
such plants,/14 and (iv) contracts with qualifying facilities/15 or demand-side
management or conservation providers or brokers.
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12/ CMP's application for approval of the plan for divestiture of generation
assets and other generation interests is the subject of a separate
proceeding before the Commission in Docket No. 97-253.
13/ These generating assets are subject to divestiture under the new
restructuring law and will be transferred at a later date in accordance
with the provisions of that law.
14/ CMP owns a 38 percent equity interest in Maine Yankee Atomic Power Company,
a 9.5 percent equity interest in Yankee Atomic Electric Company, a 6
percent equity interest in Connecticut Yankee Atomic Power Company, all of
whose plants have been permanently shut down, and a 4 percent equity
interest in Vermont Yankee Nuclear Power Corporation. CMP also owns a 2.5
percent interest as a tenant in common in Millstone Unit No. 3, which has
been off-line for regulatory reasons since March 31, 1996.
15/ The Company has offered for sale rights to capacity and energy under
purchased power agreements, and the sale of such rights will be required
after February 28, 2000 as provided in the new restructuring law.
34. As of the Merger Date, the Company will continue providing electric
service to its customers and all transmission services it now provides. To meet
its service obligations to existing and new customers, the Company will procure
its energy and capacity requirements from one or more of the following sources
until the beginning of retail competition: (i) Company-owned generation assets
under contract to a prospective purchaser,/16 (ii) contracts with any successful
bidder or bidders to buy back all or a portion of the energy and capacity
formerly provided by a purchased generating asset, (iii) Company-owned
generation assets that are being retained by the Company as described in the
preceding paragraph, and (iv) one or more contracts pursuant to a Request for
Proposals for replacement power issued by the Company in November 1997. This
energy portfolio will be managed for the sole benefit of the Company and its
customers by a new wholly-owned non-utility energy and marketing subsidiary of
HoldCo that will, after the commencement of retail access, be an "affiliated
competitive provider" as defined in the new restructuring law ("EnerMark").
EnerMark's energy portfolio management group, which will include employees
currently performing supply planning and procurement functions for the Company's
Energy Services business unit who will be transferred to EnerMark after the
reorganization, will be responsible for managing the Company's supply portfolio
under a Management Services Agreement filed with this Application as Exhibit E.
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16/ The Company will continue to operate all generating facilities from the
execution of any purchase and sale agreement to the time of closing of any
sale or sales of those facilities.
35. Under the Management Services Agreement, EnerMark will provide supply
planning services to the Company, manage its power supply portfolio, and procure
for the Company's account alternate supplies that balance cost and risk, with
the objective of optimizing the cost-effectiveness of resources for the benefit
of the Company's franchise customers. EnerMark's services under the Agreement
will be provided at EnerMark's cost, including a rate of return on invested
capital equal to the Company's allowed return and performance-based incentive
payments. Pricing of the contract services at cost is appropriate because it
provides a clear and readily measurable basis for setting prices, makes the
functional separation between CMP and EnerMark cost-neutral to the Company's
ratepayers, and, by including a performance-based incentive element, promotes
efficiencies that may otherwise be discouraged by using a cost approach to
pricing. Any energy supply procured by EnerMark for the Company will also be
provided at cost, as described.
36. In the event that the Company has available excess energy or capacity
in its portfolio, EnerMark may sell such energy or capacity to a non-affiliated
wholesale or retail customer for the Company's account.
37. Assets of the Company not directly used in its transmission and
distribution business, other than generating assets proposed to be transferred
or retained by the Company as described in paragraph 33, may be transferred to
different entities in the holding company system at different times, depending
on the nature and use of the asset and whether any such transfer is in the
Company's best interests. By way of illustration, such assets may include office
equipment, furniture and materials currently used by various functions in the
Company that the Company may determine, after careful consideration of
economies, efficiencies, management and other factors, could be conducted
independently of the Company's core business. Such transfers could further the
objective of achieving a clearer separation between utility and non-utility
businesses and assets used in conducting those businesses. The transfer of such
assets to other entities and their administration and maintenance of those
assets could also help to avoid ongoing cost allocation and cross-subsidization
issues arising from transactions between the Company and non-utility
subsidiaries of HoldCo. Any transfers of such Company assets would be at the
higher of market value or book value, as approved in the Commission's Order
dated December 12, 1995 in Docket No. 95-251 (relating to approval of the
creation of TeleSmart, a wholly-owned non-utility subsidiary of the Company) and
its Order dated August 1, 1995 in Docket No. 95-092 (relating to approval of the
creation of MaineCom Services, a telecommunications company wholly-owned by
CMP).
38. Employees of the Company who are now Distribution Services business
unit employees (currently approximately 1,100 in number) will be retained by the
Company. Company employees who administer the Company's purchased power
agreements also will remain Company employees. Company employees who now perform
energy portfolio management (supply planning and procurement) and retail sales
and marketing functions in the Company's Energy Services business unit, will,
after the reorganization, be employees of EnerMark. Energy Services business
unit employees in the Technical Services (formerly Engineering) and
Environmental and Licensing departments will become employees of The Union
Water-Power Company ("Union Water")17/ in its E/PRO division, unless alternate
employment arrangements are made for certain Technical Services employees in
connection with any sale of generation assets by the Company. If the Company
should determine, after consideration, that it is in the Company's best
interests to centralize support services, employees performing support functions
for the Company may become ServeCo employees in connection with the
reorganization at a time that meets the business needs of the Company.
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17/ The Union Water-Power Company ("Union Water") is a wholly-owned non-utility
subsidiary of the Company. See section IV.C below for a description of its
business activities. E/PRO, currently a division of CMP International
Consultants, another wholly-owned Company subsidiary, will be transferred
to Union Water as part of the reorganization. See section IV.C below for a
discussion of the proposed transfer of E/PRO to Union Water.
39. As a transmission and distribution utility, the Company anticipates
continuing to invest in and promote economic development in Maine and will also
seek to maximize the use of its delivery infrastructure through arrangements
with affiliates or third parties. In this proceeding, the Company requests
approval of the licensing, lease or other transfer of interests in its
rights-of-way and transmission and distribution structures to entities involved
in pipeline and gas distribution projects in the Company's service area/18 and
other transfers of assets to such entities on the terms approved in Docket No.
95-092. Maine Electric Power Company, Inc. ("MEPCO"), a transmission utility in
which the Company holds a 78.3 percent equity interest, joins in this request
with respect to the use or transfer of interests in its transmission structures
and rights-of-way./19
40. In Docket No. 95-092, the Commission approved a stipulation by Order
dated July 13, 1995 allowing the Company to transfer to a generation or
telecommunications subsidiary or other affiliate assets with a value not
exceeding $100,000 per transaction, up to an annual amount of $1,000,000,
without further Commission approval. The Stipulation requires CMP to notify the
parties in that Docket of the use or transfer of transmission or distribution
structures or rights-of-way for telecommunications projects and the valuation
method and value used for any transfer. The Company is required to obtain
Commission approval for the transfer or beneficial use of an asset whose value
is indeterminate or not susceptible to definitive calculation. The stipulation
provides that the value of a transferred asset or of its beneficial use will be
deemed to be readily determinable and susceptible to definitive calculation if
any of the following exists: (i) an external market for similar uses of assets
of that type, (ii) a competitive alternative that allows the accomplishment of a
similar business purpose, or (iii) demonstrable present or deferred CMP customer
service enhancements. The subsidiary or affiliate must pay the higher of market
value or book value, with revenue from such transfers flowing to the benefit of
ratepayers to the extent the asset has been depreciated.
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18/ The Company's interest in such projects and proposed new entities to pursue
such interests are discussed in section IV.D below.
19/ For additional information concerning MEPCO, see P. 48 below.
41. Approval of the requests of the Company and MEPCO in this proceeding
will permit each of them to transfer, lease or license assets, including
rights-of-way and related structures, with a value of $100,000 or less per
transaction up to an aggregate value of $1,000,000 per year to pipeline and gas
distribution entities, subject to terms identical to those in Docket No. 95-092.
This additional capacity with respect to Company assets will facilitate business
arrangements that will contribute value while safeguarding against ratepayer
subsidization of those business arrangements as a result of inappropriate
transfer pricing.
42. In addition, the Company may be presented with business opportunities
allowing it to capitalize on its core competency of operating a large
infrastructure business with highly-skilled employees and its reputation for
quality service by making available to other non-affiliated utilities expertise
in transmission and distribution matters in the form of technical services and
advice. The Company anticipates that these services will be only an incidental
part of its transmission and distribution business and will not be aggressively
marketed.
43. Services provided to other utilities would be provided through Union
Water under a Services Agreement between the Company and Union Water attached to
this Application as Exhibit F. The Services Agreement is based on an existing
services agreement between the two companies./20 It will allow Union Water to
supplement its expertise on transmission and distribution matters on an
as-needed basis with CMP employees having the technical expertise required.
Because of the proposed build-up of in-house engineering and related expertise
at Union Water through the transfer of employees in the Technical Services
department that is now part of the Energy Services business unit of the Company
to Union Water as discussed below, it is anticipated that the need for
additional expertise will be infrequent.
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20/ The existing agreement, which was approved by the Commission in Docket No.
93-092, permits CMP to provide various support services to Union Water and
allows Union Water to provide real estate management and development and
recreational and river facilities management and development services to
CMP.
44. In the event that CMP staff expertise is required, the work will be
structured to avoid any significant conflict with CMP work, and in all
instances, priority will be given to CMP work. Time spent by CMP employees in
furnishing services through Union Water will be recorded separately, and Union
Water will compensate the Company for such services at the higher of the
Company's fully allocated cost or the market rate for such services.
45. By making employees with specific expertise available on these terms,
CMP's customers will be adequately protected from improper cost allocations and
deficiencies in service while the Company's employees will have additional
interesting and challenging work and professional development opportunities that
may not only help CMP in retaining them but that may also benefit CMP by
sharpening and expanding the skills used in their work for the Company.
46. After the Merger Date, the Company will continue to be regulated by the
Commission. As an operating utility, the Company will be subject to regulation
by the Commission with respect to its rates, securities issuances, transactions
with affiliates, accounting, customer service, asset transfers (with the
exception described in paragraphs 39 through 41 of this Application if approved
by the Commission), and other matters. In addition, the Commission will continue
to have the power to review and approve reorganizations, as defined in Section
708 of Title 35-A M.R.S.A., that propose to create public utility affiliates of
the Company or of HoldCo. The holding company structure proposed in this
Application will not in any way impair the Commission's ability to protect the
public interest in connection with the Company's operations. To the contrary, by
providing the maximum separation of utility and non-utility lines of business
and related investments, the proposed reorganization will enhance the
Commission's ability to assure that there is no cross- subsidization of cost or
transfer of business risk from the non-utility enterprises to the Company's
utility business. It will also enhance the Commission's ability to monitor the
Company's compliance with the standards of conduct created by the restructuring
law.
B. Existing Utility Affiliates
47. In the reorganization, CMP will continue to hold its existing equity
interests in the following public utilities, each of which is and will remain a
subsidiary of CMP: Maine Electric Power Company, Inc. ("MEPCO") and NORVARCO./21
A description of each of these companies follows.
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21/ The Company's voting stock in Aroostook Valley Electric Company ("AVEC"), a
wholly-owned public utility subsidiary of the Company that owns and
operates a 33 megawatt wood-fired generating plant in Fort Fairfield,
Maine, has been offered for sale by the Company. The Company will retain
its interest in AVEC, subject to later divestiture, if it does not receive
an acceptable bid for the AVEC interest.
48. MEPCO. The Company owns a 78.3 percent equity interest in MEPCO, a
Maine public utility organized on January 3, 1966, in which Bangor
Hydro-Electric Company and Maine Public Service Company hold the remaining
voting stock. MEPCO owns and operates a 345 kV transmission interconnection
between Wiscasset and the Maine-New Brunswick border at Orient, Maine, where its
line connects with the portion of the interconnection constructed in New
Brunswick by The New Brunswick Power Corporation. MEPCO also owns and operates
certain equipment, including microwave communication facilities, in connection
with the Hydro-Quebec Phase II ("Phase II") project described in the next
paragraph.
49. NORVARCO-Chester SVC Partnership. NORVARCO, a wholly-owned subsidiary
of the Company incorporated in Maine on April 12, 1990, is one of two general
partners with 50 percent interests in Chester SVC Partnership, a general
partnership that owns a static var compensator facility ("SVC") located in
Chester, Maine, adjacent to MEPCO's 345 kV transmission line. The SVC provides
necessary transmission system reinforcements that support the Phase II
transmission line expansion constructed in New Hampshire and that allow the
Phase II facilities and the MEPCO transmission line to operate at their maximum
capabilities simultaneously. The Commission approved the creation of NORVARCO
and Chester SVC Partnership on July 31, 1990 in Docket No. 90-100.
50. After the Merger Date, each of the public utility affiliates of the
Company will continue to be regulated to the same extent as currently regulated
by the Commission and by any federal regulatory agency.
C. Existing Non-Utility Affiliates
51. To carry out the proposed corporate reorganization, CMP proposes to
transfer its equity interests in all but one of its wholly-owned non-utility
subsidiaries by dividending the stock of those entities to HoldCo. CMP's
indirect affiliates will maintain their existing relationships with the
companies that are now wholly-owned subsidiaries of CMP./22 CMP's wholly-owned
subsidiaries are as follows:
a. CMP International Consultants ("CMPI"), which was incorporated in
Maine on August 27, 1992, provides consulting, planning, training and
project management services to foreign and domestic utilities and
government agencies in various aspects of utility operations and
utility support services. CMPI's Center for Energy Information
division provides information and research services and related
consulting. E/PRO, also a division of CMPI, provides engineering,
environmental, licensing and other technical services. The Commission
approved the creation of CMPI (formerly named Integrated Resource
Management Services) by Order dated August 6, 1992 in Docket No.
92-104. The Commission's November 1994 Order in Docket No. 94-147
authorized the Company to invest up to $1.5 million in CMPI for
expanded business activities and required that any profits or losses
be reported above the line.
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22/ For example, FiveCom, Inc., in which MaineCom Services, a wholly-owned
subsidiary of CMP, holds a majority interest, will maintain its current
relationship with MaineCom.
b. Central Securities Corporation ("Central"), a Maine corporation
organized on June 23, 1919, owns real estate located in the Company's
service area.
c. Cumberland Securities Corporation ("Cumberland") also owns real estate
in the Company's service area. Cumberland is a Maine corporation,
existing since September 23, 1929.
d. Kennebec Hydro Resources, Inc. ("Kennebec Hydro") is the general
partner with a 50 percent interest in The Merimil Limited Partnership
("Merimil"), which owns the Lockwood Hydroelectric Project, a
qualifying facility located in Waterville. The limited partners in
Merimil are not affiliates of the Company. Kennebec Hydro's
participation in Merimil was authorized by the Commission by Order
dated May 7, 1985 in Docket No. 84-226. It is a Maine corporation that
has existed since August 17, 1983./23
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23/ The Company has offered its interest in Kennebec Hydro for sale. If the
Company does not receive an acceptable bid, it will retain the Kennebec
Hydro interest subject to later divestiture.
e. MaineCom Services ("MaineCom"), a Maine corporation organized on July
25, 1995, develops telecommunications projects and provides
telecommunications services. MaineCom holds direct and indirect voting
interests (approximate) in various entities that are in the business
of developing a fiber optics network in New England, as follows:
FiveCom, Inc. 85%
FiveCom Maine LLC 66%
New England Fiber Communications LLC 40%
In turn, these MaineCom affiliates hold voting interests (approximate)
as follows:
FiveCom, Inc. 88% in FiveCom LLC
FiveCom LLC 33% in FiveCom Maine LLC
60% in NECOM LLC
MaineCom was created pursuant to a July 1995 Commission Order in
Docket No. 95-092 authorizing the creation of subsidiaries and other
affiliates to participate in telecommunications business ventures in
the New England states and the Canadian provinces of New Brunswick,
Nova Scotia and Quebec, and in generation and generation marketing
projects and activities outside New England and New York, and related
consulting. The 1995 Order authorized the Company to invest up to an
aggregate amount of $30 million, provided that each proposed
investment in a specific business activity was reviewed in advance by
the Commission./24 An August 28, 1997 Order issued by the Commission
in Docket No. 97-410 approved an increase in the authorized aggregate
investment to $50 million, with an automatic decrease to $30 million
as of April 1, 1999, and a loan by CMP of $30 million to FiveCom LLC
for completion of a New England fiber optics network. The stipulations
approved in both dockets require that profits and losses from
telecommunications and generation ventures be reported below the line
and include a ratepayer "hold harmless" provision.
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24/ No application is required for generation investments if the Company's
senior secured debt is rated at investment grade by the three rating
agencies that rate Company securities.
f. TeleSmart, a Maine corporation organized on September 12, 1995,
provides collections and related accounts receivable management
services. Its division Teltech Resource Group collects charged-off
accounts. The creation of TeleSmart was approved by the Commission on
September 9, 1995 in Docket No. 95-251. By Order dated March 4, 1997
in Docket No. 97-025, the Commission authorized the Company to invest
up to $2,500,000 in TeleSmart. The stipulation approved by the
Commission in Docket No. 95-251 provides for above-the-line reporting
of profits and losses, with any losses excluded from earnings sharing
under paragraph number 7 of the Alternative Rate Plan Stipulation in
Docket No. 92-345(II). Under the Commission's Order in Docket No.
95-251, creation of a TeleSmart affiliated interest (as defined in
Section 707 of Title 35-A M.R.S.A.) requires prior Commission review.
g. Union Water, which was incorporated in Maine on January 1, 1879,
provides river facilities management, including the management of
dams, reservoirs, fishways and oxygenation facilities; utility support
services such as underground facility locating, infrared photography
to detect excess heat in electrical equipment and motors, and
workorder ticket management; and, through its UnionLand Services
division, real estate management, development and leasing, and land
and modular housing sales. Union Water also owns 25 percent of the
voting stock of Androscoggin Reservoir Company ("ARCO"), which owns a
storage reservoir and dam on the Androscoggin River. ARCO, whose other
owners are Public Service Company of New Hampshire and three paper
companies, also owns real estate and other facilities at Aziscohos Dam
that it leases to a qualifying facility.
52. To carry out the corporate reorganization, CMP will transfer its
existing equity interests in all of these wholly-owned subsidiaries except
Kennebec Hydro by dividending the stock it holds in those entities to HoldCo.
CMPI, Central, Cumberland, MaineCom, TeleSmart and Union Water will, after such
transfer, be wholly-owned subsidiaries of HoldCo.
53. In addition, as part of the proposed reorganization, the E/PRO division
of CMPI will be transferred to and established as a division of Union Water.
E/PRO now provides and will continue to provide energy engineering services such
as the design, construction and construction management, maintenance, repair and
performance-testing of various aspects of transmission lines and substations,
power and lighting systems, hydroelectric generating stations, and river
recreation facilities. It will also continue to provide environmental services
including training and compliance, site evaluation and management, regulatory
reporting and filings, environmental impact studies, and licensing. E/PRO
currently has approximately 20 full-time and part-time employees./25 In
connection with the reorganization, the 36 employees who now work in the
Company's Technical Services group will become Union Water employees, working in
the E/PRO division./26 In addition, most of the 15 employees currently with the
Company's Environmental and Licensing group will also be employed in the E/PRO
division, with the remainder being retained by the Company. These totals do not
include Company employees in the Technical Services group who were previously
transferred to the Company's Distribution Services business unit and who will
continue as Company employees after the reorganization. These Distribution
Services employees include transmission and distribution system engineers and
designers.
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25/ This number excludes CMP retirees hired by E/PRO for start-up and
maintenance of the Company's Mason Station to meet capacity requirements in
New England during extended nuclear plant outages.
26/ Some of these employees may be offered employment by a purchaser of the
Company's generation assets. If such employment is accepted, fewer than 36
Company employees in the Technical Services group will become E/PRO
employees.
54. In connection with the solicitation of bids for its hydroelectric
generating stations, the Company has also offered for sale its 24.8 percent
equity interest in Kennebec Water Power Company, a Maine corporation whose
business is to regulate the flow of the Kennebec River, and its 14 percent
partnership interest in the Gulf Island Pond Oxygenation Project, a Maine
general partnership with CMP and three paper companies as partners. The
partnership owns and operates an oxygenation facility at Gulf Island Pond on the
Androscoggin River at Greene. These interests will be retained by the Company if
the Company does not receive an acceptable bid for its hydro stations.
D. New Affiliates
55. This Application also proposes the creation of several possible new
entities. These entities are (i) EnerMark, which will be a wholly-owned
non-utility subsidiary of HoldCo, (ii) a limited liability company that will be
owned equally by a new HoldCo wholly-owned subsidiary and New York State
Electric & Gas Corporation or its affiliate for the purpose of providing gas
service in Maine ("CMP Gas Company"), (iii) a wholly-owned corporate subsidiary
of HoldCo ("GasCo") created to hold a membership interest in CMP Gas Company,
(iv) a wholly-owned subsidiary of HoldCo ("PipelineCo") that will hold an equity
interest in a pipeline project that may be constructed from Nova Scotia through
Maine, and (v) a service company to provide support services to entities in the
reorganized corporate structure that would, if created, be wholly-owned by
HoldCo ("ServeCo"). Each of these entities is discussed in turn.
56. EnerMark. EnerMark's two focuses will be supply planning and
procurement through its energy portfolio management group, and retail sales and
marketing through its existing Combined Energies unit, which serves industrial
and medium and large commercial customers, and its small commercial and
residential unit.
57. During the transition to retail competition, the role of the energy
portfolio management group will be to build and manage a replacement power
portfolio to serve the Company's franchise customers, as previously
described./27 The objective will be to convert CMP's existing portfolio of
Company generation assets to a portfolio based on contracts that balance price
and risk. Meeting this objective is important not only in optimizing the
cost-effectiveness of resources for CMP until March 1, 2000, but also in
creating a separate supply portfolio for EnerMark's own account to serve
customers reliably and at competitive prices in northeastern states with retail
access, including Maine, as soon as permitted. After the commencement of retail
access, sales by the energy portfolio management group may be made to the retail
sales and marketing group to supply retail customers or directly to large
sophisticated customers. In addition, the energy portfolio management group may
sell at wholesale in other markets./28
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27/ A two-pronged approach will be used to rebuild the Company's supply
portfolio. First, the Company has requested that each entity bidding on its
generation assets also submit a proposal for replacing the power that would
have been available from the purchased asset. Second, the Company has
issued a general replacement power request for proposals. The proposals
received through both avenues will be used to build a portfolio meeting
price and risk objectives.
28/ Creation of a power marketer will require FERC approval to charge
market-based rates under Section 205 of the Federal Power Act.
58. To retain and build its customer base, the retail sales and marketing
group, through its Combined Energies and small commercial and residential units,
will market energy and related services and products to targeted customers in
Maine after the commencement of retail access and in other selected areas where
retail access is in effect. To meet customer needs, Combined Energies will use a
"whole energy" approach, offering energy management services ranging from energy
audits and energy supply planning through project and construction management
and follow-up training and monitoring. Some of these services will be provided
directly by Combined Energies, while others will be subcontracted. The small
commercial and residential unit will sell ready-made energy-related products and
services that are available from recognized vendors. Both units will offer
unbundled energy and energy-related, unregulated products and services as well
as energy bundled with such products and services. EnerMark will not engage in
any joint advertising or marketing with, advertise or market on behalf of, or
provide marketing or advertising services to the Company at any time.
59. CMP Gas Company. On November 12, 1997, the Company and New York State
Electric & Gas Corporation ("NYSEG") entered into an agreement to form a Maine
limited liability company called "CMP Gas Company, L.L.C.," subject to receiving
necessary regulatory approvals. With respect to its proposed operations in
Maine, CMP Gas Company will be a regulated "gas utility" as defined in section
102 of Title 35-A M.R.S.A. The agreement between CMP and NYSEG for CMP Gas
Company, including its appendices, which contain a form of promissory note and
proposed support services agreements between the Company and CMP Gas Company and
also between NYSEG and CMP Gas Company, are attached to this Application as
Exhibit G. CMP will not participate in CMP Gas Company directly. Rather, as
proposed in this Application, a new wholly-owned subsidiary of HoldCo ("GasCo")
will be created to hold a 50 percent membership interest in CMP Gas Company. The
remaining 50 percent membership interest will be held by NYSEG or a NYSEG
affiliate.
60. CMP Gas Company will be formed for the purpose of constructing, owning
and operating a natural gas distribution company to provide gas distribution and
related services to Maine customers who do not currently have access to natural
gas as an energy option and to New Hampshire customers in the proximity of the
proposed pipeline of the Portland Natural Gas Transmission System or of
Maritimes & Northeast Pipeline or both. The New Hampshire portion of the gas
distribution business may be conducted in one or more different entities in
which either GasCo or another HoldCo affiliate may hold an interest./29 CMP Gas
Company may also engage in other businesses, as determined by its four-member
Management Committee.
61. Participation in the gas distribution business will not only provide an
additional energy option to Maine and possibly New Hampshire consumers, but is
also functionally related to the core strength of distributing energy. This
strategic fit will be enhanced through the alliance with NYSEG, which serves
more than 280,000 natural gas customers in central and upstate New York, where
the terrain, climate and population densities resemble those in Maine.
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29/ SEC approval of HoldCo's acquisition of one or more gas distribution
utilities will be required under section 9(a)(2) of PUHCA, whose provisions
are discussed in note 8 above.
62. PipelineCo. In addition to participating in the natural gas
distribution business through entities described in the preceding paragraphs
concerning CMP Gas Company, CMP has entered into an agreement with Maritimes &
Northeast Pipeline, L.L.C. ("Maritimes") to explore up to a 10 percent equity
participation by the Company or an affiliate in a possible new pipeline company
that would construct, own and operate the United States portion of Maritimes'
proposed natural gas pipeline. That pipeline would stretch from off-shore fields
in Nova Scotia across Maine. CMP's agreement with Maritimes also provides for
possible equity participation up to the same level in a Canadian entity that
would construct, own and operate the Canadian portion of the pipeline from the
U.S.-Canadian border across Nova Scotia. As proposed, the two pipeline companies
will be structured as limited liability companies in which a new HoldCo
wholly-owned subsidiary ("PipelineCo"), rather than the Company, will be the
equity participant through membership interests in these entities. Because no
gas distribution is intended from the pipeline, PipelineCo and the two limited
liability pipeline companies will not be public utilities.
63. ServeCo. The Company may determine, after considering various factors,
including cost-effectiveness, personnel and management, that it is in the
Company's best interests to centralize the support services provided by various
functional areas of the Company and certain other functions by shifting these
functions along with Company employees who perform them and related assets to a
new wholly-owned subsidiary of HoldCo that would be created to provide support
and possible other services to HoldCo and its subsidiaries and other affiliates,
including the Company ("ServeCo"). By way of illustration, services offered by
ServeCo to these entities could possibly include advertising, accounting,
transportation, purchasing, inventory management, human resources, facilities
and real estate management, payment processing, finance and treasury, legal,
audit, public relations, budgeting, investor relations, information systems, and
governmental affairs, and planning services. These and any other services would
be offered under a standardized Services Agreement between ServeCo and any
entity in the holding company system requesting services. The form of Services
Agreement is attached to this Application as Exhibit H. It is modeled on the
standard form of support services agreement between the Company and its
affiliates previously approved by the Commission, which provides for pricing at
cost./30 In the event that ServeCo is not created or is created at a later date,
CMP may provide support services to HoldCo and its affiliates under this
standard form of support services agreement, if any of these entities requests
such services. The standard form of Support Services Agreement is attached to
this Application as Exhibit I. HoldCo and each of its affiliates will be free to
obtain any service offered by ServeCo or the Company from unaffiliated sources.
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30/ See, e.g., Order dated May 4, 1993 in Docket No. 93-092 (including approval
of CMP and Union Water support services agreement), and Order dated
November 23, 1994 in Docket No. 94-147 (including approval of CMP-CMPI
support services agreement).
64. The pricing of any services provided by ServeCo under the Services
Agreement would be at ServeCo's cost, including a return on capital invested or
funds used in rendering the services, which in the case of a Services Agreement
between the Company and ServeCo, would be no greater than the Company's allowed
return. Cost-basis pricing would include all direct and indirect costs that
could reasonably be identified and related to particular services performed by
ServeCo. If a service were performed by ServeCo for the benefit of more than one
entity, common costs would be equitably allocated to the entities benefiting
from the service. In this way, costs not attributable solely to one entity would
be apportioned on a cost- causative basis and, if the cause of a cost could not
be identified, it would be allocated generally, based on equally weighted ratios
of revenues, expenses and assets, consistent with the Federal Communications
Commission model for telecommunications carriers favored by the Commission in
its Order dated January 28, 1997 in Docket No. 96-053. The Commission has issued
a proposed rule on "Requirements for Non-Core Utility Activities and
Transactions Between Affiliates," which the Company is in the process of
reviewing and which may affect this approach.
65. By shifting the responsibility for providing support services to
ServeCo in this manner, the frequency of transactions requiring the allocation
of costs between utility and non- utility activities that results from the
Company acting as the service provider may be significantly diminished.
V. CONDITIONS OF REORGANIZATION
66. As discussed in Section II of this Application, the proposed separation
of regulated and unregulated businesses through the use of a holding company
structure will protect the Company's ratepayers in several respects.
67. Notwithstanding the protections inherent in the holding company form of
organization, the Company is proposing a set of conditions to the
reorganization, consistent with 35-A M.R.S.A. section 708. The Company believes
that the long-term advantages of the reorganization can be achieved to a
significant degree within the terms of these conditions. These conditions will
protect the Company's customers and will not unnecessarily burden the operations
or hinder the business prospects of HoldCo and its non-utility subsidiaries in
an increasingly competitive business environment. In addition, the Commission
already possesses a broad array of regulatory mechanisms to ensure that
ratepayers are adequately protected through its continued statutory authority to
regulate the Company. These conditions are as follows:
(1) 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 affiliates in which HoldCo
directly or indirectly holds a majority interest. HoldCo will use its
best efforts to produce such books, records and documents.
(2) Financial statements. HoldCo will provide to the Commission quarterly
and annual financial statements, including annual consolidated balance
sheets of HoldCo and its subsidiaries, certified by an independent
public accountant.
(3) Affiliated transactions. HoldCo will provide to the Commission an
annual statement describing the nature of and basis of allocations for
any transactions and other arrangements between any public utility
company in the holding company system and HoldCo or any non-utility
affiliate of HoldCo. The Commission will have the right to investigate
any such transaction or arrangement.
(4) SEC filings. HoldCo will provide to the Commission copies of all
periodic reports filed by HoldCo with the SEC.
(5) Confidentiality. The Commission will afford all appropriate
protections, including the issuance of protective orders, for the
business, financial and proprietary information designated by HoldCo
or any of its affiliates as confidential.
(6) Transfers of assets. Assets may be transferred by the Company in
accordance with the terms of the stipulation approved by the
Commission in Docket No. 95-092 and the terms proposed in paragraphs
39 through 41 of this Application. Assets transferred to carry out the
reorganization as described in this Application will not be subject to
the limitations set forth in Docket No. 95-092 or in said paragraphs
39 through 41.
(7) Loans and liabilities. No public utility affiliate of HoldCo will make
any loan to or guarantee or assume any obligation of HoldCo or any of
its affiliates without prior Commission approval.
(8) Ownership of the Company. Without prior Commission approval, HoldCo
will not sell, pledge or otherwise transfer any common stock of the
Company.
(9) Total investment. Total investment in non-utility subsidiaries and
other non-utility affiliates of HoldCo will be limited to 20 percent
of total assets of HoldCo and all of its subsidiaries and other
affiliates on a consolidated basis.
(10) Reorganization costs. All costs arising from the reorganization of the
Company to a holding company system will be borne by shareholders.
(11) Dividend policy. The Board of Directors of the Company must set
dividend policy for the Company based solely on the financial
performance, needs and health of the Company without regard to the
rest of the holding company system.
(12) Utility securities issuances. Securities issuances by the Company will
be done independently of HoldCo. The proceeds of any securities issued
by the Company will be used exclusively by the Company for its
business.
(13) Subsequent reorganizations. HoldCo and non-utility subsidiaries or
other non-utility affiliates of HoldCo will be allowed to create or
participate in joint ventures, general partnerships, limited
partnerships, limited liability companies or other affiliations
(including without limitation stock ownership in corporations),
without the need for Commission review or approval.
(14) Prior Commission Orders. As a result of the protections inherent in
the holding company structure and the conditions set forth herein,
ratepayers will be adequately protected from the financial and
business risks and costs of non-utility activities; therefore,
conditions contained in previous Commission orders (including orders
approving stipulations) limiting amounts of investments in non-utility
business activities or projects, imposing geographic restrictions,
requiring above-the-line treatment, and requiring review of specific
projects or activities prior to investing in that project or activity
or creating an indirect affiliate of the Company will have no further
force and effect from and after the Merger Date (as defined herein).
VI. APPROVALS REQUESTED
68. This section lists the specific transactions and arrangements for which
Commission approval is requested in this proceeding, with references to the
sections of the Application in which the particular transaction or arrangement
is discussed. These transactions and arrangements are as follows:
a. 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") (Sections II and III);
b. 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") (Section III);
c. 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 (Section III);
d. 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 c. above, which will be deemed issued by the Company
for this purpose (Section III);
e. the creation of a new energy and marketing affiliate, which will be a
wholly-owned corporate subsidiary of HoldCo ("EnerMark") (Sections
IV.A and IV.D);
f. a Management Services Agreement between the Company and EnerMark
(Exhibit E) for supply planning and procurement and energy portfolio
management services for the period until retail access (Section IV.A);
g. the transfer by CMP of assets (other than generating assets) not
directly used in its transmission and distribution operations, if the
Company determines that such transfer is in its best interests, to
entities in the holding company system, as described in this
Application, to carry out the reorganization (Section IV.A);
h. the transfer, lease or license by CMP of interests in its
rights-of-way and transmission and distribution structures to entities
involved in pipeline and gas distribution projects on the terms
described in this Application (Sections IV.A and IV.D);
i. the transfer, lease or license by MEPCO of interests in its
transmission structures and rights-of-way to entities involved in
pipeline and gas distribution projects on the terms described in this
Application (Sections IV.A and IV.D);
j. a Services Agreement between the Company and Union Water (Exhibit F)
under which Company employees could provide technical services to
other unaffiliated utilities (Section IV.A);
k. the dividend by CMP to HoldCo of the stock of specified non-utility
wholly-owned subsidiaries of CMP to carry out the reorganization
(Section IV.C);
l. the transactions and arrangements described in the CMP Gas Company,
L.L.C. Joint Venture Agreement, including its Appendices (Exhibit G)
(Section IV.C);
m. the creation of a limited liability company to develop, own and
operate a natural gas distribution business in Maine in which a new
wholly-owned subsidiary of HoldCo will have a 50 percent membership
interest and New York State Electric & Gas Corporation or its
affiliate will have the other 50 percent membership interest ("CMP Gas
Company") (Section IV.D);
n. the creation of the new wholly-owned subsidiary of HoldCo ("GasCo")
that will hold a 50 percent membership interest in CMP Gas Company
(Section IV.D);
o. the creation of one or more entities, one of which may be a wholly-
owned subsidiary of HoldCo, to participate in the gas distribution
business in New Hampshire (Section IV.D);
p. the creation of a wholly-owned subsidiary of HoldCo ("PipelineCo")
that may participate in a natural gas pipeline project (Section IV.D);
q. the creation of one or more limited liability companies or other
entities through which PipelineCo may participate in a natural gas
pipeline project (Section IV.D);
r. the creation of a wholly-owned subsidiary of HoldCo, if the Company
determines that such action is in the Company's best interests, to
provide centralized support and other services to entities in the
holding company group as may be requested by any such entity
("ServeCo") (Section IV.D);
s. a form of Services Agreement (Exhibit H) for ServeCo, if created, to
provide support services to entities in the holding company group
(Section IV.D);
t. a form of Support Services Agreement (Exhibit I) for CMP to provide
support services to entities in the holding company group if ServeCo
is not created or otherwise (Section IV.C); and
u. 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 liability companies and corporations, to enhance the ability
of these entities to market and furnish their services (Section II).
69. The proposed reorganization will allow the Company to continue
efficient operations of its utility business while enabling HoldCo and its
non-utility subsidiaries to respond more flexibly to new business opportunities
for the benefit of the Company's customers and shareholders. The Company
respectfully requests that the Commission approve the reorganization described
in this Application and the specific transactions and arrangements listed in
this section VI on the terms set forth in this Application.
70. INTERIM APPROVAL REQUESTED. As indicated in Exhibit C, the Company must
make various applications and filings in connection with the reorganization,
including an application under the Public Utility Holding Company Act as well as
the filing of a registration statement under the federal securities laws and a
listing application with the New York Stock Exchange. To meet planned
timetables, the Company must begin making these applications and filings by late
January 1998. These applications and filings must be signed by HoldCo. For this
reason, the Company requests that the Commission authorize the Company to create
HoldCo by January 12, 1998. This interim authorization will be for the limited
purpose of making these applications and filings, and neither the Company nor
HoldCo will take any further action pending the Commission's final order in this
proceeding.
Dated: December 8, 1997 /s/ Anne M. Pare
------------------
Anne M. Pare
Arthur W. Adelberg
Central Maine Power Company
83 Edison Drive
Augusta, ME 04336
207 621-4795
Attorney for Central Maine Power Company
and Maine Electric Power Company, Inc.
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<TOTAL-NET-UTILITY-PLANT> 1,056,754
<OTHER-PROPERTY-AND-INVEST> 76,509
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<TOTAL-DEFERRED-CHARGES> 910,512
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<CAPITAL-SURPLUS-PAID-IN> 277,168
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 487,594
65,571
39,528
<LONG-TERM-DEBT-NET> 366,406
<SHORT-TERM-NOTES> 60,000
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7,000
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,057,939
<TOT-CAPITALIZATION-AND-LIAB> 2,298,966
<GROSS-OPERATING-REVENUE> 954,176
<INCOME-TAX-EXPENSE> 7,424
<OTHER-OPERATING-EXPENSES> 883,473<F1>
<TOTAL-OPERATING-EXPENSES> 890,897
<OPERATING-INCOME-LOSS> 63,279
<OTHER-INCOME-NET> 1,710
<INCOME-BEFORE-INTEREST-EXPEN> 64,989
<TOTAL-INTEREST-EXPENSE> 51,567
<NET-INCOME> 13,422
8,209
<EARNINGS-AVAILABLE-FOR-COMM> 5,213
<COMMON-STOCK-DIVIDENDS> 29,220
<TOTAL-INTEREST-ON-BONDS> 29,783
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<EPS-PRIMARY> .16
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<F1>INCLUDES $6,260 EQUITY IN EARNINGS OF ASSOCIATED COMPANIES.
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EXHIBIT H-1
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filing under the Public Utility Holding Company Act of 1935
________, 1998
HoldCo, Inc. (70- )
Central Maine Power Company
HoldCo, Inc. ("HoldCo"), and its parent company, Central Maine Power
Company ("Central Maine" and, together with HoldCo, the "Applicants"), an
electric public-utility holding company exempt from registration under Section
3(a)(2) of the Public Utility Holding Company Act of 1935, as amended (the
"Act"), pursuant to Rule 2 thereunder, both located at 83 Edison Drive, Augusta,
Maine 04336, have filed an application under sections 3(a)(1), 9(a)(2) and 10 of
the Act.
The Applicants request an order under Sections 9(a)(2) and 10 of the
Act authorizing HoldCo to acquire directly all of the outstanding common stock
of Central Maine and to acquire indirectly Central Maine's 78.3% interest in
Maine Electric Power Company, Inc. ("MEPCo"), and Central Maine's 100% interests
in Aroostook Valley Electric Company ("AVEC") and NORVARCO, all of which are
electric utility subsidiary companies of Central Maine. In addition, the
Applicants request an order granting them an exemption under section 3(a)(1)
from all provisions of the Act, except section 9(a)(2) thereof. HoldCo's
proposed acquisition is part of a corporate reorganization in which HoldCo will
become a holding company over Central Maine.
The Applicants state that the principal purpose of the reorganization
is to provide long-term advantages through increased management and financial
flexibility that will better position Central Maine to operate in a changing
business and regulatory environment, while maintaining the principal business
focus on Central Maine's core transmission and distribution business. Applicants
also state that the holding company structure will facilitate compliance with
the provisions of the new electric utility restructuring law enacted in Maine in
1997 requiring the divestiture of generation assets by March 1, 2000, when
Central Maine will be prohibited from selling electricity to retail customers.
Beginning on that date, Maine consumers will be able to purchase electricity
from an affiliate of Central Maine or other non-affiliated electricity
providers. The holding company structure will facilitate compliance with the
rules governing the conduct of Central Maine and its affiliated electricity
provider.
HoldCo has been incorporated under the laws of Maine for the purpose of
making required applications for approval of the proposed reorganization.
Shortly before the proposed reorganization is carried out, HoldCo will form a
wholly-owned subsidiary ("Merger-Sub") for the purpose of carrying out the
proposed reorganization. HoldCo does not currently, and, upon its formation,
Merger-Sub will not own any utility assets or conduct any business.
Central Maine is an investor-owned Maine public utility incorporated in
1905. It 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. Central Maine is the largest electric utility in Maine, serving
approximately 527,000 customers in its 11,000 square-mile service area in
southern and central Maine. It is subject to regulation by the Maine Public
Utilities Commission and the Federal Energy Regulatory Commission. Central Maine
also owns interests in several nuclear generating facilities1 and several
non-utility businesses.2
Central Maine has agreed to sell its hydro-electric, fossil and biomass
generation assets, consistent with the recently enacted Maine electric utility
restructuring law. The sale is subject to closing conditions, including State
and federal regulatory approvals.
- --------
1 Central Maine owns a 38 percent common stock interest in Maine Yankee
Atomic Power Company, which has permanently shut down the Maine Yankee
plant in Wiscasset, Maine, a 9.5 percent common stock interest in Yankee
Atomic Electric Company, which has permanently shut down its plant located
in Rowe, Massachusetts, a 6 percent common stock interest in Connecticut
Yankee Atomic Power Company, which has permanently shut down its plant in
Haddam, Connecticut, and a 4 percent common stock interest in Vermont
Yankee Nuclear Power Corporation, which owns a plant in Vernon, Vermont. 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.
2 Central Maine has interests in: Kennebec Hydro Resources Inc., Kennebec
Water Power Company, the Gulf Island Pond Oxygenation Project, MaineCom
Services ("MaineCom"), CMP International Consultants ("CMPI"), Central
Securities Corporation ("Central"), Cumberland Securities Corporation
("Cumberland"), TeleSmart, and The Union Water-Power Company ("Union
Water").
Central Maine proposes to form a holding company structure pursuant to
an Agreement and Plan of Merger to be entered into by Central Maine, HoldCo and
Merger-Sub (the "Plan of Merger"). 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 HoldCo common stock, par
value $5 per share ("HoldCo Common Stock"). Each issued and outstanding share of
Central Maine 6% Preferred Stock, par value $100 per share, and Central Maine
Dividend Series 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 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 HoldCo Common Stock, and HoldCo would hold all of the
issued and outstanding shares of Central Maine Common Stock.
Concurrently with the Merger, or shortly thereafter, Central Maine will
transfer its existing equity interests in CMPI, Central, Cumberland, MaineCom,
TeleSmart and Union Water by dividending the stock it holds in those entities to
HoldCo. Additionally, shortly after the reorganization, other companies may
possibly be formed as subsidiaries of HoldCo.
The Applicants assert that following the Merger, they will be entitled
to an exemption under section 3(a)(1) from all provisions of the Act, except
section 9(a)(2), because Central Maine and HoldCo and each of their public
utility subsidiaries from which they derive a material part of their income will
be predominantly intrastate in character and will carry on their utility
businesses substantially within the State of Maine, the state where they are all
organized.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
