File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
APPLICATION/DECLARATION WITH RESPECT TO BROKERING
AND MARKETING ACTIVITIES
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
HOLYOKE WATER POWER COMPANY PUBLIC SERVICE COMPANY OF
WESTERN MASSACHUSETTS ELECTRIC COMPANY NEW HAMPSHIRE
174 Brush Hill Avenue 1000 Elm Street
West Springfield, MA 01809 Manchester, NH 03015
THE CONNECTICUT LIGHT AND POWER COMPANY
NORTHEAST UTILITIES SERVICE COMPANY
107 Selden Street
Berlin, CT 06037
(Names of companies filing this statement
and address of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Robert P. Wax, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities
P.O. Box 270
Hartford, CT 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to:
Jeffrey C. Miller, Esq. John B. Keane
Assistant General Counsel Vice President and Treasurer
Northeast Utilities Service Company Northeast Utilities Service Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
I
DESCRIPTION OF PROPOSED TRANSACTIONS
Introduction
1. The principal operating utility subsidiaries of Northeast
Utilities, a registered electric utility holding company ("Northeast") and
Northeast Utilities Service Company ("NUSCO"), Northeast's service company
affiliate (Northeast, its operating companies and NUSCO are hereinafter
collectively called "NU"), hereby request authority to the extent required to
engage in a variety of brokering and marketing transactions in the
Northeastern region of the country which either are or are closely related to
their integrated electric utility business (as hereinafter further described,
the "Proposed Activities"). The Proposed Activities will enable NU to
compete more effectively in the rapidly evolving electric utility business,
for the benefit of its consumers and investors.
Background
2. Northeast and its subsidiaries (the "NU System") have been an
integrated electric public-utility system since 1966. <F1> Through the four
operating companies which are Applicants herein, The Connecticut Light and
Power Company ("CL&P"), Western Massachusetts Electric Company ("WMECO"),
Holyoke Water Power Company ("HWP") and Public Service Company of New
Hampshire ("PSNH") (collectively, the "Operating Companies"), NU provides
retail electric service in Connecticut, Western Massachusetts and New
Hampshire and firm wholesale service to various municipalities and electric
utilities, all primarily within the New England Power Pool ("NEPOOL"). NU
also buys and sells electricity at wholesale from and to utilities throughout
NEPOOL, New York, New Jersey, Pennsylvania, Delaware, Maryland (the latter
four states comprising the general area of operation of the Pennsylvania, New
Jersey, Maryland Interconnection, or "PJM") and the Canadian Provinces of New
Brunswick, Ontario and Quebec. NU serves about 30 percent of New England's
electric needs and is one of the 20 largest electric utility systems in the
country.
3. Other Northeast subsidiaries include North Atlantic Energy
Corporation, which owns a 35.6% interest in the Seabrook nuclear generating
facility and sells its output to PSNH; North Atlantic Energy Service
Corporation, which operates Seabrook; Northeast Nuclear Energy Company, which
operates the NU System's nuclear facilities in Connecticut; NUSCO, which
provides centralized services to the NU System; Charter Oak Energy, Inc. and
its subsidiaries, which engage in non-traditional power development
activities; and HEC, Inc., which provides energy management services in New
England and elsewhere. Northeast, through various subsidiaries and
affiliates, also owns portions of three regional nuclear generating
facilities through the so-called Connecticut, Maine and Vermont "Yankee"
companies.
4. NU serves retail electric customers located within the franchise
limits of its retail service territory in Connecticut, Massachusetts and New
Hampshire. It also makes wholesale electric sales to other utilities,
whether located in its retail service territory or elsewhere in the
northeastern United States and eastern Canada. Most of these sales are
provided on a "firm", or uninterruptible (in the absence of circumstances
beyond NU's control), basis, but NU also provides non-firm capacity and
energy as well. Because NU currently has generating resources greater than
<F1>Northeast Utilities, 42 S.E.C. 963 (1966); Northeast Utilities, Release
No. 35-25221, December 21, 1990 and Release No. 35-25273, March 15, 1991;
affd. sub nom. City of Holyoke Gas & Electric Department v. SEC. 972 F.2d 358
(C. of A. D.C. 1992).
needed to serve its retail customers and its committed sales for more than a
decade, NU is aggressive in seeking out additional markets for its generating
surplus throughout the region. In addition, to satisfy its obligation to
supply retail and wholesale customers on the most economic terms, NU
aggressively seeks out the most economic sources of generating resources
throughout the region; these transactions, which frequently involve base load
capacity sales, result in cost savings for the contracting parties due to
lower relative fuel charges. In the course of this activity, NU has
developed extensive knowledge about the loads and resources of utilities and
other power suppliers throughout the region. NU has developed relationships
across the region with the power supply and resource planners for its current
and potential customers and suppliers, and it has devoted substantial
resources and efforts to build a staff of professionals and systems to manage
a wide variety of resources and requirements across the region.
5. As this regional power supply market evolves, it has become
apparent to NU that there is a need for related services which NU is well
prepared to fill. These Proposed Activities are described below.
6. The past 15 years have seen dramatic changes in the nature of the
utility business with an accelerating tendency towards deregulation in the
name of enhanced competition, lower cost and better service. In competition
with traditional utilities, electricity can now be supplied by a variety of
legislatively- or administratively-created entities not known until recently:
qualifying facilities, independent power producers, exempt wholesale
generators, power marketers, brokers and foreign utility companies, in
addition to customers' self-generation and competition between traditional
utilities such as NU. What constitutes the "electric utility business" today
is as much a question of interpretation and perspective as it is of
legislative intent.
7. The Commission itself has taken note of these trends in its recent
"Request for Comments on Modernization of the Regulation of Public-Utility
Holding Companies" (HCA Release No. 35-26153). Similarly, the Commission
has recognized the changing nature and extent of services provided to
electric customers in its analysis and resultant easing of the so-called "50%
limitation" in connection with the proposed expanded activities of an energy
management and consulting registered holding company subsidiary. Eastern
Utilities Associates, et al., HCA Release No. 35-26232 (February 14, 1995)
(noting "significant changes in the utility industry" since the applicants'
original 1986 application and that energy management services, which are
closely related to the core utility business, have become an important
complement to the utility business).
Proposed Activities
8. The two Proposed Activities consist of Brokering and Marketing
services to be provided to customers within the principal electric supply
market of the NU System. This area, consisting of the New England states,
New York, Pennsylvania, Delaware, New Jersey and Maryland, is hereinafter
called the "Sales Region." The Proposed Activities are described in more
detail below.
Brokering
9. As NU seeks customers for its power supply and power sources for
its own needs, it will occasionally hear of a source it cannot use and a
customer it cannot supply, whose respective supply and need match. Such
"market intelligence" is a byproduct of its day-to-day System-related
activities and can result in a brokerage fee for bringing the two parties
together (i.e., "Brokering"). As NU would neither buy nor sell power or
energy in a Brokering transaction, there is no price exposure or significant
financial risk. In addition, such activity is not regulated as the sale of
power under the Federal Power Act or any state regulatory scheme, since NU
itself is neither buying nor selling power or energy. These activities would
be incidental to its principal electric business. NU now seeks authority to
engage in Brokering within the Sales Region to the extent it constitutes the
acquisition of an interest in another business under Sections 9 and 10 of the
Public Utility Holding Company Act of 1935 ("Act"), or a disclaimer of
jurisdiction by the Commission if its analysis shows it does not.
10. Brokering will be carried on by personnel employed by NUSCO, who
engage in the day-to-day power marketing activities of the NU System on
behalf of the Operating Companies. Revenues derived from Brokering are not
expected to exceed approximately $1 million in each of 1995 and 1996 and will
be credited entirely to reduce NUSCO's cost of operation which will, in turn,
reduce NUSCO's cost of service to the Operating Companies and Northeast's
other subsidiaries with resulting benefits to customers and investors.
Marketing
11. In certain instances, a prospective customer will have needs that
NU cannot fill, either in whole or in part, from System-owned resources and
Brokering is not feasible for any number of practical reasons. Where this
customer is not located within the boundaries of the franchised NU System and
the supply may not be available from NU-owned resources, NU's only way to
satisfy this customer's requirements is from third-party sources in or near
the Sales Region. While it is expected that most purchases and sales will be
made within the Sales Region, occasional sales and purchases may be made
outside of such region.
12. If certain of this aggregated supply arises from sources within
NEPOOL, or has to travel through NEPOOL to reach the buyer, it is likely to
be commingled with power and energy derived from NU-owned generating stations
and/or to have passed over NU System transmission lines by the time it
reaches the customers. This is because NEPOOL is operationally a highly
integrated power pool wherein all sources of generation are interconnected
and dispatched independent of ownership from the NEPEX dispatch center in
order to meet the electrical energy requirements of the NEPOOL members. In
that NU constitutes approximately 30% of the NEPOOL capacity and 35% of its
"backbone" transmission (69 kV and above), it is likely that every segment of
energy shipped into or out of New England contains at the point of
consumption some electrons generated at an NU System generating plant and/or
which have flowed over transmission facilities owned by an Operating Company.
The NU System's participation in such a transaction ("NEPOOL Marketing")
constitutes the electric business in which it is presently authorized to
engage.
13. In addition, circumstances may arise where it is unlikely any power
and energy supplied by contracted sources engaged by NU would flow from NU
System-owned generation facilities or over NU System transmission lines. The
following are examples of such a situation:
1) both the seller and the buyer are in the Sales Region but neither
are within NEPOOL; or
2) either the seller or the buyer is outside the Sales Region
altogether, while the other party is within the Sales Region, not
including NEPOOL.
14. Under certain conditions, it may be advantageous for NU to act not
as a broker but as a marketer and stand as a principal between the
prospective buyer and seller. For instance, NU might be unable to fulfill
all of a customer's power needs from owned or controlled resources
interconnected with its own facilities but would need other resources to
supplement its own capabilities. Under present law, NU would be engaged in a
wholesale transaction and such purchases and sales would generally be subject
to regulation by the Federal Energy Regulatory Commission ("FERC"). Such
transactions would be beneficial to NU from a number of perspectives: NU's
presence in its principal wholesale market would be maintained or enhanced,
customers' needs could be satisfied where NU could not otherwise provide
service, the wholesale power market in the Sales Region and adjacent areas
will be more competitive, NU's personnel would gain and enhance needed market
expertise, and profits would accrue to the benefit of the NU System's
investors and customers.
15. In addition, under certain circumstances, it may be necessary or
economically efficient to substitute other sources of energy for electricity
generated by NU. For example, if electricity is being sold across a
transmission interface and the interface becomes constrained such that NU is
precluded from transmitting the power to the purchasing utility, NU may be
able to substitute some of its fuel supplies to the buying utility in order
to allow the buying utility to generate a like amount of power itself. In
this way NU would be able to substitute one source of energy for another to
effect the same sale of electricity. Similarly, if local environmental
constraints preclude NU from generating a certain amount of electricity for a
wholesale customer, and the customer is not subject to a similar constraint,
NU may be able to substitute some of its fuel supplies to the buying utility
in order to allow the buying utility to generate a like amount of power
itself in an environmentally acceptable manner. Another example would occur
if the marginal cost of NU's generation made it uneconomic for the purchasing
utility to buy a certain amount of power from NU, but it would be economic
for that utility to purchase fuel from NU and generate the power itself, NU
may be able to substitute some of its fuel supplies with the buying utility
in order to allow the buying utility to generate economically a like amount
of power itself. Such fuel-for-energy activities are hereinafter included
within the defined term "Marketing."
16. All Marketing activities, including the Marketing activities
conducted wholly outside of NEPOOL ("Non-NEPOOL Marketing") and the fuel-for-
energy activities described above, will be carried on by personnel employed
by NUSCO who engage in the day-to-day power marketing activity of the NU
System. NUSCO in turn will be acting as agent for the joint account of those
Operating Companies as are directly related to the customer involved.
Revenues from Marketing will be credited entirely to reduce the affected
Operating Companies' costs of operation, with resulting benefits to consumers
and investors. Revenues from Marketing activities are not expected to exceed
$110 million in each of 1995 and 1996, of which revenues from the fuel-for-
energy activities described above are not estimated to exceed $10 million in
each of 1995 and 1996. For each of the one year periods during the period
ending December 31, 1993, NEPOOL Marketing revenues were $370 million in
1991, $350 million in 1992 and $380 million in 1993. The projected Non-
NEPOOL Marketing revenues for each of the years 1995-1996 are not expected to
exceed NEPOOL Marketing revenues for those years.
17. To the extent the Commission does not deem the proposed Non-NEPOOL
Marketing activities of NU or the fuel-for-energy component of its Marketing
activities wherever entered into to be the conduct of an integrated electric
utility business, the Applicants herein seek approval for the acquisition of
such businesses under Sections 9 and 10.
Financial Matters
18. The Operating Companies have independent financial standing and do
not anticipate needing financing backup from Northeast or independent sources
of capital or financing to engage in the Proposed Activities. NUSCO will act
solely as agent for the Operating Companies and assume no independent
financial obligations in effecting the Proposed Activities.
19. Except in accordance with the Act, neither Northeast nor any
subsidiary thereof (a) has acquired an ownership interest in an EWG or FUCO
as defined in Sections 32 and 33 of the Act, or (b) now is or as a
consequence of the transactions proposed herein will become a party to, or
has or will as a consequence of the transactions proposed herein have a right
under, a service, sales, or construction contract with an EWG or a FUCO. None
of the proceeds from the transactions proposed herein will be used by the
Applicants to acquire any securities of, or any interest in, an EWG or a
FUCO.
20. The NU System is in compliance with Rule 53(a), (b), and (c), as
demonstrated by the following determinations:
(i) Northeast's aggregate investment in EWGs and FUCOs (i.e., amounts
invested in or committed to be invested in EWGs and FUCOs, for which there is
recourse to Northeast) does not exceed 50% of the NU System's consolidated
retained earnings as reported for the four most recent quarterly periods on
Northeast's Form 10-K and 10-Qs. At March 31, 1995 the ratio of such
investment ($14,406,000) to such consolidated retained earnings
($978,001,000) was 1.47%.
(ii) Encoe Partners and Central Termica San Miguel de Tucuman, S.A.
("CTSMT") (Northeast's only EWGs or FUCOs at this time) maintain books and
records, and prepare financial statements in accordance with Rule 53(a)(2).
Furthermore, Northeast has undertaken to provide the Commission access to
such books and records and financial statements, as it may request.
(iii)No employees of the NU System's public utility companies have
rendered services to Encoe Partners or CTSMT.
(iv) Northeast has submitted (a) a copy of each Form U-1 and Rule 24
certificates that have been filed with the Commission under Rule 53 and (b) a
copy of Item 9 of Form U5S and Exhibits G and H thereof to each state
regulator having jurisdiction over the retail rates of the Operating
Companies.
(v) Neither Northeast nor any Northeast subsidiary has been the subject
of a bankruptcy or similar proceeding unless a plan of reorganization has
been confirmed in such proceeding. In addition, Northeast's average
consolidated retained earnings for the four most recent quarterly periods has
not decreased by 10% or more from the average for the previous four quarterly
periods.
(vi) In the previous fiscal year, Northeast did not report operating
losses attributable to its investment in Encoe Partners, unless such losses
did not exceed 5 percent of Northeast's consolidated retained earnings.
II
FEES, COMMISSIONS, AND EXPENSES
21. The estimated fees, commissions, and expenses paid or incurred, or
to be paid or incurred, directly or indirectly, in connection with the
Proposed Transactions by Northeast or any associate company thereof will be
specified in Exhibit H.1 to be filed by amendment hereto.
22. None of such fees, commissions, or expenses are to be paid to any
associate company or affiliate of the NU System companies or any affiliate of
any such associate company except for financial, legal and other services to
be performed at cost by NUSCO.
III
APPLICABLE STATUTORY PROVISIONS
23. Sections 9(a) and 10 of the Act are or may be applicable to the
involvement of the Applicants in the Proposed Activities.
24. Within 45 days after the end of each calendar quarter, the
Applicants will file certificates of partial consummation detailing the
extent of the Proposed Activities undertaken within such months, to the
extent necessary to demonstrate compliance with the standards of the Act and
any conditions imposed herein.
IV
REGULATORY APPROVALS
25. The approval of FERC is required as to rates and charges imposed in
any wholesale power contracts or tariffs entered into in connection with the
Marketing aspect of the Proposed Activities. The Applicants do not presently
intend to act as retail sellers of power and energy outside their present
service areas but may qualify to do business if required by the laws of any
state where they carry on the Proposed Activities. No state regulatory
commission or any other federal commission (other than the Commission) has
jurisdiction over the Applicants' participation in the Proposed Activities.
However, the public service commissions of Connecticut,
Massachusetts and New Hampshire may regulate the accounting for any revenues
derived by their jurisdictional utilities from the Proposed Activities.
V
PROCEDURE
26. It is requested that the Commission issue an order with respect to
the transactions proposed herein at the earliest practicable date, but in any
event not later than July 15, 1995, which is not less than 40 days from the
date of the filing of this Application/Declaration.
27. Each Applicant hereby waives the recommended decision by a hearing
officer or other responsible officer of the Commission and consents that the
Division of Investment Management, Office of Public Utility Regulation, may
assist in the preparation of the Commission's decision and/or order and
hereby requests that the Commission's order become effective forthwith upon
issuance.
VI
EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
F.1 Opinion of Counsel (to be filed by amendment)
G.1 Form of Proposed Notice under the Public Utility Holding Company
Act of 1935 (to be filed by amendment)
H.1 Estimated Fees and Expenses (to be filed by amendment)
(b) Financial Statements
No Financial statements are filed herewith, as the proposed transactions
are not considered material to the financial positions of the
Applicants.
VII
INFORMATION AS TO ENVIRONMENTAL EFFECTS
(a) The issuance of an order with respect to this Application/Declaration is
not a major federal action significantly affecting the quality of the human
environment.
(b) No Federal agency has prepared or is preparing an environmental impact
statement with respect to the subject transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned applicants each has duly caused this
statement to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: May 19, 1995
THE CONNECTICUT LIGHT AND POWER COMPANY
By: /s/Frank P. Sabatino
Vice President - Wholesale Marketing
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By:/s/Frank P. Sabatino
Vice President - Wholesale Marketing
HOLYOKE WATER POWER COMPANY
By:/s/Frank P. Sabatino
Vice President - Wholesale Marketing
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By: /s/Frank P. Sabatino
Vice President - Wholesale Marketing
NORTHEAST UTILITIES SERVICE COMPANY
By: /s/Frank P. Sabatino
Vice President - Wholesale Marketing
