70-09151
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO FORM U-1
APPLICATION/DECLARATION WITH RESPECT TO
PROPOSED AMENDMENT OF A CREDIT
FACILITY FOR NUCLEAR FUEL FINANCING
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
THE CONNECTICUT LIGHT AND POWER COMPANY
107 Selden Street
Berlin, Connecticut 06037
WESTERN MASSACHUSETTS ELECTRIC COMPANY
107 Selden Street
Berlin, Connecticut 06037
(Name 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 Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to:
David R. McHale Jeffrey C. Miller, Esq.
Assistant Treasurer Northeast Utilities Service Company
Northeast Utilities Service Company P.O. Box 270
P.O. Box 270 Hartford, Connecticut 06141-0270
Hartford, Connecticut 06141-0270
Paula Lacey Herman, Esq.
Day, Berry & Howard
CityPlace I
Hartford, Connecticut 06103-3499
<PAGE>
The Application/Declaration in File No. 70-09151 is hereby amended as
follows:
1. The following exhibits are added to "ITEM 6. EXHIBITS AND FINANCIAL
STATEMENTS" and are filed herewith:
D.3. Order of Connecticut Department of Public Utility
Control approving amendments proposed herein pursuant
to Section 16-43 of the Connecticut General Statutes.
D.4. Order of Massachusetts Department of Telecommunications
and Energy approving amendments proposed herein
pursuant to Section 17A of Chapter 164 of the
Massachusetts General Laws.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, each of the undersigned companies has duly caused this Amendment to
be signed on its behalf by the undersigned officer or attorney thereunto
duly authorized.
Date: March 5, 1998
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By: /s/ Paula Lacey Herman
Paula Lacey Herman
Their Attorney
EXHIBIT D.3
[STATE SEAL]
STATE OF CONNECTICUT
DEPARTMENT OF PUBLIC UTILITY CONTROL
TEN FRANKLIN SQUARE
NEW BRITAIN, CT 06051
DOCKET NO. 91-06-04 APPLICATION OF THE CONNECTICUT LIGHT AND POWER COMPANY
AND WESTERN MASSACHUSETTS ELECTRIC COMPANY WITH RESPECT
TO NUCLEAR FUEL FINANCING ARRANGEMENTS
February 27,1998
By the following Commissioners:
Glenn Arthur
Jack R. Goldberg
Linda Kelly Arnold
DECISION
<PAGE>
DECISION
I. SUMMARY
In this Decision, the Department of Public Utility Control approves
the application of The Connecticut Light and Power Company and Western
Massachusetts Electric Company to amend and extend by approximately five
months certain nuclear fuel financing arrangements. The amended terms,
which increase interest cost, fees and collateral, and the five month
extension represent the best available terms from the participating banks,
given the banks' concerns about the Millstone nuclear outages. This
Decision allows needed financial flexibility in anticipation of the restart
of the nuclear units. Any increased costs or fees from this transaction
will be reviewed for prudence if submitted as part of The Connecticut Light
and Power Company's next general rate proceeding. The Department denies
the request to preapprove one year extensions of this agreement at terms at
or better than those contained herein and will instead review any new terms
at the termination of this agreement.
II. INTRODUCTION
A. BACKGROUND
Pursuant to <section>16-43 of the General Statutes of Connecticut
(Conn. Gen. Stat.) and by Supplementary Application dated November 26,
1997, The Connecticut Light and Power Company (CL&P) and Western
Massachusetts Electric Company (WMECO; together with CL&P, Companies), each
an electric utility subsidiary of Northeast Utilities and a public service
company as defined in <section>16-1 of the Conn. Gen. Stat., request that
the Department reopen the instant docket to modify the Decision dated July
31, 1991 (Decision) to approve the Companies' proposed changes to certain
nuclear fuel financing arrangements utilized by the Niantic Bay Fuel Trust
as a part of the financing arrangements for the Companies' interest in the
nuclear fuel for the Millstone nuclear generating units. By Decision dated
December 3,1997, the Department reopened Docket No. 91-06-04 for the
limited purpose of considering the Companies' request.
B. CONDUCT OF THE PROCEEDING
By Notice of Hearing dated December 5,1997, a public hearing was held
on December 23,1997, in the offices of the Department, Ten Franklin Square,
New Britain, Connecticut. A hearing was continued on December 30, 1997,
January 14, 1998, and February 13,1998.
III. APPLICANTS' EVIDENCE
CL&P and WMECO request that the Department modify the Decision in this
docket dated July 31, 1991, to approve proposed changes to certain nuclear
fuel financing arrangements utilized by the Niantic Bay Fuel Trust (Trust)
as a part of the financing arrangements for the Companies' interest in the
nuclear fuel for the Millstone nuclear generating units. CL&P and WMECO
Letter dated November 26, 1997.
In the July 31, 1991 Decision, the Department approved a restructuring
of the nuclear fuel financing arrangements, which included a $230,000,000
bank revolving credit facility (Facility). The Decision authorized the
credit agreement for the Facility (Credit Agreement) for an initial term of
three years with successive extensions in one-year increments upon the
request of the Companies and the consent of the banks. ID. The Facility
was originally scheduled to mature on February 19, 1998; however, it was
extended until March 5,1998. Late Filed Exhibit No. 1; Revised Third
Amendment and Waiver.
The Trust was formed to provide an efficient framework for the
financing of nuclear fuel for the Millstone nuclear units. CL&P and WMECO
own approximately 81.221% and 18.779% (aggregating to 100%), respectively,
of Millstone Unit Nos. 1 and 2 and are responsible for the fuel costs of
those units. CL&P and WMECO own approximately 52.933% and 12.239%
(aggregating to 65.172%), respectively, of Millstone Unit No. 3 and are
responsible for a like percentage of the fuel costs of Millstone Unit No.
3. The other joint owners of Millstone Unit No. 3 are responsible for the
remainder of the fuel costs for that unit. The Trust uses the proceeds of
credit financing arrangements to obtain nuclear fuel. The Trust leases the
nuclear fuel to the Companies and utilizes the Companies' lease payments to
service the credit financing. McHale PFT, p. 2.
The Department initially approved the Trust and the nuclear fuel
financing arrangements in Docket No. 81-09-07 in its Decision dated October
29, 1981, and Supplemental Decision dated May 12, 1982. The Department
approved structural changes to the financing arrangements in its Decision
dated July 31,1991, in this docket.
The Department approved the substitution of a $230,000,000 revolving
credit facility with a syndicate of banks agented by First National Bank of
Chicago (Agent) to replace the prior revolving credit facility. Under the
Credit Agreement, each participating bank is severally responsible for
making advances (each, a Ratable Advance) in an amount not to exceed the
amount of its commitment, ratably in proportion to the aggregate commitment
of all the participating banks. Each Ratable Advance bears interest at a
rate selected by the Trustee, as directed by the Companies, from among
three options: (i) Eurodollar Rate plus an increment which shall not
exceed 0.50%, (ii) a Fixed CD Rate plus an increment which shall not exceed
0.675%, or (iii) a Floating Rate equal to the higher of (A) a rate based on
the overnight federal funds rate, plus 0.50% and (B) the Agent's corporate
base rate. The restructuring of the Trust's financing arrangements also
required numerous changes to the previous documentation with respect to
those arrangements. ID., p.3.
The Credit Agreement provides for an initial term of three years and
for successive extensions in one-year increments upon the request of the
Companies and the consent of all the Banks. The purpose of the proposed
modifications is to seek authority to allow the Trust to pay additional
fees and interest under the Facility so that it can be extended for five
months. The Company plans to propose a more permanent restructuring of the
Facility after the Millstone units' expected return to service in 1998.
ID., p. 4.
The participating banks in the Facility have agreed to extend the
Facility beyond February 19, 1998, if the Companies provide the banks with
additional collateral by May 1, 1998 to secure further the Companies' pro
rata shares of up to 50 percent of (1) all outstanding advances under the
Facility; and (2) $80 million of the Trust Intermediate Term Notes. The
Companies are planning to meet this condition by issuing first mortgage
bonds in an amount not expected to exceed $100 million to cover their
respective pro rata shares of the collateral requirement. Late Filed
Exhibit No. 1; Revised Third Amendment and Waiver. The Companies are not
seeking the Department's approval to issue the bonds in the instant docket,
but have stated that they plan to do so in the near future. Tr. 2/13/98,
pp. 94-95.
The Decision presently allows the Companies to extend the Facility in
one-year increments from February 19, 1998, with the consent of the banks.
However, the Companies' proposed extension is for five months, to July
31,1998. The Companies seek authority, in the interests of greater
financial flexibility, to effect future extensions for any intervals of up
to two years with the consent of the banks and with terms at least as
favorable as those of the Decision, as modified herein, with respect to
interest rates. McHale PFT, p. 4.
The proposed amendment would (i) increase the maximum spread over the
Eurodollar Rate from 0.50% to 1.625%; (ii) increase the maximum spread over
the Fixed CD Rate from 0.625% to 1.75%; and (iii) under the second Floating
Rate option, provide for an increase from the Agent's corporate base rate
to a spread of 0.50% per annum over the Agent's corporate base rate. ID.,
p. 5.
The Companies will pay (i) a maximum commitment fee on the average
unused commitment equal to 0.5% per annum, (ii) an amendment fee equal to
0.375% of the total commitment, (iii) an arrangement fee of $250,000, (iv)
an annual administration fee of $5,000, (v) legal fees of approximately
$45,000, and (vi) NUSCO expenses of approximately $10,000. ID.
The Companies stated that they hope to reevaluate the Trust in its
entirety in mid-1998, but they believe it would be more advantageous to do
so after the Millstone units begin returning to service. By deferring a
restructuring of the Facility until that occurs, the Companies stated that
they hope to find a more receptive bank environment and more favorable
terms than would be available at present. McHale PFT, pp. 5-6.
WMECO will shortly file a Petition with the Massachusetts Department
of Public Utilities and the Companies will shortly file a
Declaration/Application with the Securities and Exchange Commission for
approvals relating to the Facility. ID., p. 6.
IV. DEPARTMENT ANALYSIS
CL&P and WMECO request that the Department approve an extension to and
a revision of the terms of their nuclear fuel financing arrangements
utilized by the Niantic Bay Fuel Trust. In the July 31, 1991 Decision in
this docket, the Department approved a $230 million bank revolving credit
facility and authorized the Credit Agreement for an initial term of three
years with successive extensions in one-year increments. Because of the
Companies' financial hardships associated with the shutdown of the
Millstone plants, the Companies are requesting the following changes to the
Facility: (1) a reduction of the bank commitments under the credit line
from $230 million to $100 million; (2) an increase in interest rates under
the Facility; (3) an extension of the maturity date of this Facility by
approximately five months, to July 31, 1998; (4) a pro rata reduction in
the banks' commitment levels if any principal payments are made on the
eighty million dollar Series F Intermediate Term Notes prior to its
maturity date on June 5, 1998; and (5) the provision of additional
collateral to banks and note holders by issuing both The Connecticut Light
and Power Company and Western Massachusetts Electric Company first mortgage
bonds by May 1, 1998, for an aggregate amount not to exceed $100 million.
Late Filed Exhibit No. 1, pp. 1-6; Tr. 2/13/98, pp. 94-95. Due to the
Companies' lowered financial ratings, the extension of the Facility would
require the Companies to pay higher fees and transaction costs than those
that would normally be incurred. The Companies also request Department
approval to effect future extensions for any intervals of up to two years
with the consent of the banks and with terms at least as favorable as those
previously approved by the Department in its Decision in this docket.
McHale PFT, p. 4. According to the Company, the terms of the Revised Third
Amendment and Waiver are complete and represent the final terms of the
Credit Facility; no substantive changes are anticipated. Tr. 2/13/98,
pp.97-98.
The Companies submitted a November 13,1997 draft of the Third
Amendment to the Credit Agreement in their initial request to reopen this
docket on November 26, 1997. However, the Companies explained that they
have experienced difficulties in reaching a final agreement with the Banks.
Due to subsequent negotiations with the Banks, a draft of the Revised Third
Amendment and Waiver dated February 6, 1998, was submitted as Late Filed
Exhibit No. 1.
The Trust allows for three methods of financing nuclear fuel: bank
notes under the Banks' credit line, intermediate term notes, and commercial
paper. Due to the Companies' lowered financial ratings, the third option,
while technically still available, cannot be exercised. Currently, the
Companies have borrowed approximately $90 million under the Banks' credit
line and CL&P has issued an $80 million 1992 Series F Intermediate Term
Note, which expires on June 5, 1998. Tr. 2/13/98, p. 107. The Banks'
credit line and the Series F Intermediate Term Notes are collateralized by
the Companies' nuclear fuel.
The Revised Third Amendment and Waiver dated February 6, 1998, offers
two substantive changes from the original Third Amendment and Waiver dated
November 13, 1997. According to CL&P, these changes address the Banks'
concern with the Companies' lowered credit ratings and that the nuclear
fuel itself may not be of sufficient value to collateralize the Companies'
borrowings under the Facility. Tr. 2/13/98, pp. 95 and 110-111. The
Revised Third Amendment and Waiver enables the Banks to reduce their
commitments on a pro rata basis if CL&P is unable to refinance in full its
outstanding $80 million Series F Intermediate Term Note, which expires on
June 5, 1998. If, for example, CL&P is unable to refinance $40 million of
its $80 million Intermediate Term Note, then the Banks' commitments will be
reduced by half. However, if CL&P is able to refinance the entire $80
million Series F Intermediate Term Note, then the Banks will retain the
entire $100 million commitment.{1} Tr. 2/13/98, pp.100-102. The second
important change in the Revised Third Amendment and Waiver requires the
Companies to issue up to an aggregate of $100 million in CL&P and WMECO
First Mortgage Bonds by May 1, 1998, to serve as additional collateral for
the Banks and holders of Series G Intermediate Term Notes.{2} No proceeds
would be raised from the First Mortgage Bonds. Rather, the First Mortgage
Bonds would be issued by the Companies and held by the Trustee as
collateral for the Banks and the Intermediate Term Note holders. The Banks
have required CL&P and WMECO to issue an aggregate of approximately $90
million in First Mortgage Bonds, or approximately half the value of the
$180 million total credit available in the Trust credit arrangements.{3}
CL&P's pro rata share of the nuclear fuel is approximately 81 percent, so
it is required to issue $72.9 million in First Mortgage Bonds as
collateral. These First Mortgage Bonds will not appear on the Companies'
balance sheets as outstanding debt. As such, they do not affect CL&P's
covenant requirements under its Revolving Credit Agreement.{4} However,
the First Mortgage Bonds do place a limit on the Companies' borrowing
capacity since they are to be issued as collateral. Tr. 2/13/98, pp.
140-141.
The Department recognizes that the Companies are undertaking
additional risks in their effort to retain the Facility as a source of
external capital. By issuing First Mortgage Bonds, the Companies are
allowing an additional claim to be placed on their assets in the event of
default. Tr. 2/13/98, pp. 114-115. Also, if CL&P and WMECO are unable to
sell the entire $80 million issuance of new Intermediate Term Notes in May
1998, then the Companies will face a commensurate dollar reduction in the
Banks' credit line. Notwithstanding these additional financial risks, the
Department recognizes the Companies' need for liquidity and financial
flexibility at this time.
The Companies also must undergo higher borrowings rates and fees to
retain the Facility. The proposed Third Amendment and Waiver would (i)
increase the maximum spread over the Eurodollar Rate from 0.50% to 1.625%;
(ii) increase the maximum spread over the Fixed CD Rate from 0.625% to
1.75%; and, (iii) under the second Floating Rate option, provide for an
increase from the Agent's corporate base rate to a spread of 0.50% per
annum over the Agent's corporate base rate. McHale PFT, p.5. CL&P
estimates that the short-term borrowing rate, currently at 6.5% under the
existing Facility, would rise to 7.6% under the proposed Third Amendment
and Waiver. Tr. 12/23/97, p.71. The Companies will also pay additional
fees and expenses to retain the Facility. The Companies will pay (i) a
maximum commitment fee on the average unused commitment equal to 0.5% per
annum, (ii) an amendment fee equal to 0.375% of the total commitment, (iii)
an arrangement fee of $250,000, (iv) an annual administration fee of
$5,000, (v) legal fees of approximately $45,000, and (vi) NUSCO expenses of
approximately $10,000. ID., p.5; Response to Interrogatory No. EL-5. The
Department recognizes and CL&P concurs that these higher costs are the
result of the Companies' greater financial risks and lowered financial
ratings. Tr. 12/23/97, p. 64. The Amendment fee of 0.375% and the
arrangement fee of $250,000 are one-time fees specifically related to the
proposed Third Amendment. The Second Amendment dated May 12, 1995, did not
have associated amendment or arrangement fees. The proposed commitment fee
associated with the Third Amendment (0.50%) is an increase from the Second
Amendment (0.135%). Late Filed Exhibit No.2.
The Department has been consistent in previous Decisions that any
costs related to or incurred by CL&P due to CL&P's mismanagement of its
nuclear units will not be borne by ratepayers. CL&P stated that it is
reasonable to assume that both the higher interest rates, fees and
transaction costs have a direct correlation to its creditworthiness. Tr.
12/23/97, p. 64. It is the Department's belief that its creditworthiness
is based upon the financial situation brought about by its mismanagement of
its nuclear units. Therefore, the Department determines that any higher
interest rates or fees associated with this transaction that are in any way
related to the Company's mismanagement of its nuclear units should not be
recovered from ratepayers. These costs as well as others will be subject
to future review in the Company's next rate proceeding.
The Companies will incur greater financial risk and higher fees to
maintain this Facility. However, because the Department is aware that the
Companies need financial flexibility as they prepare to restart the
Millstone units, approval of this Application is appropriate. At such time
as the Companies reapply for maintaining this Facility beyond the July
31,1998 expiration date, the Department will consider whether it will
approve future extensions for intervals of up to two years with the consent
of the Banks and with terms at least as favorable as those of the Decision.
V. FINDINGS OF FACT
1. Currently, the Companies have borrowed approximately $90 million from
the Facility. In addition, CL&P has $80 million 1992 Series F
Intermediate Term Notes outstanding in the Trust.
2. Credit borrowings under the Facility and the 1992 Series F Intermediate
Term Notes are collateralized by the Companies' nuclear fuel.
3. The Revised Third Amendment and Waiver enables the Banks to reduce, on
a pro rata basis, their commitments if CL&P is unable to refinance in
full its outstanding $80 million 1992 Series F Intermediate Term
Notes, which expire on June 5,1998.
4. The Revised Third Amendment and Waiver requires the Companies to issue
an aggregate of approximately $90 million in CL&P and WMECO First
Mortgage Bonds to serve as additional collateral for the Banks.
5. In the event of a CL&P default, the CL&P First Mortgage Bonds would be
held for the benefit of the Banks that have lent to the Companies
under the Facility and the investors that own the Series F or G
Intermediate Term Notes.
6. Issuing CL&P First Mortgage Bonds would not affect CL&P's covenant
requirements under its Revolving Credit Agreement, but would place a
limit on the Company's borrowing capacity.
7. The Companies will incur higher interest rates and higher fees and
transaction costs to maintain this Facility.
VI. CONCLUSION AND ORDERS
A. CONCLUSION
Because of the lower financial ratings due to the Millstone outages,
the Companies will incur greater financial risk and pay higher fees and
interest rates to maintain this Facility. However, the Department approves
the proposed Third Amendment and Waiver because it is aware that the
Companies need financial flexibility as they prepare to restart the
Millstone units. CL&P shall bear all of its share of the additional costs
of retaining this Facility that result from its lowered financial ratings.
B. ORDERS
For the following Orders, please submit an original and eight (8)
copies of the requested material to the Executive Secretary, identified by
Docket Number, Title and Order Number:
1. At such time that CL&P plans to issue and sell its 1998 Series G
Intermediate Term Notes, the Company shall request a reopening of this
docket. The Department shall at that time evaluate the terms and
conditions of the proposed issuance of Intermediate Term Notes, which
will be subject to Department approval.
2. At such time that CL&P plans to issue the CL&P First Mortgage Bonds,
CL&P shall request a reopening of this docket. The Department shall
at that time evaluate the terms and conditions of the proposed
issuance of the CL&P First Mortgage Bonds, which will be subject to
Department approval.
3. The Companies shall submit in writing evidence of the approvals
received from the Massachusetts Department of Public Utilities and the
Securities and Exchange Commission relating to the Facility.
DPUC ELECTRONIC LIBRARY LOCATION K:\FINL_DEC\FILED UNDER UTILITY TYPE,
DOCKET NO., DATE
**FOOTNOTES**
{1} Section 256 of the Revised Third Amendment and Waiver also requires
that the commercial paper credit line be retired in a similar pro rata
fashion. However, it is virtually certain that this condition will not
apply since, given the current CL&P financial ratings, the Companies are
not able to access their commercial paper line of credit.
{2} CL&P plans to issue a new Intermediate Term Note, Series G in June
1998 to refinance the 1992 Series F, maturing in June 1998. In the event
of a CL&P default, the First Mortgage Bonds would be held for the benefit
of the Banks and the investors that hold the Series G Intermediate Term
Notes. Tr. 2/13/98, pp. 114-116.
{3} The effective borrowing capacity of the Trust credit arrangements is
$100 million in short-term Bank credit plus $80 million in outstanding
Intermediate Term Notes. The Banks have determined that the nuclear fuel
inventory is worth approximately half of the Companies' effective
borrowing capacity of $180 million.
{4} See Docket No.97-05-12, DPUC FINANCIAL AND OPERATIONS REVIEW OF THE
CONNECTICUT LIGHT AND POWER COMPANY, Decision dated December 15, 1997,
p. 54, for a discussion of the Company's financial covenants for its
Revolving Credit Agreement under the First Amendment and Waiver to the
New Credit Agreement.
<PAGE>
DOCKET NO. 91-06-04 APPLICATION OF THE CONNECTICUT LIGHT AND POWER COMPANY
AND WESTERN MASSACHUSETTS ELECTRIC COMPANY WITH RESPECT
TO NUCLEAR FUEL FINANCING ARRANGEMENTS
This Decision is adopted by the following Commissioners:
Glenn Arthur
Jack R. Goldberg
Linda Kelly Arnold
CERTIFICATE OF SERVICE
The foregoing is a true and correct copy of the Decision issued by the
Department of Public Utility Control, State of Connecticut, and was
forwarded by Certified Mail to all parties of record in this proceeding on
the date indicated.
/s/ Robert J. Murphy MAR-3 1998
Robert J. Murphy Date
Executive Secretary
Department of Public Utility Control
EXHIBIT D.4
D.T.E. 97-108 Page 1
February 27, 1998
D.T.E. 97-108
Petition of Western Massachusetts Electric Company requesting approval by
the Department of Telecommunications and Energy, pursuant to M.G.L. c. 164,
<section> 17A, of proposed changes to certain nuclear fuel financing
arrangements.
APPEARANCES: Jane P. Seidl, Esq.
Western Massachusetts Electric Company
c/o Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
FOR: WESTERN MASSACHUSETTS ELECTRIC COMPANY
-and-
Stephen Klionsky, Esq.
260 Franklin Street
Boston, Massachusetts 02110
FOR: WESTERN MASSACHUSETTS ELECTRIC COMPANY
PETITIONER
<PAGE>
I. INTRODUCTION
In WESTERN MASSACHUSETTS ELECTRIC COMPANY, D.P.U. 873 (1981), the
Department of Public Utilities, now the Department of Telecommunications
and Energy ("Department"), approved the participation of Western
Massachusetts Electric Company ("WMECo" or "Company") in the Niantic Bay
Fuel Trust (the "Trust"). The Company's participation in the Trust is
intended to facilitate the financing requirements for its purchase of
nuclear fuel for Millstone Units Nos. 1, 2 and 3. WMECO, D.P.U. 873, at 1
(1981). The Department required the Company to obtain prior Department
approval of material amendments to the Trust arrangements before they
become effective. ID. at 15; WESTERN MASSACHUSETTS ELECTRIC COMPANY,
D.P.U. 873-A at 1 (1982).
In WESTERN MASSACHUSETTS ELECTRIC COMPANY, D.P.U. 91-129 (1991), the
Department approved an amendment to the Trust that included, among other
things, a revolving credit agreement ("Credit Agreement") with a syndicate
of banks for $230,000,000. D.P.U. 91-129, at 7. Under the revolving
credit agreement, each bank would be severally obligated to make advances
in an amount not to exceed the amount of its commitment, ratably in
proportion to the aggregate commitment of all banks. ID.
On December 5, 1997, WMECo filed with the Department a petition
requesting (1) approval of the Third Amendment and Waiver to the Credit
Agreement ("Credit Agreement") relating to the Trust which modifies the
Company's nuclear fuel financing arrangements in the Trust{1} and (2) for
authorization to effect future extensions of the Credit Agreement for up to
two years with interest terms at least as favorable as those approved in
this Order. The Department docketed this matter at D.T.E. 97-108.
Pursuant to notice duly issued, the Department conducted hearings on this
matter on January 20 and February 10, 1998. The record consists of ten
Company exhibits, 16 Department exhibits, and six Company responses to
Department Record Requests. No petitions for leave to intervene were
filed.
II. STANDARD OF REVIEW
Pursuant to G.L. c. 164, <section> 17A, a gas or electric company must
obtain written Department approval in order to "loan its funds to,
guarantee or endorse the indebtedness of, or invest its funds in the stock,
bonds, certificates of participation or other securities of, any
corporation, association or trust . . . ." The Department has indicated
that such proposals must be "consistent with the public interest," that is,
a Section 17A proposal will be approved if the public interest is at least
as well served by approval of the proposal as by its denial. BAY STATE GAS
COMPANY, D.P.U. 91-165, at 7 (1992); SEE BOSTON EDISON COMPANY, D.P.U. 850
(1983).
The Department has stated that it will interpret the facts of each
Section 17A case on its own merits to make a determination that the
proposal is consistent with the public interest. D.P.U. 91-165, at 7. The
Department will base its determination on the totality of what can be
achieved rather than a determination of any single gain that could be
derived from the proposed transactions. ID.; SEE D.P.U. 850, at 7. Thus,
the Department's analysis must consider the overall anticipated effect on
ratepayers of the potential harms and benefits of the proposal. D.P.U. 91-
165, at 8. The effect on ratepayers may include consideration of a number
of factors, including, but not limited to: the nature and complexity of
the proposal; the relationship of the parties involved in the underlying
transaction; the use of funds associated with the proposal; the risks and
uncertainties associated with the proposal; the extent of regulatory
oversight on the parties involved in the underlying transaction; and the
existence of safeguards to ensure the financial stability of the utility.
ID.
III. THE COMPANY'S PROPOSAL
The Trust facilitates the financing requirements for the Company's and
Connecticut Light and Power Company's ("CL&P") purchase of nuclear fuel for
Millstone Unit Nos. 1, 2 and 3.{2} WMECo and CL&P own approximately 18.779
percent and 81.221 percent respectively, of Millstone Unit Nos. 1 and 2 and
are responsible for fuel costs for those units (Exh. WM-7, at 2). WMECo
and CL&P own approximately 12.239 percent and 52.933 percent respectively
of Millstone Unit No. 3, and are responsible for a like percentage of the
fuel costs of this unit (ID. at 2-3). The other joint owners of Millstone
Unit 3 are responsible for the remainder of the fuel costs for that unit
(ID. at 3).
The Third Amendment (1) reduces the amount of credit from $230
million to $100 million; (2) extends the maturity date of the Credit
Agreement to July 31, 1998; (3) requires the Company to pay higher interest
rates than those previously approved; (4) requires WMECo at a later date to
obtain approval of the Department to issue no less than $17,100,000 first
mortgage bonds in order to provide additional collateral to secure WMECo's
PRO RATA share of the loan; and (5) allows WMECo a reduction of the
collateral if WMECo were to meet certain conditions (Exh. WM-10; Tr. 2, at
12). As noted, WMECo also requests authorization to effect future
extensions of the Third Amendment for up to two years with interest terms
at least as favorable as those approved in this Order (Exh. WM-7, at 5, 7).
The Company states that the Third Amendment would permit the Trust to
continue to finance the purchase of nuclear fuel in an efficient and cost-
effective manner while the Millstone units are being returned to service
(ID. at 5-6).
With respect to the reduction in the amount of credit from
$230,000,000 to $100,000,000, the Company stated that $100,000,000
represents the most conservative forecast of the Company's nuclear fuel
requirements, given that the units are not currently operating (Exh. DTE-
3). The Company noted that this amount may have to be increased after the
Millstone units are placed back into operation (Exh. WM-1, at 4).{3}
In regard to the maturity date, the Company stated that the Credit
Agreement was scheduled to mature on February 19, 1998 (Exhs. WM-7, at 4-5;
WM-9 at Second Amendment).{4} The Third Amendment extends the Credit
Agreement to July 31, 1998, instead of November 7, 1998, as the Company
proposed in its December 5, 1997 filing (Exhs. WM-7, at 5; DTE-2). The
Company explained that several banks expressed concerns about the ability
of CL&P and WMECo to return Millstone Unit No. 3 to service in 1998, and
the financial effects of removing Millstone Unit No. 1 from rate base
(Exhs. WM-10, at 2, 7; DTE-2). In addition, the Company stated that the
banks require this shorter maturity date in order to have the opportunity
to renegotiate this agreement before other facilities expire later in the
year (Exh. DTE-2).
With respect to the increase in interest rates{5} and the payment of
fees{6} in connection with the proposed amendment, WMECo stated that the
increase in interest rates is a result of the Company's recent downgrade in
its bond ratings by Moody's and Standard and Poor's to Ba2 and BB,
respectively (Exh. DTE-1). The Company also stated that WMECo and C&LP
have been under serious earnings and liquidity pressure resulting from the
status of the Millstone nuclear units, and electric utility restructuring
(ID.).
Regarding the additional collateral, the Company stated that it has
agreed to provide the banks with additional collateral, as of May 1, 1998,
to further secure its PRO RATA share of up to 50 percent of (a) all
outstanding advances under the Credit Agreement and (b) $80 million of the
Trust Intermediate Term notes (Exh. WM-10, at 2-6 ). In order to meet this
commitment, the Third Amendment requires the Company to issue, on or before
May 1, 1998, no less than $17,100,000 first mortgage bonds that will mature
no later than February 19, 1999 (ID. at 4-5).{7} The Company noted that
these are collateral bonds and will not raise actual proceeds and
securitization proceeds will not be used to redeem these bonds (RR-DTE-4).
The Company stated that it is not seeking approval of the issuance of the
bonds at this time (Tr. 2, at 12). Instead, the Company stated that the
terms of the bonds will be negotiated over the next several weeks and that
between now and May 1, 1998, it will seek Department approval of these
bonds (ID. at 49-50).
The Third Amendment also provides for a reduction in the principal
amount of outstanding first mortgage bonds the Company must pledge as
collateral on a dollar-for-dollar basis when the sum of the aggregate
commitment of the banks and the outstanding principal amount of certain
Trust notes fall below $90 million (Exh. WM-10, at 2-5).
Finally, the Company also requests that the Department authorize WMECo
to effect any future extensions of the Third Amendment for any intervals of
up to two years, with the consent of the banks and with terms at least as
favorable as those approved in this Order "with respect to interest rates,"
without prior Department approval (Exh. WM-7, at 5, 7). The Company stated
that it wants to avoid filing another petition until after its Millstone
units begin to return to service and the Company can restructure a
revolving credit agreement in a more favorable climate (Exh. DTE-4). The
Company stated that if there are any material modifications or less
favorable interest rates than those proposed in this proceeding, WMECo
would return to the Department to seek authorization for such changes (Exh.
DTE-4; Tr. 2, at 34-44). The Company stated that if future extensions of
the Credit Agreement involve significant fee increases which are not
contemplated by the Third Amendment, the Company also would seek Department
authorization (RR-DTE-5).
The Company stated that it has considered alternative methods of
refinancing such as long-term debt, short-term debt, private placement and
unsecured credit markets (Exh. DTE-5). The Company stated that these
markets are unavailable given the Company's current credit ratings and/or
are very expensive alternatives (ID.). The Company has concluded that a
short term extension of the Credit Agreement is the most cost-beneficial
and the least time consuming alternative (Exh. DTE-5; Tr. 2, at 29-30).
IV. ANALYSIS AND FINDINGS
WMECo seeks Department approval of the following: (1) a reduction in
the credit amount; (2) an extension of the maturity date to July 31, 1998;
(3) payment of higher interest rates; and (4) up to two year extensions of
the Credit Agreement with interest rates at least as favorable as the
Company proposes in this proceeding. The record indicates that the Company
has explored other options and the Third Amendment is the Company's best
alternative at this time. The Department concludes that the reduction in
the credit line to $100 million is reasonable because the Company does not
require the $230 million approved in D.P.U. 91-129, due to the present
inactive status of its Millstone nuclear facilities. The Department finds
that extension of the Credit Agreement until July 31, 1998 is necessary in
order for WMECo to meet its nuclear fuel requirements in the short term.
As noted, the Company must pay higher interest rates and must provide
additional collateral to support the loan, because of (1) the financial
difficulties the Company is experiencing due to the status of its Millstone
nuclear facilities; (2) the Company's recent downgrade in its credit
ratings by Moody's and Standard and Poor's; and (3) the short term of the
extension of the Credit Agreement.{8} After considering the impact to
ratepayers due to the higher interest rates and balancing this with the
need of the Company to continue to procure nuclear fuel, the Department
finds that the proposed changes contained in the Third Amendment are
reasonably necessary for the Company's utility operations and are in the
public interest. The Department hereby approves the Third Amendment.{9}
In making this determination, the Department notes that approval does not
constitute a determination that the underlying capital expenditure is
prudent or cost-effective or that future expenses are reasonable. D.P.U.
91-129, at 9. The Department's decision does not represent a determination
that the financing arrangement is economically beneficial to the Company or
its customers nor is this determination in any way to be construed as a
ruling relative to the appropriate ratemaking to be accorded any costs
associated with the financing request. ID. Such decisions are typically
considered in a ratemaking proceeding and until ratemaking treatment is
approved by the Department, the Company is at risk. ID. The Company shall
have the burden of demonstrating the reasonableness of all such
expenditures before they may be reflected in rates to consumers. ID. at
10.
With respect to the Company's request that the Department authorize
WMECo to effect future extensions of the Credit Agreement for intervals of
up to two years with the consent of the banks, and with interest rates at
least as favorable as those approved in this Order, without prior
Department approval, the Company indicated that a more permanent
restructuring of the Credit Agreement may occur after the Millstone units
begin to return to service in 1998. In light of WMECo's current financial
conditions, and the Company's intent to restart its nuclear facilities, the
Third Amendment, by extending the Credit Agreement beyond July 31, 1998
with similar or better interest rates, would allow the Company the
flexibility to adjust to its changing operational and financial status.
The Company needs to continue funding its nuclear fuel and WMECo
anticipates that its nuclear units will return to service and thus allow
for negotiation of a more permanent facility in the near future. As
required previously by the Department, the Company must obtain prior
Department approval of material amendments to the Trust arrangements before
they become effective. D.P.U. 91-129, at 1, 10 (1991); D.P.U. 873-A at 1
(1982); and D.P.U. 873, at 15 (1981). After considering the record in this
case and the overall anticipated effect on ratepayers of the potential
harms and benefits of this proposal, the Department finds that allowing the
Company's petition is consistent with the public interest.
V. ORDER
Accordingly, after due notice, hearing and due consideration, it is
ORDERED: That the petition of Western Massachusetts Electric Company
for the proposed changes to the Third Amendment and Waiver to the Credit
Agreement under the Niantic Bay Fuel Trust as discussed above relating to:
(1) a reduction in the credit amount; (2) an extension of the maturity
date; and (3) payment of higher interest rates is consistent with G.L. c.
164, <section> 17A and that it be, and hereby is, APPROVED; and it is
FURTHER ORDERED: That the request by Western Massachusetts Electric
Company that the Department authorize future extensions of the Credit
Agreement for up to two years, with the consent of the banks, and with
interest rates at least as favorable as those approved in this Order is
ALLOWED; and it is
FURTHER ORDERED: That the Company shall comply with all directives in
D.P.U. 873 and D.P.U. 873-A, D.P.U. 91-129, except those specifically
modified by this Order.
By Order of the Department,
/s/ Janet Gail Besser
Janet Gail Besser, Chair
/s/ John D. Patrone
John D. Patrone, Commissioner
/s/ James Connelly
James Connelly, Commissioner
A true copy
Attest:
/s/ Mary L. Cottrell
MARY L. COTTRELL
Secretary
**FOOTNOTES**
{1}On February 20, 1998, the Company filed a second revised version of
the Third Amendment. On its own motion, the Department marks this as
Exhibit WM-10 and hereby moves this exhibit into the record of this case.
{2}CL&P is also seeking approval of this agreement in Connecticut
(Exh. WM-5). WMECo and CL&P are subsidiaries of Northeast Utilities, a
registered holding company under the Public Utility Holding Company Act of
1935 (Exh. WM-7, at 6).
{3}The Company stated that it expects Millstone Unit No. 3 to be
restarted in late April or early May (Tr. 2, at 16). The Company expects
Millstone Unit No. 2 to follow in approximately two to four months, and
Millstone Unit No. 1 will remain in extended maintenance mode pending
further analysis (ID., at 14).
{4}However, the Third Amendment contains a waiver that allows the
current maturity to extend until March 5, 1998 (Exh. WM-10, at 1-3, 5-9).
{5}Specifically, the Third Amendment would: (1) increase the maximum
spread over the Eurodollar Rate from 0.050 percent to 1.625 percent; (2)
increase the maximum spread over the Fixed CD Rate from 0.625 percent to
1.75 percent; and (3) under the second Floating Rate option, provide for an
increase from the Agent's corporate base rate to a spread of 0.50 percent
per annum over the Agent's corporate base rate (Exhs. WM-10, at 2; WM-7, at
5).
{6}The fees are as follows: (1) a maximum commitment fee on the
average unused commitment equal to 0.50 percent per annum; (2) an amendment
fee equal to 0.375 percent of the total commitment; (3) an arrangement fee
of $250,000; (4) an annual administration fee of $5,000; (5) legal fees of
approximately $45,000; (6) Northeast Utilities Service Company expenses of
approximately $10,000 (Exh. WM-7, at 5).
{7}The Company states that these bonds will cover WMECo's PRO RATA
share (approximately 18 percent) of the collateral requirement (Exh. WM-8,
at 1).
{8}The Company stated that it would not securitize the bonds and that
these bonds would not be a stranded investment (RR-DTE-4).
{9}The Department notes that WMECo will request Department approval of
the first mortgage bonds it is required to issue as collateral pursuant to
the Third Amendment. Accordingly, Department approval of the Third
Amendment does not constitute approval of WMECo's issuance of first
mortgage bonds.
<PAGE>
Appeal as to matters of law from any final decision, order or ruling of the
Commission may be taken to the Supreme Judicial Court by an aggrieved party
in interest by the filing of a written petition praying that the Order of
the Commission be modified or set aside in whole or in part.
Such petition for appeal shall be filed with the Secretary of the
Commission within twenty days after the date of service of the decision,
order or ruling of the Commission, or within such further time as the
Commission may allow upon request filed prior to the expiration of twenty
days after the date of service of said decision, order or ruling. Within
ten days after such petition has been filed, the appealing party shall
enter the appeal in the Supreme Judicial Court sitting in Suffolk County by
filing a copy thereof with the Clerk of said Court. (Sec. 5, Chapter 25,
G.L. Ter. Ed., as most recently amended by Chapter 485 of the Acts of
1971).
