FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
1-5324 NORTHEAST UTILITIES 04-2147929
(a Massachusetts voluntary association)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850
(a Connecticut corporation)
107 Selden Street
Berlin, Connecticut 06037-1616
Telephone: (860) 665-5000
1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130
(a Massachusetts corporation)
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-2010
Telephone: (413) 785-5871
33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460
(a New Hampshire corporation)
1000 Elm Street
Manchester, New Hampshire 03105-0330
Telephone: (603) 669-4000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
Company - Class of Stock Outstanding at July 31, 1999
Northeast Utilities
Common shares, $5.00 par value 131,446,727 shares
The Connecticut Light and Power Company
Common stock, $10.00 par value 12,222,930 shares
Public Service Company of New Hampshire
Common stock, $10.00 par value 1,000 shares
Western Massachusetts Electric Company
Common stock, $25.00 par value 1,072,471 shares
North Atlantic Energy Corporation
Common stock, $10.00 par value 1,000 share
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
COMPANIES
NU Northeast Utilities
CL&P The Connecticut Light and Power Company
Charter Oak or COE Charter Oak Energy, Inc.
WMECO Western Massachusetts Electric Company
HWP Holyoke Water Power Company
NUSCO or the Service Company Northeast Utilities Service Company
NNECO Northeast Nuclear Energy Company
NAEC North Atlantic Energy Corporation
NAESCO or North Atlantic North Atlantic Energy Service Corporation
PSNH Public Service Company of New Hampshire
RRR The Rocky River Realty Company
NUEI NU Enterprises, Inc.
NGC Northeast Generation Company
NGS Northeast Generation Services Company
Select Energy Select Energy, Inc.
Mode 1 Mode 1 Communications, Inc.
HEC HEC Inc.
Quinnehtuk The Quinnehtuk Company
NU system The Northeast Utilities system companies,
including NU and its wholly owned operating
subsidiaries: CL&P, PSNH, WMECO and NAEC
CYAPC Connecticut Yankee Atomic Power Company
MYAPC Maine Yankee Atomic Power Company
VYNPC Vermont Yankee Nuclear Power Corporation
YAEC Yankee Atomic Electric Company
Yankee Companies CYAPC, MYAPC, VYNPC and YAEC
Yankee Yankee Energy System, Inc.
GENERATING UNITS
Millstone 1 Millstone Unit No. 1, a 660 MW nuclear
generating unit completed in 1970
Millstone 2 Millstone Unit No. 2, an 870 MW nuclear
electric generating unit completed in 1975
Millstone 3 Millstone Unit No. 3, a 1,154 MW nuclear
electric generating unit completed in 1986
Seabrook or Seabrook 1 Seabrook Unit No. 1, a 1,148 MW nuclear
electric generating unit completed in 1986;
Seabrook 1 went into service in 1990.
REGULATORS
DOE U.S. Department of Energy
DTE Massachusetts Department of Telecommunications
and Energy
DPUC Connecticut Department of Public Utility Control
FERC Federal Energy Regulatory Commission
NHPUC New Hampshire Public Utilities Commission
NRC Nuclear Regulatory Commission
SEC Securities and Exchange Commission
OTHER
kWh Kilowatt hour
MW Megawatt
NU 1998 Form 10-K The NU system combined 1998 Form 10-K as filed
with the SEC.
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
and
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the following companies:
Northeast Utilities and Subsidiaries
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 2
Consolidated Statements of Income - Three Months and Six
Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Report of Independent Public Accountants 16
The Connecticut Light and Power Company and Subsidiaries
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 18
Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 1999 and 1998 20
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Public Service Company of New Hampshire
Balance Sheets - June 30, 1999 and December 31, 1998 26
Statements of Income - Three Months and Six Months Ended
June 30, 1999 and 1998 28
Statements of Cash Flows - Six Months Ended June 30, 1999
and 1998 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Western Massachusetts Electric Company and Subsidiary
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 34
Consolidated Statements of Income - Three Months and Six
Months Ended June 30, 1999 and 1998 36
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations 38
North Atlantic Energy Corporation
Balance Sheets - June 30, 1999 and December 31, 1998 42
Statements of Income - Three Months and Six Months Ended
June 30, 1999 and 1998 44
Statements of Cash Flows - Six Months Ended June 30, 1999
and 1998 45
Management's Discussion and Analysis of Financial Condition
and Results of Operations 46
Notes to Financial Statements (unaudited - all companies) 48
Part II. Other Information
Item 1. Legal Proceedings 58
Item 4. Submission of Matters to a Vote of Security Holders 58
Item 5. Other Information 60
Item 6. Exhibits and Reports on Form 8-K 61
Signatures 62
NORTHEAST UTILITIES AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,608,526 $ 9,570,547
Other................................................... 195,832 195,325
------------- -------------
9,804,358 9,765,872
Less: Accumulated provision for depreciation......... 4,376,454 4,224,416
------------- -------------
5,427,904 5,541,456
Unamortized PSNH acquisition costs...................... 338,646 352,855
Construction work in progress........................... 188,881 143,159
Nuclear fuel, net....................................... 154,856 133,411
------------- -------------
Total net utility plant............................. 6,110,287 6,170,881
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 667,499 619,143
Investments in regional nuclear generating
companies, at equity................................... 87,330 85,791
Other................................................... 136,816 154,504
------------- -------------
891,645 859,438
------------- -------------
Current Assets:
Cash and cash equivalents............................... 220,318 136,155
Investments in securitizable assets..................... 68,660 182,118
Receivables, net........................................ 342,518 237,207
Accrued utility revenues................................ 75,810 42,145
Fuel, materials, and supplies, at average cost.......... 198,338 202,661
Recoverable energy costs, net--current portion.......... 78,589 67,181
Prepayments and other................................... 83,252 65,440
------------- -------------
1,067,485 932,907
------------- -------------
Deferred Charges:
Regulatory assets:
Income taxes,net...................................... 701,512 762,495
Millstone 1........................................... 528,650 576,323
Deferred costs--nuclear plants........................ 150,192 187,132
Unrecovered contractual obligations................... 373,467 407,926
Recoverable energy costs, net......................... 284,955 279,232
Other................................................. 116,955 115,841
Unamortized debt expense................................ 36,198 40,416
Other .................................................. 87,180 54,790
------------ ------------
2,279,109 2,424,155
------------ ------------
Total Assets.............................................. $ 10,348,526 $ 10,387,381
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 137,237,564 shares issued and
131,446,727 shares outstanding in 1999 and
137,031,264 shares issued and 130,954,740 shares
outstanding in 1998.................................. $ 686,188 $ 685,156
Capital surplus, paid in.............................. 940,448 940,661
Deferred contribution plan--employee stock
ownership plan...................................... (133,947) (140,619)
Retained earnings..................................... 579,449 560,769
Accumulated other comprehensive income................ 1,524 1,405
------------- -------------
Total common shareholders' equity.............. 2,073,662 2,047,372
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 141,039 167,539
Long-term debt.......................................... 3,151,013 3,282,138
------------- -------------
Total capitalization........................... 5,501,914 5,633,249
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 79,628 88,423
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 258,000 30,000
Long-term debt and preferred stock--current
portion................................................ 203,232 397,153
Obligations under capital leases--current
portion................................................ 120,258 120,856
Accounts payable........................................ 480,430 338,612
Accrued taxes........................................... 67,006 50,755
Accrued interest........................................ 46,245 51,044
Accrued pension benefits................................ 5,618 33,034
Other................................................... 90,154 106,333
------------- ------------
1,270,943 1,127,787
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 1,811,673 1,848,694
Accumulated deferred investment tax credits............. 138,858 143,369
Decommissioning obligation--Millstone 1................. 692,000 692,000
Deferred contractual obligations........................ 385,389 418,760
Other................................................... 368,121 335,099
------------- ------------
3,396,041 3,437,922
------------- ------------
Commitments and Contingencies (Note 6)
Total Capitalization and Liabilities........... $ 10,348,526 $ 10,387,381
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C> <C>
Operating Revenues............................. $ 1,038,569 $ 874,809 $ 2,081,976 $ 1,833,714
------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 377,427 306,117 757,820 659,654
Other........................................ 261,007 212,115 497,304 456,047
Maintenance................................... 96,357 76,041 193,508 196,996
Depreciation.................................. 82,775 86,556 167,123 173,785
Amortization of regulatory assets, net........ 70,535 38,797 133,061 67,028
Federal and state income taxes................ 33,107 17,627 55,547 34,388
Taxes other than income taxes................. 60,869 61,260 131,483 129,032
------------- ------------- ------------- -------------
Total operating expenses............... 982,077 798,513 1,935,846 1,716,930
------------- ------------- ------------- -------------
Operating Income............................... 56,492 76,296 146,130 116,784
------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds...................................... 1,173 1,781 2,407 3,656
Equity in earnings of regional nuclear
generating and transmission companies...... 2,009 2,967 3,502 7,091
Other, net................................... (1,329) (4,913) (4,306) 4,862
Minority interest in income of subsidiary.... (2,325) (2,325) (4,650) (4,650)
Income taxes................................. 14,045 7,304 20,439 10,328
------------- ------------- ------------- -------------
Other income, net...................... 13,573 4,814 17,392 21,287
------------- ------------- ------------- -------------
Income before interest charges......... 70,065 81,110 163,522 138,071
------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................... 65,366 69,247 132,825 139,473
Other interest............................... 780 2,041 4,833 2,919
Deferred nuclear plants return--borrowed
funds..................................... (2,249) (3,262) (4,689) (6,778)
------------- ------------- ------------- -------------
Interest charges, net.................. 63,897 68,026 132,969 135,614
------------- ------------- ------------- -------------
Income after interest charges.......... 6,168 13,084 30,553 2,457
Preferred Dividends of Subsidiaries............ 5,940 6,811 11,881 14,133
------------- ------------- ------------- -------------
Net Income (Loss).............................. $ 228 $ 6,273 $ 18,672 $ (11,676)
============= ============= ============= =============
Earnings (Loss) Per Common Share--Basic and
Diluted..................................... $ - $ 0.05 $ 0.14 $ (0.09)
============= ============= ============= =============
Common Shares Outstanding (average)............ 131,317,892 130,459,076 131,214,191 130,379,294
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Cash flows from operating activities:
Income before preferred dividends of subsidiaries......... $ 30,553 $ 2,457
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 167,123 173,785
Deferred income taxes and investment tax credits, net... (3,961) 7,709
Deferred nuclear plants return.......................... (7,096) (10,434)
Amortization of nuclear plants return................... 43,200 7,198
Amortization of demand-side-management costs, net....... 13,891 38,293
Amortization/(deferral) of recoverable energy costs..... (17,132) 23,068
Amortization of PSNH acquisition costs.................. 14,209 35,222
Amortization of regulatory asset - income taxes......... 30,305 19,973
Amortization of cogeneration deferral................... 5,835 16,023
Amortization of regulatory liability - PSNH............. (10,953) (16,430)
Amortization of Millstone 1 investment.................. 40,793 -
Amortization of other regulatory assets................. 9,672 5,042
Other sources of cash................................... 76,362 37,766
Other uses of cash...................................... (35,022) (3,311)
Changes in working capital:
Receivables and accrued utility revenues, net........... (208,976) (63,487)
Fuel, materials, and supplies........................... 4,323 2,035
Accounts payable........................................ 141,818 (130,231)
Accrued taxes........................................... 16,251 28,719
Sale of receivables and accrued utility revenues........ 70,000 115,000
Investment in securitizable assets...................... 113,458 154,973
Other working capital (excludes cash)................... (66,206) (40,899)
----------- -----------
Net cash provided by operating activities................... 428,447 402,471
----------- -----------
Cash flows from financing activities:
Issuance of common shares................................. 2,962 399
Issuance of long-term debt................................ 6,700 275
Net increase in short-term debt........................... 228,000 30,000
Reacquisitions and retirements of long-term debt.......... (336,945) (257,668)
Reacquisitions and retirements of preferred stock......... (26,500) (48,678)
Cash dividends on preferred stock......................... (11,881) (14,133)
----------- -----------
Net cash used in financing activities....................... (137,664) (289,805)
----------- -----------
Cash flows from investing activities:
Investment in plant:
Electric and other utility plant........................ (127,195) (93,371)
Nuclear fuel............................................ (37,893) (1,704)
----------- -----------
Net cash used for investments in plant.................... (165,088) (95,075)
Investments in nuclear decommissioning trusts............. (34,696) (40,592)
Investment in Aurora natural gas LLC, net................. (22,985) -
Other investment activities, net.......................... 16,149 10,683
----------- -----------
Net cash used in investing activities....................... (206,620) (124,984)
----------- -----------
Net increase/(decrease) in cash and cash equivalents........ 84,163 (12,318)
Cash and cash equivalents - beginning of period............. 136,155 143,403
----------- -----------
Cash and cash equivalents - end of period................... $ 220,318 $ 131,085
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion should be read in conjunction with the consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1999 Form 10-Q,
the 1998 Form 10-K and Current Reports on Form 8-K dated June 14, 1999 and
July 6, 1999.
FINANCIAL CONDITION
Overview
NU had earnings of $228,000, or break-even earnings per share, in the second
quarter of 1999, compared with earnings of $6.3 million, or 5 cents per share,
for the second quarter of 1998.
For the first six months of 1999, NU earned $18.7 million, or 14 cents per
share, compared with a loss of $11.7 million, or 9 cents per share, in the
first six months of 1998.
Second quarter 1999 results reflected a 19 percent increase in revenues.
Operating revenues totaled $1.04 billion in the second quarter of 1999,
compared to $875 million in the same period of 1998. The increase in operating
revenues is attributed to hotter weather, an improving regional economy, and
the growth of Select Energy, NU's competitive power marketing affiliate.
Regulated retail sales were 5.6 percent higher in the second quarter of 1999
compared with the same period of 1998.
Non-fuel operation and maintenance (O&M) costs totaled approximately $357
million in the second quarter of 1999, compared with $288 million in the second
quarter of 1998. Higher O&M costs are attributed to the one-time recognition
of environmental and storm insurance proceeds which reduced O&M expense in the
second quarter of 1998 and higher purchased power capacity costs for Select
Energy in 1999.
Select Energy's revenues totaled $127 million in the second quarter of 1999,
compared with $424,000 in the same period of 1998. However, Select Energy's
purchased power, capacity and other operating expenses totaled $146.8 million
in the quarter, resulting in an after-tax loss of $12.6 million for the second
quarter of 1999, compared with a loss of $2.5 million in the same quarter of
1998. The larger loss is primarily due to Select Energy's need to acquire
energy at high market prices during the unseasonably hot days in June 1999.
Excluding Select Energy, the NU System's fuel and purchased power costs were
lower for the quarter, as compared to the prior year as a result of the return
to service of Millstone 2 and 3.
The improvement in first half 1999 results was primarily due to higher
regulated retail sales and the return to service of the two Millstone units,
partially offset by regulatory decisions which reduced revenues and increased
amortization expenses. Regulated retail sales rose 4.8 percent in the first
half of 1999, compared with the same period of 1998.
A combination of strong economic growth, improving nuclear performance and the
Company's ability to hold down costs is contributing to the continued financial
recovery of Northeast Utilities.
Yankee Energy Merger
On June 15, 1999, NU and Yankee Energy System, Inc. (Yankee) announced that
they have agreed to a merger in which Yankee will become a subsidiary of NU.
Yankee is the parent of Yankee Gas Services Company, the largest natural gas
distribution company in Connecticut. The transaction is valued at $679 million,
including the assumption of outstanding Yankee debt of approximately $201
million. NU will pay $478 million, or $45 a share in cash and common shares.
Yankee shareholders will receive 45 percent of the $478 million in NU common
shares and 55 percent in cash. The purchase is subject to approval of Yankee
shareholders and several regulatory agencies.
Millstone Nuclear Units
CL&P and WMECO have joint ownership interests of 81 percent and 19 percent,
respectively, in Millstone 2. CL&P, WMECO and PSNH have joint ownership
interests of 52.93 percent, 12.24 percent and 2.85 percent, respectively,
totaling 68.02 percent in Millstone 3. NNECO, a wholly owned subsidiary of NU,
acts as agent for certain NU system companies and other New England utilities
in operating the Millstone units.
Millstone 2 returned to service on May 11, 1999 following NRC approval and was
included in CL&P's rate base on May 21, 1999 after achieving 75 percent power
for 100 consecutive hours. Millstone 2's return to service restored $6.6
million a month in noncash revenues to CL&P, reduced fuel and purchased power
expense by approximately $8.0 million a month and significantly reduced the
unit's operation and maintenance expenses. O&M expenditures for Millstone 2
were approximately $86 million for the first six months in 1999 compared to
approximately $110 million for the same period in 1998. Since returning to
service, Millstone 2 achieved a capacity factor of 86 percent for the period
May 11 through July 31, 1999.
Millstone 3 returned to service on June 29, 1999 after a 60-day refueling and
maintenance outage. Millstone 3 achieved a capacity factor of 70 percent for
the first seven months of 1999.
In June 1999, NNECO filed with the NRC a Post-Shutdown Decommissioning
Activities Report (PSDAR) for Millstone 1. The PSDAR contains a preliminary
cost estimate which shows a current total estimate of approximately $692
million for full decommissioning of Millstone 1.
The Millstone 1 decommissioning fund has accumulated sufficient funds to cover
approximately 40 percent of the preliminary cost estimate to complete the work.
Additional funds will be collected by CL&P and WMECO through each companies'
stranded cost charge.
Seabrook
The NU system owns 40 percent of the Seabrook nuclear unit. Seabrook returned
to service on May 13, 1999 after a 48-day refueling and maintenance outage.
Seabrook achieved a capacity factor of 75 percent for the first seven months
of 1999.
Liquidity and Capital Resources
Net cash flows from operations totaled approximately $428 million in the first
six months of 1999, up from $402 million for the first six months of 1998.
Approximately $207 million of net cash flow was used for investment activities
compared with $125 million in 1998. Investment activities for the first six
months of 1999 included construction expenditures, nuclear fuel purchases for
the Millstone 3 refueling outage, an investment by Select Energy to acquire
certain assets of Aurora Natural Gas LLC and investments in nuclear
decommissioning trusts. In the first six months of 1999, $228 million of
short-term debt was issued to pay bond maturities and long-term debt and
preferred stock sinking funds that totaled $363 million. In the first six
months of 1998, debt and preferred stock were reduced by $276 million.
On May 24, 1999, Standard & Poor's (S&P) upgraded all debt and preferred stock
securities issued by the NU system. S&P also maintained a "positive" outlook on
the NU system. The upgrade was a reflection of Millstone 2's return to rate
base. S&P also affirmed the ratings of the entire NU system, calling the PSNH
settlement and the Yankee merger "slightly positive for credit quality."
Moody's Investors Service placed the ratings of NU, PSNH and North Atlantic
Energy Corp. under review for possible upgrade following the New Hampshire
restructuring settlement.
Fitch IBCA upgraded CL&P and WMECO and placed NU on "Alert" for a possible
upgrade, primarily as a result of "the operation of Millstone 2 for a sustained
period and the favorable impact on cash flow."
CL&P and WMECO's $313.75 million revolving credit line will expire on
November 21, 1999. As of June 30, 1999, CL&P and WMECO had $180 million and
$78 million, respectively, outstanding under that line. CL&P paid off a
$74 million bond maturity on June 30, 1999. Management expects all of the
remaining 1999 sinking fund payments to be met through cash on hand, operating
cash flows and borrowings through short-term facilities.
CL&P has arranged financing through the sale of its accounts receivable. CL&P
can finance up to $200 million through this facility. As of June 30, 1999, CL&P
had financed $195 million through its accounts receivable line. WMECO
terminated a similar $40 million facility on June 30, 1999.
NU has provided credit assurance in the form of guarantees of a letter of
credit, performance guarantees and other assurances for the financial and
performance obligations of certain of its unregulated subsidiaries. NU
received approval from the SEC to increase the credit assurance limit from
$75 million to $250 million in May of 1999. As of June 30, 1999, $100 million
of credit assurances had been issued.
On July 14, 1998, the NU Board of Trustees (the Board) authorized the
repurchase of 10 million NU common shares at any time through July 1, 2000
in connection with the ongoing recapitalization of NU's regulated companies
that is occurring as a result of electric utility industry restructuring in
New England, which remains in effect. On July 27, 1999, the Board authorized
the repurchase of an additional 15 million NU common shares at any time through
July 1, 2001. This authorization is related to merger and acquisition activity
and industry restructuring. These authorizations allow the repurchases using
open market purchases and derivative financial instruments. The company has
not yet repurchased any shares. NU plans to repurchase more than the number
of shares that will be issued to Yankee shareholders, resulting in a net
reduction in the approximately 131 million shares outstanding currently.
In July 1999, the Board began considering resuming the payment of a common
dividend, which was suspended in the first half of 1997. The Board likely will
review the company's dividend policy again this fall as part of a comprehensive
review of the company's cash flows. The company's current philosophy is to
resume payment of a dividend at a modest level that can be increased steadily
over a number of years.
NU is currently in the process of developing and implementing an over-all
financing plan that combines common stock repurchases, long-term debt
issuances, possible bridge-financing through commercial banks and proceeds
from restructuring in Connecticut, Massachusetts and New Hampshire. Some of
these financing projects requiring regulatory approvals and undertakings by
lenders, which could place limits on the operational and financial operations
of the NU system companies during the period of the financing arrangements.
Restructuring
Connecticut
On July 6, 1999, CL&P signed agreements to sell 3,292 MW of fossil and hydro
generation assets for approximately $1.1 billion. NRG Energy Inc. (NRG) of
Minneapolis, Minnesota is the buyer of 2,235 MW of fossil-fueled generation in
Connecticut for $460 million. Northeast Generation Company (NGC), one of NU's
unregulated affiliates, is the buyer of 1,057 MW of hydro generation in
Connecticut and Massachusetts for $681.3 million. CL&P is selling its
generation assets as part of its restructuring plan filed with the DPUC in
1998. The net gain from these sales, estimated to be approximately $984
million will reduce CL&P's stranded costs, which include unrecovered
investments CL&P made under regulation to meet its obligation to serve all
customers. CL&P will use a portion of the proceeds to retire long-term debt
at par. The balance of the funds may be used to retire additional debt or
preferred stock or to perform other capital restructuring, depending on the
state of the market at the time of closing and CL&P's needs at the time. The
sale of CL&P's power plants is an important step toward restructuring the
electric generation market in Connecticut. CL&P expects to close on the
transaction by the end of the year, after receiving the necessary state and
federal regulatory approvals.
On July 7, 1999, the DPUC issued its final decision in CL&P's stranded cost
proceeding. CL&P had sought permission to recover from customers approximately
$4.4 billion of its stranded costs. The decision approved approximately $3.5
billion of stranded costs and provided for the possible recovery of a
significant portion of the remaining amount in the future either in rates or
through adjustments to the decision's assumptions about future market prices or
power and other variables when the actual prices and values of those variables
are known. The stranded cost estimate of $3.5 billion will be reduced by the
net gain from the sale of CL&P's generation assets.
CL&P is seeking proposals to provide electric generation services to meet the
Standard Offer Service Requirements for CL&P customers. CL&P intends to award
one or more Standard Offer Service contract(s) to meet 50 percent of the total
requirements of its customers for the supply period from January 1, 2000
through December 31, 2003. Bids are due September 8, 1999. CL&P expects to
sign the Standard Offer Service contract(s) by early October.
In a separate decision issued on July 7, 1999, the DPUC stated that once
deregulation occurs and competition begins on January 1, 2000, 2,000 MW of
CL&P's standard offer service contract to customers will be allocated to Select
Energy at the average price of all standard offer service. Select Energy will
also have the right to bid on the other 2,000 MW of CL&P's standard offer
service.
In accordance with the System's restructuring plans in Connecticut and
Massachusetts, NUSCO has announced its request for proposals (RFP) on behalf of
CL&P and WMECO for the purchase of entitlements to their shares of the energy
and capacity from Millstone 2 and 3, and Seabrook. The nuclear entitlement
sale includes approximately 1,670 MW for up to four years. RFP responses are
due by August 16, 1999 and are expected to be announced by October 1, 1999.
New Hampshire
On August 2, 1999, PSNH and NU filed a comprehensive, detailed settlement
agreement (the "Agreement") with the NHPUC. The Agreement entered into by and
between PSNH, NU, the Governor of New Hampshire, the Governor's Office of
Energy and Community Service, the Attorney General of New Hampshire, and the
Staff of the NHPUC, is intended to implement New Hampshire's electric industry
restructuring law, provide significant rate reductions to PSNH's customers, and
settle a number of pending regulatory and court proceedings related to PSNH.
The Agreement supersedes the June 14, 1999 Memorandum of Understanding (MOU)
between the parties. The principal features of the Agreement include an
average rate decrease of 18.3 percent, a write-off of $225 million after taxes,
the availability of $725 million of Rate Reduction Bonds, the sale or transfer
of generation assets, and wholesale power entitlements and transition energy
service which would be available to customers for three years. Implementation
of the Agreement is contingent upon receipt of all necessary regulatory and
lender approvals and legislation authorizing the issuance of the rate reduction
bonds.
The Agreement is intended to settle a number of pending regulatory and court
proceedings including rate proceedings. The Agreement's rate reductions will
occur as of the first day of the month following the issuance of rate reduction
bonds. PSNH's rates will be stable and predictable for three years after the
effective date. PSNH's customers will be able to choose their supplier of
energy effective the same day.
PSNH is required to sell its power plants and certain power contracts,
including PSNH's current purchased power contract with NAEC for the output
from Seabrook Station. The net gain from these sales will be used to reduce
PSNH's stranded costs. The sales will be accomplished through an auction
process subject to approval by the NHPUC. PSNH may participate in the auction
of the non-nuclear plants but may not participate in the auction of the
Seabrook power contract.
On May 28, 1999, the NHPUC approved continuation of the fuel and purchased-
power adjustment clause (FPPAC) charge at its current level until November 30,
1999. Either PSNH or other parties could petition for a change in the FPPAC
rate prior to November 30 if deemed necessary. However, this FPPAC proceeding
is one of the matters intended to be resolved by the August 2, 1999 Agreement.
Massachusetts
On July 6, 1999, WMECO signed agreements to sell 272 MW of hydro generation
assets to NGC for approximately $184 million. WMECO expects to close the
transaction by the end of the year, after receiving the necessary state and
federal regulatory approvals. The net gain from these sales, estimated to be
approximately $141 million, will reduce WMECO's stranded cost.
On July 26, 1999, WMECO completed the $47 million sale of 290 MW of fossil and
hydroelectric generation assets to Consolidated Edison Energy, Massachusetts,
Inc. The sale of the generation assets are required by the restructuring
legislation adopted in 1998. The funds from the sale were used to reduce
WMECO's short-term debt. The net gain of approximately $33 million will
reduce WMECO's stranded costs.
Unregulated Energy Services
The unregulated energy services segment of NU's business is principally
comprised of four wholly owned subsidiaries of NU Enterprises, Inc. (NUEI), a
wholly owned subsidiary of NU: Select Energy, Inc. (Select Energy), a retail
and wholesale energy services and power marketing company; HEC Inc., an energy
engineering and design firm; and Northeast Generation Services Company (NGS), a
service company that offers operation and management services to electric power
generators and to medium to large industrial businesses; and Northeast
Generation Company (NGC), a holding company for the non-nuclear generating
assets.
Select Energy is aggressively growing its wholesale bulk power and marketing
business along with its retail business with commercial, industrial and
government sector customers in the eleven state Northeast region.
Select Energy is pursuing other standard offer service contracts and retail
customer contracts to increase its revenues in the future. In Connecticut,
2,000 MW of a total of 4,000 MW of CL&P's standard offer service contract to
customers will be allocated to Select Energy at the average price of the
winning bid prices for the remaining standard offer service. Select Energy
will also have the right to bid on the other 2,000 MW of CL&P's standard offer
service contract for the supply period January 1, 2000 through December 31,
2003.
For the first six months of 1999, Select Energy's revenues totaled $214
million, compared with $865,000 in the same period of 1998. However, Select
Energy's purchased power, capacity and other operating expenses totaled $239.6
million in 1999, resulting in an after-tax loss of $16.9 million for the first
six months of 1999, compared with a loss of $4.8 million in the same period of
1998.
Select Energy's purchased power costs were high in the second quarter of 1999
as a result of unusual market conditions caused by the extreme hot weather.
Similar conditions occurred in the month of July. For the remainder of the
year, Select Energy expects slightly profitable results on a gross margin
basis.
In June of 1999, Select Energy closed a $26 million asset purchase agreement
with Aurora Natural Gas LLC. Aurora Natural Gas LLC is a privately-held
natural gas marketing and trading company based in Dallas, Texas which serves
the producer, wholesale and retail market segments. Select Energy acquired
Aurora's retail customer contracts and associated natural gas supplies in New
England, making it one of the region's largest competitive retail gas
providers.
NGC was the winning bidder for 1,329 MW of hydroelectric and pumped storage
generating assets in Connecticut and Massachusetts. NGC bid $865.5 million
for 10 hydroelectric facilities in Connecticut, and the Northfield Mountain
pumped storage station and two hydroelectric stations located in
Massachusetts.
The purchase requires approval from the Federal Energy Regulatory Commission,
the Securities and Exchange Commission, and state regulators in Connecticut,
Massachusetts, and New Hampshire, among others, and is expected to close by
the end of 1999.
Year 2000 Issue
Through letters to the NRC and the North American Electric Reliability Council,
the NU system announced on June 30, 1999 that its mission-critical systems were
Year 2000 ready. Mission-critical refers to those systems related to safety,
keeping the lights on, meeting regulatory requirements and those with
significant financial impact. The NU System is ready based on approved testing
programs and assessments by qualified, trained individuals, from within and
outside the company.
The projected total cost of the Year 2000 Program is currently estimated at $23
million. The total estimated remaining cost is $6 million, which is being
funded through operating cash flows. Since 1996, the NU system has incurred and
expensed approximately $17 million related to year 2000 readiness efforts.
Total expenditures related to the year 2000 are not expected to have a material
effect on the operations or financial condition of the NU system.
As a precautionary measure, the NU system has formulated contingency plans that
outline alternatives to be implemented if its remediation efforts have not been
successful. The NU System has utilized existing emergency operation and
service restoration procedures to prepare for any year 2000 situations that
might arise.
Risk-Management Instruments
The NU system employs risk-management instruments such as futures, swaps,
interest rate locks and collar agreements to manage the market risk exposures
associated with changes in fuel prices and variable interest rates. The NU
system uses these instruments to reduce risk by essentially creating offsetting
market exposures.
CL&P has acquired fuel-price risk-management instruments to hedge risks
associated with fuel prices created by its long-term, fixed-price electricity
contracts with wholesale customers. At June 30, 1999, CL&P had outstanding
agreements with a total notional value of approximately $373 million and a
negative mark-to-market position of approximately $9 million.
NAEC has entered into various swap and derivative transactions related to its
$200 million variable rate note. These transactions include interest rate
swaps and an interest rate collar, which effectively set the weighted average
interest rate range of that note between a floor of 6.812 percent and a cap of
7.073 percent. As of June 30, 1999, NAEC had outstanding agreements with a
total notional value of $200 million and a negative mark-to-market position of
approximately $0.6 million.
There have been no material changes in the reported market risks for either
CL&P or NAEC since the 1998 Form 10-K.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $164 19% $248 14%
Fuel, purchased and net interchange power 71 23 98 15
Other operation 49 23 41 9
Maintenance 20 27 (3) (2)
Amortization of regulatory assets, net 32 82 66 99
Federal and state income taxes 8 85 11 46
Other income, net 2 59 (10) (a)
Interest on long term debt (4) (6) (7) (5)
Net income/(loss) (6) 96 30 (a)
(a) Percent greater than 100
Comparison of the Second Quarter of 1999 to the Second Quarter of 1998
Total operating revenues increased by $164 million in the second quarter of
1999 as compared to the same period of 1998, primarily due to higher revenues
for Select Energy ($127 million), higher regulated wholesale capacity and
energy sales ($27 million) and higher regulated retail sales, partially offset
by lower revenues as a result of regulatory decisions. Regulated retail
kilowatt-hour sales increased by 5.6 percent and contributed $27 million to
revenues. Regulatory decisions decreased revenues by $23 million, primarily
due to the retail rate decreases for CL&P and WMECO and the accounting impact
of Millstone 2 being removed from CL&P'S rates.
Fuel, purchased and net interchange power expense increased in 1999, primarily
due to higher purchased power costs for Select Energy ($114 million), partially
offset by lower replacement power costs due to the return of service of
Millstone 2 and 3.
Other operation and maintenance expense increased in 1999, primarily due to the
recognition of the environmental and storm insurance proceeds in 1998 ($33
million), higher Select Energy capacity charges ($23 million), higher spending
at Seabrook ($9 million) as a result of the refueling outage, higher fossil
maintenance ($8 million), higher medical benefit costs ($6 million), higher
transmission expense ($5 million) and higher other administrative and general
costs. These increases were partially offset by lower spending at the
Millstone units ($25 million).
Amortization of regulatory assets, net increased in 1999, primarily due to
accelerated amortizations for CL&P and the amortization of CL&P's Millstone 1
remaining investment, partially offset by the lower amortization of the PSNH
acquisition premium.
Other income, net increased in 1999, primarily due to the recognition of the
revenue associated with the HWP capacity sales contract buyout in 1999 and the
loss associated with the sale of the CL&P's accounts receivable incurred in
1998, partially offset by the recognition of the proceeds from the shareholder
derivative suit in 1998.
Interest on long-term debt decreased in 1999 primarily due to reacquisitions
and retirements of long-term debt in 1999.
Federal and state income taxes increased during the second quarter of 1999,
primarily due to higher book taxable income.
Comparison of the First Six Months of 1999 to the First Six Months of 1998
Total operating revenues increased by $248 million in 1999, primarily due to
higher revenues for Select Energy ($213 million), higher regulated wholesale
capacity and energy sales ($47 million) and higher retail sales, partially
offset by lower revenues from regulatory decisions. Retail kilowatt-hour sales
increased by 4.8 percent and contributed $52 million to revenues. Regulatory
decisions decreased revenues by $62 million, primarily due to the retail rate
decreases for CL&P and WMECO and the accounting impact of Millstone 2 being
removed from CL&P'S rates.
Fuel, purchased and net interchange power expense increased in 1999, primarily
due to higher purchased power costs for Select Energy ($180 million), partially
offset by lower replacement power costs due to the return of service of
Millstone 2 and 3.
Other operation and maintenance expense increased in 1999, primarily due to
higher Select Energy capacity charges ($41 million), the recognition of the
environmental insurance proceeds in 1998 ($24 million), higher transmission
and power exchange expenses ($14 million), higher spending at Seabrook ($12
million) as a result of the refueling outage and higher fossil maintenance
expenses ($6 million). These increases were partially offset by lower spending
at the Millstone units ($58 million).
Amortization of regulatory assets, net increased in 1999, primarily due to
accelerated amortizations for CL&P and the amortization of CL&P's Millstone 1
remaining investment, partially offset by the lower amortization of the PSNH
acquisition premium.
Federal and state income taxes increased in 1999, primarily due to higher book
taxable income.
Other income, net decreased in 1999, primarily due to the recognition of the
proceeds from the shareholder derivative suit in 1998, partially offset by the
loss associated with the sale of the CL&P accounts receivable incurred in 1998
and the recognition of the revenue associated with the HWP capacity sales
contract buyout in 1999.
Interest on long-term debt decreased in 1999 primarily due to reacquisitions
and retirements of long-term debt in 1999.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of Northeast
Utilities (a Massachusetts trust) and subsidiaries as of June 30, 1999, and
the related consolidated statements of income for the three and six-month
periods ended June 30, 1999 and 1998, and the consolidated statements of cash
flows for the six-month periods ended June 30, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Northeast Utilities as of
December 31, 1998, and in our report dated February 23, 1999, we expressed an
unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1998,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
August 11, 1999
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 6,222,698 $ 6,173,871
Less: Accumulated provision for depreciation......... 2,854,213 2,758,012
------------- -------------
3,368,485 3,415,859
Construction work in progress........................... 96,118 83,477
Nuclear fuel, net....................................... 103,279 87,867
------------- -------------
Total net utility plant............................. 3,567,882 3,587,203
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 483,751 452,755
Investments in regional nuclear generating
companies, at equity................................... 57,999 56,999
Other, at cost.......................................... 52,951 93,864
------------- -------------
594,701 603,618
------------- -------------
Current Assets:
Cash.................................................... 398 434
Investment in securitizable assets...................... 68,660 160,253
Notes receivable from affiliated companies.............. 84,300 6,600
Receivables, net........................................ 20,075 22,186
Accounts receivable from affiliated companies........... 41,982 1,721
Taxes receivable........................................ - 26,478
Fuel, materials, and supplies, at average cost.......... 71,974 71,982
Prepayments and other................................... 136,246 121,514
------------- -------------
423,635 411,168
------------- -------------
Deferred Charges:
Regulatory assets:
Income taxes,net...................................... 476,398 538,521
Millstone 1........................................... 403,235 442,669
Unrecovered contractual obligations................... 243,827 266,992
Recoverable energy costs, net......................... 127,196 102,124
Other................................................. 43,108 65,532
Unamortized debt expense................................ 18,534 19,603
Other................................................... 14,511 12,768
------------- -------------
1,326,809 1,448,209
------------- -------------
Total Assets........................................ $ 5,913,027 $ 6,050,198
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$10 par value. Authorized
24,500,000 shares; outstanding 12,222,930
shares................................................. $ 122,229 $ 122,229
Capital surplus, paid in................................ 664,956 664,156
Retained earnings....................................... 152,968 210,108
Accumulated other comprehensive income.................. 416 378
------------- -------------
Total common stockholder's equity.............. 940,569 996,871
Preferred stock not subject to mandatory
redemption............................................. 116,200 116,200
Preferred stock subject to mandatory redemption......... 99,539 99,539
Long-term debt.......................................... 1,798,430 1,793,952
------------- -------------
Total capitalization........................... 2,954,738 3,006,562
------------- -------------
Minority Interest in Consolidated Subsidiary.............. 100,000 100,000
------------- -------------
Obligations Under Capital Leases.......................... 63,156 68,444
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 180,000 10,000
Long-term debt and preferred stock--current
portion................................................ 19,755 233,755
Obligations under capital leases--current
portion................................................ 93,871 94,440
Accounts payable........................................ 137,803 121,040
Accounts payable to affiliated companies................ 22,485 32,758
Accrued taxes........................................... 22,655 19,396
Accrued interest........................................ 27,583 31,409
Other................................................... 22,988 34,872
------------- -------------
527,140 577,670
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 1,154,933 1,194,722
Accumulated deferred investment tax credits............. 111,052 114,457
Decommissioning obligation--Millstone 1................. 560,500 560,500
Deferred contractual obligations........................ 255,749 277,826
Other................................................... 185,759 150,017
------------- -------------
2,267,993 2,297,522
------------- -------------
Commitments and Contingencies (Note 6)
Total Capitalization and Liabilities........... $ 5,913,027 $ 6,050,198
============= =============
</TABLE>
See accompanying notes to consolidated financial statement
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------------
1999 1998 1999 1998
--------- --------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $565,069 $561,224 $1,172,066 $1,170,185
--------- --------- ----------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power...... 171,730 216,624 391,067 463,316
Other.......................................... 166,424 164,052 320,680 341,083
Maintenance...................................... 58,007 56,119 122,807 129,491
Depreciation..................................... 52,968 57,938 108,310 115,573
Amortization of regulatory assets, net........... 37,522 24,382 72,967 37,010
Federal and state income taxes................... 14,774 (9,591) 24,757 (20,859)
Taxes other than income taxes.................... 39,274 40,634 86,696 87,244
--------- --------- ----------- -----------
Total operating expenses................... 540,699 550,158 1,127,284 1,152,858
--------- --------- ----------- -----------
Operating Income................................... 24,370 11,066 44,782 17,327
--------- --------- ----------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies........................... 965 1,544 1,520 3,712
Other, net....................................... (2,874) (7,133) (3,372) (13,776)
Minority interest in income of subsidiary........ (2,325) (2,325) (4,650) (4,650)
Income taxes..................................... 7,663 5,551 11,891 8,883
--------- --------- ----------- -----------
Other income, net.......................... 3,429 (2,363) 5,389 (5,831)
--------- --------- ----------- -----------
Income before interest charges............. 27,799 8,703 50,171 11,496
--------- --------- ----------- -----------
Interest Charges:
Interest on long-term debt....................... 32,258 33,805 65,295 66,745
Other interest................................... 2,355 1,259 5,396 2,091
--------- --------- ----------- -----------
Interest charges, net...................... 34,613 35,064 70,691 68,836
--------- --------- ----------- -----------
Net (Loss)......................................... $ (6,814) $(26,361) $ (20,520) $ (57,340)
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Cash flows from operating activities:
Net Loss .................................................... $ (20,520) $ (57,340)
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................... 108,310 115,573
Deferred income taxes and investment tax credits, net...... (18,878) (37,495)
Amortization of deferred demand-side-management costs, net 13,891 38,293
Amortization/(deferral) of recoverable energy costs........ (22,789) 40,557
Amortization of cogeneration deferral...................... 5,835 16,023
Amortization of regulatory asset - income taxes............ 29,057 17,247
Amortization of Millstone 1 investment..................... 36,988 -
Amortization of other regulatory asset..................... 1,087 3,740
Allocation of ESOP benefits................................ (30,170) -
Other sources of cash...................................... 64,569 36,103
Other uses of cash......................................... (13,170) (9,021)
Changes in working capital:
Receivables and accrued utility revenues................... (128,150) (91,596)
Fuel, materials, and supplies.............................. 8 1,198
Accounts payable........................................... 6,490 (105,707)
Accrued taxes.............................................. 3,259 (11,989)
Sale of receivables and accrued utility revenues........... 90,000 115,000
Investment in securitizable assets......................... 91,593 151,329
Other working capital (excludes cash)...................... (3,964) 53,619
----------- -----------
Net cash provided by operating activities...................... 213,446 275,534
----------- -----------
Cash flows from financing activities:
Net increase/(decrease) in short-term debt................... 170,000 (86,300)
Reacquisitions and retirements of long-term debt............. (214,010) (45,006)
Reacquisitions and retirements of preferred stock............ - (22,178)
Cash dividends on preferred stock............................ (6,450) (7,320)
----------- -----------
Net cash used in financing activities.......................... (50,460) (160,804)
----------- -----------
Cash flows from investing activities:
Investment in plant:
Electric utility plant..................................... (77,156) (57,351)
Nuclear fuel............................................... (23,947) (156)
----------- -----------
Net cash used for investments in plant....................... (101,103) (57,507)
Investment in NU System Money Pool........................... (77,700) (49,250)
Investments in nuclear decommissioning trusts................ (24,132) (28,764)
Other investment activities, net............................. 39,913 628
Capital contributions........................................ - 20,000
----------- -----------
Net cash used in investing activities.......................... (163,022) (114,893)
----------- -----------
Net (decrease) in cash......................................... (36) (163)
Cash - beginning of period..................................... 434 459
----------- -----------
Cash - end of period........................................... $ 398 $ 296
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
THE CONNECTICUT LIGHT AND POWER COMPANY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CL&P (the company) is a wholly owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1999 Form 10-Q,
the 1998 Form 10-K and Current Report on Form 8-K dated July 6, 1999.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $ 4 1% $ 2 - %
Fuel, purchased and net interchange power (45) (21) (72) (16)
Other operation 2 1 (20) (6)
Maintenance 2 3 (7) (5)
Depreciation (5) (9) (7) (6)
Amortization of regulatory assets, net 13 54 36 97
Federal and state income taxes 22 (a) 43 (a)
Other income, net 3 47 9 72
Net income/(loss) 20 74 37 64
(a) Percent greater than 100
Comparison of the Second Quarter of 1999 to the Second Quarter of 1998
CL&P had a net loss for the second quarter of 1999 of approximately $7 million,
compared to a net loss of approximately $26 million for the second quarter of
1998. Improved second quarter results were primarily due to lower fuel and
purchased power costs as a result of the return to service of Millstone 2 and 3
and higher retail sales, partially offset by the impacts of the February 1999
retail rate decision.
Regulatory decisions decreased revenues by $21 million, primarily due to the
retail rate decrease effective February 1999 and the impact of Millstone 2
being removed from CL&P'S rates. Retail kilowatt-hour sales increased by 2.2
percent in 1999 and contributed $8 million to revenues. Wholesale capacity and
energy sales were $14 million higher in 1999.
Fuel, purchased and net interchange power expense decreased in 1999, primarily
due to lower replacement power fuel costs as a result of the return to service
of Millstone 2 and 3.
Other operation and maintenance expense increased in 1999, primarily due to the
recognition of the environmental insurance proceeds which reduced O&M expense
in 1998 ($9 million), higher medical benefit costs ($7 million), higher
transmission expense ($6 million) and higher fossil maintenance costs ($4
million). These increases were partially offset by lower spending at the
Millstone units ($23 million).
Depreciation decreased in 1999, primarily due to lower Millstone 1 depreciation
expense. As a result of the February 1999 rate case decision, CL&P's
investment in Millstone 1 is being amortized.
Amortization of regulatory assets, net increased in 1999, primarily due to
the accelerated amortization ordered in the February 1999 rate decision ($136
million annually) and the amortization of CL&P's remaining investment in
Millstone 1.
Federal and state income taxes increased in the second quarter of 1999,
primarily due to higher book taxable income.
Other income, net increased in 1999, primarily due to lower costs in 1999
associated with CL&P's accounts receivable facility.
Comparison of the First Six Months of 1999 to the First Six Months of 1998
CL&P had a net loss for the first six months of 1999 of approximately $21
million, compared to a net loss of approximately $57 million for the same
period in 1998. Improved 1999 results were primarily due to lower fuel and
purchased power costs and O&M costs as a result of the return to service of
Millstone 2 and 3 and higher retail sales, partially offset by the impacts of
the February 1999 retail rate decision.
Regulatory decisions decreased revenues by $52 million, primarily due to the
retail rate decrease effective February 1999 and the impact of Millstone 2
being removed from CL&P'S rates. Retail kilowatt-hour sales increased by 3.6
percent in 1999 and contributed $30 million to revenues. Wholesale capacity
sales were $15 million higher in 1999.
Fuel, purchased and net interchange power expense decreased in 1999, primarily
due to lower replacement power fuel as a result of the return to service of
Millstone 2 and 3.
Other operation and maintenance expense decreased in 1999, primarily due to
lower spending at the Millstone units ($51 million). This decrease was
partially offset by higher transmission expense ($10 million), the recognition
of the environmental insurance proceeds which reduced O&M expense in 1998 ($9
million) and higher fossil maintenance costs ($5 million).
Depreciation decreased in 1999, primarily due to lower Millstone 1 depreciation
expense. As a result of the February 1999 rate case decision, CL&P's
investment in Millstone 1 is being amortized.
Amortization of regulatory assets, net increased in 1999, primarily due to
the accelerated amortization ordered in the February 1999 rate decision ($136
million annually) and the amortization of CL&P's remaining investment in
Millstone 1.
Federal and state income taxes increased in 1999, primarily due to higher book
taxable income.
Other income, net increased in 1999, primarily due to lower costs in 1999
associated with CL&P's accounts receivable facility.
Liquidity and Capital Resources
Net cash provided from operations totaled approximately $213 million, down from
approximately $276 million in 1998, primarily due to the use of the company's
accounts receivable facility. CL&P increased its utilization of the accounts
receivable facility by $90 million in 1999 compared to $115 million in 1998.
CL&P also had higher receivables from affiliated companies in 1999. In the
first six months of 1999, CL&P issued $170 million of short-term debt to pay
off $214 million of long-term debt maturities and sinking funds. In 1998,
approximately $154 million of net cash flows was used to reduce debt and
preferred stock. Approximately $163 million of net cash flows was used for
investment activities as compared to $115 million in 1998. The increase
resulted from an increase in construction expenditures and nuclear fuel
purchases for the Millstone 3 refueling outage and an increase in investments
in the NU system Money Pool.
See NU's MD&A in this Form 10-Q for further information regarding liquidity
and capital resources.
For information relating to the following items, refer to NU's MD&A included in
this Form 10-Q:
Millstone Nuclear Units
Restructuring
Year 2000 Issue
Risk-Management Instruments
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 1,921,658 $ 1,927,341
Less: Accumulated provision for depreciation......... 653,079 631,584
------------- -------------
1,268,579 1,295,757
Unamortized acquisition costs........................... 338,646 352,855
Construction work in progress........................... 33,446 20,735
Nuclear fuel, net....................................... 2,078 1,323
------------- -------------
Total net utility plant............................. 1,642,749 1,670,670
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 6,280 5,580
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,761 19,836
Other, at cost.......................................... 4,443 4,319
------------- -------------
30,484 29,735
------------- -------------
Current Assets:
Cash and cash equivalents............................... 82,840 60,885
Receivables, net........................................ 83,742 89,044
Accounts receivable from affiliated companies........... 22,565 12,018
Accrued utility revenues................................ 47,212 42,145
Fuel, materials, and supplies, at average cost.......... 35,786 36,642
Recoverable energy costs--current portion............... 78,949 65,257
Prepayments and other................................... 38,456 22,744
------------- -------------
389,550 328,735
------------- -------------
Deferred Charges:
Regulatory assets:
Recoverable energy costs............................... 138,440 156,250
Income taxes, net...................................... 147,164 139,739
Deferred costs, nuclear plant.......................... 195,340 244,599
Unrecovered contractual obligations.................... 61,142 66,400
Other.................................................. 3,154 3,234
Deferred receivable from affiliated company............. 17,856 22,728
Unamortized debt expense................................ 11,835 13,995
Other................................................... 5,248 5,510
------------- -------------
580,179 652,455
------------- -------------
Total Assets........................................ $ 2,642,962 $ 2,681,595
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value--authorized
100,000,000 shares and outstanding 1,000 shares........ $ 1 $ 1
Capital surplus, paid in................................ 424,492 424,250
Retained earnings....................................... 284,463 252,912
Accumulated other comprehensive income.................. 1,075 1,004
------------- -------------
Total common stockholder's equity.............. 710,031 678,167
Preferred stock subject to mandatory redemption......... 25,000 50,000
Long-term debt.......................................... 540,985 516,485
------------- -------------
Total capitalization........................... 1,276,016 1,244,652
------------- -------------
Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 678,836 703,411
------------- -------------
Current Liabilities:
Long-term debt and preferred stock--current portion..... 25,000 25,000
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 111,068 138,812
Accounts payable........................................ 35,079 26,227
Accounts payable to affiliated companies................ 30,737 28,410
Accrued taxes........................................... 57,685 82,743
Accrued interest........................................ 5,750 5,894
Accrued pension benefits................................ 45,671 46,004
Other................................................... 7,208 8,540
------------- -------------
318,198 361,630
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 237,053 225,091
Accumulated deferred investment tax credits............. 3,204 3,460
Deferred contractual obligations........................ 61,142 66,400
Deferred revenue from affiliated company................ 17,856 22,728
Other................................................... 50,657 54,223
------------- -------------
369,912 371,902
------------- -------------
Commitments and Contingencies (Note 6)
------------- -------------
Total Capitalization and Liabilities........... $ 2,642,962 $ 2,681,595
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $ 286,824 $ 250,784 $ 573,623 $ 512,529
---------- ---------- ---------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power..... 83,289 70,868 170,159 145,814
Other......................................... 119,726 85,967 228,992 173,792
Maintenance...................................... 15,321 1,328 28,585 29,944
Depreciation..................................... 12,195 11,221 23,957 22,728
Amortization of regulatory assets, net........... 8,719 6,103 11,933 20,238
Federal and state income taxes................... 6,778 21,677 22,145 37,069
Taxes other than income taxes.................... 11,377 11,214 22,984 21,769
---------- ---------- ---------- -----------
Total operating expenses................... 257,405 208,378 508,755 451,354
---------- ---------- ---------- -----------
Operating Income................................... 29,419 42,406 64,868 61,175
---------- ---------- ---------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies and subsidary company..... 297 795 607 1,466
Other, net....................................... 3,736 3,082 6,303 6,479
Income taxes..................................... (2,203) (3,170) (4,202) (6,396)
---------- ---------- ---------- -----------
Other income, net.......................... 1,830 707 2,708 1,549
---------- ---------- ---------- -----------
Income before interest charges............. 31,249 43,113 67,576 62,724
---------- ---------- ---------- -----------
Interest Charges:
Interest on long-term debt....................... 10,589 11,259 21,577 23,953
Other interest................................... (35) 253 23 379
---------- ---------- ---------- -----------
Interest charges, net...................... 10,554 11,512 21,600 24,332
---------- ---------- ---------- -----------
Net Income......................................... $ 20,695 $ 31,601 $ 45,976 $ 38,392
========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Cash flows from operating activities:
Net Income................................................ $ 45,976 $ 38,392
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 23,957 22,728
Deferred income taxes and investment tax credits, net... 19,932 44,423
Amortization/(deferral) of recoverable energy costs, net 4,118 (16,109)
Amortization of acquisition costs, net.................. 14,209 35,222
Amortization of regulatory liability.................... (10,953) (16,430)
Amortization of other regulatory assets................. 8,677 1,446
Deferred Seabrook capital costs, net.................... 8,422 (39,933)
Allocation of ESOP benefits............................. (10,450) -
Other sources of cash................................... 13,708 39,023
Other uses of cash...................................... (28,694) (55,624)
Changes in working capital:
Receivables and accrued utility revenues................ (10,312) 41,357
Fuel, materials, and supplies........................... 856 4,154
Accounts payable........................................ 11,179 4,637
Accrued taxes........................................... (25,058) 23,872
Other working capital (excludes cash)................... (17,521) (41,307)
----------- -----------
Net cash provided by operating activities................... 48,046 85,851
----------- -----------
Cash flows from financing activities:
Net increase in short term debt........................... - 50,000
Issuance of long-term debt................................ 24,500 -
Reacquisitions and retirements of long-term debt.......... - (170,000)
Reacquisitions and retirements of preferred stock......... (25,000) (25,000)
Cash dividends on preferred stock......................... (3,975) (5,300)
----------- -----------
Net cash used in financing activities....................... (4,475) (150,300)
----------- -----------
Cash flows from investing activities:
Investment in plant:
Electric utility plant.................................. (20,162) (17,389)
Nuclear fuel............................................ (1,055) 3
----------- -----------
Net cash used for investments in plant.................... (21,217) (17,386)
Investment in nuclear decommissioning trust (350) (293)
Other investment activities, net.......................... (49) (149)
----------- -----------
Net cash used in investing activities....................... (21,616) (17,828)
----------- -----------
Net increase\(decrease) in cash and cash equivalents........ 21,955 (82,277)
Cash and cash equivalents - beginning of period............. 60,885 94,459
----------- -----------
Cash and cash equivalents- end of period.................... $ 82,840 $ 12,182
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSNH (the company) is a wholly owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1999 Form 10-Q,
the 1998 Form 10-K and Current Report on Form 8-K dated June 14, 1999.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $ 36 14% $ 61 12%
Fuel, purchased and net interchange power 12 18 24 17
Other operation 34 39 55 32
Maintenance 14 (a) (1) (5)
Amortization of regulatory assets, net 3 43 (8) (41)
Federal and state income taxes (16) (64) (17) (39)
Net income/(loss) (11) (35) 8 20
(a) Percent greater than 100
Comparison of the Second Quarter of 1999 to the Second Quarter of 1998
PSNH's net income was approximately $21 million in 1999 compared to $32 million
in 1998. The decrease in net income for the second quarter was primarily due
to higher operation and maintenance costs, partially offset by higher
revenues.
Total operating revenues increased in the second quarter of 1999 as compared to
the same period of 1998, primarily due to NU System intercompany energy and
capacity sales ($19 million), higher retail sales and higher fuel revenues.
Retail kilowatt-hour sales increased by 9.6 percent and contributed $9 million
to revenues.
Fuel, purchased and net interchange power expense increased in 1999, primarily
due to higher purchased power costs.
Other operation and maintenance expense increased in 1999, primarily due to
higher costs under the Seabrook Power Contract ($24 million) for the recovery
of the deferred Seabrook investment beginning in June 1998 and higher spending
at Seabrook related to the refueling outage, and higher costs associated with
the recognition of the environmental and storm insurance proceeds which reduced
O&M expense in 1998 ($19 million).
Amortization of regulatory assets, net increased in 1999, primarily due to the
completion in April of the six-year amortization of net operating loss carry-
forwards related to the global settlement, the amortization of the Seabrook
deferred return ($3 million), partially offset by the lower amortization of the
acquisition premium ($6 million).
Federal and state income taxes decreased during the second quarter of 1999, due
to the utilization of net operating loss carryforwards.
Comparison of the First Six Months of 1999 to the First Six Months of 1998
PSNH's net income was approximately $46 million in the first six months of 1999
compared to $38 million in 1998. The increase in net income is primarily due
to higher revenues and retail sales, partially offset by higher operation and
maintenance expenses.
Total operating revenues increased in 1999 compared to the same period of 1998,
primarily due to NU System intercompany energy and capacity sales ($32
million), higher retail sales and higher fuel revenues. Retail kilowatt-hour
sales increased by 7.1 percent and contributed $15 million to revenues.
Fuel, purchased and net interchange power expense increased in 1999, primarily
due to higher purchased power costs.
Other operation and maintenance expense increased in 1999, primarily due to
higher costs under the Seabrook Power Contract ($49 million) for the recovery
of the deferred Seabrook investment beginning in June 1998 and higher spending
at Seabrook related to the refueling outage, and higher costs associated with
the recognition of the environmental and storm insurance proceeds which reduced
O&M expense in 1998 ($10 million). These increases were partially offset by
lower storm costs.
Amortization of regulatory assets, net decreased in 1999, primarily due to
lower amortization of the acquisition premium ($21 million), partially offset
by the amortization of the Seabrook deferred return ($7 million) and the
completion of the amortization of net operating loss carryforwards related to
the global settlement.
Federal and state income taxes decreased in 1999 due to the utilization of net
operating loss carryforwards.
Liquidity
Cash provided from operations totaled approximately $48 million in 1999, down
from $86 million is 1998. The decrease is primarily due to an increase in
intercompany receivables due to higher intercompany sales of power. In the
first six months of 1999, PSNH received an advance from the parent company of
$24.5 million which was used for preferred stock sinking fund requirements.
In 1998, approximately $145 million of net cash flows was used to reduce long-
term debt and preferred stock in 1998. Approximately $22 million of net cash
flows was used for investment in plant and other investment activities compared
to $18 million in 1998.
See NU's MD&A in this Form 10-Q for further information regarding Liquidity
and Capital Resources.
For information relating to the following items, refer to NU's MD&A included
in this Form 10-Q:
Millstone Nuclear Units
Restructuring
Year 2000 Issue
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,224,425 $ 1,221,257
Less: Accumulated provision for depreciation......... 533,991 517,401
------------- ------------
690,434 703,856
Construction work in progress........................... 22,258 14,858
Nuclear fuel, net....................................... 23,436 19,931
------------- ------------
Total net utility plant............................. 736,128 738,645
------------- ------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 136,935 125,598
Investments in regional nuclear generating
companies, at equity................................... 15,836 15,440
Other, at cost.......................................... 7,533 7,322
------------- ------------
160,304 148,360
------------- ------------
Current Assets:
Cash.................................................... 434 106
Investments in securitizable assets..................... - 21,865
Receivables, net........................................ 31,268 862
Accounts receivable from affiliated companies........... 9,849 4,188
Taxes receivable........................................ 11,826 14,255
Accrued utility revenues................................ 16,378 -
Fuel, materials, and supplies, at average cost.......... 4,908 5,053
Recoverable energy costs, net--current portion.......... 1,924 1,924
Prepayments and other................................... 30,817 23,996
------------- ------------
107,404 72,249
------------- ------------
Deferred Charges:
Regulatory assets:
Income taxes, net...................................... 53,757 57,079
Millstone 1............................................ 125,414 133,653
Unrecovered contractual obligations.................... 68,498 74,534
Recoverable energy costs............................... 17,547 18,980
Standard service offer deferral........................ 22,064 13,271
Other.................................................. 43,138 24,918
Unamortized debt expense................................ 2,185 2,298
Other................................................... 4,322 3,695
------------- ------------
336,925 328,428
------------- ------------
Total Assets........................................ $ 1,340,761 $ 1,287,682
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$25 par value.
Authorized and outstanding 1,072,471 shares............ $ 26,812 $ 26,812
Capital surplus, paid in................................ 171,561 151,431
Retained earnings....................................... 46,763 46,003
Accumulated other comprehensive income.................. 160 150
------------- ------------
Total common stockholder's equity.............. 245,296 224,396
Preferred stock not subject to mandatory redemption..... 20,000 20,000
Preferred stock subject to mandatory redemption......... 16,500 18,000
Long-term debt.......................................... 290,025 349,314
------------- ------------
Total capitalization........................... 571,821 611,710
------------- ------------
Obligations Under Capital Leases.......................... 10,944 12,129
------------- ------------
Current Liabilities:
Notes payable to banks.................................. 78,000 20,000
Notes payable to affiliated company..................... 51,100 30,900
Long-term debt and preferred stock--current
portion................................................ 61,500 41,500
Obligations under capital leases--current
portion................................................ 21,848 21,964
Accounts payable........................................ 18,103 17,952
Accounts payable to affiliated companies................ 5,975 12,866
Accrued taxes........................................... 934 1,264
Accrued interest........................................ 7,790 8,030
Other................................................... 12,624 6,831
------------- ------------
257,874 161,307
------------- ------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 255,540 248,985
Accumulated deferred investment tax credits............. 21,160 21,895
Decommissioning obligation--Millstone 1................. 131,500 131,500
Deferred contractual obligations........................ 68,498 74,534
Other................................................... 23,424 25,622
------------- ------------
500,122 502,536
------------- ------------
Commitments and Contingencies (Note 6)
Total Capitalization and Liabilities........... $ 1,340,761 $ 1,287,682
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues............................. $108,829 $ 90,649 $206,515 $ 197,838
--------- --------- --------- -----------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 31,789 25,565 51,800 57,006
Other..................................... 34,123 30,602 63,595 63,976
Maintenance.................................. 13,607 11,901 27,092 27,454
Depreciation................................. 9,403 10,155 19,063 20,494
Amortization of regulatory assets............ 2,923 1,343 5,417 3,039
Federal and state income taxes............... 3,173 (230) 7,607 1,041
Taxes other than income taxes................ 4,999 4,699 10,924 10,376
--------- --------- --------- -----------
Total operating expenses............... 100,017 84,035 185,498 183,386
--------- --------- --------- -----------
Operating Income............................... 8,812 6,614 21,017 14,452
--------- --------- --------- -----------
Other Income:
Equity in earnings of regional nuclear
generating companies....................... 261 420 418 1,016
Other, net................................... (408) (620) (707) 91
Income taxes................................. 443 420 835 214
--------- --------- --------- -----------
Other income, net...................... 296 220 546 1,321
--------- --------- --------- -----------
Income before interest charges......... 9,108 6,834 21,563 15,773
--------- --------- --------- -----------
Interest Charges:
Interest on long-term debt................... 5,945 6,748 12,393 13,685
Other interest............................... (1,020) 824 135 1,459
--------- --------- --------- -----------
Interest charges, net.................. 4,925 7,572 12,528 15,144
--------- --------- --------- -----------
Net Income/(Loss).............................. $ 4,183 $ (738) $ 9,035 $ 629
========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Cash flows from operating activities:
Net Income................................................ $ 9,035 $ 629
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 19,063 20,494
Deferred income taxes and investment tax credits, net... 7,886 (2,982)
Recoverable energy costs, net of amortization........... 1,433 (1,484)
Amortization of regulatory assets - income taxes........ 1,248 2,726
Amortization of Millstone 1 investment.................. 3,805 -
Amortization of other regulatory assets................. 364 313
Allocation of ESOP benefits............................. (6,819) -
Buyout of IPP........................................... (19,700) -
Other sources of cash................................... 7,239 10,162
Other uses of cash...................................... (13,741) (1,255)
Changes in working capital:
Receivables and accrued utility revenues................ (32,445) 819
Fuel, materials, and supplies........................... 145 855
Accounts payable........................................ (6,740) (27,576)
Accrued taxes........................................... (330) (371)
Investments in securitizable assets..................... 21,865 3,644
Sale of receivables and accrued utility revenues........ (20,000) -
Other working capital (excludes cash)................... 1,161 10,660
----------- -----------
Net cash (used for)/provided by operating activities........ (26,531) 16,634
----------- -----------
Cash flows from financing activities:
Net increase in short-term debt........................... 78,200 14,750
Reacquisitions and retirements of long-term debt.......... (40,000) (9,800)
Reacquisitions and retirements of preferred stock......... (1,500) (1,500)
Cash dividends on preferred stock......................... (1,456) (1,513)
----------- -----------
Net cash from financing activities.......................... 35,244 1,937
----------- -----------
Cash flows from investing activities:
Investment in plant:
Electric utility plant.................................. (15,873) (9,058)
Nuclear fuel............................................ (5,338) -
----------- -----------
Net cash used for investments in plant.................... (21,211) (9,058)
Investments in nuclear decommissioning trusts............. (6,567) (7,754)
Other investment activities, net.......................... (607) (1,594)
Capital contribution...................................... 20,000 -
----------- -----------
Net cash used in investing activities....................... (8,385) (18,406)
----------- -----------
Net increase in cash........................................ 328 165
Cash - beginning of period.................................. 106 105
----------- -----------
Cash - end of period........................................ $ 434 $ 270
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
WMECO (the company) is a wholly owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1999 Form 10-Q,
the 1998 Form 10-K and the Current Report on Form 8-K dated July 6, 1999.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $ 18 20% $ 9 4%
Fuel, purchased and net interchange power 6 24 (5) (9)
Other operation 3 12 - -
Maintenance 2 14 - -
Amortization of regulatory assets, net 2 (a) 2 78
Federal and state income taxes 3 (a) 6 (a)
Interest charges (3) (35) (3) (17)
Net income/(loss) 5 (a) 8 (a)
(a) Percent greater than 100
Comparison of the Second Quarter of 1999 to the Second Quarter of 1998
WMECO had net income for the second quarter of 1999 of approximately $4.2
million compared to net loss of approximately $0.7 million for the second
quarter of 1998. Improved second quarter results were primarily due to higher
retail sales.
Total operating revenues increased in 1999 primarily due to higher retail
sales, higher capacity and transmission revenues ($4 million). Retail
kilowatt-hour sales increased 16.3 percent and increased revenues by $10
million.
Fuel, purchased and net interchange power expense increased in 1999 primarily
due to higher purchased power expenses partially offset by lower replacement
power costs as a result of the return to service of Millstone 2 and 3.
Amortization of regulatory assets, net increased in 1999, primarily due to the
amortization of WMECO's remaining investment in Millstone 1.
Other operation and maintenance expense increased in 1999, primarily due to
the recognition of the environmental insurance proceeds which reduced O&M
expense in 1998 ($2 million), higher administrative and general costs ($2
million) and higher transmission expense ($2 million). These increases were
partially offset by lower costs at the Millstone units ($2 million).
Federal and state income taxes increased in 1999, primarily due to higher book
taxable income.
Interest charges decreased in 1999, primarily due to interest capitalized as a
result of a settlement in 1999 and lower interest on long-term debt.
Comparison of the First Six Months of 1999 to the First Six Months of 1998
WMECO had a net income for the first six months of 1999 of approximately $9
million, compared to a net income of approximately $0.6 million for the same
period in 1998. Improved 1999 results were primarily due to higher retail
sales and lower fuel and purchased power costs as a result of the return to
service of Millstone 2 and 3.
Total operating revenues increased in 1999 primarily due to higher retail sales
and higher transmission revenues ($4 million), partially offset lower revenues
as a result of the 10 percent retail rate decrease in March of 1998. Retail
kilowatt-hour sales increased 5.0 percent and increased revenues by $6 million.
Fuel, purchased and net interchange power expense decreased in 1999 primarily
due to lower replacement power costs as a result of the return to service of
Millstone 2 and 3, partially offset by higher purchased power costs.
Amortization of regulatory assets, net increased in 1999, primarily due to the
amortization of WMECO's remaining investment in Millstone 1.
Federal and state income taxes increased in 1999, primarily due to higher book
taxable income.
Interest charges decreased in 1999, primarily due to interest capitalized from
a settlement agreement in 1999 and lower interest on long-term debt.
Liquidity and Capital Resources
Net cash flows used for operations totaled approximately $27 million in 1999,
compared to net cash flows from operations of approximately $17 million in
1998. The decrease is primarily due to the repayment of amounts outstanding
under WMECO's accounts receivable facility. Net cash flow from financing
activities totaled approximately $35 million in 1999, compared with $2 million
in 1998. In the first six months of 1999, short-term debt increased by $78
million while long-term debt and preferred stock levels were reduced by $42
million. In the first six months of 1998, short-term debt increased by $15
million while long-term debt and preferred stock levels were reduced by $12
million. Approximately $8 million of net cash flow was used in 1999 for
investment activities, including construction and nuclear fuel expenditures and
investment in nuclear decommissioning trusts compared with $18 million in 1998.
In 1999, WMECO also received a $20 million capital contribution from the parent
company.
See NU's MD&A in this form 10-Q for further detail regarding Liquidity and
Capital Resources.
For information relating to the following items, refer to NU's MD&A included in
this Form 10-Q:
Millstone Nuclear Units
Restructuring
Year 2000 Issue
NORTH ATLANTIC ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 735,103 $ 753,379
Less: Accumulated provision for depreciation......... 174,103 165,114
------------- -------------
561,000 588,265
Construction work in progress........................... 10,172 7,090
Nuclear fuel, net....................................... 26,062 23,644
------------- -------------
Total net utility plant............................. 597,234 618,999
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 40,533 35,210
------------- -------------
40,533 35,210
------------- -------------
Current Assets:
Cash.................................................... - 71
Special deposits........................................ 3,230 11,198
Notes receivable from affiliated companies.............. 8,900 30,350
Receivables from affiliated companies................... 26,231 23,804
Taxes receivable........................................ - 7,887
Materials and supplies, at average cost................. 12,268 12,812
Prepayments and other................................... 1,725 2,198
------------- -------------
52,354 88,320
------------- -------------
Deferred Charges:
Regulatory assets:
Deferred costs--Seabrook............................... 118,651 147,169
Income taxes, net...................................... 36,509 39,472
Recoverable energy costs............................... 1,771 1,878
Unamortized loss on reacquired debt.................... 7,575 11,363
Unamortized debt expense................................ 2,261 2,742
------------- -------------
166,767 202,624
------------- -------------
Total Assets........................................ $ 856,888 $ 945,153
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value. Authorized
and outstanding 1,000 shares.......................... $ 1 $ 1
Capital surplus, paid in................................ 160,999 160,999
Retained earnings....................................... 25,900 43,196
------------- -------------
Total common stockholder's equity.............. 186,900 204,196
Long-term debt.......................................... 335,000 405,000
------------- -------------
Total capitalization........................... 521,900 609,196
------------- -------------
Current Liabilities:
Long-term debt--current portion......................... 70,000 70,000
Accounts payable........................................ 9,280 5,924
Accounts payable to affiliated companies................ 1,032 867
Accrued interest........................................ 2,481 2,987
Accrued taxes........................................... 3,686 710
Other................................................... 438 285
------------- -------------
86,917 80,773
------------- -------------
Deferred Credits and Other Long-term Liabilities:
Accumulated deferred income taxes....................... 207,452 209,634
Deferred obligation to affiliated company............... 17,856 22,728
Other................................................... 22,763 22,822
------------- -------------
248,071 255,184
------------- -------------
Commitments and Contingencies (Note 6)
------------- -------------
Total Capitalization and Liabilities........... $ 856,888 $ 945,153
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues................................. $ 77,203 $ 69,627 $ 147,492 $ 137,796
---------- ---------- ---------- ----------
Operating Expenses:
Operation --
Fuel.......................................... 3,373 3,140 7,099 6,362
Other......................................... 11,921 9,312 21,232 17,769
Maintenance...................................... 9,048 3,826 14,120 6,822
Depreciation..................................... 7,372 6,193 13,853 12,605
Amortization of regulatory assets, net........... 21,372 21,366 42,744 42,732
Federal and state income taxes................... 8,705 9,124 17,412 18,094
Taxes other than income taxes.................... 3,109 3,301 6,254 6,399
---------- ---------- ---------- ----------
Total operating expenses................... 64,900 56,262 122,714 110,783
---------- ---------- ---------- ----------
Operating Income................................... 12,303 13,365 24,778 27,013
---------- ---------- ---------- ----------
Other Income:
Deferred Seabrook return--other funds............ 1,173 1,749 2,481 3,624
Other, net....................................... (1,942) (2,002) (3,488) (4,386)
Income taxes..................................... 4,189 4,499 8,019 7,674
---------- ---------- ---------- ----------
Other income, net.......................... 3,420 4,246 7,012 6,912
---------- ---------- ---------- ----------
Income before interest charges............. 15,723 17,611 31,790 33,925
---------- ---------- ---------- ----------
Interest Charges:
Interest on long-term debt....................... 11,794 12,624 24,115 25,439
Other interest................................... (65) (153) (274) (173)
Deferred Seabrook return--borrowed funds......... (2,249) (3,163) (4,755) (6,553)
---------- ---------- ---------- ----------
Interest charges, net...................... 9,480 9,308 19,086 18,713
---------- ---------- ---------- ----------
Net Income......................................... $ 6,243 $ 8,303 $ 12,704 $ 15,212
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Cash flows from operating activities:
Net Income.................................................. $ 12,704 $ 15,212
Adjustments to reconcile to net cash
from operating activities:
Depreciation.............................................. 13,853 12,605
Deferred income taxes and investment tax credits, net..... 782 2,462
Amortization of nuclear fuel.............................. 5,887 4,999
Deferred return - Seabrook................................ (7,236) (10,177)
Amortization of nuclear plants return..................... 43,200 43,188
Amortization of other regulatory assets................... (456) (456)
Amortization of deferred obligation to affiliated company. (4,872) (4,872)
Other sources of cash..................................... 9,129 17,926
Other uses of cash........................................ (166) (7,522)
Changes in working capital:
Receivables............................................... (2,427) 2,228
Materials and supplies.................................... 544 (21)
Accounts payable.......................................... 3,521 (6,837)
Accrued taxes............................................. 2,976 450
Other working capital (excludes cash)..................... 15,975 (8,798)
----------- -----------
Net cash provided by operating activities..................... 93,414 60,387
----------- -----------
Cash flows from financing activities:
Net (decrease) in short-term debt........................... - (6,900)
Reacquisitions and retirements of long-term debt............ (70,000) (20,000)
Cash dividends on common stock.............................. (30,000) (25,000)
----------- -----------
Net cash used in financing activities......................... (100,000) (51,900)
----------- -----------
Cash flows from investing activities:
Investment in plant:
Electric utility plant.................................... (3,088) (2,636)
Nuclear fuel.............................................. (8,199) (1,551)
----------- -----------
Net cash used for investments in plant...................... (11,287) (4,187)
Investment in NU System Money Pool.......................... 21,450 -
Investments in nuclear decommissioning trusts............... (3,648) (3,780)
----------- -----------
Net cash from/(used in) investing activities.................. 6,515 (7,967)
----------- -----------
Net (decrease)/increase in cash............................... (71) 520
Cash - beginning of period.................................... 71 13
----------- -----------
Cash - end of period.......................................... $ - $ 533
=========== ===========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
NAEC (the company) is a wholly owned subsidiary of NU. This discussion should
be read in conjunction with NU's MD&A and the company's consolidated financial
statements and footnotes in this Form 10-Q, the First Quarter 1999 Form 10-Q,
the 1998 Form 10-K and Current Report on Form 8-K dated June 14, 1999.
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Second Six
Quarter Percent Months Percent
Operating revenues $ 8 11% $10 7%
Other operation 3 28 3 19
Maintenance 5 (a) 7 (a)
Other income, net - - 1 20
Federal and state income taxes - - (1) (10)
Net income/(loss) (2) (25) (3) (16)
(a) Percent greater than 100
Comparison of the Second Quarter of 1999 to the Second Quarter of 1998
NAEC's net income was approximately $6 million in 1999 compared to $8 million
in 1998. The decrease in net income for the second quarter was primarily due
to higher operation and maintenance costs, partially offset by higher
revenues.
Operating revenues increased primarily due to higher O&M passed through to
PSNH.
Other operation and maintenance increased primarily due to higher costs in 1999
relating to the Seabrook refueling outage.
Comparison of the First Six Months of 1999 to the First Six Months of 1998
NAEC's net income was approximately $13 million in 1999 compared to $15 million
in 1998. The decrease in net income for the second quarter was primarily due
to higher operation and maintenance costs, partially offset by higher
revenues.
Operating revenues increased primarily due to higher O&M passed through to
PSNH.
Other operation and maintenance increased primarily due to higher costs in 1999
relating to the Seabrook refueling outage.
Other income, net increased primarily due to higher interest income on the
investments in the NU System Money Pool.
Federal and state income taxes decreased during the second quarter of 1999 due
to lower book taxable income.
Liquidity
Cash provided from operations totaled approximately $93 million in 1999, up
from $60 million is 1998. The increase is primarily due to higher working
capital. Approximately $100 million of net cash flows was used in 1999 to pay
long-term debt and cash dividends on common stock compared to approximately
$52 million of net cash flows in 1998 used to reduce debt and pay common
dividends. Cash from investments increased by $14 million due to the NU System
Money Pool, partially offset by higher nuclear fuel purchases for the Seabrook
outage.
See NU's MD&A in this Form 10-Q for further information on liquidity and
capital resources.
Seabrook Performance
Seabrook returned to service on May 13, 1999 after a 48-day refueling and
maintenance outage. Seabrook achieved a capacity factor of 75 percent for the
first seven months of 1999.
For information relating to the following items, refer to NU's MD&A in this
Form 10-Q:
Restructuring
Year 2000 Issue
Risk-Management Instruments
Northeast Utilities and Subsidiaries
The Connecticut Light and Power Company and Subsidiaries
Public Service Company of New Hampshire
Western Massachusetts Electric Company and Subsidiary
North Atlantic Energy Corporation
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation (All Companies)
The accompanying unaudited financial statements should be read in
conjunction with the MD&A in this Form 10-Q, current reports on Form
8-K dated June 14, 1999 (NU, PSNH, NAEC), and July 6, 1999 (NU, CL&P,
WMECO), and the Annual Reports of NU, PSNH, CL&P, WMECO and NAEC,
which were filed as part of the NU 1998 Form 10-K and the combined
Form 10-Q for the quarter ended March 31, 1999 for NU, CL&P, PSNH,
WMECO and NAEC. The accompanying financial statements contain, in
the opinion of management, all adjustments necessary to present
fairly NU's, and each NU system company's financial position as of
June 30, 1999, the results of operations for the three-month and
six-month periods ended June 30, 1999 and 1998, and the statements of
cash flows for the six-month periods ended June 30, 1999 and 1998.
All adjustments are of a normal, recurring nature except those
described in Note 6. The results of operations for the three-month
and six-month periods ended June 30, 1999 and 1998 are not indicative
of the results expected for a full year.
The consolidated financial statements of NU and of its consolidating
subsidiaries, include the accounts of all of their respective wholly
owned subsidiaries. Significant intercompany transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications of prior period data have been made to
conform with the current period presentation.
B. Regulatory Accounting and Assets (All Companies)
Regulatory Accounting: The accounting policies of CL&P, PSNH, WMECO
and NAEC conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process in accordance with Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation."
Restructuring plans are being implemented within each of the NU
system operating companies' respective jurisdictions, however,
management continues to believe the application of SFAS No. 71
remains appropriate at this time. Once the NU system operating
companies' respective restructuring plans have been formally approved
by the appropriate regulatory agency and management can determine the
impacts of restructuring, the NU system operating companies'
generation businesses no longer will be rate-regulated on a cost-of-
service basis. The majority of the NU system operating companies'
regulatory assets are related to their respective generation
businesses. Management expects that the transmission and
distribution business within each of the NU system operating
companies' respective jurisdictions will continue to be rate-
regulated on a cost-of-service basis and restructuring plans will
allow for the recovery of regulatory assets through this portion of
the business. Management has not discontinued SFAS No. 71 for
generation for any of the operating companies, as final orders
necessary to determine the impacts have not been issued.
C. New Accounting Pronouncements
On June 23, 1999, the Financial Accounting Standards Board (FASB)
issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB No. 133"
which delays the adoption date of SFAS No. 133 to January 1, 2001 for
NU. NU system companies utilize risk-management instruments such as
derivatives to hedge fuel-price risk and interest-rate risk. There
may be an impact on earnings upon adoption of SFAS No. 133 which
management cannot estimate at this time.
2. NUCLEAR DECOMMISSIONING AND PLANT CLOSURE COSTS (CL&P, WMECO)
In June 1999, NNECO filed with the Nuclear Regulatory Commission a Post-
Shutdown Decommissioning Activities Report (PSDAR) for Millstone 1. The
report outlines proposed decommissioning activities and contains
preliminary schedule and cost information for Millstone 1 decommissioning.
The preliminary cost estimate for the total decommissioning of Millstone 1
is approximately $692 million. This includes basic decommissioning costs
of $532 million, with an additional $159 million allocated for spent fuel
management. NNECO has accumulated in its decommissioning fund
approximately 40 percent of the estimated costs necessary to complete the
work. Additional funds will be collected through a stranded cost charge
in Connecticut. The planning and preparation activities phase for
Millstone 1 decommissioning is currently under way and is projected to be
completed in twelve to eighteen months.
3. INTEREST-RATE AND FUEL-PRICE RISK-MANAGEMENT (NU, CL&P, NAEC)
Fuel-Price Risk-Management: As of June 30, 1999, CL&P had outstanding
derivative instruments used for fuel-price risk-management with a total
notional value of approximately $373 million and negative mark-to-market
positions of approximately $9 million.
The terms of CL&P's fuel-price risk-management agreements require CL&P to
post cash collateral with its counterparties in the event of negative
mark-to-market positions and lowered credit ratings. The collateral is
returned to CL&P when the mark-to-market position becomes positive, when
CL&P meets specified credit ratings or when an agreement ends and all open
positions are properly settled. At June 30, 1999, cash collateral in the
amount of approximately $20 million was posted under these agreements.
Interest-Rate Risk-Management: As of June 30, 1999, NAEC had outstanding
derivative instruments used for interest-rate risk-management with a total
notional value of approximately $200 million and a negative mark-to-market
position of approximately $.6 million.
4. EMPLOYEE BENEFITS (All Companies)
A. ESOP
In June 1999, the operating companies paid NU Parent approximately
$47 million for NU shares issued from 1992 through 1998 on behalf of
their employees in accordance with the company's 401k plan. Each
operating company appropriately charged retained earnings for this
payment, as compensation expense had already been recorded in the
respective years at the fair market value of the shares allocated.
The effect of these payments was eliminated in the NU consolidated
financial statements.
B. Stock Based Compensation
Employee Stock Purchase Plan (ESPP): For the quarter ended June 30,
1999, employees purchased 113,433 shares of NU common stock at a
discounted price of $13.76 per share under the Company's ESPP. As of
June 30, 1999, 1,757,096 shares remained reserved for future issuance
under the ESPP.
5. SALE OF ACCOUNTS RECEIVABLE AND ACCRUED UTILITY REVENUES (CL&P, WMECO)
At June 30, 1999, approximately $195 million in accounts receivable had
been sold with limited recourse, to a third party purchaser by CL&P
through CL&P Receivables Corporation (CRC), a wholly owned subsidiary of
CL&P. In addition, approximately $26.5 million of assets had been
designated as collateral under the agreements by CRC.
On June 30, 1999, WMECO terminated its $40 million accounts receivable
program with its respective sponsor.
6. COMMITMENTS AND CONTINGENCIES (All Companies)
A. Restructuring
CL&P: On July 7, 1999, the DPUC ruled on CL&P's stranded cost filing.
CL&P can recover up to $3.5 billion in stranded costs. The stranded
cost estimate of $3.5 billion will be reduced by the net gain from
the sale of fossil/hydro units discussed below. The stranded costs
ultimately recovered are subject to true-up based upon several
factors including the results of the nuclear auction, the buyout
agreements negotiated with IPPs, and the results of IPP auctions.
On July 6, 1999, CL&P and WMECO signed agreements to sell 3,564 MW
of generation assets for approximately $1.3 billion (CL&P 3,292 MW
for $1,141 million and WMECO 272 MW for $184 million). The buyers
were selected by J. P. Morgan Securities, a New York investment
banking firm that conducted the auction as exclusive agent for the
DPUC, in accordance with Connecticut's restructuring legislation.
The winning bidders were NRG, a subsidiary of Northern States Power
Company, and NGC, one of NU's unregulated affiliates. NRG was the
successful bidder for 2,235 MW of CL&P's fossil-fueled generation
assets in Connecticut at a price of $460 million. NGC was the
successful bidder for 1,329 MW of hydro generation in Connecticut and
Massachusetts. NGC's bid of $865.5 million was for the Northfield
Mountain pumped storage station (1,120 MW), 10 hydroelectric
facilities in Connecticut, and Cabot and Turners Falls No. 1 hydro-
electric stations located in Massachusetts. The sale proceeds are
expected to exceed book value by approximately $984 million for CL&P
and $141 million for WMECO at the time of closing. This net gain
will be used to reduce the stranded costs of CL&P and WMECO,
therefore, there will not be an impact on results of operations.
PSNH: On August 2, 1999, NU, PSNH and the state of New Hampshire
signed an "Agreement to Settle PSNH Restructuring" (the Agreement)
intended to settle a number of pending regulatory and court
proceedings related to PSNH. Parties to the agreement include the
Governor of New Hampshire, the Governor's Office of Energy and
Community Service, the New Hampshire Attorney General, the Staff of
the NHPUC, PSNH and NU. The Agreement supersedes an earlier
Memorandum of Understanding executed by the parties dated June 14,
1999.
The Agreement was submitted to the NHPUC on August 2, 1999, and was
accompanied by a new Retail Delivery Service Tariff and supporting
testimony. The NHPUC administrative proceedings to review the
Agreement are expected to run through early 2000.
If approved by the NHPUC, the Agreement would resolve eleven NHPUC
dockets and PSNH's federal lawsuit which had enjoined the state from
implementing its restructuring legislation. The effective date will
occur after all regulatory and other approvals have been secured and
beginning on the first day of the month following the issuance of
rate reduction bonds (securitization), as described below. Under the
terms of the Agreement, on the effective date, PSNH's rates will be
reduced by an average 18.3 percent from current levels.
Under the Agreement, PSNH expects to recover approximately $1.5
billion of stranded costs currently on its books. The Agreement
calls for PSNH to write off about $367 million (pretax) of its
stranded costs (about $225 million after tax). Approximately $399
million of non-securitized stranded costs must be collected by a
recovery end date initially established as September 30, 2007;
however, this date is subject to adjustment for various contingencies
set forth in the Agreement. The amount is subject to true-up on the
effective date based upon resolution of certain contingencies as
compared to financial estimates used as the basis for negotiating the
Agreement. About $1.3 billion of nominal over market future
purchases from IPPs will continue to be recovered in rates.
PSNH is required to sell its power plants and certain power
contracts, including PSNH's current purchased power contract with
NAEC for the output from Seabrook Station. The net proceeds from
all sales will be used to recover a portion of PSNH's stranded costs.
The sales will be accomplished through an auction process subject to
approval by the NHPUC.
The issuance of $725 million of rate reduction bonds is a condition
of the Agreement. However, issuance of rate reduction bonds requires
the initial approval of the NHPUC and final approval from the New
Hampshire Legislature via enactment of appropriate legislation.
Other approvals are required from various federal and state
regulatory agencies and financial lenders. NU anticipates that the
Agreement will become effective in the first half of 2000.
WMECO: On July 26, 1999, WMECO completed the sale of 290 MW of
fossil and hydroelectric generation assets for $47 million to
Consolidated Edison Energy, Massachusetts, Inc. (CEEMI) of New York.
This sale does not include the company's 19 percent interest in the
1,120 MW Northfield Mountain pumped storage project and related
hydroelectric facilities (see above for results of joint-hydro
auction with CL&P).
The generation assets sold to CEEMI are being divested as part of
WMECO's restructuring plan. The net gain from this sale and the sale
of its interest in Northfield Mountain will be used to reduce WMECO's
stranded costs, which include unrecovered investments WMECO made
under regulation to meet its obligation to serve all customers. The
sale will help WMECO achieve the state-mandated 5 percent rate
reduction by September 1999, in accordance with the state's
restructuring legislation.
B. Rate Matters (All Companies)
Connecticut: Millstone 2 returned to service on May 11, 1999, and
returned to CL&P's rate base, effective May 21, 1999 after achieving
100 hours of continuous operation at 75 percent power. Millstone 2
had been taken out of CL&P's rate base on May 1, 1998.
FERC: On June 1, 1999, FERC accepted the Offer of Settlement which
was filed on January 15, 1999 by MYAPC. The significant aspects of
the settlement terms are as follows: (1) MYAPC will collect $33.6
million annually to pay for decommissioning and spent fuel; (2) its
return on equity will be set at 6.5 percent; (3) MYAPC is permitted
full recovery of all unamortized investment in MY, including fuel,
and; (4) an incentive budget for decommissioning is set at $436.3
million.
C. Nuclear Performance (All Companies)
On May 1, 1999, Millstone 3 was shutdown for a scheduled refueling
and maintenance outage and returned to service on June 29, 1999.
On April 29, 1999, the NRC granted permission for NNECO to restart
Millstone 2. On May 11, 1999, Millstone 2 returned to service and
on May 21, 1999, was put back in CL&P's rate base.
Millstone 1 is currently in decommissioning status.
On March 27, 1999, Seabrook was shutdown for a scheduled refueling
and maintenance outage and returned to service on May 13, 1999.
D. Environmental Matters (All Companies)
At June 30, 1999, the NU system's liability for its estimated
remediation costs was approximately $23 million which management has
determined to be the most probable amount within a range of $23
million to $40 million.
These amounts by operating company are as follows (in millions):
Liability Range
CL&P $9 $9 to $20
PSNH $9 $9 to $12
WMECO $2 $2 to $ 3
HWP $3 $3 to $ 5
The NU system companies have received proceeds from several insurance
carriers for the settlement with certain insurance companies of all
past, present and future environmental matters. As a result of these
settlements, the NU system companies will retain the risk of loss, in
part, for some environmental remediation costs.
E. Long-Term Contractual Arrangements (NU, CL&P)
Obligations: During the quarter ended March 31, 1999, in accordance
with Connecticut restructuring legislation, 15 power purchase
agreements (PPAs) with independent power producers were renegotiated
and are awaiting the DPUC approval. For those PPAs that were not
renegotiated, an auction was conducted by J.P. Morgan Securities with
final bids being accepted on July 28, 1999. The auction results are
expected in the third quarter of 1999.
7. COMPREHENSIVE INCOME (NU, CL&P, WMECO, PSNH)
The total comprehensive income/(loss), which includes all comprehensive
income items, for the NU system is as follows:
Six Months Ended June 30,
1999 1998
(Thousands of Dollars)
NU Consolidated $ 18,790 $ (10,389)
CL&P (26,753) (64,079)
PSNH 42,071 33,240
WMECO 7,590 (740)
8. EARNINGS PER SHARE (NU)
Basic earnings per share is computed based upon the weighted average
number of common shares outstanding during each year. Diluted earnings
per share is computed on the basis of the weighted average number of
common shares outstanding plus the potential dilution effect if certain
securities are converted into common stock.
The following table sets forth the components of basic and diluted
earnings per share:
(Thousands of Dollars) Six Months Ended June 30,
except per share data) 1999 1998
Income after interest charges $ 30,553 $ 2,457
Preferred dividends of subsidiaries 11,881 14,133
Net income/(loss) $ 18,672 $(11,676)
Basic EPS common shares outstanding
(average) 131,214,191 130,379,294
Dilutive effect of employee stock
options 425,851 - (a)
Diluted EPS common shares
outstanding (average) 131,640,042 130,379,294
Basic earnings/(loss) per share $0.14 $(0.09)
Diluted earnings/(loss) per share $0.14 $(0.09)(a)
(a) The addition of dilutive potential common shares would be
anti-dilutive for the 1998 period shown and, therefore, is not
included.
9. SEGMENT INFORMATION (NU)
Effective January 1, 1999, NU system companies adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way companies must determine
and report information about operating segments in their annual and
interim reports. The NU system is organized between regulated utilities
and unregulated energy activities. The regulated business represents
90 percent of the NU system's total revenue and is comprised of several
business units including: Transmission, Distribution and Generation.
The unregulated segment in the following table includes: Select Energy,
a corporation engaged in the marketing, transportation, storage and
sale of energy commodities at wholesale in designated geographical areas,
and in the marketing of electricity to retail customers; NGS, a
corporation that will maintain and service any fossil or hydro facility
that is acquired or contracted with for fossil or hydro generation
services; and HEC, a provider of energy management, demand-side management
and related consulting services for commercial, industrial, and
institutional electric companies and electric utility companies.
Other in the following table includes the results for Mode 1, an investor
in a fiber-optic communications network. Mode 1 had a net loss of
approximately $1.8 million in the six months ended June 30, 1999. Also
included in Other is the company's investment in COE which has an
investment in a foreign utility company. NU is in the process of selling
COE. Interest expense included in Other primarily relates to the debt of
NU Parent. Inter-segment eliminations of revenues and expenses are also
included in Other.
Regulated revenues primarily are derived from residential, commercial and
industrial customers. The Regulated Utilities segment is not dependent on
any single customer. The Unregulated Energy Services segment has a major
customer whose purchases represent approximately 57 percent of its total
revenues for the six months ended June 30, 1999.
For the Six Months Ended June 30, 1999
Unregulated
Regulated Energy
(Thousands of Dollars) Utilities Services Other Total
Operating Revenue $ 1,870,601 $224,507 $(13,132) $ 2,081,976
Operating Expenses (1,714,145) (242,003) 20,302 (1,935,846)
Operating Income/(Loss) 156,456 (17,496) 7,170 146,130
Interest Expense (124,962) (758) (7,249) (132,969)
Other Income/(Expense) 19,974 (105) (2,477) 17,392
Preferred Dividends (11,881) - - (11,881)
Net Income/(Loss) $ 39,587 $(18,359) $ (2,556) $ 18,672
Total Assets $10,055,952 $203,738 $ 88,836 $10,384,526
Prior to 1999, the NU system evaluated management performance using a
cost-based budget, therefore business segment reporting on a comparative
basis will not be available until the year 2000.
10. MERGERS AND ACQUISITIONS
A. Merger Agreement with Yankee Energy System, Inc. (Yankee)
On June 15, 1999, NU and Yankee announced an agreement to merge. The
transaction is valued at $679 million, including the assumption of
outstanding Yankee debt of approximately $201 million. The
Shareholders of Yankee will receive $45 a share, 45 percent payable
in NU shares and 55 percent payable in cash. After the merger,
Yankee will be a subsidiary of NU. The transaction will be accounted
for using the purchase method of accounting. The purchase is subject
to the approval of the Yankee shareholders and several regulatory
agencies. NU presently expects the transaction to close in mid-year
2000.
For further information regarding this matter, see NU Form 8-K dated
June 14, 1999, Item 5. Other Events, (a).
B. Select Energy, Inc. Agreement to Acquire Certain Assets of Aurora
National Gas, LLC
On May 12, 1999, Select Energy, the unregulated energy marketing
subsidiary of NU, entered into a $26 million asset purchase agreement
with Aurora Natural Gas LLC of Dallas. This agreement was
consummated on June 16, 1999. The transaction was accounted for
using the purchase method of accounting. Select Energy acquired
Aurora's retail customer contracts and associated natural gas
supplies in New England. In addition, Select Energy also purchased
exclusive rights to AMNET tm, the energy data collection and
management system developed by Aurora's affiliate, Aurion
Technologies LLC. Select Energy will use the AMNET system to manage
and forecast real-time energy consumption for electricity, natural
gas and water facilities. The goodwill amount of $17.7 million is to
be amortized over a fifteen-year period. Other intangible assets
will be amortized over periods ranging from 15 months to 15 years.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
1. Connecticut Superior Court - Fish Unlimited Lawsuits
(NU, CL&P, PSNH, WMECO) On July 12, 1999, Fish Unlimited and certain other
parties, filed an appeal with the Connecticut Appellate Court from the May 7,
1999 decision, and June 21, 1999 denial of reconsideration, dismissing their
lawsuit against NNECO and NUSCO over Millstone's effect on the aquatic
environment and the Niantic Bay winter flounder population.
For more information regarding this matter, see "Part II, Item 1 - Legal
Proceedings" in NU's quarterly report on Form 10-Q for the quarter ending
March 31, 1999.
On July 21, 1999, the Connecticut Superior Court granted NNECO and NUSCO's
motion to dismiss an additional lawsuit that was filed by Fish Unlimited and
certain other parties on June 2, 1999, challenging the validity of Millstone's
water discharge permit. The plaintiffs claim that Millstone is operating
without a valid National Pollutant Discharge Elimination System (NPDES) permit
and sought temporary and permanent injunctions to enjoin Millstone operations.
Millstone's NPDES permit is currently under review for renewal, but both NNECO
and the Connecticut Department of Environmental Protection believe that the
existing NPDES permit is valid. NUSCO and NNECO expect that the plaintiffs
will appeal this decision.
2. Shareholder Securities Consolidated Class Actions
(NU) NU has signed a preliminary agreement to settle six federal and two
state shareholder class action lawsuits, which are based on various federal and
state securities law and common law theories alleging misrepresentations and
omissions in public disclosures related to the NU system's nuclear problems at
Millstone, and were filed on behalf of various classes of shareholders who had
acquired NU shares between late 1993 and early 1996.
The agreement is subject to a number of conditions, including approval by
the Federal District Court of the District of Connecticut. If the agreement is
approved, NU would be required to contribute approximately $5 million to the
settlement, with the rest of the settlement, which cannot be disclosed under a
confidentiality provision, coming from proceeds of insurance. It is expected
that the conditions will be satisfied and the definitive agreement presented to
the Court for its approval in late fall of this year. If approved as submitted,
the settlement will not have a material adverse effect on NU's net income,
assets or operations.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1998 Annual Report on Form 10-K.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(NU) At the Annual Meeting of Shareholders of NU held on May 11, 1999
shareholders voted to fix the number of Trustees for the ensuing year at ten.
The vote fixing the number of Trustees was 112,672,375 votes in favor and
1,710,896 votes against, with 1,056,410 abstentions and broker nonvotes.
At the Annual Meeting, the following ten nominees were elected to serve on
the Board of Trustees by the votes set forth below:
For Withheld Total
1. Cotton M. Cleveland 112,443,365 2,996,316 115,439,681
2. William F. Conway 112,706,144 2,733,537 115,439,681
3. E. Gail DePlanque 112,685,166 2,754,515 115,439,681
4. Raymond L. Golden 112,627,038 2,812,643 115,439,681
5. Elizabeth T. Kennan 112,257,639 3,182,042 115,439,681
6. Michael G. Morris 112,718,475 2,721,206 115,439,681
7. William J. Pape II 112,194,927 3,244,754 115,439,681
8. Robert E. Patricelli 112,563,781 2,875,900 115,439,681
9. John F. Swope 112,552,264 2,887,417 115,439,681
10. John F. Turner 112,676,145 2,763,536 115,439,681
NU's shareholders also ratified the Board of Trustees' selection of Arthur
Andersen LLP to serve as independent auditors of NU and its subsidiaries for
1999. The vote ratifying such selection was 112,704,519 votes in favor and
1,662,418 votes against, with 1,072,744 abstentions and broker nonvotes.
(CL&P) In a written Consent in Lieu of an Annual Meeting of Stockholders of
CL&P ("Consent") dated June 30, 1999, stockholders voted to fix the number of
directors for the ensuing year at three. The vote fixing the number of
directors at three was 12,222,930 shares in favor, representing 100 percent of
the issued and outstanding shares of common stock of CL&P. Through the
Consent, the following three directors were elected, each by a vote of
12,222,930 shares in favor, to serve on the Board of Directors for the ensuing
year: David H. Boguslawski, Hugh C. MacKenzie and Rodney O. Powell.
(WMECO) In a written Consent in Lieu of a Special Meeting of Stockholders
of WMECO ("Consent") dated March 18, 1999, stockholders voted to adopt amended
and restated by-laws. The vote adopting the amended and restated by-laws was
1,072,471 shares in favor, representing 100 percent of the issued and
outstanding shares of common stock of WMECO.
In a written Consent in Lieu of an Annual Meeting of Stockholders of WMECO
("Consent") dated June 30, 1999, stockholders voted to fix the number of
directors for the ensuing year at five. The vote fixing the number of
directors at five was 1,072,471 shares in favor, representing 100 percent of
the issued and outstanding shares of common stock of WMECO. Through the
Consent the following five directors were elected, each by a vote of 1,072,471
shares in favor, to serve on the Board of Directors for the ensuing year:
David H. Boguslawski, John H. Forsgren, Kerry J. Kuhlman, Hugh C. MacKenzie
and Michael G. Morris.
(PSNH) At the Annual Meeting of Stockholders of PSNH held on May 17, 1999,
stockholders voted to fix the number of directors for the ensuing year at
eight. The vote fixing the number of directors at eight was 1,000 shares in
favor, representing 100 percent of the issued and outstanding shares of common
stock of PSNH. At the Annual Meeting, the following eight directors were
elected, each by a vote of 1,000 shares in favor, to serve on the Board of
Directors for the ensuing year: John C. Collins, John H. Forsgren, William T.
Frain, Jr., Bruce D. Kenyon, Gerald Letendre, Hugh C. MacKenzie, Michael G.
Morris and Jane E. Newman.
(NAEC) In a written Consent in Lieu of an Annual Meeting of Stockholders
of NAEC ("Consent") dated June 30, 1999, stockholders voted to fix the number
of directors for the ensuing year at three. The vote fixing the number of
directors at three was 1,000 shares in favor, representing 100 percent of
the issued and outstanding shares of common stock of NAEC. Through the
Consent, the following three directors were elected, each by a vote of 1,000
shares in favor, to serve on the Board of Directors for the ensuing year:
William A. DiProfio, Ted C. Feigenbaum and Bruce D. Kenyon.
ITEM 5 - OTHER INFORMATION
1. NRC - Spent Fuel Pool Off-Load Practices 2.206 Petition
(NU, CL&P, PSNH, WMECO) On July 27, 1999, the NRC issued its final response
to petitions filed under Section 2.206 of the NRC's regulations by the
organization We The People and a former NU employee in August 1995 concerning
the historic practice of off-loading the full reactor core at Millstone Unit 1
during refueling outages, and refueling practices at Millstone Units 2 and 3
and Seabrook. The NRC had provided a partial response to the petitioners in
December 1996 that addressed the technical issues raised in the petitions.
The final response addressed the petitioners' request that enforcement action
be taken against NNECO. The NRC indicated that the enforcement action taken
against NNECO on May 25, 1999 constituted a partial grant of the request, and
that no additional action would be taken. The May 1999 enforcement action had
determined that no civil penalties would be assessed because Millstone had
already implemented corrective actions to address underlying performance
problems and further enforcement action was not necessary to achieve additional
remedial action.
For more information regarding this matter, see "Item 3 - Legal
Proceedings" in NU's 1998 Annual Report on Form 10-K.
2. FERC - NEPOOL Restructuring
(NU, CL&P, PSNH, WMECO) On July 28, 1999, FERC approved a comprehensive
NEPOOL Settlement Agreement that resolved all transmission tariff issues. The
NEPOOL Settlement preserves transmission revenues from contracts that were
grandfathered over the NEPOOL restructuring and sets an 11.75 percent return on
equity for NU system companies.
For more information regarding this matter, see "Part II, Item 5. - Other
Matters" in NU's quarterly report on Form 10-Q for the quarter ending March 31,
1999 and "Item 1, Business - Electric Operations - Regional and System
coordination in NU's 1998 Annual Report on Form 10-K.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit No. Description
3.1 WMECO's Amendment to By-laws
10.1 Agreement and Plan of Merger (See Exhibit 1 in NU's
Current Report on Form 8-K dated June 14, 1999, File
No. 1-5324)
10.2 Agreement to Settle PSNH Restructuring
10.3 Amendment to Employment Agreement
15 Arthur Andersen LLP Letter Regarding Unaudited Financial
Information
27.1 NU Financial Data Schedule
27.2 CL&P Financial Data Schedule
27.3 PSNH Financial Data Schedule
27.4 WMECO Financial Data Schedule
27.5 NAEC Financial Data Schedule
(b) Reports on Form 8-K:
NU filed a Form 8-K dated June 14, 1999, disclosing:
o On June 15, 1999, Northeast Utilities (NU) and Yankee Energy System,
Inc. (Yankee) announced that they have agreed to a merger in which
Yankee will become a subsidiary of NU.
NU, PSNH, and NAEC filed Form 8-K's dated June 14, 1999 disclosing:
o NU, its subsidiary, PSNH, and the State of New Hampshire signed a
Memorandum of Understanding (MOU) intended to settle a number of
pending regulatory and court proceedings related to PSNH.
NU, CL&P, and WMECO filed Form 8-K's dated July 6, 1999, disclosing:
o The results of the auction of CL&P's and the remainder of WMECO's
non-nuclear generation assets held in conformity with the electric
utility restructuring laws of Connecticut and Massachusetts,
respectively.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHEAST UTILITIES
-------------------
Registrant
Date: August 11, 1999 By /s/ John H. Forsgren
------------------------------------
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: August 11, 1999 By /s/ John J. Roman
------------------------------------
John J. Roman
Vice President and Controller
- -------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY
---------------------------------------
Registrant
Date: August 11, 1999 By /s/ Randy A. Shoop
-------------------------------------
Randy A. Shoop
Treasurer
Date: August 11, 1999 By /s/ John P. Stack
-------------------------------------
John P. Stack
Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
---------------------------------------
Registrant
Date: August 11, 1999 By /s/ David R. McHale
-------------------------------------
David R. McHale
Vice President and Treasurer
Date: August 11, 1999 By /s/ John J. Roman
-------------------------------------
John J. Roman
Vice President and Controller
- -------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
--------------------------------------
Registrant
Date: August 11, 1999 By /s/ David R. McHale
-------------------------------------
David R. McHale
Vice President and Treasurer
Date: August 11, 1999 By /s/ John J. Roman
-------------------------------------
John J. Roman
Vice President and Controller
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH ATLANTIC ENERGY CORPORATION
---------------------------------
Registrant
Date: August 11, 1999 By /s/ David R. McHale
-------------------------------------
David R. McHale
Vice President and Treasurer
Date: August 11, 1999 By /s/ John J. Roman
-------------------------------------
John J. Roman
Vice President and Controller
Exhibit 15
August 11, 1999
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in its
Registration Statements No. 33-34622, No. 33-40156, No. 33-44814, No. 33-63023,
No. 33-55279, No. 33-56537, No. 333-52413, No. 333-52415, and No. 001-05324,
its Form 10-Q for the quarter ended June 30, 1999, which includes our report
dated August 11, 1999 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statement prepared
or certified by our firm or a report prepared or certified by our firm within
the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
- ------------------------
Arthur Andersen LLP
EXHIBIT 3.1
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BY-LAWS
As Amended and Restated
April 1, 1999
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Each meeting of the stockholders, annual or special, shall be
held at such hour of the day, and at such place within the United States, or at
such other place as shall then be permitted by law, as may be designated by the
Board of Directors, by the Chairman of the Board or by the President.
Section 2. The Annual Meeting of Stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held by June 30 each year. In the event
that no date for the annual meeting is established or said meeting has not been
held on the date so fixed or determined, a special meeting in lieu of the
annual meeting may be held with all of the force and effect of an annual
meeting.
Section 3. Special meetings of the stockholders may be called by the
President or by the Directors, and shall be called by the Clerk, or in case of
the death, absence, incapacity or refusal of the Clerk, by any other officer,
upon written application of any stockholder or stockholders who hold at least
ten percent of the capital stock entitled to vote thereat, stating the time,
place and purpose of the meeting.
Section 4. Notice of the date, time and place of any annual or special
meeting of stockholders, stating the purposes of the meeting, shall be given by
the Clerk or an Assistant Clerk at least seven days before the meeting to each
stockholder entitled to vote thereat, by leaving such notice with him or at his
residence or usual place of business, or by mailing it, postage prepaid, and
addressed to such stockholder at his address as it appears in the records of
the corporation.
Section 5. A majority in interest of all the shares of stock of the
corporation outstanding and entitled to vote present in person or by proxy
shall constitute a quorum for the transaction of business but less than a
quorum may adjourn either sine die or to a date certain.
Section 6. Any action required or permitted to be taken at any meeting
of the stockholders may be taken without a meeting if all stockholders entitled
to vote on the matter consent to the action in writing and the written consents
are filed with the records of the meetings of stockholders. Such consents
shall be treated for all purposes as a vote at a meeting.
ARTICLE II
DIRECTORS
Section 1. The business, property and affairs of the Company shall be
managed by a Board of not less than three nor more than sixteen Directors.
Notwithstanding the foregoing, the business, property and affairs of the
Company shall be managed by a Board of one Director, if only one Director has
been elected and qualified, provided there is only one stockholder of the
Company at such time. Within these limits, the number of positions on the
Board of Directors for any year shall be the number fixed by resolution of
the stockholders or of the Board of Directors, or, in the absence of such a
resolution, shall be the number of Directors elected at the preceding Annual
Meeting of Stockholders. The Directors so elected shall continue in office
until their successors have been elected and qualified, except that a Director
shall cease to be in office upon his death, resignation, lawful removal or
court order decreeing that he is no longer a Director in office.
Section 2. The Board of Directors shall have power to fill vacancies that
may occur in the Board, or any other office, by death, resignation or
otherwise, by a majority vote of the remaining members of the Board, and the
person so chosen shall hold the office until the next Annual Meeting of
Stockholders and until his successor shall be elected and qualified.
Section 3. The Board of Directors shall have power to employ such and so
many agents and factors or employees as the interests of the Company may
require, and to fix the compensation and define the duties of all of the
officers, agents, factors and employees of the Company. All the officers,
agents, factors and employees of the Company shall be subject to the order of
said Board, shall hold their offices at the pleasure of said Board, and may be
removed at any time by said Board at its discretion.
Section 4. The Board of Directors shall have power to fix from time to
time the compensation of the Directors and the method of payment thereof.
Section 5. Any one or more Directors may be removed from office at any
time with or without any showing of cause by affirmative vote of the holders of
a majority of the Company's issued and outstanding stock entitled to vote.
ARTICLE III
MEETINGS OF DIRECTORS
Section 1. A regular meeting of the Board of Directors shall be held
annually, without notice, directly following the Annual Meeting of
Stockholders, for the election of officers and the transaction of other
business.
Section 2. All other regular meetings of the Board of Directors may be
held at such time and place as the Board may from time to time determine and
fix by resolution. Special meetings of the Board may be held at any place upon
call of the Chairman (if there be one) or the President, or, in the event of
the absence or inability of either to act, of a Vice President, or upon call
of any three or more directors.
Section 3. Oral or written notice of the time and place of each special
meeting of the Board of Directors shall be given to each director personally,
by telephone, voice mail or other electronic means, or by mail at his last-
known post office address, at least twenty-four hours prior to the time of the
meeting; provided that any director may waive such notice in writing or by
attendance at such meeting.
Section 4. One-third of the Directors then in office shall constitute a
quorum, except that no quorum shall consist of less than two Directors.
Notwithstanding the foregoing, a quorum shall consist of one Director if only
one Director has been elected and qualified, provided there is only one
stockholder of the Company at such time. A number less than a quorum may
adjourn from time to time until a quorum is present. In the event of such an
adjournment, notice of the adjourned meeting shall be given to all Directors.
Section 5. Except as otherwise provided by these By-Laws, the act of a
majority of the Directors present at a meeting at which a quorum is present at
the time of the act shall be the act of the Board of Directors.
Section 6. Any resolution in writing concerning action to be taken by the
Company, which resolution is approved and signed by all of the Directors,
severally or collectively, whose number shall constitute a quorum for such
action, shall have the same force and effect as if such action were authorized
at a meeting of the Board of Directors duly called and held for that purpose,
and such resolution, together with the Directors' written approval thereof,
shall be recorded by the Clerk in the minute book of the Company.
Section 7. A Director or a member of a committee of the Board of
Directors may participate in a meeting of the Board of Directors or of such
committee by means of conference telephone or similar communications equipment
enabling all Directors participating in the meeting to hear one another, and
participation in a meeting in such manner shall constitute presence in person
at such meeting.
ARTICLE IV
OFFICERS
Section 1. At its annual meeting the Board of Directors shall elect a
President, a Clerk, a Treasurer and, if the Board shall so determine, a
Chairman, each of whom shall, subject to the provisions of Article IV,
Section 3, hold office until the next annual election of officers and until
his successor shall have been elected and qualified. Any two or more offices
may be held by the same person except that the offices of the President and
Clerk may not be simultaneously held by the same person. The Board shall also
elect at such annual meeting, and may elect at any regular or special meeting,
such other officers as may be required for the prompt and orderly transaction
of the business of the Company, and each such officer shall have such authority
and shall perform such duties as may be assigned to him from time to time by
the Board of Directors. Any vacancy occurring in any office may be filled at
any regular meeting of the Board or at any special meeting of the Board held
for that purpose.
Section 2. In addition to such powers and duties as these By-Laws and the
Board of Directors may prescribe, and except as may be otherwise provided by
the Board, each officer shall have the powers and perform the duties which by
law and general usage appertain to his particular office.
Section 3. Any officer may be removed, with or without cause, at any time
by the Board in its discretion. Vacancies among the officers by reason of
death, resignation, removal (with or without cause) or other reason shall be
filled by the Board of Directors.
ARTICLE V
CHAIRMAN
Section 1. The Chairman, if such office shall be provided for and filled
by the Directors, shall, when present, preside at all meetings of said Board
and of the stockholders. He shall have such other authority and shall perform
such additional duties as may be assigned to him from time to time by the Board
of Directors.
ARTICLE VI
PRESIDENT
Section 1. The President shall be responsible for the general
supervision, direction and control of the business and affairs of the Company.
If the Chairman shall be absent or unable to perform the duties of his office,
or if the office of the Chairman shall not have been filled by the Directors,
the President shall preside at meetings of the Board of Directors and of the
stockholders. He shall have such other authority and shall perform such
additional duties as may be assigned to him from time to time by the Board of
Directors.
ARTICLE VII
CLERK
Section 1. The Clerk shall be a resident of Massachusetts, unless the
corporation shall have a registered agent appointed pursuant to the laws of the
Commonwealth. He shall keep the minutes of all meetings of the stockholders
and of the Board of Directors. He shall give notice of all meetings of the
stockholders and of said Board. He shall record all votes taken at such
meetings. He shall perform such additional duties as may be assigned to him
from time to time by the Board of Directors, the Chairman, the President or
by law.
Section 2. The Clerk shall have the custody of the Corporate Seal of the
Company and shall affix the same to all instruments requiring a seal except as
otherwise provided in these By-Laws.
ARTICLE VIII
ASSISTANT CLERKS
Section 1. One or more Assistant Clerks, if such office shall be provided
for and filled by the Directors, shall perform the duties of the Clerk if the
Clerk shall be absent or unable to perform the duties of his office. The
Assistant Clerks shall perform such additional duties as may be assigned to
them from time to time by the Board of Directors, the Chairman, the President
or the Clerk.
ARTICLE IX
TREASURER
Section 1. The Treasurer shall have charge of all receipts and
disbursements of the Company, and shall be the custodian of the Company's
funds. He shall have full authority to receive and give receipts for all
moneys due and payable to the Company from any source whatever, and give full
discharge for the same, and to endorse checks, drafts and warrants in its name
and on its behalf. He shall sign all checks, notes, drafts and similar
instruments, except as otherwise provided for by the Board of Directors.
Section 2. The Treasurer shall perform such additional duties as may be
assigned to him from time to time by the Board of Directors, the Chairman, the
President or by law.
ARTICLE X
ASSISTANT TREASURERS
Section 1. One or more Assistant Treasurers, if such office shall be
provided for and filled by the Directors, shall perform the duties of the
Treasurer if the Treasurer shall be absent or unable to perform the duties of
his office. The Assistant Treasurers shall perform such additional duties as
may assigned to them form time to time by the Board of Directors, the Chairman,
the President or the Treasurer.
ARTICLE XI
COMMITTEES
Section 1. The Board of Directors may designate two or more Directors to
constitute an executive committee or other committees, which committees shall
have and may exercise all such authority of the Board of Directors as shall be
provided in such resolution, subject to those powers expressly reserved to the
Board of Directors under law. At the time of such appointment, the Board of
Directors may also appoint, in respect to each member of any such committee,
another Director to serve as his alternate at any meeting of such committee
which such member is unable to attend. Each alternate shall have, during his
attendance at a meeting of such committee, all the rights and obligations of a
regular member thereof. Any vacancy on any such committee or among alternate
members thereof may be filled by the Board of Directors.
ARTICLE XII
STOCK CERTIFICATES
Section 1. All stock certificates shall be signed by the Chairman, the
President or any Vice President and by the Treasurer or any Assistant
Treasurer. Such signatures may be by facsimiles if the certificate is signed
by a transfer agent, or by a registrar, other than a director, officer or
employee of the Company.
ARTICLE XIII
CORPORATE SEAL
Section 1. The corporate seal of the Company shall be circular in form
with the name of the Company inscribed therein.
ARTICLE XIV
FISCAL YEAR
Section 1. The fiscal year of the corporation shall end on the thirty-
first day of December in each year.
ARTICLE XV
TRANSFER AGENT AND REGISTRAR
Section 1. If the Board of Directors deem it advisable to have a transfer
agent other than the Treasurer, they may appoint any Bank or Trust Company to
that office. They may appoint the same or any other Bank or Trust Company as
Registrar of stock certificates if it appear desirable to have the stock
registered. They may terminate the authority of any Bank acting in either
capacity whenever it shall seem wise.
ARTICLE XVI
SENIOR STOCK PROVISIONS
The Company's capital stock includes a class of capital stock designated
"Common Stock," a class of capital stock designated "Preferred Stock," and a
class of capital stock designated "Class A Preferred Stock." The authorized
shares of Common Stock, Preferred Stock and Class A Preferred Stock are the
number of shares authorized in the Company's articles of organization, as
amended from time to time. The Preferred Stock and the Class A Preferred Stock
are hereinafter for convenience of reference sometimes collectively referred to
as the "Senior Stock," and either class may hereinafter individually be
referred to as "Senior Stock." Shares of Preferred Stock and shares of Class A
Preferred Stock shall rank on a parity in respect of dividends or payment in
case of liquidation, and, to the extent not fixed and determined by these
by-laws or the Company's articles of organization or otherwise by law, shall
have the same rights, preferences and powers. The general terms, limitations
and relative rights and preferences of each share of Preferred Stock and each
share of Class A Preferred Stock shall be determined in accordance with the
following Sections:
Section 1. Issuance of Senior Stock
Shares of Preferred Stock may be issued from time to time in one or more
series on such terms and for such consideration as may be determined by the
Board of Directors. Shares of Class A Preferred Stock may be issued from time
to time in one or more series on such terms and for such consideration as may
be determined by the Board of Directors. The series designation, dividend rate,
redemption prices, and any other terms, limitations and relative rights and
preferences of each series of either class of Senior Stock shall be determined
by the Board of Directors to the extent not fixed and determined by this
Article or the Company's articles of organization.
Section 2. Dividends
A. The holders of either class of the Senior Stock shall receive, but
only when and as declared by the Board of Directors, cumulative dividends at
the rate provided for the particular series and payable on such dividend
payment dates in each year as said Board may determine, such dividends to be
payable to holders of record on such dates as may be fixed by said Board but
not more than 45 days before each dividend date, provided, however, that
dividends shall not be declared and set apart for payment, or paid, on Senior
Stock of any one class and series, for any dividend period, unless dividends
have been or are contemporaneously declared and set apart for payment, or paid,
on Senior Stock of all series for all dividend periods terminating on the same
or an earlier date.
B. Dividends on each share of Senior Stock shall be cumulative from the
date of issue thereof or from such earlier date as the Board of Directors may
determine therefor. Unless full cumulative dividends to the last preceding
dividend date shall have been paid or set apart for payment on all outstanding
shares of Senior Stock, no dividend shall be paid on any junior stock. The
term "junior stock" means Common Stock or any other stock of the Company
subordinate to the Senior Stock in respect of dividends or payments in
liquidation.
C. So long as any shares of Senior Stock are outstanding, the Company
shall not declare any dividends or make any other distributions in respect of
outstanding shares of any junior stock of the Company, other than dividends or
distributions in shares of junior stock, or purchase or otherwise acquire for
value any outstanding shares of junior stock (the declaration of any such
dividend or the making of any such distribution, purchase or acquisition being
herein called a "junior stock payment") in contravention of the following:
(1) If and so long as the junior stock equity (hereinafter
defined), adjusted to reflect the proposed junior stock payment, at the end of
the calendar month immediately preceding the calendar month in which the
proposed junior stock payment is to be made is less than 20% of total
capitalization (hereinafter defined) at that date, as so adjusted, the Company
shall not make such junior stock payment in an amount which, together with all
other junior stock payments made within the year ending with and including the
date on which the proposed junior stock payment is to be made, exceeds 50% of
the net income of the Company available for dividends on junior stock for the
12 full calendar months immediately preceding the calendar month in which such
junior stock payment is made, except in an amount not exceeding the aggregate
of junior stock payments which under the restrictions set forth above in this
paragraph (1) could have been, and have not been, made.
(2) If and so long as the junior stock equity, adjusted to reflect
the proposed junior stock payment, at the end of the calendar month immediately
preceding the calendar month in which the proposed junior stock payment is to
be made, is less than 25% but not less than 20% of the total capitalization at
that date, as so adjusted, the Company shall not make such junior stock payment
in an amount which, together with all other junior stock payments made within
the year ending with and including the date on which the proposed junior stock
payment is to be made, exceeds 75% of the net income of the Company available
for dividends on the junior stock for the 12 full calendar months immediately
preceding the calendar month in which such junior stock payment is made, except
in an amount not exceeding the aggregate of junior stock payments which under
the restrictions set forth above in this paragraph (2) could have been, and
have not been, made.
D. The term "junior stock equity" means the aggregate of the part value
of or stated capital represented by, the outstanding shares of junior stock,
all earned surplus, capital or paid-in surplus, and any premiums on the junior
stock then carried on the books of the Company, less:
(1) the excess, if any, of the aggregate amount payable on
involuntary liquidation of the Company upon all outstanding shares of Senior
Stock over the sum of (i) the aggregate par or stated value of such shares and
(ii) any premiums thereon;
(2) any amounts on the books of the Company known, or estimated
if not known, to represent the excess, if any, of recorded value over original
cost of used or useful utility plant; and
(3) any intangible items set forth on the asset side of the balance
sheet of the Company as a result of accounting convention, such as unamortized
debt discount and expense; provided, however, that no deductions shall be
required to be made in respect of items referred to in clauses (2) and (3) of
this subsection D in cases in which such items are being amortized or are
provided for, or are being provided for, by reserves.
E. The term "total capitalization" means the aggregate of:
(1) the principal amount of all outstanding indebtedness of the
Company maturing more than 12 months after the date of issue thereof; and
(2) the par value or stated capital represented by, and any
premiums carried on the books of the Company in respect of, the outstanding
shares of all classes of the capital stock of the Company, earned surplus,
and capital or paid-in surplus, less any amounts required to be deducted
pursuant to clauses (2) and (3) of subsection D of this Section 2 in the
determination of junior stock equity.
Section 3. Redemption or Purchase of Senior Stock
A. All or any part of any series of Senior Stock may by vote of the
Board of Directors be called for redemption at any time at the redemption price
provided for the particular series and in the manner hereinbelow provided.
Subject to the provisions of subsection B of this Section 3, all or any part of
any series of Senior Stock may be called for redemption without calling all or
any part of any other series of Senior Stock. If less than all of any series
of Senior Stock is so called, the Transfer Agent shall determine by lot or in
some other manner approved by the Board of Directors the shares of such series
of Senior Stock to be called.
B. No call for redemption of less than all shares of Senior Stock
outstanding shall be made if the Company shall be in arrears in respect of
payment of dividends on any shares of Senior Stock outstanding.
C. The sums payable in respect of any shares of Senior Stock so called
shall be payable at the office of an incorporated bank or trust company in good
standing. Notice of such call stating the redemption date shall be mailed not
less than 30 days before the redemption date to each holder of record of shares
of Senior Stock so called at his address as it appears upon the books of the
Company.
D. The Company shall, before the redemption date, deposit with said bank
or trust company all sums payable with respect to shares of Senior Stock so
called. After such mailing and deposit the holders of shares of Senior Stock
so called for redemption shall cease to have any right to future dividends or
other rights or privileges as stockholders in respect of such shares and shall
be entitled to look for payment on and after the redemption date only to the
sums so deposited with said bank or trust company for their respective amounts.
Shares so redeemed may be reissued but only subject to the limitations imposed
upon the issue of Senior Stock.
E. The Company may at any time purchase all or any of the then
outstanding shares of Senior Stock of any class and series upon the best terms
reasonably obtainable, but not exceeding the then current redemption price of
such shares, except that no such purchase shall be made if the Company shall be
in arrears in respect of payment of dividends on any shares of Senior Stock
outstanding or if there shall exist an event of default as defined in Section 5
hereof.
Section 4. Amounts Payable on Liquidation
A. The holders of any series of Senior Stock shall receive upon any
voluntary liquidation, dissolution or winding up of the Company the then
current redemption price of the particular series and if such action is
involuntary $100 per share in the case of the Preferred Stock and $25 per share
in the case of the Class A Preferred Stock, plus in each case all dividends
accrued and unpaid to the date of such payment, before any payment in
liquidation is made on any junior stock.
B. If the net assets of the Company available for distribution on
liquidation to the holders of Senior Stock shall be insufficient to pay said
amounts in full, then such net assets shall be distributed among the holders of
Senior Stock, who shall receive a common percentage of the full respective
preferential amounts.
Section 5. Voting Powers
A. Except as provided in this Article or in the Company's articles of
organization and as provided by law, the holders of Senior Stock shall have no
voting power or right to notice of any meeting.
B. Whenever the holders of the Senior Stock shall have the right to vote
or consent to an action as provided in these Articles or the Company's articles
of organization or as provided by law, both classes of Senior Stock shall
(except as provided below) vote together as a single class, each outstanding
share of Preferred Stock entitled to vote and each outstanding share of Class A
Preferred Stock entitled to vote having such voting rights as are proportionate
to the ratio of (i) the par value represented by such share to (ii) the par
value represented by all shares of Senior Stock then outstanding. Whenever
only one class of the Senior Stock shall have the right to vote or consent to
an action as provided in these Articles or the Company's articles of
organization or as provided by law, or whenever each class of the Senior Stock
shall be entitled or be required to vote as a separate class on a matter, each
outstanding share of such class entitled to vote shall be entitled to one vote
on each such matter.
C. Whenever dividends on any share of Senior Stock shall be in arrears
in an amount equal to or exceeding four quarterly dividend payments, or
whenever there shall have occurred some default in the observance of any of the
provisions of this Article, or some default on which action has been taken by
debentureholders, bondholders or the trustee of any deed of trust or mortgage
of the Company, or whenever the Company shall have been declared bankrupt or a
receiver of its property shall have been appointed (any of said conditions
being herein called an "event of default"), then the holders of Senior Stock
shall be given notice of all stockholders' meetings and shall have the right
voting together as a class to elect the smallest number of directors necessary
to constitute a majority of the Board of Directors of the Company and the
exclusive right voting together as a class to amend the by-laws to make such
appropriate increase in the number of directorships as may be required to
effect such election. When all arrears of dividends shall have been paid and
such event of default shall have been terminated, all the rights and powers of
the holders of Senior Stock to receive notice and to vote shall cease, subject
to being again revived on any subsequent event of default.
D. Whenever the right to elect directors shall have accrued to the
holders of Senior Stock the Company shall call a meeting of stockholders for
the election of directors and, if necessary, the amendment of the by-laws to
permit the holders of Senior Stock to exercise their rights pursuant to
subsection C of this Section 5, such meeting to be held not less than 45 days
and not more than 90 days after the accrual of such rights. When such rights
shall cease, the Company shall, within seven days from the delivery to the
Company of a written request therefor by any stockholder, cause a meeting of
the stockholders to be held within 30 days from the delivery of such request
for the purpose of electing a new Board of Directors. Forthwith, upon the
election of such new Board of Directors, the directors in office immediately
prior to such election (other than persons elected directors in such election)
shall be deemed removed from office without further action by the Company.
Section 6. Action Requiring Certain Consent of Senior Stockholders
A. So long as any Senior Stock is outstanding, the Company, without the
affirmative vote or written consent of at least a majority in interest of the
Senior Stock then outstanding voting or giving consent together as a class
shall not:
(1) Issue or assume any unsecured notes, unsecured debentures or
other securities representing unsecured debt (other than for the purpose of
refunding or renewing outstanding unsecured securities issued or assumed by
the Company resulting in equal or longer maturities or redeeming or otherwise
retiring all outstanding shares of Senior Stock) if immediately after such
issue or assumption (a) the total outstanding principal amount of all unsecured
notes, unsecured debentures or other securities representing unsecured debt of
the Company will thereby exceed 20% of the aggregate of all outstanding secured
debt of the Company and the capital stock, premiums thereon, and surplus of the
Company, as stated on its books, or (b) the total outstanding principal amount
of all unsecured debt of the Company of maturities of less than 10 years will
thereby exceed 10% of the aggregate of all outstanding secured debt of the
Company and the capital stock, premiums thereon, and surplus of the Company,
as stated on its books. For the purposes of this subsection A, the payment due
upon the maturity of unsecured debt having an original single stated maturity
of 10 years or more shall not be regarded as unsecured debt with a maturity of
less than 10 years until within three years of the maturity thereof, and none
of the payments due upon any unsecured serial debt having an original stated
maturity for the final serial payment of 10 years or more shall be regarded as
unsecured debt of a maturity of less than 10 years until within three years
of the maturity of the final serial payment.
(2) Issue, sell or otherwise dispose of any shares of the then
authorized but unissued Senior Stock or any other stock ranking on a parity
with or having a priority over Senior Stock in respect of dividends or of
payments in liquidation, or reissue, sell or otherwise dispose of any
reacquired shares of Senior Stock or such other stock, other than to refinance
an equal par value or stated value of Senior Stock or of stock ranking on a
parity with or having priority over Senior Stock in respect of dividends or
of payments in liquidation, if:
(a) For a period of 12 consecutive calendar months within 15
calendar months immediately preceding the calendar month in which any such
shares shall be issued, the Income before Interest Charges of the Company for
said period available for the payment of interest determined in accordance with
the systems of accounts then prescribed for the Company by the Department of
Public Utilities of the Commonwealth of Massachusetts (or by such other
official body as may then have authority to prescribe such systems of accounts)
but in any event after deducting depreciation charges and taxes (including
income taxes) and including, in any case in which such stock is to be issued,
sold or otherwise disposed of in connection with the acquisition of any
property, the Income before Interest Charges of the property to be so acquired,
computed as nearly as practicable in the manner specified above, shall not have
been at least one and one-half (1 1/2) times the sum of (i) the interest
charges for one year on all indebtedness which shall then be outstanding
(excluding interest charges on any indebtedness, proposed to be retired in
connection with the issue, sale or other disposition of such shares), and (ii)
an amount equal to all annual dividend requirements on all outstanding shares
of Senior Stock and all other stock, if any, ranking on a parity with or having
priority over Senior Stock in respect of dividends or of payments in
liquidation, including the shares proposed to be issued, but not including any
shares proposed to be retired in connection with such issue, sale or other
disposition; or if
(b) Such issue, sale or disposition would bring the aggregate
of the amount payable in connection with an involuntary liquidation of the
Company with respect to all shares of Senior Stock and all shares of stock, if
any, ranking on a parity with or having priority over Senior Stock in respect
of dividends or of payments in liquidation to an amount in excess of the sum
of the junior stock equity. If for the purposes of meeting the requirements
of this clause (b), it shall have been necessary to take into consideration
any earned surplus of the Company, the Company shall not thereafter pay any
dividends on or make any distributions in respect of, or make any payment for
the purchase or other acquisition of, junior stock which would result in
reducing the junior stock equity to an amount less than the amount payable on
involuntary liquidation of the Company in respect of Senior Stock and all
shares ranking on a parity with or having a priority over Senior Stock in
respect of dividends or of payments in liquidation at the time outstanding.
If during the period for which Income before Interest Charges is to be
determined for the purpose set forth in this paragraph (2), the amount, if any,
required to be expended by the Company during such period for property
additions pursuant to a renewal and replacement fund or similar fund
established under any indenture of mortgage or deed of trust of the Company
shall exceed the amount deducted during such period in the determination of
such Income before Interest Charges on account of depreciation and amortization
of electric plan acquisition adjustments, such excess shall also be deducted in
determining such Income before Interest Charges.
B. So long as any Senior Stock is outstanding, the Company, without the
affirmative vote or written consent of at least two-thirds in interest of the
Senior Stock then outstanding voting or giving consent together as a class
shall not authorize any shares of any class of stock having a priority over the
Senior Stock in respect of dividends or of payments in liquidation or issue any
shares of any such prior ranking stock more than 12 months after the date of
the vote or consent authorizing such prior ranking stock.
C. The provisions of this Article may be changed only by the affirmative
vote or written consent of at least two-thirds in interest of the issued and
outstanding shares of each class of capital stock of the Company voting or
giving their consent in each case separately as a class; provided, however,
that if any such change or proposed change would affect only one class of
Senior Stock, then such change may be effected only by the affirmative vote
or written consent of at least two-thirds in interest of the issued and
outstanding shares of Common Stock and at least two-thirds in interest of the
issued and outstanding shares of the class of Senior Stock that is affected,
voting or giving their consent in each case separately as a class; and
provided further, however, the holders of Senior Stock shall not be entitled
to vote on an increase in the number of authorized shares of Preferred Stock
or Class A Preferred Stock. In no event shall any reduction of the dividend
rate or of the amounts payable upon redemption or liquidation with respect to
any share of Senior Stock be made without the consent of the holder thereof,
and no such reduction in respect of the shares of any particular series of
Senior Stock shall be made without the consent of all the holders of shares
of such series.
D. No share of Senior Stock shall be deemed to be "outstanding" within
the meaning of this Section 6 or of Section 7 if, at or prior to the time when
the approval herein or therein referred to would otherwise be required,
provision shall be made for its redemption, including a deposit complying with
the requirements of subsection D of Section 3.
Section 7. Merger, Consolidation or Sale of All Assets
Except with the affirmative vote or written consent of a majority in
interest of Senior Stock then outstanding voting or giving consent together as
a class, the Company shall not merge or consolidate with or into any other
corporation or sell or otherwise dispose of all or substantially all of its
assets (except by mortgage or pledge) unless such merger, consolidation, sale
or other disposition, or the issuance or assumption of securities in the
effectuation thereof shall have been ordered, approved or permitted under the
Public Utility Holding Company Act of 1935.
Section 8. No Preemptive Right
Except as otherwise expressly provided by law, the holders of Senior Stock
shall have no preemptive right to subscribe to any further issue of additional
shares of Senior Stock or of any other class of stock now or hereafter
authorized, nor for any future issue of bonds, debentures, notes or other
evidence of indebtedness or other security convertible into stock. If it is
expressly required by law that, notwithstanding the provisions of the preceding
sentence, any such further or future issue be offered proportionately to the
stockholders, the holders of Preferred Stock only shall be entitled to
subscribe for new or additional Preferred Stock, the holders of Class A
Preferred Stock only shall be entitled to subscribe for new or additional
Class A Preferred Stock and the holders of Common Stock only shall be entitled
to subscribe for new or additional Common Stock; and notice of such increase as
required by law need be given and the new shares need be offered
proportionately only to the stockholders who are so entitled to subscribe.
Section 9. Immunity of Directors, Officers and Agents
No director, officer or agent of the Company shall be held personally
responsible for any action taken in good faith though subsequently adjudged to
be in violation of this Article.
Section 10. Transfer Agent
The Company shall always have at least one transfer agent for Senior
Stock, which shall be an incorporated bank or trust company of good standing.
ARTICLE XVII
PROVISIONS WITH RESPECT TO THE SERIES OF PREFERRED STOCK
1. 7.72% Preferred Stock, Series B
There shall be a series of Preferred Stock designated "7.72% Preferred
Stock, Series B," and consisting of 200,000 shares with an aggregate par value
of $20,000,000 and a par value per share of $100. The dividend rate and
redemption prices as to said 7.72% Preferred Stock, Series B, shall be as
follows:
(a) Dividends on said 7.72% Preferred Stock, Series B, shall be at the
rate of 7.72% per share per annum, and no more, and shall be cumulative from
October 1, 1971. Said dividends, when declared, shall be payable on the first
days of January, April, July and October in each year.
(b) Redemption Prices of said 7.72% Preferred Stock, Series B, shall be
$109.30 per share if redeemed on or before October 1, 1976, $107.37 per share
if redeemed after October 1, 1976 and on or before October 1, 1981, $105.44
per share if redeemed after October 1, 1981 and on or before October 1, 1986,
and $103.51 per share if redeemed after October 1, 1986, plus in all cases
that portion of the quarterly dividend accrued thereon to the redemption date
and all unpaid dividends thereon, if any, provided, however, that none of the
7.72% Preferred Stock, Series B shall be redeemed prior to October 1, 1976,
if such redemption is for the purpose of or in anticipation of refunding such
7.72% Preferred Stock, Series B through the use, directly or indirectly, of
finds borrowed by the Company or of the proceeds of the issue by the Company
of shares of any stock ranking prior to or on a parity with the 7.72% Preferred
Stock, Series B as to dividends or assets, if such borrowed funds or such
shares have an effective interest cost or effective dividend cost to the
Company (computed in accordance with generally accepted financial principles),
as the case may be, of less than 7.69% per annum.
2. 7.60% Class A Preferred Stock, 1987 Series
There shall be a series of Preferred Stock designated "7.60% Class A
Preferred Stock, 1987 Series," and consisting of 1,200,000 shares with an
aggregate par value of $30,000,000 and a par value per share of $25. The
dividend rate and redemption prices as to said 7.60% Class A Preferred Stock,
1987 Series, shall be as follows:
(a) Dividends on said 7.60% Class A Preferred Stock, 1987 Series, shall
be at the rate of 7.60% per share per annum, and no more, and shall be
cumulative from the date of issuance. Said dividends, when declared, shall be
payable on the first days of February, May, August and November in each year,
commencing May 1, 1987.
(b) For each of the twelve month periods commencing February 1, 1987, the
redemption prices of said 7.60% Class A Preferred Stock, 1987 Series, shall be
the amount per share set forth below:
Twelve Twelve
Months Redemption Months Redemption
Beginning Price Beginning Price
February 1 Per Share February 1 Per Share
1987 $26.90 2000 $25.26
1988 26.90 2001 25.13
1989 26.90 2002 25.00
1990 26.90 2003 25.00
1991 26.90 2004 25.00
1992 26.27 2005 25.00
1993 26.14 2006 25.00
1994 26.02 2007 25.00
1995 25.89 2008 25.00
1996 25.76 2009 25.00
1997 25.64 2010 25.00
1998 25.51 2011 25.00
1999 25.38
plus in all cases that portion of the quarterly dividend accrued thereon to
the redemption date and all unpaid dividends thereon, if any; provided,
however, that none of the 7.60% Class A Preferred Stock, 1987 Series, shall
be redeemed prior to February 1, 1992, if such redemption is for the purpose
of or in anticipation of refunding such 7.60% Class A Preferred Stock, 1987
Series, through the use, directly or indirectly, of funds borrowed by the
Company or of the proceeds of the issue by the Company of shares of any
stock ranking prior to or on a parity with the 7.60% Class A Preferred Stock,
1987 Series, as to dividends or assets, if such borrowed funds or such shares
have an effective interest cost or effective dividend cost to the Company
(computed in accordance with generally accepted financial principles), as the
case may be, of less than 7.69% per annum.
(c) As and for a sinking fund for said 7.60% Class A Preferred Stock, 1987
Series, commencing on February 1, 1992, and on each February 1 in each year
thereafter so long as any shares of the 7.60% Class A Preferred Stock, 1987
Series, remain outstanding, the Company shall, to the extent of any funds of
the Company legally available therefor and except as otherwise restricted by
the Company's Statement of Preferred Stock Provisions, redeem 60,000 shares of
7.60% Class A Preferred Stock, 1987 Series (or such lesser number of such
shares as remain outstanding) at $25 per share plus accrued dividends to the
date of redemption; provided, however, that if in any year the Company does
not redeem the full number of shares of 7.60% Class A Preferred Stock, 1987
Series, required to be redeemed pursuant to this sinking fund, the deficiency
shall be made good on the next succeeding February 1 on which the Company has
funds legally available for, and is otherwise permitted to effect, the
redemption of shares of 7.60% Class A Preferred Stock, 1987 Series, pursuant
to this sinking fund. At the option of the Company, the number of shares of
7.60% Class A Preferred Stock, 1987 Series, redeemed on any February 1 may be
reduced by the number of such shares purchased and canceled by the Company
during the preceding twelve-month period or redeemed during such period
pursuant to subsection (b) hereof. Any shares so redeemed or purchased and
canceled may be given the status of authorized but unissued shares of Senior
Stock, but none of such shares shall be reissued as shares of 7.60% Class A
Preferred Stock, 1987 Series. The Company shall have the option, which shall
be noncumulative, to redeem on February 1, 1992 and on each February 1
thereafter up to an additional 60,000 shares of 7.60% Class A Preferred Stock,
1987 Series, at the sinking fund redemption price. No such optional sinking
fund shall operate to reduce the number of shares of the 7.60% Class A
Preferred Stock, 1987 Series, required to be redeemed pursuant to the mandatory
sinking fund provisions hereinabove set forth. In the event that the Company
shall at any time fail to make a full mandatory sinking fund payment on any
sinking fund payment date, the Company shall not pay any dividends or make any
other distributions in respect of outstanding shares of any junior stock (as
that term is defined in Subsection 2D of Section 2 of Article XVI of the by-
laws of the Company) of the Company, other than dividends or distributions in
shares of junior stock, or purchase or otherwise acquire for value any
outstanding shares of junior stock, until all such payments have been made.
ARTICLE XVIII
INDEMNIFICATION
Section 1. The Company shall indemnify each of its Directors and officers
(including persons who serve at its request as Directors, officers, or in any
other similar capacity of another organization in which it has any interest as
a shareholder, creditor or otherwise) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees, reasonably incurred by him in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having
been such a Director or officer, except with respect to any matter as to which
he shall have been adjudicated in such action, suit or proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation; provided, however, that as to any matter disposed
of by a compromise payment by such Director or officer pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the corporation, after notice that it involves such
indemnification, (a) by a disinterested majority of the Directors then in
office; or (b) by a majority of the disinterested Directors then in office,
provided that there has been obtained an opinion in writing of independent
legal counsel to the effect that such Director or officer appears to have acted
in good faith in the reasonable belief that his action was in the best
interests of the corporation; or (c) by the holders of majority of the
outstanding stock at the time entitled to vote for Directors, voting as a
single class, exclusive of any stock owned by an interested Director or
officer. In discharging his duty any such Director or officer, when acting in
good faith, may rely upon the books of account of the corporation or of such
other organization, reports made to the corporation or to such other
organization by any of its officers or employees or by counsel, accountants,
appraisers or other experts selected with reasonable care by the Board of
Directors or officers, or upon other records of the corporation or of such
other organization. Expenses incurred with respect to any such action, suit
or proceeding may be advanced by the corporation prior to the final disposition
of such action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the recipient to repay such amount unless it is ultimately determined
that he is entitled to indemnification. The right of indemnification hereby
provided shall not be exclusive of or affect any other right to which any
Director or officer may be entitled. As used in this paragraph, the terms
"Director" and "officer" include their respective heirs, executors and
administrators, and an "interested" Director or officer is one against whom in
such capacity the proceedings in question or another proceeding on the same or
similar grounds is then pending. In the event any part of this Article shall
be found, in any action, suit or proceeding to be invalid or ineffective, the
validity and the effect of the remaining parts shall not be affected.
ARTICLE XIX
AMENDMENTS
Section 1. Except as otherwise provided in Article XVI hereof, these By-
Laws may be altered, amended or repealed at any meeting of the stockholders
called for such purpose by vote of a majority of stock present and voting
thereon, or if the Articles of Organization so provide, by a vote of a majority
of the Board of Directors at any meeting of the Board of Directors called for
the purpose.
I HEREBY CERTIFY that the foregoing copy of the By-Laws of Western
Massachusetts Electric Company is a true and correct copy of said By-Laws in
full force and effect as of this ____ day of July, 1999.
/s/ O. Kay Comendul
-------------------
O. Kay Comendul
Assistant Clerk
EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
BETWEEN
YANKEE ENERGY SYSTEM, INC.
AND
NORTHEAST UTILITIES
dated as of June 14, 1999
AGREEMENT AND PLAN OF MERGER, dated as of June 14, 1999 (this "Agreement"),
between Yankee Energy System, Inc., a Connecticut corporation (the "Company")
and Northeast Utilities, a Massachusetts business trust ("Parent").
WHEREAS, the Company and Parent have determined to engage in a business
combination transaction on the terms stated herein;
WHEREAS, the Board of Directors of the Company and the Board of Trustees of
Parent have approved and deemed it advisable and in the best interests of
their respective shareholders to consummate the transactions contemplated
herein under which the businesses of the Company and Parent would be combined
by means of the merger of the Company with and into Merger Sub, a Connecticut
corporation to be formed by Parent prior to Closing (as defined below) as a
wholly-owned subsidiary of Parent ("Merger Sub"); and
WHEREAS, it is intended that the Merger (as defined below) shall constitute
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.01 THE MERGER. Upon the terms and subject to the conditions of
this Agreement:
At the Effective Time (as defined in Section 1.03), the Company shall be
merged with and into Merger Sub (the "Merger") in accordance with the laws of
the State of Connecticut. Merger Sub shall be the surviving corporation in the
Merger and shall continue its corporate existence under the laws of the State
of Connecticut. The effects and the consequences of the Merger shall be as set
forth in Section 1.02. Throughout this Agreement, the term "Merger Sub" shall
refer to Merger Sub prior to the Merger and the term "Surviving Corporation"
shall refer to Merger Sub in its capacity as the surviving corporation in the
Merger.
Section 1.02 EFFECTS OF THE MERGER. At the Effective Time, (i) the
certificate of incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such certificate of
incorporation, except that the name of the Surviving Corporation shall be
"Yankee Energy System, Inc.," and (ii) the by-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Corporation until thereafter amended as provided by law, the certificate of
incorporation of the Surviving Corporation and such by-laws. Subject to the
foregoing, the additional effects of the Merger shall be as provided in Section
33-820 of the Connecticut Business Corporation Act (the "CBCA").
Section 1.03 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.01), with respect to the Merger, a certificate of merger
complying with Section 33-819 of the CBCA (the "Certificate of Merger") shall
be delivered to the Secretary of the State of Connecticut for filing. The
Merger shall become effective upon the filing of the Certificate of Merger,
or at such later date and time as may be set forth in the Certificate of Merger
(the "Effective Time").
Section 1.04 DIRECTORS. The directors of Merger Sub immediately prior to
the Effective Time and those persons listed in Section 1.04(a) of the Parent
Disclosure Schedule (as defined in Section 7.06(i)) shall be the directors of
the Surviving Corporation and shall hold office from the Effective Time until
their respective successors are duly elected or appointed and qualified in the
manner provided in the certificate of incorporation and by-laws of the
Surviving Corporation, or as otherwise provided by the CBCA. In addition, in
accordance with the Declaration of Trust of Parent (the "Declaration of
Trust"), the Board of Trustees of Parent shall take such action as may be
necessary to cause, at the next regularly scheduled annual meeting of the
shareholders of Parent, an increase of at least two in the number of trustees
authorized to serve as trustees on the Board of Trustees of Parent and shall,
as soon as practicable after the Effective Time, elect as trustees, two
directors of the Company designated by the Parent and reasonably acceptable
to the Company.
Section 1.05 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of, and shall hold the same
positions with, the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the certificate of incorporation and
by-laws of the Surviving Corporation, or as otherwise provided by the CBCA.
Section 1.06 MERGER SUB. Parent shall cause Merger Sub to be formed prior
to the Closing Date as a wholly-owned subsidiary of Parent and to fulfill
the obligations of Merger Sub provided herein.
ARTICLE II
TREATMENT OF SHARES
Section 2.01 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder
of any capital stock of the Company or Merger Sub:
(a) Shares of Merger Sub Stock. Each share of common stock, no par value,
of Merger Sub (the "Merger Sub Common Stock") that is issued and outstanding
immediately prior to the Effective Time shall remain outstanding unchanged
by reason of the Merger as one fully paid and nonassessable share of common
stock, no par value, of the Surviving Corporation.
(b) Cancellation of Certain Company Common Stock. Each share of common
stock, par value $5.00 per share, of the Company (the "Company Common Stock")
that is owned by the Company as treasury stock and all shares of Company Common
Stock that are owned by Parent shall be canceled and shall cease to exist,
and no stock of Parent or other consideration shall be delivered in exchange
therefor.
(c) Conversion of Company Common Stock. Subject to the provisions of this
Section 2.01, each share of Company Common Stock, other than Dissenting Shares
(as defined in Section 2.01(n)) and shares canceled pursuant to Section
2.01(b), issued and outstanding immediately prior to the Effective Time (other
than shares held as treasury shares by the Company) shall by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive (i) $45.00 in cash (as such amount may be adjusted in
accordance with Section 2.01(o) hereof, the "Cash Consideration") or (ii) a
number of validly issued, fully paid and nonassessable shares of Parent Common
Stock equal to the Exchange Ratio (as defined below) (the "Stock
Consideration") or (iii) the right to receive a combination of cash and shares
of Parent Common Stock determined in accordance with this Section (the "Mixed
Consideration"). The "Exchange Ratio" shall be equal to the Cash Consideration
divided by the Parent Share Price (as defined below). The "Parent Share Price"
shall be equal to the average of the closing prices of the shares of Parent
Common Stock on the New York Stock Exchange ("NYSE") Composite Transactions
Reporting System, as reported in The Wall Street Journal, for the 20 trading
days immediately preceding the second trading day prior to the Effective Time.
(d) Cash Election. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive cash for all or any part
of such holder's shares of Company Common Stock (a "Cash Election").
Notwithstanding the foregoing and subject to Section 2.01(l), the aggregate
number of shares of Company Common Stock that may be converted into the right
to receive cashin the Merger (the "Cash Election Number") will be 55% of the
total number of shares of Company Common Stock issued and outstanding as of
the close of business on the third trading day prior to the Effective Time.
Cash Elections shall be made on a form designed for that purpose (a "Form of
Election"). A holder of record of shares of Company Common Stock who holds
such shares as nominee, trustee or in another representative capacity (a
"Representative") may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers all the shares
of Company Common Stock held by such Representative for a particular
beneficial owner.
(e) Cash Election Shares. If the aggregate number of shares of Company
Common Stock covered by Cash Elections (the "Cash Election Shares") exceeds
the Cash Election Number, each Cash Election Share shall be converted into
(i) the right to receive an amount in cash, without interest, equal to the
product of (a) the Cash Consideration and (b) a fraction (the "Cash Fraction"),
the numerator of which shall be the Cash Election Number and the denominator of
which shall be the total number of Cash Election Shares, and (ii) a number of
shares of Parent Common Stock equal to the product of (a) the Exchange Ratio
and (b) a fraction equal to one minus the Cash Fraction.
(f) Stock Election. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive shares of Parent Common
Stock for all or any part of such holder's shares of Company Common Stock (a
"Stock Election"). Notwithstanding the foregoing and subject to Section
2.01(l), the aggregate number of shares of Company Common Stock that may be
converted into the right to receive shares of Parent Common Stock in the Merger
(the "Stock Election Number") shall be 45% of the total number of shares of
Company Common Stock issued and outstanding as of the close of business on the
third trading day prior to the Effective Time. Stock Elections shall be made
on a Form of Election. A Representative may submit multiple Forms of Election,
provided that such Representative certifies that each such Form of Election
covers all the shares of Company Common Stock held by such Representative for
a particular beneficial owner.
(g) Stock Election Shares. If the aggregate number of shares of Company
Common Stock covered by Stock Elections (the "Stock Election Shares") exceeds
the Stock Election Number, each Stock Election Share shall be converted into
(i) the right to receive a number of shares of Parent Common Stock, equal
to the product of (a) the Exchange Ratio and (b) a fraction (the "Stock
Fraction"), the numerator of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock Election Shares, and
(ii) an amount in cash, without interest, equal to the product of (a) the Cash
Consideration and (b) a fraction equal to one minus the Stock Fraction.
(h) Mixed Election. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive shares of Parent Common
Stock for part of such holder's shares of Company Common Stock and cash for
the remaining part of such holder's shares of Company Common Stock (the "Mixed
Election" and, collectively with Stock Election and Cash Election, the
"Election"). Mixed Elections shall be made on a Form of Election. A
Representative may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers all the shares
of Company Common Stock held by such Representative for a particular beneficial
owner. With respect to each holder of Company Common Stock who makes a Mixed
Election, the shares of Company Common Stock such holder elects to be converted
into the right to receive Cash Consideration shall be treated as Cash Election
Shares for purposes of the provisions contained in Sections 2.01(d), (e) and
(l), and the shares such holder elects to be converted into the right to
receive shares of Parent Common Stock shall be treated as Stock Election
Shares for purposes of the provisions contained in Sections 2.01(f), (g) and
(l).
(i) Form of Election. To be effective, a Form of Election must be properly
completed, signed and submitted to Parent's transfer agent and registrar,
as paying agent (the "Paying Agent"), and accompanied by the certificates
representing the shares of Company Common Stock ("Company Certificates") as to
which the election is being made (or by an appropriate guarantee of delivery
of such Company Certificate signed by a firm that is a member of any registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the Securities
Transfer Agent's Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program). Parent
shall have the discretion, which it may delegate in whole or in part to the
Paying Agent, to determine whether Forms of Election have been properly
completed, signed and submitted or revoked and to disregard immaterial defects
in Forms of Election. The decision of Parent (or the Paying Agent) in such
matters shall be conclusive and binding. Neither Parent nor the Paying Agent
shall be under any obligation to notify any person of any defect in a Form of
Election submitted to the Paying Agent. The Paying Agent shall also make all
computations contemplated by this Section 2.01, and all such computations shall
be conclusive and binding on the holders of shares of Company Common Stock.
(j) Deemed Non-Election. For the purposes hereof, a holder of shares of
Company Common Stock who does not submit a Form of Election that is received
by the Paying Agent prior to the Election Deadline (as defined in Section
2.01(k)) (the "No Election Shares") shall be deemed not to have made a Cash
Election, Stock Election or Mixed Election. If Parent or the Paying Agent
shall determine that any purported Election was not properly made, the shares
subject to such improperly made Election shall be treated as No Election
Shares. No Election Shares may be treated by the Company, in its sole
discretion, as Cash Election Shares or Stock Election Shares.
(k) Election Deadline. Parent and the Company shall each use its best
efforts to cause copies of the Form of Election to be mailed to the record
holders of Company Common Stock not less than thirty days prior to the
Effective Time and to make the Form of Election available to all persons who
become record holders of Company Common Stock subsequent to the date of such
mailing and no later than the close of business on the seventh business day
prior to the Effective Time. A Form of Election must be received by the Paying
Agent by 5:00 p.m., New York City time, on the second day after the Effective
Time, unless extended by the Company (the "Election Deadline") in order to be
effective. All elections may be revoked until the Election Deadline in writing
by the record holders submitting Forms of Election.
(l) Adjustment Per Tax Opinion. Notwithstanding anything in this Article II
to the contrary (other than the last sentence of Section 2.01(m)), the number
of shares of Company Common Stock to be converted into the right to receive
the Stock Consideration in the Merger shall be not less than that number which
would cause the ratio of (i) the closing price per share of Parent Common
Stock on the Closing Date times the aggregate number of shares of Parent Common
Stock to be issued as Stock Consideration pursuant to Section 2.01(c), to (ii)
the sum of (v) the amount set forth in the preceding clause (i) plus (w) the
aggregate Cash Consideration to be issued pursuant to Section 2.01(c) plus (x)
the number of Dissenting Shares times the per share fair value of such shares
determined pursuant to Section 2.01(n) of this Agreement or, if such fair value
has not been determined as of the date the calculation required by this Section
2.01(l) is required to be made, then times the per share Cash Consideration,
plus (y) any other amounts paid by the Company (or any affiliate thereof) to,
or on behalf of, any Company shareholder in connection with the sale,
redemption or other disposition of any Company stock in connection with the
Merger for purposes of Treasury Regulation Sections 1.368-1(e) and 1.368-1T(e)
plus (z) any extraordinary dividend distributed by the Company prior to and in
connection with the Merger for purposes of Treasury Regulation Sections
1.368-1(e) and 1.368-1T(e), to be 45%. To the extent the application of this
Section 2.01(l) results in the number of shares of Company Common Stock to be
converted into the right to receive the Stock Consideration in the Merger being
increased, the number of such shares to be converted into the right to receive
the Cash Consideration will be decreased.
(m) Anti-Dilution Provisions. In the event Parent (i) changes (or
establishes a record date for changing) the number of shares of Parent Common
Stock issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, stock combination, recapitalization, reclassification,
reorganizationor similar transaction with respect to the outstanding Parent
Common Stock or (ii) pays or makes an extraordinary dividend or distribution in
respect of Parent Common Stock (other than a distribution referred to in clause
(i) of this sentence) and, in either case, the record date therefor shall be
prior to the Effective Time, the Merger Consideration (as defined in Section
2.02(b)) shall be proportionately adjusted. Regular quarterly cash dividends
and increases thereon shall not be considered extraordinary for purposes of the
preceding sentence. If, between the date hereof and the Effective Time, Parent
shall merge or consolidate with or into any other corporation (a "Business
Combination") and the terms thereof shall provide that Parent Common Stock
shall be converted into or exchanged for the shares of any other corporation
or entity, then provision shall be made so that shareholders of the Company who
would be entitled to receive shares of Parent Common Stock pursuant to this
Agreement shall be entitled to receive, in lieu of each share of Parent Common
Stock issuable to such shareholders as provided herein, the same kind and
amount of securities or assets as shall be distributable upon such Business
Combination with respect to one share of Parent Common Stock and (subject to
the satisfaction of the condition set forth in Section 8.03(f)) the parties
hereto shall agree on an appropriate restructuring of the transactions
contemplated herein.
(n) Dissenting Shares. Each outstanding share of Company Common Stock the
holder of which has perfected his right to dissent under applicable law and
has not effectively withdrawn or lost such right as of the Effective Time (the
"Dissenting Shares") shall not be converted into or represent a right to
receive the Merger Consideration (as defined below), and the holder thereof
shall be entitled only to such rights as are granted by applicable law;
provided, however, that any Dissenting Share held by a person at the Effective
Time who shall, after the Effective Time, withdraw the demand for payment for
shares or lose the right to payment for shares, in either case pursuant to the
Business Corporation Law of the State of Connecticut, shall be deemed to be
converted into, as of the Effective Time, the right to receive cash pursuant
to Section 2.01(c) in the same manner as if such shares were Cash Election
Shares. The Company shall give Parent prompt notice upon receipt by the
Company of any such written demands for payment of the fair value of such
shares of Company Common Stock and of withdrawals of such notice and any
other instruments provided pursuant to applicable law. Any payments made in
respect of Dissenting Shares shall be made by the Surviving Corporation.
(o) Adjustment in Amount of Cash Consideration. In the event that the
Closing Date shall not have occurred on or prior to the date that is the six
(6) month anniversary of the date on which the Company Shareholders' Approval
(as defined in Section 4.13) is obtained (the "Adjustment Date"), the Cash
Consideration shall be increased, for each day after the Adjustment Date up to
and including the day which is one day prior to the earlier of the Closing Date
or the Extended Termination Date (as defined in Section 9.01(b)), by an amount
equal to $0.005.
Section 2.02 EXCHANGE OF CERTIFICATES.
(a) Deposit with Exchange Agent. As soon as practicable after the Effective
Time, the Surviving Corporation shall deposit with a bank or trust company
mutually agreeable to Parent and the Company (the "Exchange Agent"), pursuant
to an agreement in form and substance reasonably acceptable to Parent and the
Company an amount of cash and certificates representing shares of Parent
Common Stock required to effect the conversion of Company Common Stock into
Parent Common Stock and cash in accordance with Section 2.01(c).
(b) Exchange and Payment Procedures. As soon as practicable after
the Effective Time, Parent shall cause the Paying Agent to mail to each holder
of record as of the Effective Time of a certificate or certificates
representing shares of Company Common Stock (the "Certificates") that have been
converted pursuant to Section 2.01: (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Paying Agent) and (ii) instructions for effecting the surrender of the
Certificates and receiving the Merger Consideration to which such holder shall
be entitled therefor pursuant to Section 2.01. Upon surrender of a Certificate
to the Paying Agent for cancellation, together with a duly executed letter of
transmittal and such other documents as the Paying Agent may require, the
holder of such Certificate shall be entitled to receive in exchange therefor
(i) a certificate representing that number of shares of Parent Common Stock
(the "Parent Shares") into which the shares of Company Common Stock previously
represented by such Certificate are converted in accordance with Section
2.01(c), (ii) the cash to which such holder is entitled in accordance with
Section 2.01(c), and (iii) the cash in lieu of fractional Parent Shares to
which such holder has the right to receive pursuant to Section 2.02(d) (the
shares of Parent Common Stock and cash described in clauses (i), (ii) and
(iii) above being referred to collectively as the "Merger Consideration").
In the event the Merger Consideration is to be delivered to any person who is
not the person in whose name the Certificate surrendered in exchange therefor
is registered in the transfer records of the Company, the Merger Consideration
may be delivered to a transferee if the Certificate is presented to the Paying
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence satisfactory to the Paying Agent that any applicable
stock transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.02, each Certificate (other than a certificate representing shares of
Company Common Stock to be canceled in accordance with Section 2.01(b)) shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration contemplated by this
Section 2.02. No interest will be paid or will accrue on any cash payable to
holders of Certificates pursuant to provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares
represented hereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.02(d) until the holder of record
of such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Parent Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.02(d) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole Parent Shares and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Parent Shares.
(d) No Fractional Securities. In lieu of any such fractional securities,
each holder of Company Common Stock who would otherwise have been entitled to
a fraction of a share of Parent Common Stock upon surrender of Certificates
for exchange pursuant to this Article II will be paid an amount in cash
(without interest) equal to such holder's proportionate interest in the net
proceeds from the sale or sales in the open market by the Exchange Agent, on
behalf of all such holders, of the aggregate fractional shares of Parent Common
Stock issued pursuant to this Article II. As soon as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (i) the number
of full shares of Parent Common Stock delivered to the Exchange Agent by Parent
over (ii) the aggregate number of full shares of Parent Common Stock to be
distributed to holders of Company Common Stock (such excess being herein called
the "Excess Parent Common Shares"). The Exchange Agent, as agent for the former
holders of Company Common Stock, shall sell the Excess Parent Common Shares at
the prevailing prices on the New York Stock Exchange (the "NYSE"); provided,
however, that neither Parent nor any person related to Parent within the
meaning of Treasury Regulations Section 1.368-1(c)(2) shall be permitted to
acquire, directly or indirectly, any such Excess Parent Common Shares. The
sales of the Excess Parent Common Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall be
executed in round lots to the extent practicable. Parent shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Parent Common Shares. Until the net
proceeds of such sale have been distributed to the former holders of Company
Common Stock, the Exchange Agent will hold such proceeds in trust for such
former holders. As soon as practicable after the determination of the amount
of cash to be paid to former holders of Company Common Stock in lieu of any
fractional interests, the Exchange Agent shall make available in accordance
with this Agreement such amounts to such former holders.
(e) Closing of Transfer Books. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and
exchanged for certificates representing the appropriate number of Parent Shares
and the appropriate amount of cash as provided in Section 2.01 and in this
Section 2.02.
(f) Termination of Exchange Agent. Any certificates representing Parent
Shares deposited with the Exchange Agent pursuant to Section 2.02(a) and
not exchanged within six months after the Effective Time pursuant to this
Section 2.02 shall be returned by the Exchange Agent to Parent, which shall
thereafter act as Exchange Agent. All funds held by the Exchange Agent for
payment to the holders of unsurrendered Certificates and unclaimed at the end
of one year from the Effective Time shall be returned to the Surviving
Corporation, after which time any holder of unsurrendered Certificates shall
look as a general creditor only to Parent for payment of such funds to which
such holder may be due, subject to applicable law.
(g) Escheat. The Company shall not be liable to any person for such
shares or funds delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Company Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by the Surviving Corporation
or the Parent, as the case may be, such withheld amounts shall be treated for
all purposes of the Agreement as having been paid to the holder of the shares
of Company Common Stock in respect of which such deduction and withholding was
made by the Surviving Corporation or Parent, as the case may be.
ARTICLE III
THE CLOSING
Section 3.01 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of Winthrop, Stimson, Putnam & Roberts, Stamford,
Connecticut, at 10:00 a.m., New York City time, on the second business day
immediately following the date on which the last of the conditions set forth in
Article VIII hereof is fulfilled or waived (other than conditions that by their
nature are required to be performed on the Closing Date, but subject to
satisfaction of such conditions), or at such other time and date and place as
the Company and Parent shall mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as follows:
Section 4.01 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
4.01 of the Company Disclosure Schedule (as defined in Section 7.06(ii)), the
Company and each of its subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate
power and authority, and has been duly authorized by all necessary approvals
and orders, to own, lease and operate its assets and properties to the extent
owned, leased and operated and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its assets and properties makes such qualification necessary, other than in
such jurisdictions where the failure to be so qualified and in good standing
would not, when taken together with all other such failures, reasonably be
expected to have a material adverse effect on the business, properties,
financial condition or results of operations or prospects of the Company and
its subsidiaries taken as a whole or on the consummation of this Agreement (any
such material adverse effect being hereafter referred to as a "Company Material
Adverse Effect"). As used in this Agreement, the term "subsidiary" of a person
shall mean any corporation or other entity (including partnerships and other
business associations) of which a majority of the outstanding capital stock or
other voting securities having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such corporation or
entity shall at the time be held, directly or indirectly, by such person.
Section 4.02 SUBSIDIARIES. Section 4.02 of the Company Disclosure Schedule
sets forth a description as of the date hereof, of all material subsidiaries
and joint ventures of the Company, including the name of each such entity, the
state or jurisdiction of its incorporation or organization, the Company's
interest therein and a brief description of the principal line or lines of
business conducted by each such entity. As of the date hereof, the Company is
an exempt holding company under the Public Utility Holding Company Act of 1935,
as amended (the "1935 Act"). Except as set forth in Section 4.02 of the
Company Disclosure Schedule, all of the issued and outstanding shares of
capital stock owned by the Company of each Company subsidiary are validly
issued, fully paid, nonassessable and free of preemptive rights, and are owned,
directly or indirectly, by the Company free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such subsidiary to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment,
except for any of the foregoing that could not reasonably be expected to have a
Company Material Adverse Effect. As used in this Agreement, the term "joint
venture" of a person shall mean any corporation or other entity (including
partnerships and other business associations) that is not a subsidiary of such
person, in which such person or one or more of its subsidiaries owns an equity
interest, other than equity interests held for passive investment purposes
which are less than 10% of any class of the outstanding voting securities or
equity of any such entity.
Section 4.03 CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock. As of the close of
business on June 11, 1999 there were issued and outstanding 10,625,886 shares
of Company Common Stock. All of the issued and outstanding shares of the
capital stock of the Company are validly issued, fully paid, nonassessable and
free of preemptive rights. Except as set forth in Section 4.03 of the Company
Disclosure Schedule, as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating the Company or any of the
subsidiaries of the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company, or
obligating the Company to grant, extend or enter into any such agreement or
commitment.
Section 4.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) Authority. The Company has all requisite corporate power and authority
to enter into this Agreement and, subject to obtaining the Company
Shareholders' Approval (as defined in Section 4.13) and the Company Required
Statutory Approvals (as defined in Section 4.04(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation by the Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company subject to obtaining the Company Shareholders' Approval. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the other signatories
hereto, constitutes the valid and binding obligations of the Company
enforceable against it in accordance with their terms.
(b) Non-Contravention. Except as set forth in Section 4.04(b) of the
Company Disclosure Schedule, the execution and delivery of this Agreement by
the Company do not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or lapse of time or both)
under, or result in a right of termination, cancellation, or acceleration of
any obligation under, or result in the creation of any lien, security interest,
charge or encumbrance ("Liens") upon any of the properties or assets of the
Company or any of its subsidiaries (any such violation, conflict, breach,
default, right of termination, cancellation or acceleration, loss or creation,
a "Violation" with respect to the Company (such term when used in Article V
having a correlative meaning with respect to Parent)) pursuant to any
provisions of (i) the articles of organization, by-laws or similar governing
documents of the Company, any of its subsidiaries or any of its joint ventures,
(ii) subject to obtaining the Company Required Statutory Approvals and the
receipt of the Company Shareholders' Approval, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any Governmental Authority (as defined in Section 4.04(c)) applicable to the
Company, any of its subsidiaries or any of its joint ventures, or any of their
respective properties or assets or (iii) subject to obtaining the third-party
consents or other approvals set forth in Section 4.04(b) of the Company
Disclosure Schedule (the "Company Required Consents") any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which the
Company, any of its subsidiaries or any of its joint ventures is a party or by
which it or any of its properties or assets may be bound or affected, excluding
from the foregoing clauses (i), (ii) and (iii) such Violations as would not
reasonably be expected to have, in the aggregate, a Company Material Adverse
Effect.
(c) Statutory Approvals. Except as described in Section 4.04(c) of the
Company Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange or
other self-regulatory body) or authority (each, a "Governmental Authority") is
necessary for the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, the
failure to obtain, make or give which would reasonably be expected to have, in
the aggregate, a Company Material Adverse Effect (the "Company Required
Statutory Approvals"), it being understood that references in this Agreement to
"obtaining" such Company Required Statutory Approvals shall mean making such
declarations, filings or registrations, giving such notices, obtaining such
authorizations, consents or approvals and having such waiting periods expire,
if any, as are necessary to avoid a violation of law.
(d) Compliance. Except as set forth in Section 4.04(d) or Section 4.11 of
the Company Disclosure Schedule, or as disclosed in the Company SEC Reports
(as defined in Section 4.05) filed prior to the date hereof, neither the
Company, nor any of its subsidiaries nor (to the best of its knowledge) any of
its joint ventures is in violation of or has been given notice of any purported
violation of, any law, statute, order, rule, regulation or judgment (including,
without limitation, any applicable Environmental Law, as defined in Section
4.11(f)(ii)) of any Governmental Authority except for violations that, in the
aggregate, are not reasonably expected to have a Material Adverse Effect.
Except as set forth in Section 4.04(d) of the Company Disclosure Schedule or
in Section 4.11 of the Company Disclosure Schedule or as disclosed in the
Company SEC Reports, the Company and its subsidiaries have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct their respective businesses as currently
conducted in all respects, except those which the failure to obtain would,
in the aggregate, not reasonably be expected to have a Company Material Adverse
Effect. Except as set forth in Section 4.04(d) of the Company Disclosure
Schedule or as disclosed in the Company SEC Reports, the Company and each of
its subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result
in a default under, (i) its certificate of incorporation or by-laws or (ii)
any contract, commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to which it is a party
or by which it is bound or to which any of its property is subject, except for
breaches, violations or defaults that, in the aggregate, are not reasonably
expected to have a Company Material Adverse Effect.
(e) Except as set forth in Section 4.04(e) of the Company Disclosure
Schedule, there is no "non-competition" or other similar consensual contract
or agreement that restricts the ability of the Company or any of its affiliates
to conduct business in any geographic area or that would reasonably be likely
to restrict the Surviving Corporation or any of its affiliates to conduct
business in any geographic area.
Section 4.05 REPORTS AND FINANCIAL STATEMENTS. The filings required to
be made by the Company and its subsidiaries since September 30, 1996 under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the 1935 Act, the
Federal Power Act, as amended (the "Power Act") and applicable state public
utility laws and regulations have been filed with the Securities and Exchange
Commission (the "SEC"), the Federal Energy Regulatory Commission (the "FERC")
or the appropriate state public utilities commission, as the case may be,
including all forms, statements, reports, exhibits and amendments appertaining
thereto, and complied, as of their respective dates, in all material respects
with all applicable requirements of the appropriate statute and the rules and
regulations thereunder. The Company has made available to Parent a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since September 30, 1996
(as such documents have since the time of their filing been amended, the
"Company SEC Reports"). As of their respective dates, the Company SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company SEC Reports
(collectively, the "Company Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP") (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present the consolidated financial position of the
Company as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended. True and complete copies of the articles
of organization and by-laws of the Company, as in effect on the date hereof,
have been made available to Parent.
Section 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed prior to the date hereof or as set forth in
Section 4.06 of the Company Disclosure Schedule, since September 30, 1998, the
Company and each of its subsidiaries have conducted their business only in the
ordinary course of business consistent with past practice, and there has not
been, and no fact or condition exists which has or could reasonably be expected
to have, a Company Material Adverse Effect.
Section 4.07 LITIGATION. Except as disclosed in the Company SEC Reports
filed prior to the date hereof or as set forth in Section 4.07, Section 4.09 or
Section 4.11 of the Company Disclosure Schedule, (i) there are no claims,
suits, actions or proceedings, pending or threatened, nor are there any
investigations or reviews pending or threatened against, relating to or
affecting the Company or any of its subsidiaries, and (ii) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to the Company or any of its subsidiaries, except for any of the
foregoing under clauses (i) and (ii) that individually or in the aggregate
would not reasonably be expected to have a Company Material Adverse Effect.
Section 4.08 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC in connection with the issuance of shares of
Parent Common Stock in the Merger (the "Registration Statement") will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the proxy statement, in definitive form (the "Proxy
Statement"), relating to the Company Special Meeting (as defined below) shall,
at the dates mailed to shareholders and at the time of the Company Special
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference in the Proxy
Statement based on information supplied by Parent or Merger Sub for inclusion
or incorporation by reference therein. The Registration Statement and the
Proxy Statement, insofar as they relate to the Company or any of its
subsidiaries, shall comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder.
Section 4.09 TAX MATTERS. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes. "Tax Return," as used in this Agreement, means a
report, return or other written information required to be supplied to a
governmental entity with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any of its subsidiaries, on the one hand, or Parent or
any of its subsidiaries, on the other hand.
Except as disclosed in Section 4.09 of the Company Disclosure Schedule:
(a) Filing of Timely Tax Returns. The Company and each of its
subsidiaries have duly filed (or there has been filed on its behalf) within the
time prescribed by law all material Tax Returns required to be filed by each of
them under applicable law. All such Tax Returns were and are in all material
respects true, complete and correct.
(b) Payment of Taxes. The Company and each of its subsidiaries have,
within the time and in the manner prescribed by law, paid all material Taxes
that are currently due and payable except for those contested in good faith
and for which adequate reserves have been taken.
(c) Tax Reserves. The Company and its subsidiaries have established on
their books and records adequate reserves for all Taxes and for any liability
for deferred income taxes in accordance with GAAP.
(d) Extensions of Time for Filing Tax Returns. Neither the Company nor
any of its subsidiaries have requested any extension of time within which to
file any material Tax Return, which Tax Return has not since been filed.
(e) Waivers of Statute of Limitations. Neither the Company nor any of its
subsidiaries has in effect any extension, outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect
to any material Taxes or material Tax Returns.
(f) Expiration of Statute of Limitations. The federal and state income Tax
Returns of the Company and each of its subsidiaries either have been examined
and settled with the appropriate Tax authority or closed by virtue of the
expiration of the applicable statute of limitations for all years through
and including 1994, and no deficiency for any Taxes has been proposed, asserted
or assessed against the Company or any of its subsidiaries that has not been
resolved and paid in full except for those contested in good faith and for
which adequate reserves have been established.
(g) Audit, Administrative and Court Proceedings. No material audits
or other administrative proceedings are presently pending or threatened with
regard to any Taxes or Tax Returns of the Company or any of its subsidiaries
and no currently pending issue has been raised in writing by any Tax authority
in connection with any Tax or Tax Return (other than those being contested in
good faith and for which adequate reserves have been established).
(h) Tax Rulings. Neither the Company nor any of its subsidiaries has
received a Tax Ruling (as defined below) or entered into a Closing Agreement
(as defined below) with any taxing authority that would have a continuing
adverse effect after the Closing Date. "Tax Ruling," as used in this
Agreement, shall mean a written ruling of a taxing authority relating to Taxes.
"Closing Agreement," as used in this Agreement, shall mean a written and
legally binding agreement with a taxing authority relating to Taxes.
(i) Availability of Tax Returns. The Company has provided or made
available to Parent complete and accurate copies of (i) all Tax Returns, and
any amendments thereto, filed by the Company or any of its subsidiaries
covering all years ending on or after December 31, 1993, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by the
Company or any of its subsidiaries covering all years ending on or after
December 31, 1993, (iii) any Closing Agreements entered into by the Company or
any of its subsidiaries with any taxing authority since December 31, 1993 and
(iv) any Tax Ruling received by the Company or any of its subsidiaries from
any taxing authority since December 31, 1993.
(j) Tax Sharing Agreements. Neither the Company nor any of its
subsidiaries is a party to any agreement relating to allocating or sharing
of Taxes.
(k) Liability for Others. Neither the Company nor any of its subsidiaries
has any liability for any material Taxes of any person other than the Company
and its subsidiaries (i) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(l) Code Section 481 Adjustments. Neither the Company nor any of its
subsidiaries is required to include in income any adjustment pursuant to Code
Section 481(a) by reason of a voluntary change in accounting method initiated
by the Company or any of its subsidiaries for any tax year, and, to the
knowledge of the Company, the IRS has not proposed any such adjustment or
change in accounting method for any tax year for which the statute of
limitations remains open.
(m) Indebtedness. No indebtedness of the Company or any of its
subsidiaries is "corporate acquisition indebtedness" within the meaning of
Code Section 279(b).
(n) Intercompany Transactions. Neither the Company nor any of its
subsidiaries has engaged in any intercompany transactions within the meaning of
Treasury Regulations Section 1.1502-13 for which any income or gain will remain
unrecognized as of the close of the last taxable year prior to the Closing
Date.
(o) Code Section 897. To the best knowledge of the Company, no foreign
person owns or has owned beneficially more than five percent of the total fair
market value of Company Common Stock during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(p) Code Section 355. Neither the Company nor any of its subsidiaries has
constituted a "distributing corporation" in a distribution of stock qualifying
for tax-free treatment under Section 355 of the Code in the past 24 month
period or in a distribution which could otherwise constitute part of a "plan"
or a series of "related transactions" (within the meaning of Code Section
355(e)).
Section 4.10 EMPLOYEE MATTERS; ERISA.
(a) Each "employee benefit plan" (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), bonus,
severance, change in control, deferred compensation, share option or other
written agreement, plan, commitment or arrangement relating to employment or
fringe benefits for employees, former employees, officers, trustees or
directors of the Company or any of its subsidiaries effective as of the date
hereof or providing benefits as of the date hereof to current employees,
former employees, officers, trustees or directors of the Company or pursuant
to which the Company or any of its subsidiaries has or could reasonably be
expected to have any liability (collectively, the "Company Employee Benefit
Plans") is listed in Schedule 4.10(a) of the Company Disclosure Schedule, is
in material compliance with applicable law, and has been administered and
operated in all material respects in accordance with its terms. Each Company
Employee Benefit Plan which is intended to be qualified within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the IRS as to such qualification and, to the knowledge of the Company, no
event has occurred and no condition exists which could reasonably be expected
to result in the revocation of, or have any adverse effect on, any such
determination.
(b) Complete and correct copies of the following documents have been made
available to Parent as of the date of this Agreement: (i) all Company
Employee Benefit Plans and any related trust agreements or insurance contracts
or funding agreement, (ii) the most current summary descriptions and summary of
material modifications of each Company Employee Benefit Plan subject to ERISA,
(iii) the three most recent Form 5500s and Schedules thereto for each Company
Employee Benefit Plan subject to such reporting, (iv) the most recent
determination of the IRS with respect to the qualified status of each Company
Employee Benefit Plan that is intended to qualify under Section 401(a) of the
Code, (v) the most recent accountings with respect to each Company Employee
Benefit Plan funded through a trust and (vi) the most recent actuarial report
of the qualified actuary of each Company Employee Benefit Plan with respect to
which actuarial valuations are conducted.
(c) Each Company Employee Benefit Plan subject to the requirements of
Section 601 of ERISA has been operated in material compliance therewith. The
Company has not contributed to a nonconforming group health plan (as defined
in Code Section 5000(c)) and no person under common control with the Company
within the meaning of Section 414 of the Code ("ERISA Affiliate") has incurred
a tax liability under Code Section 5000(a) that is or could reasonably be
expected to be a liability of the Company.
(d) Except as set forth in Schedule 4.10(d) of the Company Disclosure
Schedule, each Company Employee Benefit Plan covers only employees who are
employed by the Company or a subsidiary (or former employees or beneficiaries
with respect to service with the Company or a subsidiary).
(e) Except as set forth in Schedule 4.10(e) of the Company Disclosure
Schedule, neither the Company, any subsidiary, any ERISA Affiliate nor any
other corporation or organization controlled by or under common control with
any of the foregoing within the meaning of Section 4001 of ERISA has at any
time contributed to any "multiemployer plan," as that term is defined in
Section 4001 of ERISA.
(f) No event has occurred, and there exists no condition or set of
circumstances in connection with any Company Employee Benefit Plan, under which
the Company or any subsidiary, directly or indirectly (through any
indemnification agreement or otherwise), could be subject to any liability
under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or
Section 4975 of the Code except for instances of non-compliance which,
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect.
(g) Neither the Company nor any ERISA Affiliate has incurred any liability
to the Pension Benefit Guaranty Corporation (the "PBGC") under Section
302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise that has not been
satisfied in full and no event or condition exists or has existed which could
reasonably be expected to result in any such material liability. As of the
date of this Agreement, no "reportable event" within the meaning of Section
4043 of ERISA has occurred with respect to any Company Employee Benefit Plan
that is a defined benefit plan under Section 3(35) of ERISA.
(h) Except as set forth in Schedule 4.10(h) of the Company Disclosure
Schedule, no employer securities, employer real property or other employer
property is included in the assets of any Company Employee Benefit Plan.
(i) Except as set forth in Section 4.10(i) of the Company Disclosure
Schedule, full payment has been made of all material amounts which the Company
or any affiliate thereof was required under the terms of Company Employee
Benefit Plans to have paid as contributions to such plans on or prior to the
Effective Time (excluding any amounts not yet due) and no Company Employee
Benefit Plan which is subject to Part III of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
(j) Except as set forth in Schedule 4.10(j) of the Company Disclosure
Schedule, no material amounts payable under any Company Employee Benefit Plan
or other agreement, contract, or arrangement will fail to be deductible for
federal income tax purposes by virtue of Section 280G or Section 162(m) of the
Code. Except as set forth in Schedule 4.10(j), the transactions contemplated by
this Agreement will not result in accelerated vesting or accelerated payment
of benefits under any Company Employee Benefit Plan.
(k) Except as set forth in Section 4.10(k) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor agreement with any union or
labor organization. No labor organization or group of employees of the
Company or any of its subsidiaries has made a pending demand for recognition
or certification, and there are no representation or certification proceedings
or petitions seeking a representation proceeding presently pending or, to the
knowledge of the Company, threatened to be brought or filed, with the National
Labor Relations Board or any other labor relations tribunal or authority. The
Company has delivered or otherwise made available to Parent true, correct and
complete copies of the collective bargaining agreements listed in Section
4.10(k) of the Company Disclosure Schedule, together with all amendments,
modifications or supplements thereto. Except as set forth in Schedule 4.10(k)
of the Company Disclosure Schedule, there are no organizing activities,
strikes, work stoppages, slowdowns, lockouts, arbitrations or grievances, or
other labor practice charges or disputes pending or, to the knowledge of the
Company, threatened against or involving the Company or any of its subsidiaries
which could reasonably be expected to have a Company Material Adverse Effect.
Each of the Company and its subsidiaries is in compliance with all applicable
laws and collective bargaining agreements respecting employment and employment
practices, terms and conditions of employment, wages and hours and occupational
safety and health, except for non-compliances which in the aggregate could not
reasonably be expected to have a Company Material Adverse Effect.
Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 4.11 of
the Company Disclosure Schedule or in the Company SEC Reports filed prior to
the date hereof:
(a) Compliance. The Company and each of its subsidiaries are in compliance
with all applicable Environmental Laws (as defined in Section 4.11(f)(ii))
except where the failure to be in such compliance would not, in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, and neither
the Company nor any of its subsidiaries has received any written communication
from any person or Governmental Authority that alleges that the Company or any
of its subsidiaries is not in compliance with applicable Environmental Laws.
(b) Environmental Permits. The Company and each of its subsidiaries has
obtained or has applied for all permits, consents, licenses, variances,
certificates, exemptions, orders, franchises, authorizations and approvals
necessary under any Environmental Laws (collectively, the "Environmental
Permits") for the construction of its facilities or the conduct of its
operations, and all such Environmental Permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending agency
approval, and the Company and its subsidiaries are in compliance with all terms
and conditions of the Environmental Permits, except where the failure to obtain
or to be in such compliance would not, in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.
(c) Environmental Claims. There is no Environmental Claim (as defined in
Section 4.11(f)(i)) pending (i) against the Company or any of its subsidiaries,
or (ii) against any real or personal property or operations that the Company or
any of its subsidiaries owns, leases or manages, in whole or in part that, if
adversely determined, would reasonably be expected to have, in the aggregate,
a Company Material Adverse Effect.
(d) Releases. Except for Releases of Hazardous Materials the liability for
which would not reasonably be expected to have, in the aggregate, a Company
Material Adverse Effect, there have been no Releases (as defined in Section
4.11(f)(iv)) of any Hazardous Material (as defined in Section 4.11(f)(iii))
that would be reasonably likely to form the basis of any Environmental Claim
against the Company or any of its subsidiaries.
(e) Predecessors. The Company has no knowledge of any Environmental Claim
pending or threatened, or of any Release of Hazardous Materials that would be
reasonably likely to form the basis of any Environmental Claim, in each case
against any person or entity (including, without limitation, any predecessor of
the Company or any of its subsidiaries) whose liability the Company or any of
its subsidiaries has or may have retained or assumed either contractually or by
operation of law, except for Releases of Hazardous Materials the liability for
which would not reasonably be expected to have, in the aggregate, a Company
Material Adverse Effect.
(f) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation by any person or entity (including any Governmental Authority)
alleging potential liability (including, without limitation, potential
responsibility for or liability for enforcement costs, investigatory costs,
cleanup costs, governmental response costs, removal costs, remedial costs,
natural-resources damages, property damages, personal injuries, fines or
penalties) arising out of, based on or resulting from (A) the presence,
or Release or threatened Release into the environment, of any Hazardous
Materials at any location, whether or not owned, operated, leased or managed
by the Company or any of their respective subsidiaries or joint ventures;
or (B) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law; or (C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any Hazardous
Materials.
(ii) "Environmental Laws" means all federal, state, local laws,
rules, ordinances and regulations relating to pollution, the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or protection of human health as it
relates to the environment including, without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, coal tar residue, and transformers
or other equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBs") in regulated concentrations; and (B) any chemicals,
materials or substances which are now defined as or included in the definition
of "hazardous substances", "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "hazardous constituents" or words of similar
import, under any Environmental Law; and (C) any other chemical, material,
substance or waste, exposure to which is now prohibited, limited or regulated
under any Environmental Law in a jurisdiction in which the Company or any of
its subsidiaries or joint ventures operates or has stored, treated or disposed
of Hazardous Materials.
(iv) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
Section 4.12 REGULATION AS A UTILITY. Except as set forth in Section 4.12 of
the Company Disclosure Schedule, neither the Company nor (in the case of
clauses (ii), (iii) and (iv)) any "associate company," "subsidiary company"
or "affiliate" (as such terms are defined in the 1935 Act) of the Company is
(i) registered, or required to be registered, under the 1935 Act, (ii) subject
to regulation as a "public utility" under the Federal Power Act, (iii) subject
to regulation as a "natural-gas company" under the Natural Gas Act, or (iv)
subject to regulation as a public utility or public service company (or similar
designation) by any state in the United States other than Connecticut or by any
foreign country.
Section 4.13 VOTE REQUIRED. The approval of the Merger by two-thirds of the
votes entitled to be cast by all holders of Company Common Stock (the "Company
Shareholders' Approval") is the only vote of the holders of any class or series
of the capital stock of the Company or any of its subsidiaries required to
approve this Agreement, the Merger and the other transactions contemplated
hereby.
Section 4.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of SG Barr Devlin to the effect that, as of June 14, 1999, the Merger
Consideration is fair from a financial point of view to the holders of Company
Common Stock.
Section 4.15 OWNERSHIP OF PARENT COMMON STOCK. Except as set forth in
Section 4.15 of the Company Disclosure Schedule, the Company does not
"beneficially own" (as such term is defined for purposes of Section 13(d) of
the Exchange Act) any shares of Parent Capital Stock.
Section 4.16 TAKEOVER PROVISIONS; RIGHTS PLANS.
(a) The Company has taken (and will take) all action required to be taken
by it in order to exempt this Agreement and the transactions contemplated
hereby from, and this Agreement and the transactions contemplated hereby are
exempt from (i) the requirements of any "moratorium," "control share," "fair
price" or other anti-takeover laws and regulations (collectively, "Takeover
Laws") of the State of Connecticut, including Sections 33-841 and 33-844 of
the CBCA, and (ii) the provisions of Section 1 of Article VII of the Restated
Certificate of Incorporation of the Company.
(b) The Company has taken all action necessary so that the entering into
of this Agreement and the consummation of the transactions contemplated hereby
(including the Merger) do not and will not result in the ability of any person
to exercise any Rights under the Rights Agreement, dated as of November 20,
1989, between the Company and Mellon Bank, N.A., as Rights Agent, as amended
(the "Company Rights Agreement") or enable or require the Company Rights to
separate from the shares of Company Common Stock to which they are attached or
to be triggered or become exercisable.
(c) No "Distribution Date" or "Triggering Event" (as such terms are defined
in the Company Rights Plan) has occurred.
Section 4.17 INSURANCE. Except as set forth in Section 4.17(a) of the Company
Disclosure Schedule, the Company and each of its subsidiaries is, and has been
continuously since January 1, 1993, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business as conducted by the
Company and each of its subsidiaries during such time period.
Except as set forth in Section 4.17(b) of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy of
the Company or any of its subsidiaries. The insurance policies of the Company
and each of its subsidiaries are valid and enforceable policies in all material
respects.
Section 4.18 INTELLECTUAL PROPERTY. The Company and each of its subsidiaries
own or have adequate rights to use all material trademarks, trade names,
patents, service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights used in the operation of their business
(collectively, the "Company Intellectual Property"). Except as set forth in
Section 4.18(a) of the Company Disclosure Schedule, all of the Company
Intellectual Property owned by the Company or any of its subsidiaries is free
and clear of any and all encumbrances, and neither the Company nor any of its
subsidiaries has forfeited or otherwise relinquished any Company Intellectual
Property which forfeiture or relinquishment could reasonably be expected to
have a Company Material Adverse Effect. To the knowledge of the Company,
except as set forth in Section 4.18(b) of the Company Disclosure Schedule, the
use of the Company Intellectual Property by the Company or any of its
subsidiaries does not infringe upon, violate or constitute a misappropriation
of any right, title or interest in any intellectual property right (including,
without limitation, any trademark, trade name, patent, service mark, brand
mark, brand name, computer program, database, industrial design or copyright)
of any other person, and neither the Company nor any of its subsidiaries has
received written notice of any claim that any of the Company Intellectual
Property is invalid or infringes the asserted rights of any other person, and,
to the knowledge of the Company, the Company Intellectual Property owned by
the Company has not been used or enforced or has failed to be used or enforced
in a manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of any of such Company Intellectual Property,
except for such conflicts, infringements, violations, interferences, claims,
invalidity, abandonments, cancellations or unenforceability that could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
Section 4.19 YEAR 2000. The computer software, hardware and firmware
(including microprocessors) operated or used by the Company or any of its
subsidiaries which is used in the conduct of their business (in both
information technology and other applications) is, or by September 30,
1999 will be, capable of providing or being adapted (i) to allow the conduct
of the business of the Company and its subsidiaries as currently conducted and
(ii) to provide uninterrupted millennium functionality to record, store,
process and present calendar dates falling on or after January 1, 2000 in
substantially the same manner and with the same functionality as such software,
hardware and firmware records, stores, processes and presents such calendar
dates falling on or before December 31, 1999 ("Year 2000 Compliance") other
than such interruptions in millennium functionality that could not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect; provided, however, that the Company makes no
representation or warranty with respect to Year 2000 Compliance of any
supplier, third-party vendor or governmental body, agency or instrumentality.
The Company reasonably believes as of the date hereof that the remaining cost
of adaptations referred to in the foregoing sentence will not materially exceed
the amounts reflected in the Form 10-Q filed by the Company for the quarter
ended March 31, 1999.
Section 4.20 COMMODITY DERIVATIVES AND CREDIT EXPOSURE MATTERS. Except as
set forth in Section 4.20 of the Company Disclosure Schedule, the Company and
each of its subsidiaries do not in the aggregate have (quantified on a market-
to-market basis and calculated with respect to physical and financial positions
exposure): (a) natural gas forward price exposure exceeding $1 million,
(b) on-system pipeline transportation (basis) exposure exceeding $1 million or
(c) off-system pipeline transportation (basis) exposure exceeding $1 million.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 5.01 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
5.01 of Parent Disclosure Schedule, Parent and each of its subsidiaries is a
Massachusetts business trust or corporation, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate
power and authority, and has been duly authorized by all necessary approvals
and orders, to own, lease and operate its assets and properties to the extent
owned, leased and operated and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its assets and properties makes such qualification necessary, other than in
such jurisdictions where the failure to be so qualified and in good standing
would not, when taken together with all other such failures, reasonably be
expected to have a material adverse effect on the business, properties,
financial condition, results of operations or prospects of Parent and its
subsidiaries taken as a whole or on the consummation of this Agreement (any
such material adverse effect being hereafter referred to as a "Parent Material
Adverse Effect").
Section 5.02 SUBSIDIARIES. Section 5.02 of Parent Disclosure Schedule sets
forth a description as of the date hereof of all material subsidiaries and
joint ventures of Parent, including the name of each such entity, the state or
jurisdiction of its incorporation or organization, Parent's interest therein,
and a brief description of the principal line or lines of business conducted by
each such entity. As of the date hereof, Parent is a registered holding
company under the 1935 Act. Except as set forth in Section 5.02 of Parent
Disclosure Schedule, all of the issued and outstanding shares of capital stock
of each Parent subsidiary are validly issued, fully paid, nonassessable and
free of preemptive rights, and are owned directly or indirectly by Parent free
and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Parent subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into
any such agreement or commitment; except for any of the foregoing that could
not reasonably be expected to have a Parent Material Adverse Effect.
Section 5.03 CAPITALIZATION.
(a) Except as set forth in Section 5.03 of Parent Disclosure Schedule, the
authorized capital stock of Parent consists of 225,000,000 shares of Parent
Common Stock. As of the close of business on June 11, 1999, there were issued
and outstanding 137,116,862 shares of Parent Common Stock. All of the issued
and outstanding shares of the capital stock of Parent are, and will be, validly
issued, fully paid, nonassessable and, except as set forth in the Declaration
of Trust, free of preemptive rights. Except as set forth in Section 5.03 of
Parent Disclosure Schedule, as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Parent or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of Parent, or obligating Parent
to grant, extend or enter into any such agreement or commitment.
(b) The authorized capital stock of Merger Sub, when formed, will consist
of not less than 1,000 shares of common stock, no par value ("Merger Sub Common
Stock"). Immediately prior to the Effective Time, all of the issued and
outstanding shares of Merger Sub Common Stock will be owned by Parent.
Section 5.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) Authority. Parent has all requisite corporate power and authority to
enter into this Agreement and, subject to the applicable Parent Required
Statutory Approvals (as defined in Section 5.04(c)), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation by Parent of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of Parent. This Agreement has been duly and validly executed and
delivered by Parent and, assuming the due authorization, execution and delivery
by the other signatories hereto, constitutes a valid and binding obligation of
Parent enforceable against it in accordance with its terms.
(b) Non-Contravention. Except as set forth in Section 5.04(b) of Parent
Disclosure Schedule, the execution and delivery of this Agreement by Parent
do not, and the consummation of the transactions contemplated hereby will not,
result in a Violation pursuant to any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of Parent or any of its
subsidiaries or any of its joint ventures, (ii) subject to obtaining Parent
Required Statutory Approvals (as defined in Section 5.04(c)) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any Governmental Authority applicable to Parent or any of its
subsidiaries or any of its joint ventures or any of their respective properties
or assets or (iii) subject to obtaining the third-party consents or other
approvals set forth in Section 5.04(b) of Parent Disclosure Schedule (the
"Parent Required Consents"), any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
subsidiaries or any of its joint ventures is a party or by which it or any of
its properties or assets may be bound or affected, excluding from the foregoing
clauses (i), (ii) and (iii) such Violations as would not reasonably be expected
to have, in the aggregate, a Parent Material Adverse Effect.
(c) Statutory Approvals. Except as described in Section 5.04(c) of Parent
Disclosure Schedule, no declaration, filing or registration with, or notice
to or authorization, consent or approval of, any Governmental Authority is
necessary for the execution and delivery of this Agreement by Parent or the
consummation by Parent of the transactions contemplated hereby, the failure to
obtain, make or give which would reasonably be expected to have, in the
aggregate, a Parent Material Adverse Effect (the "Parent Required Statutory
Approvals"), it being understood that references in this Agreement to
"obtaining" such Parent Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notices; obtaining such
authorizations, consents or approvals; and having such waiting periods expire,
if any, as are necessary to avoid a violation of law.
(d) Compliance. Except as set forth in Section 5.04(d) or Section 5.11 of
Parent Disclosure Schedule, or as disclosed in Parent SEC Reports (as defined
in Section 5.05) filed prior to the date hereof, neither Parent nor any of
its subsidiaries nor (to the best of its knowledge) any of its joint ventures
is in violation of, or has been given notice of any purported violation of,
any law, statute, or order, rule, regulation or judgment (including, without
limitation, any applicable Environmental Law) of any Governmental Authority,
except for violations that, in the aggregate, are not reasonably expected to
have, a Parent Material Adverse Effect. Except as set forth in Section
5.04(d) of Parent Disclosure Schedule or in Section 5.11 of Parent Disclosure
Schedule or as disclosed in Parent SEC Reports, Parent and its subsidiaries
and joint ventures have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct their
respective businesses as currently conducted in all respects, except those
which the failure to obtain would, in the aggregate, not reasonably be expected
to have a Parent Material Adverse Effect. Except as set forth in Section
5.04(d) of Parent Disclosure Schedule or as disclosed in Parent SEC Reports,
Parent and each of its subsidiaries are not in breach or violation of or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a third party, could
result in a default under (i) its articles of organization or by-laws or
(ii) any material contract, commitment, agreement, indenture, mortgage, loan
agreement, note, lease, bond, license, approval or other instrument to which
it is a party or by which it is bound or to which any of its property is
subject; except for breaches, violations or defaults that, in the aggregate,
are not reasonably expected to have, a Parent Material Adverse Effect.
Section 5.05 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Parent and its subsidiaries since January 1, 1996 under the Securities
Act, the Exchange Act, the 1935 Act, the Power Act and applicable state public
utility laws and regulations have been filed with the SEC, the FERC or the
appropriate state public utilities commission, as the case may be, including
all forms, statements, reports, exhibits and amendments appertaining thereto,
and complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statute and the rules and
regulations thereunder. Parent has made available to the Company a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent or its predecessor with the SEC since
January 1, 1996 (as such documents have since the time of their filing been
amended, "Parent SEC Reports"). As of their respective dates, Parent SEC
Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Parent included in Parent SEC Reports
(collectively, the "Parent Financial Statements") have been prepared in
accordance with GAAP (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by
Form 10-Q of the SEC) and fairly present the consolidated financial position
of Parent as of the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended. A true and complete
copy of the Declaration of Trust, as in effect on the date hereof, has been
made available to the Company.
Section 5.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Parent SEC Reports filed prior to the date hereof or as set forth in Section
5.06 of Parent Disclosure Schedule, since December 31, 1998, Parent and each of
its subsidiaries have as of the date hereof conducted their businesses only in
the ordinary course of business consistent with past practice and there has not
been, and no fact or condition exists, which has or could reasonably be
expected to have, a Parent Material Adverse Effect.
Section 5.07 LITIGATION. Except as disclosed in Parent SEC Reports filed
prior to the date hereof or as set forth in Section 5.07 of Parent Disclosure
Schedule, (i) there are no claims, suits, actions or proceedings, pending or
threatened, nor are there any investigations or reviews pending or threatened
against, relating to or affecting Parent or any of its subsidiaries, which
would have a Parent Material Adverse Effect and (ii) there are no judgments,
decrees, injunctions, rules or orders of any court, governmental department,
commission, agency, instrumentality or authority or any arbitrator applicable
to Parent or any of its subsidiaries, except for such that would not reasonably
be expected to have a Parent Material Adverse Effect.
Section 5.08 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Parent for inclusion
or incorporation by reference in (i) the Registration Statement will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Proxy Statement shall, at the dates mailed to the
Company shareholders and at the time of the Company Special Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading.
The Registration Statement and the Proxy Statement, insofar as they relate to
Parent or any Parent subsidiary, shall comply as to form in all material
respects with the applicable provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder.
SECTION 5.09 REGULATION AS A UTILITY. Parent is a public utility holding
company registered under, and subject to the provisions, of, the 1935 Act.
Section 5.09 of the Parent Disclosure Schedule lists the subsidiaries of Parent
that are "public utility companies" within the meaning of Section 2(a)(5) of
the 1935 Act and lists the jurisdictions where each such subsidiary is subject
to regulation as a public utility company or public service company. Except as
set forth above and as set forth in Section 5.09 of the Parent Disclosure
Schedule, neither the Parent nor any "subsidiary company" or "affiliate" (as
such terms are defined in the 1935 Act) of Parent is subject to regulation as
a public utility or public service company (or similar designation) by the
Federal government of the United States, any state in the United States or any
political subdivision thereof, or any foreign country.
Section 5.10 OWNERSHIP OF THE COMPANY COMMON STOCK. Except as set forth
in Section 5.10 of Parent Disclosure Schedule, Parent does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange
Act) any shares of Company Common Stock.
Section 5.11 ENVIRONMENTAL PROTECTION. Except as would not, in the aggregate,
reasonably be expected to result in a Parent Material Adverse Effect, and
except for matters disclosed in Parent SEC Reports, (i) Parent and its
subsidiaries are in compliance with all applicable Environmental Laws and the
terms and conditions of all applicable Environmental Permits, and neither
Parent nor any of its subsidiaries has received any written notice from any
Governmental Authority that alleges that Parent or any of its subsidiaries is
not in material compliance with applicable Environmental Laws or the terms and
conditions of all such Environmental Permits, (ii) there are no Environmental
Claims pending or threatened (A) against Parent or any of its subsidiaries, or
(B) against any person or entity whose liability for any Environmental Claim
Parent or any of its subsidiaries has or may have retained or assumed either
contractually or by operation of law and (iii) there has been no Release of
Hazardous Materials that would be reasonably likely to form the basis of any
Environmental Claim against Parent or any of its subsidiaries.
Section 5.12 FINANCING. Parent has or will have available, prior to the
Effective Time, sufficient cash in immediately available funds to pay or to
cause Merger Sub to pay all Cash Consideration required to be paid pursuant to
Article II hereof and to consummate the Merger and other transactions
contemplated hereby.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.01 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, Parent and the
Company each agree as follows, each as to itself and to each of its
subsidiaries, except as expressly contemplated or permitted in this Agreement,
or to the extent the other parties hereto shall otherwise consent in writing:
(a) Ordinary Course of Business. Except as disclosed in Section 6.01(a)
of the Company Disclosure Schedule, the Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
in substantially the same manner as heretofore conducted and use all
commercially reasonable efforts to (i) preserve intact their present business
organizations and goodwill and preserve the goodwill and relationships with
customers, suppliers and others having business dealings with them, (ii)
subject to prudent management of workforce needs and ongoing programs currently
in force, keep available the services of their present officers and employees
as a group, and (iii) maintain and keep material properties and assets in as
good repair and condition as at present, subject to ordinary wear and tear,
and maintain supplies and inventories in quantities consistent with past
practice.
(b) Dividends. The Company shall not, nor shall it permit any of its
subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any capital stock other than (A) dividends by a
direct or indirect subsidiary to the Company, (B) regular quarterly dividends
on Company Common Stock that do not exceed the current regular dividends on
Company Common Stock; provided that, the Company may increase the annualized
amount of such dividends by up to $.04 per share at the Company's regular Board
of Directors' meetings in each of June 1999 and June 2000; (ii) split, combine
or reclassify any capital stock or the capital stock of any subsidiary or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of capital stock or the capital
stock of any subsidiary; or (iii) redeem, repurchase or otherwise acquire any
shares of capital stock or the capital stock of any subsidiary other than (A)
redemptions, repurchases and other acquisitions of shares of capital stock in
connection with the administration of employee benefit and dividend
reinvestment plans as in effect on the date hereof in the ordinary course of
the operation of such plans consistent with past practice, or (B) intercompany
acquisitions of capital stock. Prior to the Closing Date, each of the parties
agrees to cooperate so as not to adversely affect the Company shareholders
because of the timing of record, declaration or payment dates.
(c) Issuance of Securities. Except as set forth in Section 6.01(c) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its subsidiaries to, issue, agree to issue, deliver, sell, pledge, dispose
of or otherwise encumber any shares of their capital stock of any class or any
securities convertible into or exchangeable for, or any rights, warrants or
options to acquire, any such shares or convertible or exchangeable securities,
other than (i) pursuant to outstanding stock options granted under Employee
Benefit Plans, (ii) pursuant to the Company's dividend reinvestment plan as in
effect on the date hereof, (iii) in the case of subsidiaries, for issuances of
capital stock to the Company or another subsidiary, or (iv) as may be required
by the Company Rights Agreement.
(d) Charter Documents; Other Actions. Neither party shall, nor shall any
party permit any of its subsidiaries to, amend its respective articles of
organization, by-laws or regulations, or similar organic documents or to take
or fail to take any other action, which in any such case would reasonably be
expected to prevent or materially impede or interfere with the Merger (except
to the extent permitted by Section 6.02 and Article IX).
(e) Acquisitions. Except as disclosed in Section 6.01(e) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, acquire or agree to acquire, by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or business organization or division thereof, or
otherwise acquire or agree to acquire any material amount of assets other than
(i) in the ordinary course of business, and (ii) acquisitions having an
aggregate acquisition consideration payable by the Company of not more than
$250,000.
(f) Capital Expenditures. Except (i) as set forth in Section 6.01(f)
of the Company Disclosure Schedule, (ii) as may be required by law, or (iii)
as reasonably deemed necessary by the Company following a catastrophic event,
the Company shall not, nor shall it permit any of its subsidiaries to, make
capital expenditures in excess of 110% of the aggregate amount budgeted by the
Company or its subsidiaries for capital expenditures as set forth in Section
6.01(f) of the Company Disclosure Schedule.
(g) No Dispositions. Except as set forth in Section 6.01(g) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any of
its subsidiaries to, sell, lease, or otherwise dispose of, any of its
respective assets, other than encumbrances or dispositions in the ordinary
course of business consistent with past practice.
(h) Indebtedness. Except as set forth in Section 6.01(h) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, incur or guarantee any indebtedness for borrowed money
(including any such debt guaranteed or otherwise assumed including, without
limitation, the issuance of debt securities or warrants or rights to acquire
debt) or enter into any "keep well" or other agreement to maintain any
financial statement condition of another person other than (i) short-term
indebtedness and "keep well" or similar assurances for the benefit of
customers, in each case in the ordinary course of business consistent with past
practice; (ii) arrangements between the Company and its subsidiaries or among
its subsidiaries; or (iii) in connection with the refunding of existing
indebtedness at a lower cost of funds.
(i) Compensation, Benefits. Except as set forth in Section 6.01(i) of the
Company Disclosure Schedule or as may be required by applicable law, or as
expressly contemplated by this Agreement, the Company shall not, nor shall it
permit any of its subsidiaries to, (i) enter into, adopt or amend or increase
the amount or accelerate the payment or vesting of any benefit or amount
payable under any Employee Benefit Plan, or otherwise increase the compensation
or benefits of any director, officer or other employee of such party or any of
its subsidiaries, except for normal increases in compensation and benefits in
the ordinary course of business consistent with past practice that, with
respect to employees who are not officers, in the aggregate, do not result in
an increase in benefits or compensation expense to the Company or any of its
subsidiaries in excess of five percent per year, or (ii) enter into or amend
any employment, severance or special pay arrangement with respect to the
termination of employment or other similar contract, agreement or arrangement
with any director or officer or other employee other than with respect to
employees who are not officers of the Company in the ordinary course of
business consistent with current industry practice.
(j) 1935 Act. Except as set forth in Section 6.01(j) of the Company
Disclosure Schedule, and except as required or contemplated by this Agreement,
the Company shall not, nor shall it permit any of its subsidiaries to, engage
in any activities which would cause a change in its status, or that of its
subsidiaries, under the 1935 Act.
(k) Accounting. Except as set forth in Section 6.01(k) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any of
its subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.
(l) Tax-Free Status. No party shall, nor shall any party permit any
of its subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Merger as a reorganization within
the meaning of Section 368(a) of the Code, and each party hereto shall use all
reasonable efforts to achieve such result.
(m) Cooperation, Notification. Each party shall, and shall cause its
subsidiaries to, (i) confer on a regular and frequent basis with one or more
representatives of the other party to discuss, subject to applicable law,
material operational and business matters; (ii) promptly notify the other party
of any significant changes in its business, properties, assets, condition
(financial or other), results of operations or prospects; (iii) advise the
other party of any change or event which has had or could reasonably be
expected to result in, in the case of the Company, a Company Material Adverse
Effect or, in the case of Parent, a Parent Material Adverse Effect; and (iv)
promptly provide the other party with copies of all filings made by such party
or any of its subsidiaries with any state or federal court, administrative
agency, commission or other Governmental Authority in connection with this
Agreement and the transactions contemplated hereby; provided that no party
shall be required to make any disclosure to the extent such disclosure would
constitute a violation of any applicable law or regulation.
(n) Third-Party Consents. The Company shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all the
Company Required Consents. The Company shall promptly notify Parent of any
failure or prospective failure to obtain any such consents and, if requested by
Parent shall provide copies of all the Company Required Consents obtained by
the Company to Parent. Parent shall, and shall cause its subsidiaries to, use
all commercially reasonable efforts to obtain all Parent Required Consents.
Parent shall promptly notify the Company of any failure or prospective failure
to obtain any such consents and, if requested by the Company, shall provide
copies of all Parent Required Consents obtained by Parent to the Company.
(o) No Breach, Etc. No party shall, nor shall any party permit any
of its subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement or in
any of its representations and warranties set forth in this Agreement being
untrue on and as of the Closing Date.
(p) Discharge of Liabilities. The Company shall not pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice (which includes the payment of final and unappealable judgments)
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of the Company included in the Company's reports filed with
the SEC, or incurred in the ordinary course of business consistent with past
practice.
(q) Contracts. Except as set forth in Section 6.01(q) of the Company
Disclosure Schedule, the Company shall not, and shall cause its subsidiaries
not to, except in the ordinary course of business consistent with past
practice, enter into, modify, amend, terminate, renew or fail to use reasonable
business efforts to renew any material contract or agreement to which the
Company or any of its subsidiaries is a party or waive, release or assign any
material rights or claims therein.
(r) Insurance. The Company shall, and shall cause its subsidiaries to,
maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for companies
engaged in the electric and gas utility industry.
(s) Permits. The Company shall, and shall cause its subsidiaries to,
use reasonable efforts to maintain in effect all existing governmental permits
pursuant to which the Company or any of its subsidiaries operate except for
those permits the expiration or termination of which would not reasonably be
expected to have a Company Material Adverse Effect.
(t) Takeover Laws. Neither party shall take any action that would cause
the transactions contemplated by this Agreement to be subject to requirements
imposed by any Takeover Law, and each of them shall take all necessary steps
within its control to exempt (or ensure the continued exemption of) the
transactions contemplated by this Agreement from any applicable Takeover
Law, including Sections 33-841 and 33-844 of the CBCA.
(u) No Rights Triggered. The Company shall ensure that the entering into
of this Agreement and the consummation of the transactions contemplated
hereby do not and will not result, directly or indirectly, in the grant of any
rights to any person under any material agreement (other than the agreements
disclosed in Section 6.01(u) of the Company Disclosure Schedule) to which it or
any of its subsidiaries is a party.
(v) Taxes. The Company shall not, and shall cause its subsidiaries not to,
(A) make or rescind any express or deemed material election relating to Taxes,
(B) except as set forth on Schedule 6.01(v), settle or compromise any material
claim, audit, dispute, controversy, examination, investigation or other
proceeding relating to Taxes, (C) materially change any of its methods of
reporting income or deductions for federal income Tax purposes from those
employed in the preparation of its federal income Tax Return and state Tax
Returns for the taxable year ending December 31, 1997, except as may be
required by a change in applicable law after the date hereof, or (D) file any
material Tax Return other than in a manner consistent with its federal income
Tax Return and state Tax Returns for the taxable year ending
December 31, 1997.
(w) Conduct of Business of Merger Sub. Following the incorporation of
Merger Sub as required by Section 1.06, prior to the Effective Time, except
as may be required by applicable law and subject to the other provisions of
this Agreement, Parent shall cause Merger Sub to (i) perform its obligations
under this Agreement in accordance with its terms, and (ii) not engage directly
or indirectly in any business or activities of any type or kind and not enter
into any agreements or arrangements with any person, or be subject to or bound
by any obligation or undertaking, which is inconsistent with this Agreement.
(x) Certain Mergers. Except with the mutual consent of the Board of
Directors of the Company and the Board of Trustees of the Parent, Parent shall
not, and shall not permit any of its subsidiaries to, acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of or equity in, or by any other manner, any business
or any corporation, partnership, association or other business organization or
divisions thereof, or otherwise acquire or agree to acquire any assets if the
entering into of a definitive agreement relating to or the consummation of such
acquisition, merger or consolidation could reasonably be expected to (i) impose
any material delay in the obtaining of, or significantly increase the risk of
not obtaining, any authorizations, consents, orders, declarations or approvals
of any Governmental Authority necessary to consummate the Merger or the
expiration or termination of any applicable waiting period, (ii) significantly
increase the risk of any Governmental Authority entering an order prohibiting
the consummation of the Merger, (iii) significantly increase the risk of not
being able to remove any such order on appeal or otherwise or (iv) materially
delay the consummation of the Merger.
(y) Rate Matters. Subject to applicable law and except for non-material
filings in the ordinary course of business consistent with regulatory orders
or past practice, the Company shall consult with Parent prior to implementing
any changes in its or any of its subsidiaries' rates or charges (other than
automatic cost pass-through rate adjustment clauses), standards of service or
accounting or executing any agreement with respect thereto that is otherwise
permitted under this Agreement and the Company shall, and shall cause each
of its subsidiaries to, deliver to Parent a copy of each such filing or
agreement at least three days prior to the filing or execution thereof so
that Parent may comment thereon.
(z) Gas Transmission and Storage. Except as set forth in Section 6.01(z)
of the Company Disclosure Schedule or in the ordinary course of business,
neither the Company nor any of its subsidiaries shall commence construction
of any additional gas transmission, gas delivery or gas storage capacity or
obligate itself to purchase or otherwise acquire any additional transmission,
delivery or storage facilities, or to sell or otherwise dispose of, or to
share, any such facilities owned by it.
(aa) Third Party Standstill Agreements. During the period from the date
of this Agreement through the Effective Time, neither the Company nor any
of its subsidiaries shall terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it is a party. During
such period, the Company shall take all steps necessary to enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreement; provided that nothing in this subsection (aa) shall be deemed to
affect the Company's rights under Section 9.01(e) hereof.
Section 6.02 COVENANT OF THE COMPANY; ALTERNATIVE PROPOSALS. From and
after the date hereof, the Company agrees (a) that it and its subsidiaries will
not, and it will use its best efforts to cause its and its subsidiaries'
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries or any of the foregoing) not to, directly or indirectly,
encourage, initiate or solicit (including by way of furnishing information) or
knowingly take any other action designed to facilitate any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to its shareholders) which constitutes or may reasonably be expected to
lead to an Alternative Proposal (as defined below) from any person or engage in
any discussion or negotiations concerning, or provide any non-public
information or data to make or implement an Alternative Proposal; (b) that it
will immediately cease and cause to be terminated any existing solicitation,
initiation, encouragement, activity, discussions or negotiations with any
parties conducted heretofore with a view of formulating an Alternative
Proposal; and (c) that it will immediately notify Parent orally and in writing
of the receipt of any such inquiry, offer or proposals, and that it shall keep
Parent informed orally and in writing in reasonable detail of the status of any
such inquiry, offer or proposal; provided however, that notwithstanding any
other provision hereof, the Company may at any time prior to the time the
Company shareholders shall have voted to approve this Agreement (i) engage in
discussions or negotiations with a third party who, without solicitation in
violation of the terms hereof, seeks to initiate such discussions or
negotiations and may furnish such third party information concerning the
Company and its business, properties and assets if, and only to the extent
that, (A)(x) the third party has first made an Alternative Proposal that, in
the good faith judgment of the Company's Board of Directors (after
consultation with its financial advisors), is likely to be more favorable to
the Company's shareholders than the Merger, and has demonstrated that it will
have adequate sources of financing to consummate such Alternative Proposal,
and (y) the Company Board of Directors shall conclude in good faith, based
upon the advice of outside counsel and such other matters as the Company Board
of Directors deems relevant, that such actions are necessary for the Company
Board of Directors to act in a manner consistent with its fiduciary duties to
shareholders under applicable law, and (B) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
the Company (x) provides prompt written notice to Parent to the effect that it
intends to furnish information to, or intends to enter into discussions or
negotiations with, such person or entity, and of the identity of the person or
group making the Alternative Proposal and the material terms thereof and (y)
receives from such person an executed confidentiality agreement in reasonably
customary form on terms not in the aggregate materially more favorable to such
third party than the terms contained in the Confidentiality Agreement (as
defined in Section 7.01) except that such confidentiality agreement shall not
prohibit such person from making an unsolicited Alternative Proposal to the
Board of Directors of the Company, (ii) comply with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer and/or (iii)
accept an Alternative Proposal from a third party, provided the Company
terminates this Agreement pursuant to Section 9.01(e). "Alternative Proposal"
shall mean any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction involving the
Company or any of the Company's significant subsidiaries (as defined in Rule
1-02(w) of Regulation S-X under the Exchange Act) or any proposal or offer to
acquire in any manner, directly or indirectly (x) ten percent or more of the
outstanding Company Common Stock, (y) any of the outstanding common stock of
Yankee Gas Services Company, or 50% or more of the outstanding capital stock
of any other significant subsidiary, or (z) all or a substantial portion of
the assets of the Company and its subsidiaries taken as a whole. Nothing
herein shall prohibit a disposition permitted by Section 6.01(g) hereof.
SECTION 6.03 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this
Agreement shall give Parent, directly or indirectly, the right to control or
direct the Company's operations prior to the Effective Time. Nothing
contained in this Agreement shall give the Company, directly or indirectly, the
right to control or direct Parent's operations prior to the Effective Time.
Prior to the Effective Time, each of the Company and Parent shall exercise,
consistent with the terms and conditions of this Agreement, complete control
and supervision over its respective operations.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01 ACCESS TO INFORMATION. Upon reasonable notice and during normal
business hours, each party shall, and shall cause its subsidiaries to, afford
to the officers, directors, trustees, employees, agents and accountants of the
other (collectively, "Representatives") reasonable access, throughout the
period prior to the Effective Time, to all of its properties, books, contracts,
commitments and records to the extent that such party or any of its
subsidiaries is not under a legal obligation not to provide access or to the
extent that such access would not constitute a waiver of the attorney-client
privilege and does not unreasonably interfere with the business and operations
of such party. During such period, each party shall, and shall cause its
subsidiaries to, furnish promptly to the other (i) access to each material
report, schedule and other document filed or received by it or any of its
subsidiaries pursuant to the requirements of federal or state securities laws
or filed with or sent to the SEC, the FERC, the Department of Justice, the
Federal Trade Commission or any other federal or state regulatory agency or
commission, and (ii) access to all information concerning themselves, their
subsidiaries, directors, trustees, officers and shareholders and such other
matters as may be reasonably requested by the other party in connection with
any filings, applications or approvals required or contemplated by this
Agreement. Each party shall, and shall cause its subsidiaries and
Representatives to, hold in strict confidence all Evaluation Material (as
defined in the Confidentiality and Standstill Agreement) concerning the other
parties furnished to it in connection with the transactions contemplated by
this Agreement in accordance with the Confidentiality and Standstill Agreement,
dated as of March 31, 1999, between the Company and Parent, as it may be
amended from time to time (the "Confidentiality Agreement").
Section 7.02 PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) Preparation and Filing. The parties will prepare and file with the
SEC as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "Proxy/Registration
Statement"). The parties hereto shall each use reasonable efforts to cause
the Registration Statement to be declared effective under the Securities Act
as promptly as practicable after such filing. Each party hereto shall also
take such action as may be reasonably required to cause the shares of Parent
Common Stock issuable in connection with the Merger to be registered or to
obtain an exemption from registration under applicable state "blue sky" or
securities laws; provided, however, that no party shall be required to register
or qualify as a foreign corporation or to take other action which would subject
it to service of process in any jurisdiction where it will not be, following
the Merger, so subject. Each of the parties hereto shall furnish all
information concerning itself which is required or customary for inclusion in
the Proxy/Registration Statement. The parties shall use reasonable efforts to
cause the shares of Parent Common Stock issuable in the Merger to be approved
for listing on the NYSE upon official notice of issuance. The information
provided by any party hereto for use in the Proxy/Registration Statement shall
be true and correct in all material respects without omission of any material
fact which is required to make such information, in the circumstances under
which it is provided, not false or misleading. No representation, covenant
or agreement is made by or on behalf of any party hereto with respect to
information supplied by any other party for inclusion in the Proxy Statement/
Registration Statement.
(b) Letter of the Company's Accountant. Following receipt by Arthur
Andersen, LLP, the Company's independent auditor, of an appropriate request
from the Company pursuant to SAS No. 72, the Company shall use its best efforts
to cause to be delivered to Parent a letter of Arthur Andersen LLP dated a date
within two business days before the date of the Proxy/Registration Statement,
and addressed to Parent, in form and substance reasonably satisfactory to
Parent and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Proxy/Registration Statement.
(c) Letter of Parent's Accountant. Following receipt by Arthur Anderson,
LLP, Parent's independent auditor, of an appropriate request from Parent
pursuant to SAS No. 72, Parent shall use best efforts to cause to be
delivered to the Company a letter of Arthur Anderson, LLP, dated a date within
two business days before the date of the Proxy/Registration Statement, and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Proxy/Registration Statement.
Section 7.03 REGULATORY MATTERS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain no later
than the Initial Termination Date, as such date may be extended pursuant to
Section 9.01(b), all necessary permits, consents, approvals and authorizations
of all Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement, including, without limitation, the Company
Required Statutory Approvals and Parent Required Statutory Approvals.
Section 7.04 SHAREHOLDER APPROVAL.
(a) The Company Shareholders. The Company shall, as soon as reasonably
practicable after the date hereof (i) take all steps necessary to duly call,
give notice of, convene and hold a meeting of its shareholders (the "Company
Special Meeting") for the purpose of securing the Company Shareholders'
Approval, (ii) distribute to its shareholders the Proxy Statement in accordance
with applicable federal and state law and with its Certificate of Incorporation
and by-laws, (iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of this Agreement and the
transactions contemplated hereby and (iv) cooperate and consult with Parent
with respect to each of the foregoing matters.
Section 7.05 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) Indemnification. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted by applicable law, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, an officer, director or employee of the
Company or any of its subsidiaries (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against (i) all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior
to the Effective Time (and whether asserted or claimed prior to, at or after
the Effective Time) that are, in whole or in part, based on or arising out of
the fact that such person is or was a director, officer or employee of the
Company or a subsidiary of the Company (the "Indemnified Liabilities") and
(ii) all Indemnified Liabilities to the extent they are based on or arise out
of or pertain to the transactions contemplated by this Agreement. In the event
of any such loss, expense, claim, damage or liability (whether or not arising
before the Effective Time), (i) Parent shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall
be reasonably satisfactory to Parent, promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred and (ii) any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth in Section 33-756,
33-757 and 33-765 of the CBCA, and the articles of organization or by-laws
shall be made by independent counsel mutually acceptable to Parent and the
Indemnified Party; provided, however, that Parent shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
(b) Insurance. For a period of six years after the Effective Time, Parent
shall (i) cause to be maintained in effect policies of directors' and officers'
liability insurance for the benefit of those persons who are currently covered
by such policies of the Company on terms no less favorable than the terms of
such current insurance coverage or (ii) provide tail coverage for such persons
which provides coverage for a period of six years for acts prior to the
Effective Time on terms no less favorable than the terms of such current
insurance coverage; provided, however, that Parent shall not be required to
expend in any year an amount in excess of 200% of the annual aggregate premiums
currently paid by the Company, for such insurance; and provided, further, that
if the annual premiums of such insurance coverage exceed such amount, Parent
shall be obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the Board of Trustees of Parent, for a cost not
exceeding such amount.
(c) Successors. In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in either such case, proper provisions shall be made
so that the successors and assigns of Parent shall assume the obligations set
forth in this Section 7.05.
(d) Survival of Indemnification. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the
date hereof in favor of the employees, agents, directors and officers of the
Company, and its subsidiaries with respect to their activities as such prior to
the Effective Time, as provided in its respective articles of organization and
by-laws in effect on the date hereof, or otherwise in effect on the date
hereof, shall survive the Merger and shall continue in full force and effect
for a period of not less than six years from the Effective Time.
(e) Benefit. The provisions of this Section 7.05 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.06 DISCLOSURE SCHEDULES. On the date hereof, (i) Parent has
delivered to the Company a schedule (the "Parent Disclosure Schedule"),
accompanied by a certificate signed by an executive officer of Parent stating
that the Parent Disclosure Schedule is being delivered pursuant to this Section
7.06(i), and (ii) the Company has delivered to Parent a schedule (the "Company
Disclosure Schedule"), accompanied by a certificate signed by an executive
officer of the Company stating that the Company Disclosure Schedule is being
delivered pursuant to this Section 7.06(ii). The Company Disclosure Schedule
and Parent Disclosure Schedule are collectively referred to herein as the
"Disclosure Schedules." The Disclosure Schedules constitute an integral part
of this Agreement and modify the respective representations, warranties,
covenants or agreements of the parties hereto contained herein to the extent
that such representations, warranties, covenants or agreements expressly refer
to the Disclosure Schedules. Anything to the contrary contained herein or in
the Disclosure Schedules notwithstanding, any and all statements,
representations, warranties or disclosures set forth in the Disclosure
Schedules shall be deemed to have been made on and as of the date hereof.
Section 7.07 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law or the rules of any applicable securities exchange
or Governmental Authority, the Company and Parent will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto without the consent of the other party (which
consent shall not be unreasonably withheld).
Section 7.08 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, the Company shall identify in a letter to Parent all persons who
are, and to such person's best knowledge who will be at the Closing Date,
"affiliates" of the Company, as such term is used in Rule 145 under the
Securities Act. The Company shall use all reasonable efforts to cause its
affiliates (including any person who may be deemed to have become an affiliate
after the date of the letter referred to in the prior sentence) to deliver to
Parent on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit 7.08 (each, an "Affiliate Agreement").
Section 7.09 CERTAIN EMPLOYEE AGREEMENTS AND ARRANGEMENTS. Subject to
Section 7.10, Parent and the Surviving Corporation and its subsidiaries shall
honor, without modification, all contracts, agreements, collective bargaining
agreements and commitments of the Company, or its subsidiaries, prior to the
date hereof which apply to any current or former employee or current or former
director of the Company, or its subsidiaries; provided, however, that the
foregoing shall not prevent Parent or the Surviving Corporation from enforcing
such contracts, agreements, collective bargaining agreements and commitments in
accordance with their terms, including, without limitation, any reserved right
to amend, modify, suspend, revoke or terminate any such contract, agreement,
collective bargaining agreement or commitment. Any workforce reductions
affecting employees of the Company carried out within the twelve-month period
following the Effective Time by Parent or the Surviving Corporation or their
respective subsidiaries shall be done in accordance with (i) the provisions of
this agreement, (ii) the recommendations of the Transition Steering Team to be
established pursuant to Section 7.16 hereof, and (iii) all applicable
collective bargaining agreements, and all laws and regulations governing the
employment relationship and termination thereof including, without limitation,
the Worker Adjustment and Retraining Notification Act and regulations
promulgated thereunder, and any comparable state or local law.
Section 7.10 EMPLOYEE BENEFIT PLANS.
(a) For a period of twelve months immediately following the Closing Date,
the compensation, benefits and coverage provided to those non-union individuals
who are employees of the Company, or its subsidiaries, and who continue to be
employees of the Surviving Corporation, Parent or their respective subsidiaries
(the "Nonunion Continuing Company Employees") pursuant to employee benefit
plans or arrangements maintained by Parent, the Surviving Corporation, or their
respective subsidiaries shall be not less favorable in the aggregate (as
determined by Parent, the Surviving Corporation, or their respective
subsidiaries using reasonable assumptions and benefit valuation methods) than
those provided to each such employee immediately prior to the Closing Date.
In addition to the foregoing, Parent shall, or shall cause the Surviving
Corporation, or their respective subsidiaries, to pay any Nonunion Continuing
Company Employee whose employment is terminated by Parent, the Surviving
Corporation, or their respective subsidiaries, within twelve months of the
Closing Date a severance benefit package equivalent to the severance benefit
package that would be provided under the Company's Severance Pay Plan,
effective November 1, 1991, as in effect on the date hereof.
(b) Parent shall, or shall cause the Surviving Corporation to, give the
Nonunion Continuing Company Employee full credit for purposes of eligibility,
vesting, benefit accrual (including, without limitation benefit accrual under
any defined benefit pension plans) and determination of the level of benefits
under any employee benefit plans or arrangements maintained by Parent or the
Surviving Corporation in effect as of the Closing Date for such Nonunion
Continuing Company Employees' service with the Company or any subsidiary of
the Company (or any prior employer) to the same extent recognized by the
Company or such subsidiary immediately prior to the Closing Date. With
respect to any employee benefit plan or arrangement established by Parent or
the Surviving Corporation after the Closing Date (the "Post Closing Plans"),
service shall be credited in accordance with the terms of such Post Closing
Plans.
(c) Parent shall, or shall cause the Surviving Corporation to, (i)
waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Nonunion Continuing Company Employees under any welfare benefit plan
established to replace any Company welfare benefit plans in which such Nonunion
Continuing Company Employees may be eligible to participate after the Closing
Date, other than limitations or waiting periods that are already in effect with
respect to such Nonunion Continuing Company Employees and that have not been
satisfied as of the Closing Date under any welfare plan maintained for the
Nonunion Continuing Company Employees immediately prior to the Closing Date and
(ii) provide each Nonunion Continuing Company Employee with credit for any co-
payments and deductibles paid prior to the Closing Date in satisfying any
applicable deductible or out-of-pocket requirements under any welfare plans
that such Nonunion Continuing Company Employees are eligible to participate in
after the Closing Date.
Section 7.11 COMPANY STOCK PLANS. With respect to each Plan that provides for
benefits in the form of Company Common Stock ("Company Stock Plans"), the
Company and Parent shall take all corporate action necessary or appropriate to
(i) provide for the issuance or purchase in the open market of Parent Common
Stock rather than Company Common Stock, pursuant thereto, and otherwise to
amend such Company Stock Plans to reflect this Agreement and the Merger, (ii)
obtain shareholder approval with respect to such Company Stock Plans to the
extent such approval is required for purposes of the Code or other applicable
law, or to enable such Company Stock Plans to comply with Rule 16b-3
promulgated under the Exchange Act, (iii) reserve for issuance under such
Company Stock Plans or otherwise provide a sufficient number of shares of
Parent Common Stock for delivery upon payment of benefits, grant of awards or
exercise of options under such Company Stock Plans and (iv) as soon as
practicable after the Effective Time, file registration statements on Form S-8
or amendments on such forms to the Form S-4 Registration Statement, as the case
may be (or any successor or other appropriate forms), with respect to the
shares of Parent Common Stock subject to such Company Stock Plans to the
extent such registration statement is required under applicable law, and Parent
shall use its best efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectuses contained
therein) for so long s such benefits and grants remain payable and such options
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of
the Exchange Act, the Company shall administer the Company Stock Plans, where
applicable, in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act.
Section 7.12 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, except that those expenses incurred in
connection with printing the Proxy/Registration Statement, as well as the
filing fee relating thereto, shall be shared equally by the Company and
Parent.
Section 7.13 FURTHER ASSURANCES. Each party will, and will cause its
subsidiaries to, execute such further documents and instruments and take such
further actions as may reasonably be requested by any other party in order to
consummate the Merger in accordance with the terms hereof.
Section 7.14 EMPLOYMENT CONTRACTS. Parent and Mr. Gooley have entered into
an employment agreement of even date herewith, and Parent shall, prior to the
Closing Date, offer to enter into binding employment arrangements having the
principal terms set forth in Section 7.14 of the Parent Disclosure Schedule
with the persons identified thereon and on the Closing Date shall enter into
such arrangements with those persons who have accepted such offers.
Section 7.15 TRANSITION STEERING TEAM. As soon as reasonably practicable
after the date hereof, Parent and the Company shall create a special transition
steering team, with representation from Parent and the Company, that will
develop recommendations concerning the future structure and operations of the
Company after the Effective Time, subject to applicable law. The transition
steering team will be jointly chaired by the Chief Executive Officers of Parent
and the Company and the members of the transition steering team shall be
appointed by the co-chairmen. The functions of the transition steering team
shall include (i) to direct the exchange of information and documents between
the parties and their Subsidiaries as contemplated by Section 7.01 and (ii) the
development of regulatory plans and proposals, corporate organizational and
management plans, workforce combination proposals, and such other matters as
they deem appropriate.
Section 7.16 CONVEYANCE TAXES. The Company and Parent shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfers or gains, sales, use,
transfer, value added, stock transfer or stamp taxes, any transfer, recording,
registration or other fees, or any similar taxes which become payable in
connection with the transaction contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time. The Company
shall pay, without deduction or withholding (except where such deduction or
withholding is required by applicable law) from any amounts payable to the
holders of any Company Common Stock, any such Taxes which become payable in
connection with the transactions contemplated by this Agreement, on behalf of
the stockholders of the Company.
ARTICLE VIII
CONDITIONS
Section 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction or waiver on or prior to the Closing Date of each of the
following conditions:
(a) Shareholder Approval. The Company Shareholders' Approval shall have
been obtained.
(b) HSR Act. Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1978, as amended, shall have expired or been terminated.
(c) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and be continuing in effect,
and the Merger and the other transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or regulation.
(d) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in
effect.
(e) Listing of Shares. The shares of Parent Common Stock issuable in the
Merger pursuant to Article II shall have been approved for listing on the NYSE
upon official notice of issuance.
(f) Statutory Approvals. The Company Required Statutory Approvals and
Parent Required Statutory Approvals shall have been obtained at or prior to
the Effective Time, such approvals shall have become Final Orders (as defined
below)and such Final Orders shall not impose terms or conditions which, in the
aggregate, could reasonably be expected to have a Company Material Adverse
Effect or a Parent Material Adverse Effect. A "Final Order" means action by
the relevant regulatory authority which has not been reversed, stayed,
enjoined,set aside, annulled or suspended, with respect to which any waiting
period prescribed by law before the transactions contemplated hereby may be
consummated has expired, and as to which all conditions to the consummation of
such transactions prescribed by law, regulation or order have been satisfied.
Section 8.02 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER.
The obligation of Parent to effect the Merger shall be further subject to the
satisfaction (or waiver by Parent), on or prior to the Closing Date, of each of
the following conditions:
(a) Performance of Obligations of the Company. The Company shall
have performed in all material respects each of its agreements and covenants
required by this Agreement to be so performed by the Company at or prior to the
Closing.
(b) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific date
or time other than the date hereof or the Closing Date, which need only be
true and correct as of such date or time) except for such failures of
representations or warranties to be true and correct (without regard to any
materiality qualifications contained therein) which, individually and in the
aggregate, would not reasonably be expected to result in a Company Material
Adverse Effect.
(c) Closing Certificates. Parent shall have received a certificate signed
by the Chief Executive Officer or Chief Financial Officer of the Company,
dated the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 8.02(a) and Section 8.02(b)
have been satisfied.
(d) No Company Material Adverse Effect. No Company Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance other
than facts and circumstances described in Section 8.02(d) of the Company
Disclosure Schedule or the Company SEC Reports filed prior to the date hereof
which could reasonably be expected to have a Company Material Adverse Effect.
(e) Company Required Consents. The Company Required Consents the failure
of which to obtain would reasonably be expected to have a Company Material
Adverse Effect shall have been obtained.
(f) Affiliate Agreements. Parent shall have received Affiliate Agreements,
duly executed by each "affiliate" of the Company, substantially in the form
of Exhibit 7.08, as provided in Section 7.08.
(g) Tax Opinion. Prior to the mailing of the Proxy Statement (and to be
reconfirmed at the Closing Date), Parent shall have received an opinion from
LeBoeuf, Lamb, Greene & MacRae, L.L.P. to the effect that the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code.
In rendering such opinion, LeBoeuf, Lamb, Greene & MacRae, L.L.P. may receive
and rely upon representations contained in certificates of Parent, the Company
and others, in each case in form and substance reasonably acceptable to such
counsel.
Section 8.03 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
The obligation of the Company to effect the Merger shall be further
subject to the satisfaction (or waiver by the Company), on or prior to the
Closing Date, of each of the following conditions:
(a) Performance of Obligations of Parent. Parent shall have performed in
all material respects each of its agreements and covenants required by this
Agreement to be so performed by Parent at or prior to the Closing.
(b) Representations and Warranties. The representations and warranties of
Parent set forth in this Agreement shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date (except for representations and
warranties that expressly speak only as of a specific date or time other than
the date hereof or the Closing Date, which need only be true and correct as of
such date or time) except for such failures of representations or warranties
to be true and correct (without regard to any materiality qualifications
contained therein) which, individually and in the aggregate, would not
reasonably be expected to result in a Parent Material Adverse Effect.
(c) Closing Certificates. The Company shall have received a certificate
signed by the chief Executive Officer or Chief Financial Officer of Parent,
dated the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 8.03(a) and Section 8.03(b)
have been satisfied.
(d) No Parent Material Adverse Effect. No Parent Material Adverse Effect
shall have occurred, and there shall exist no fact or circumstance other than
facts and circumstances described in Section 8.03(d) of the Parent Disclosure
Schedule or the Parent SEC Reports filed prior to the date hereof which could
reasonably be expected to have a Parent Material Adverse Effect.
(e) Parent Required Consents. Parent Required Consents the failure of
which to obtain would reasonably be expected to have a Parent Material Adverse
Effect shall have been obtained.
(f) Tax Opinion. Prior to the mailing of the Proxy Statement (and to be
reconfirmed at the Closing Date), the Company shall have received an opinion
from Winthrop, Stimson, Putnam & Roberts to the effect that the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code.
In rendering such opinion, Winthrop, Stimson, Putnam & Roberts may receive and
rely upon representations contained in certificates of Parent, the Company and
others, in each case in form and substance reasonably acceptable to such
counsel.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.01 TERMINATION. This Agreement may be terminated, and the Merger
and other transactions contemplated hereby may be abandoned, at any time prior
to the Effective Time, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Board of Directors of the Company and
Board of Trustees of Parent;
(b) by Parent or the Company hereto, by written notice to the other
parties, if the Effective Time shall not have occurred on or before the date
which is ten months from the date hereof (the "Initial Termination Date");
provided, however, that the right to terminate the Agreement under this
Section 9.01(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted directly
or indirectly in, the failure of the Effective Time to occur on or before such
date; and provided, further, that if on the Initial Termination Date the
conditions to the Closing set forth in Section 8.01(f) shall not have been
fulfilled but all other conditions to the Closing shall be fulfilled or shall
be capable of being fulfilled, then the Initial Termination Date shall be
extended to the 15th-month anniversary of the date hereof (the "Extended
Termination Date");
(c) by Parent or the Company, by written notice to the other parties, if
the Company Shareholders' Approval shall not have been obtained at a duly
held Company Special Meeting, including any adjournments thereof;
(d) by Parent or the Company, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Merger,
or if any court of competent jurisdiction in the United States or any State
shall have issued an order, judgment or decree permanently restraining,
enjoining or otherwise prohibiting the Merger, and such order, judgment or
decree shall have become final and nonappealable; (provided that the right to
terminate this Agreement under this Section 9.01(d) shall not be available to
any party that has not defended such lawsuit or other legal proceeding
(including seeking to have any stay or temporary restraining order entered by
any court or other Governmental Authority vacated or reversed);
(e) by the Company upon ten (10) days' prior written notice to Parent if
the Board of Directors of the Company determines in good faith, that
termination of this Agreement is necessary for the Board of Directors of the
Company to act in a manner consistent with its fiduciary duties to shareholders
under applicable law by reason of an Alternative Proposal meeting the
requirements of Section 6.02 having been made; provided that
(A) the Board of Directors of the Company shall determine based on
advice of outside counsel with respect to the Board of Directors' fiduciary
duties that notwithstanding a binding commitment to consummate an agreement
of the nature of this Agreement entered into in the proper exercise of its
applicable fiduciary duties, and notwithstanding all concessions which may
be offered by Parent in negotiation entered into pursuant to clause (B) below,
it is necessary pursuant to such fiduciary duties that the directors reconsider
such commitment as a result of such Alternative Proposal;
(B) prior to any such termination, the Company shall, and shall cause
its respective financial and legal advisors to, give Parent a reasonable
opportunity during such ten-day period following receipt by Parent of such
written notice to make such adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the Merger or other
transactions contemplated hereby on such adjusted terms and negotiate in good
faith with Parent with respect to any such adjustments; and
(C) the Company's ability to terminate this Agreement pursuant to
Section 9.01(e) is conditioned upon the payment by the Company to Parent of
any amounts owed by it pursuant to Section 9.03(b).
(f) by the Company, by written notice to Parent, if (i) there exist
material breaches of the representations and warranties of Parent made herein
as of the date hereof which breaches, individually or in the aggregate, would
or would reasonably be expected to result in a Parent Material Adverse Effect,
and such breaches shall not have been remedied within 20 days after receipt by
Parent of notice in writing from the Company, specifying the nature of such
breaches and requesting that they be remedied, or (ii) there shall have been a
material breach of any agreement or covenant of Parent hereunder, and such
breach shall not have been remedied within 20 days after receipt by Parent of
notice in writing from the Company, specifying the nature of such failure and
requesting that it be remedied; or
(g) by Parent, by written notice to the Company, if (i) there exist
material breaches of the representations and warranties of the Company made
herein as of the date hereof which breaches, individually or in the aggregate,
would or would reasonably be expected to result in a Company Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by the Company of notice in writing from Parent, specifying the nature
of such breaches and requesting that they be remedied, (ii) there shall have
been a material breach of any agreement or covenant of the Company hereunder,
and such failure to perform or comply shall not have been remedied within 20
days after receipt by the Company of notice in writing from Parent, specifying
the nature of such failure and requesting that it be remedied; or (iii) the
Board of Directors of the Company (A) shall withdraw or modify in any manner
materially adverse to Parent its approval or recommendation of this Agreement
or the transactions contemplated herein, (B) shall approve or recommend an
Alternative Proposal or (C) shall resolve to take any of the actions specified
in clause (A) or (B).
Section 9.02 EFFECT OF TERMINATION. In the event of a valid termination
of this Agreement by either the Company or Parent pursuant to Section 9.01,
this Agreement shall forthwith become null and void and there shall be no
liability on the part of either the Company or Parent or their respective
officers, trustees or directors hereunder, except that Section 7.12, Section
9.03, the agreement contained in the last sentence of Section 7.01, Section
10.08 and Section 10.09 shall survive the termination.
Section 9.03 TERMINATION FEE; EXPENSES.
(a) Payment of Expenses Following Termination Pursuant to 9.01(f) and (g).
If this Agreement is terminated pursuant to Section 9.01(g)(i) or (ii), then
the Company shall promptly (but not later than five business days after
receiving notice of termination) pay to Parent in cash an amount equal to all
documented out-of-pocket expenses and fees incurred by Parent (including,
without limitation, fees and expenses payable to all legal, accounting,
financial, and other professionals arising out of, in connection with or
related to the transactions contemplated by this Agreement) not in excess of
$5 million. If this Agreement is terminated pursuant to Section 9.01(f),
then Parent shall promptly (but not later than five business days after
receiving notice of termination) pay to the Company in cash an amount equal
to all documented out-of-pocket expenses and fees incurred by the Company
(including, without limitation, fees and expenses payable to all legal,
accounting, financial, and other professionals arising out of, in connection
with or related to the transactions contemplated by this Agreement) not in
excess of $5 million.
(b) In the event that (i) this Agreement is terminated by the Company
pursuant to Section 9.01(e) or by Parent pursuant to Section 9.01(g)(iii)
or (ii) any person or group shall have made an Alternative Proposal that has
not been withdrawn and this Agreement is terminated by (A) Parent pursuant to
Section 9.01(c) or (B) by the Company pursuant to Section 9.01(b), then the
Company shall promptly (but in no event later than the date of such
termination) pay to Parent, by wire transfer of same day funds, a termination
fee of $19 million plus an amount equal to all documented out-of-pocket
expenses and fees incurred by Parent arising out of, or in connection with
or related to, the Merger and other transactions contemplated hereby, not in
excess of $5 million in the aggregate; provided, however, that if this
Agreement is terminated pursuant to the provisions of clause (ii) above, then
no payment of a termination fee or expenses by the Company to Parent shall be
required unless and until a definitive agreement with respect to the
applicable Alternative Proposal is executed within two years after such
termination and, in such event, a termination fee and expenses shall be payable
within five (5) business days after the execution of such definitive agreement.
(c) In the event that this Agreement is terminated by either Parent or the
Company pursuant to Section 9.01(b) or by mutual written consent of the Company
and Parent pursuant to 9.01(a), and, on the date of such termination, there are
no remaining conditions (unsatisfied or not waived) to the obligations of
either party to effect the Merger except for the receipt by Parent of any
Parent Required Statutory Approval under the 1935 Act as required by, and in
accordance with the terms of, Section 8.01(f), then Parent shall pay to the
Company, by wire transfer of same day funds within five (5) business days after
such termination, a termination fee of $10.625 million.
(d) Nature of Fees. The parties agree that the agreements contained in
this Section 9.03 are an integral part of the Merger and the other transactions
contemplated hereby and constitute liquidated damages and not a penalty. The
parties further agree that if any party is or becomes obligated to pay a
termination fee or expenses pursuant to Sections 9.03(a), 9.03(b) or 9.03(c),
the right to receive such termination fee or expenses shall be the sole remedy
of the other party with respect to the facts and circumstances giving rise to
such payment obligation. If this Agreement is terminated by a party as a
result of a willful breach of a representation, warranty, covenant or agreement
by the other party, the non-breaching party may pursue any remedies available
to it at law or in equity and shall be entitled to recover any additional
amounts thereunder. Notwithstanding anything to the contrary contained in
this Section 9.03, if one party fails to promptly pay to the other any fee
or expense due under this Section 9.03, in addition to any amounts paid or
payable pursuant to Section, the defaulting party shall pay the costs and
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Citibank, N.A. from the date such fee was required to
be paid.
Section 9.04 AMENDMENT. This Agreement may be amended by the Boards of
Directors and Trustees of the parties hereto, at any time before or after
approval hereof by the shareholders of the Company and prior to the Effective
Time, but after such approval only to the extent permitted by applicable law.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 9.05 WAIVER. At any time prior to the Effective Time, the Parent or
the Company may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein, to the extent permitted by
applicable law. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed
to be or construed as a waiver of the same or any other term or condition of
this Agreement on any future occasion.
ARTICLE X
GENERAL PROVISIONS
Section 10.01 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and agreements in this Agreement shall not survive
the Merger, except as otherwise provided in this Agreement and except for the
agreements contained in this Section 10.01, in Articles I and II and in
Sections 7.05, 7.09, 7.10, 7.11, 10.07, 10.08 and 10.09.
Section 10.02 BROKERS. The Company represents and warrants that, except
for SG Barr Devlin whose fees have been disclosed to Parent prior to the date
hereof, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Parent represents and warrants that, except for
Credit Suisse First Boston, ,whose fees have been disclosed to the Company
prior to the date hereof, no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
Section 10.03 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service, (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to the Company, to:
Yankee Energy System, Inc.
599 Research Parkway
Meriden, Connecticut 06604-4918
Attention: Mary J. Healey, Esq.
Telephone: (203) 639-4405
Telecopy: (203) 639-4185
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: David P. Falck, Esq.
Telephone: (212) 858-1000
Telecopy: (212) 858-1500
(b) If to Parent, to:
Northeast Utilities Service Company
107 Selden Street
Berlin, Connecticut 06037
Attention: John H. Forsgren
Telephone: (860) 665-5000
Telecopy: (860) 665-3718
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Steven H. Davis, Esq.
Telephone: (212) 424-8000
Telecopy: (212) 424-8500
Section 10.04 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof other than the Confidentiality Agreement; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the laws of the State of Connecticut applicable to contracts
executed in and to be fully performed in such State, without giving effect to
its conflicts of law, rules or principles.
Section 10.05 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 10.06 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.07 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except for Article
II and for rights of Indemnified Parties as set forth in Section 7.05, nothing
in this Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Agreement.
Section 10.08 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HEREBY (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.09 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Connecticut or in Connecticut state court, this being
in addition to any other remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Connecticut
or any Connecticut state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Connecticut.
IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
YANKEE ENERGY SYSTEM, INC.
By:
- ----------------------------------------
Name:
Title:
NORTHEAST UTILITIES
By:
- ----------------------------------------
Name:
Title:
EXHIBIT 10.2
AGREEMENT TO SETTLE PSNH RESTRUCTURING
I. INTRODUCTION
This Settlement Agreement is entered into this 2nd day of August, 1999,
between the Governor of New Hampshire, the Governor's Office of Energy and
Community Services, the Office of the Attorney General, Staff of the New
Hampshire Public Utilities Commission, Public Service Company of New Hampshire
("PSNH") and Northeast Utilities ("NU") (collectively, the "Parties"). This
Agreement is designed to provide a resolution of all major issues pertaining to
PSNH in the electric industry restructuring proceeding of the New Hampshire
Public Utilities Commission ("PUC") Docket No. DR 96-150, as well as in the
other dockets and pending litigation described in Section XV of this
Agreement. Implementation of this Agreement requires the approval of the
PUC, as well as passage of securitization legislation by the New Hampshire
Legislature. When implemented, this Agreement will result in the
restructuring of PSNH in compliance with the competitive market structure
objectives of both the Legislature, as set forth in RSA Chapter 374-F, and
the PUC, as set forth in Docket No. DR 96-150, as well as the legislation
relative to electric rate reduction financing contained in Chapter 289 of the
Session Laws of 1999.
The key components of this Agreement include:
o An initial 18.3% average rate reduction for PSNH's customers, followed by
subsequent decreases through the life of this Agreement.
o Substantial burden sharing by PSNH in the form of a $225 million after-tax
write-off that will reduce Stranded Costs by approximately $367 million.
o Sharing of the risks of Stranded Cost recovery.
o Retail choice for all of PSNH's customers.
o Resolution of all issues pertaining to the Rate Agreement in a manner that
is balanced and equitable.
o Resolution of the Fuel and Purchased Power Adjustment Clause ("FPPAC")
under-recovery that will exist as of Competition Day, and elimination of
FPPAC in the future.
o Rate relief that is sustainable over the long-term.
o Refinancing that benefits customers through the issuance of low-cost Rate
Reduction Bonds totaling $725 million ("securitization").
o Provision for low-income assistance and energy conservation programs for
PSNH's customers.
o Competitively bid Transition Service that provides stable and predictable
prices for all customers during the transition to competition.
o Divestiture of PSNH's generating assets and purchased power obligations,
including its entitlement to power generated at the Seabrook Nuclear Plant
under its contract with North Atlantic Energy Corporation ("NAEC").
This Agreement is designed to be implemented on Competition Day, which is the
first day of the month following the month in which the conditions contained
in Section XVI are satisfied. Until that time, PSNH's existing temporary rates
for bundled service, the existing FPPAC rate of 0.383 cents/kWh, and the FPPAC
BA amount of 6.281 cents/kWh will remain in effect, subject only to adjustment
for future changes in Nuclear Decommissioning Charges and new levels of public
policy expenditures ordered by the PUC after August 2, 1999. On Competition
Day, PSNH's rates will be unbundled into the components set forth below, and
retail customers will have the opportunity to choose an energy supplier.
During the first year following Competition Day, this Agreement will result in
an average retail rate of 10.595 cents per kWh for a customer taking Transition
Service, broken down as follows:
Transition Service Energy Charge 3.700 cents
Delivery Charge 2.800
Stranded Cost Recovery Charge 3.790
System Benefits Charge 0.250
Consumption Tax 0.055 cents
Total 10.595 cents/kWh
Customers may be able to obtain even lower overall electricity costs by
choosing a Competitive Supplier for energy.
The Parties recognize and understand that their mutual undertakings, as
expressed in this Agreement, reflect their efforts to settle the issues raised
in Docket No. DR 96-150, settle all outstanding federal and state proceedings
involving PSNH restructuring, and lay to rest various other areas of dispute
between the Parties as provided herein. The Parties agree that their
understandings regarding securitization will require enactment of legislation
by the New Hampshire Legislature, in addition to the approval of the PUC.
The Parties believe the terms of this Agreement reflect a fair resolution
of all outstanding disputes that is in the public interest. More specifically,
this Agreement is substantially consistent with the restructuring goals set
forth in RSA Chapter 374-F and Chapter 289 of the Session Laws of 1999,
including, but not limited to, near-term rate relief; retail choice; non-
discriminatory open access to the electric system; unbundling of rates;
equitable benefits for all customer classes; electricity prices that narrow
the rate gap for New Hampshire customers; universal service and energy
efficiency commitments; risk sharing by PSNH; a substantial write-off of
Stranded Costs; limited Stranded Cost recovery that is appropriate, equitable
and balanced; and, issuance of Rate Reduction Bonds that are not an obligation
of the State, and that will provide equitable and extraordinary benefits to
PSNH's customers in the form of significant rate reductions. In compliance
with the requirements of RSA 369-A:1,X(h), PSNH and the New Hampshire Electric
Cooperative, Inc. ("NHEC"), along with the other Parties, continue to negotiate
to produce rate reductions for NHEC customers which are comparable to the rate
reductions that will be achieved through this Agreement for PSNH customers.
II. DEFINITIONS
Acquisition Premium: The Acquisition Premium referred to in paragraph 2(b)
of the Rate Agreement.
Agreement: This Settlement Agreement signed by the Parties on August 2, 1999,
including all appendices.
All-In Cost: The cost of the RRBs, including the coupon rate, any discounts or
premiums, ongoing fees, the overcollateralization account, SPSE expenses, any
letter of credit costs, but excluding servicing fees.
California Code: The Code of Conduct adopted by the California Public
Utilities Commission, as set out in Appendix I and referred to in New Hampshire
PUC Order No 22,875 issued in Docket No. DR 96-150 dated March 20, 1998.
Capacity Transfer Agreements: The Capacity Transfer Agreements between PSNH
and the NU initial system referred to in paragraph 3 of the Rate Agreement.
Capital Subaccount: An account that will belong to the Special Purpose
Securitization Entity, and will hold the initial capital contribution to the
Special Purpose Securitization Entity and certain related amounts as described
in Section XIII(D) of this Agreement.
Competition Day: The date upon which all PSNH retail customers will be able to
choose a Competitive Supplier of energy. More specifically, Competition Day is
the first day of the month following the month in which the conditions
contained in Section XVI are satisfied.
Competitive Supplier: An "Electricity Supplier" as defined in RSA 374-F:2,II,
who meets all PUC requirements to sell energy to PSNH's customers.
Default Service: The source of electric energy for customers who are not
eligible for Transition Service and who are not receiving energy from a
Competitive Supplier. Default service is designed to provide a temporary
safety net for customers and to assure universal access and system integrity
as set forth in RSA 374-F:3,V(c).
Delivery Charge: The delivery portion of the unbundled retail distribution
bill.
Demand-Side Management ("DSM"): Programs traditionally designed to reduce or
manage customer electricity usage as specified in Section V(E)(2).
Distribution: The portion of PSNH's delivery system subject to the regulatory
jurisdiction of the PUC.
Energy Consumption Tax: The tax specified in RSA 83-E:2.
Energy Efficiency Programs: Programs designed to improve the efficiency of,
and thus reduce, customer electricity usage as specified in Section V(E)(2).
Energy Efficiency Working Group ("EEWG"): A collaborative of interested
parties in PUC Docket No. DR 96-150 developing energy efficiency
recommendations.
Environmental Remediation Expenditures: Costs of remediating the environmental
issues at the sites identified in Appendix B.
Environmental Reserve ("ER"): A reserve account established by PSNH on its
books to provide for environmental remediation expenditures, as provided in
Section V(A).
Exempt Wholesale Generator: Any entity who qualifies for Exempt Wholesale
Generator status under Section 32 of the Public Utility Holding Company Act
of 1935.
Failed Auction: An asset auction that results in some or all of the assets
either not being bid upon at auction, or being bid at prices less than the
minimum prices established or approved by the PUC.
FERC: The Federal Energy Regulatory Commission.
Final Order: An order issued by the PUC pursuant to RSA-363:17-b on the merits
of the Agreement, effective at the expiration of the rehearing period set forth
in RSA 541:3, or, if the order is subject to one or more motions for rehearing,
effective the date that the PUC acts on the last pending motion for rehearing
pursuant to RSA 541:5.
Fuel and Purchased Power Adjustment Clause ("FPPAC"): The Fuel and Purchased
Power Adjustment Clause referred to in paragraph 7 of the Rate Agreement.
Independent Power Producer ("IPP") costs: The costs to PSNH of purchasing
energy and/or capacity from PURPA qualifying facilities or LEEPA facilities.
Initial Delivery Charge Period: The first thirty months following Competition
Day during which delivery rates are set at 2.80 cents per kilowatt-hour.
LEEPA: The Limited Electrical Energy Producers Act, RSA Chapter 362-A.
Legislature: The General Court of the State of New Hampshire.
Low-Income Electric Assistance Program: A statewide payment assistance
program designed to enable low-income residential customers to manage and
afford essential electricity requirements, as provided in Section V(E)(1).
Major Storm Cost Reserve: An account to be established by PSNH to fund the
costs identified in Section V(A).
New Hampshire Code of Conduct: The Code of Conduct to be adopted by the PUC
pursuant to Order No. 22,875 issued in Docket No. DR 96-150 dated March 20,
1998, as provided in Section XI of this Agreement.
Non-Securitized Stranded Costs: The Stranded Costs for which recovery is
allowed under Part 3 of the Stranded Cost Recovery Charge as provided in
Section V(B)(3) of this Agreement.
Nuclear Decommissioning Charge: The ongoing expenses for nuclear
decommissioning for Seabrook, Millstone Unit 3 and Vermont Yankee.
Overcollateralization Subaccount: An account that will belong to the Special
Purpose Securitization Entity and will hold the Overcollateralization amount on
the RRBs as described in Section XIII(D) of this Agreement.
Parties: The Governor of New Hampshire, the Governor's Office of Energy and
Community Services, the Office of the Attorney General, Staff of the New
Hampshire Public Utilities Commission, Public Service Company of New Hampshire
and Northeast Utilities.
Present Value: Unless otherwise specified, the net present value that results
from applying the Stipulated Rate of Return.
Prudence: The standard of care which qualified utility management would be
expected to exercise under the circumstances that existed at the time the
decision in question had to be made. In determining whether a decision was
prudently made, only those facts known or knowable at the time of the decision
can be considered.
PSNH: Public Service Company of New Hampshire.
PUC: The New Hampshire Public Utilities Commission.
Purchased Power Obligation: A commitment created by contract, order or law for
PSNH to purchase power from a third party.
PURPA: The Public Utility Regulatory Policies Act of 1978. Generally, 16 U.S.
Code 2601, et seq.
Rate Agreement: The agreement dated November 22, 1989, as amended, executed by
and between the Governor and Attorney General of the State of New Hampshire,
acting on behalf of the State of New Hampshire, and Northeast Utilities Service
Company, acting on behalf of its parent Northeast Utilities. See RSA
362-C:2,I.
Rate Reduction Bonds ("RRBs"): Bonds, notes, certificates of participation or
beneficial interest, or other evidences of indebtedness or ownership, issued
pursuant to an executed indenture or other agreement of a financing entity, in
accordance with New Hampshire law, the proceeds of which are used, directly or
indirectly, to recover, finance, or refinance Stranded Costs, and which,
directly or indirectly, are secured by evidence of ownership interests in, or
are payable from, RRB property.
Recovery End Date: The risk sharing date established in Section V(C) at which
recovery by PSNH of its Non-Securitized Stranded Costs ends, even if all such
costs have not been recovered.
Reserve Subaccount: An account of the Special Purpose Securitization Entity
that will hold any excess collections of RRB Charges beyond the amount needed
to make periodic allocations with respect to RRB Costs as described in Section
VIII(D) of this Agreement.
Retail Choice: The ability of retail electric customers to choose a
Competitive Supplier on or after Competition Day.
RRB Charge: Part 1 of the SCRC, which is dedicated to the payment of the RRBs.
RRB Costs: Principal, interest, credit enhancement costs, fees and expenses
with respect to RRBs.
RRB Property: An irrevocable property right to bill and collect nonbypassable
RRB Charges in amounts sufficient to recover the RRB Costs.
Seabrook Power Contract: The agreement between PSNH and North Atlantic Energy
Corporation referred to in paragraph 2 of the Rate Agreement.
Sharing Agreement: The agreement referred to in paragraph 4 of the Rate
Agreement.
Special Purpose Securitization Entity ("SPSE"): Any special purpose trust,
limited liability company, or other entity that is authorized in accordance
with the terms of a finance order to issue Rate Reduction Bonds, acquire RRB
Property, or both.
Stipulated Rate of Return: A rate of return calculated assuming a return on
equity of 8% after tax, an equity ratio of 40%, and the weighted cost of PSNH's
non-securitized long-term debt. The Stipulated Rate of Return will be computed
as of two dates. The first calculation will occur on Competition Day, and will
take into account the reduction in long-term debt costs occasioned by the
issuance of the RRBs. The second calculation will occur as of the date of the
closing of the sale of PSNH's fossil/hydro assets, and will take into account
any additional reduction in long-term debt costs occasioned by the proceeds
from the sale of those assets.
Stranded Costs: Costs, liabilities, and investments that PSNH would reasonably
expect to recover if the existing regulatory structure with retail rates for
the bundled provision of electric service continued, but which would likely not
be recovered as a result of restructuring of the electric industry that allows
retail choice of electricity suppliers unless a specific mechanism for such
cost recovery is provided. See RSA 374-F:2,IV.
Stranded Cost Recovery Charge ("SCRC"): The portion of the unbundled retail
delivery service bill that is a non-bypassable charge as provided in RSA
Chapter 374-F:3 to recover the portion of PSNH's Stranded Costs that are
allowed by this Agreement. The SCRC includes the RRB Charge, nuclear
decommissioning and IPP costs, Non-Securitized Stranded Costs, and other costs
and expenses allowed by this Agreement.
System Benefits Charge: A nonbypassable charge authorized by RSA 374:F:3,VI,
which is designed to recover the costs of PUC-approved public benefits related
to the provision of electricity, including the Low-Income Electric Assistance
Program and Energy Efficiency Programs specified in this Agreement.
Tariff: The Electric Delivery Service Tariff pursuant to which PSNH will
provide service beginning on Competition Day.
Transition Service: Electricity supply to be made available for three years
from Competition Day to all customers who have not chosen a Competitive
Supplier, or who in certain circumstances have left such a supplier.
Transition Service is designed to afford customers the option of stable and
predictable ceiling prices in accordance with RSA 374-F:3,V(b).
Transmission: The portion of PSNH's delivery system that is subject to the
regulatory jurisdiction of the Federal Energy Regulatory Commission.
Triple-A Rating: A determination by a majority of (a) Duff & Phelps Credit
Rating Co., Fitch Investors Service, L.P., Moody's Investors Service, and
Standard & Poor's Ratings Services, or (b) the ratings agencies in (a) that
actually rate the RRBs at issuance, that the RRBs are entitled to their
highest rating.
True-Up Mechanism: A periodic adjustment to the RRB Charge, which accounts
for any over or under-collections of the RRB Charge.
III. WRITE-OFF
Subsequent to receipt of a Final Order from the PUC approving this Settlement
Agreement as submitted by the Parties and upon satisfaction of the conditions
contained in Section XVI, PSNH will write off $225 million after-tax
(approximately $367 million pre-tax as of January 1, 2000). Such write-off
shall take place on or before Competition Day. The write-off will be first
taken against the Seabrook Deferred Return and the Acquisition Premium in a
manner that will maximize benefits for customers. In addition to the write-off
described above, PSNH will reduce its Stranded Costs by an additional $10
million upon the transfer of the following market-based wholesale contracts to
an affiliate:
Braintree Littleton Electric Light& Water Dept.
Burlington Electric Dept. Littleton, NH
Central Maine Power Mansfield
Citizens Lehman Middleton
Citizens System Reading
Commonwealth Electric Select Energy
Danvers Sterling
Fitchburg Gas & Electric UNITIL
Holyoke Gas & Electric VT. Marble
IV. RATE DESIGN
The rate design principles to which the Parties have agreed are as
described below.
All classes of customers are to be charged an equal cents per kilowatt-hour
amount for the System Benefits Charge, the Energy Consumption Tax (unless
modified by a revision to the legislation), and Transition Service (for those
customers taking such service). Other than the specific items referenced above,
PSNH will recover its costs through customer, demand, meter, and usage (kWh)
charges, subject to the constraint that any change to rate design will not
result in a shifting of costs between the residential class and all other
classes. All rate design changes will be performed on a revenue neutral
basis. The average rate reduction for the residential class will be the same as
the average rate reduction for all other classes combined. The rate
reduction for individual customers or for different general service classes
may vary from the average overall rate reduction.
The average rate reductions for each of the residential class, the outdoor
lighting class, and the combined general service classes (Rates G, GV and LG)
is 18.3%. The average reduction for the limited number of optional rates that
are already discounted may be less than the average reduction for the class, or
there may be no reduction. If the percent decrease to certain optional rates is
lower or if there is no decrease, the decrease to the other rates within the
class will be higher in order to ensure that the class receives the overall
average percentage decrease specified above. Because economic development
("ED") and business retention ("BR") rates are already discounted, the average
rate reduction for ED and BR customers will be less than the average reduction
for the class into which ED and BR customers would ordinarily fall.
The rate design will not result in a higher bill for any customer, when
comparing the customer's bill calculated prior to Competition Day to that bill
calculated as of Competition Day, assuming that customer receives Transition
Service. Having committed in this Agreement to address low-income assistance
and energy conservation in a more appropriately targeted fashion, PSNH has
eliminated the current "humped" design of the standard residential rate, and it
has also redesigned its general service rates (Rates G, GV and LG) to provide
for a smooth transition for customers who switch from one rate class to another
as a result of load changes.
A table incorporating the foregoing Rate Design principles is contained in
Appendix A. PSNH is filing a proposed Tariff implementing these rates with its
supporting testimony. The other Parties reserve the right to file testimony
supporting or opposing PSNH's proposed rate design and Tariff filing.
V. INDIVIDUAL RATE COMPONENTS
A. Delivery Charge
In order to insure that customers will enjoy stable and predictable prices
through the transition to competition, PSNH will set the Delivery Charge at an
overall average level of 2.80 cents per kilowatt-hour for the first thirty
months following Competition Day (the "Initial Delivery Charge Period"), unless
adjusted as provided herein. As discussed in Section IV of this Agreement,
("Rate Design"), the Delivery Charge includes customer, demand, meter and usage
(kWh) charges. The average Delivery Charge reflects the amount necessary for
that class to receive the rate reduction provided by this Agreement, once all
other rate design changes have been incorporated and after taking into account
all other charges provided for by this Agreement, including the Stranded Cost
Recovery Charge.
No later than twenty-nine months following Competition Day, PSNH will file
with the PUC proposed new delivery rates, including supporting cost and rate
information and pro forma adjustments based on the four most recent calendar
quarters for which data are available, for effect after the end of the Initial
Delivery Charge Period.
The new delivery rates shall take into account any revenues received by
PSNH for servicing of outstanding RRBs subsequent to the Initial Delivery
Charge Period. During the Initial Delivery Charge Period the revenues received
from servicing the RRBs will be reserved in a liability account on PSNH's books
and refunded with a return at the Stipulated Rate of Return when new delivery
rates are determined, over such period as may be ordered by the PUC.
The new delivery rates will become effective after investigation and
hearings. If the new delivery rates are suspended by the PUC, any final rates
determined by the PUC will be calculated retrospectively on an aggregate basis
beginning as of the end of the Initial Delivery Charge Period, with an
appropriate refund or recoupment of costs made prospectively from the effective
date of the PUC's order. The 2.80 cents delivery rates proposed for the
Initial Delivery Charge Period shall not be considered a precedent for the
establishment of the level of rates subsequent to the Initial Delivery Charge
Period.
During the Initial Delivery Charge Period, a Major Storm Cost Reserve
("MSCR") shall be established by PSNH, and shall be funded at a rate of $3
million per year. Major storm costs shall be charged to the MSCR during that
period. A "major storm" shall be defined as any time that either: (a) 10% or
more of PSNH's retail customers lose power and there are more than 200 reported
troubles, or (b) there are 300 or more reported troubles. As part of the
filing for new delivery rates described above, PSNH will report the difference,
if any, between the actual costs charged to the MSCR and the funding of the
MSCR. During the Initial Delivery Charge Period, PSNH will defer any major
storm costs which exceed the funding of the MSCR, and PSNH will recover or
refund (with a return or interest at the Stipulated Rate of Return) during the
subsequent twelve months (or such other period ordered by the PUC) any
difference between the prudent costs properly charged to the MSCR and the
amount of funding of the MSCR.
PSNH has established an Environmental Reserve ("ER") on its books of
account. The ER is for expenditures associated with the sites specified in
Appendix B and is expected to amount to $11.5 million as of January 1, 2000,
with the amount to be adjusted as may be necessary to reflect any reasonable
and prudent adjustments made to such books of account between the filing date
of this Agreement and Competition Day. During the Initial Delivery Charge
Period, PSNH will charge its actual environmental remediation expenditures for
the specifically identified sites to the ER. Subsequent to the Initial
Delivery Charge Period, PSNH will recover or refund (with a return or interest
at the Stipulated Rate of Return) any difference over a period not to exceed
three years, subject to a prudence finding for the costs charged thereto.
Because the average Delivery Charge of 2.80 cents per kilowatt-hour does
not recover any Environmental Remediation Expenditures, during the Initial
Delivery Charge Period PSNH will defer for future recovery environmental
expenses for any new site that is identified or for any increase to estimated
remediation costs for any existing sites. As part of the filing for new
delivery rates, PSNH will propose recovery of any such deferrals. The PUC shall
grant recovery of such costs that it determines to be prudent. If the PUC
grants recovery, such deferrals shall be amortized as they are recovered
through the new Delivery Charge. Any actual Environmental Remediation
Expenditures will decrease the ER.
During the Initial Delivery Charge Period, the Delivery Charge shall, upon
request by PSNH or on a motion by the PUC, be adjusted to fully recover any
changes in PSNH's costs that the PUC determines have resulted from the
imposition or modification of any tax, program, service, or accounting change
resulting from an order by any regulatory agency or by the enactment or
revision of any law, or in the case of accounting changes, by the Financial
Accounting Standards Board ("FASB") or the Emerging Issues Task Force ("EITF").
The Delivery Charge limit of 2.80 cents per kilowatt-hour during the
Initial Delivery Charge Period will only apply to PSNH's customer, demand,
meter, and usage (kWh) charges. Changes to other fees and service charges
(e.g., late payment charges, service connection charges, line extension
charges, and fees for services provided to energy suppliers) will continue to
be subject to PUC approval.
In order to achieve the Delivery Charge specified above, the Parties agree
that a ten-year extension for depreciation lives is appropriate for PSNH's
Transmission and Distribution assets. The Parties hereby support PSNH's request
to make such an adjustment to the depreciation lives. When and if approved by
the PUC, PSNH will make corresponding adjustments to the book lives of the
affected assets.
PSNH will fund PUC expenses during the Initial Delivery Charge Period
that are necessary to monitor Agreement compliance, to assure that Transmission
and Distribution system quality and reliability are maintained, to assure that
PSNH has prudently sold the output of its generating assets and entitlements
prior to divestiture, to assure that allocators utilized to assess charges
among affiliates are proper and timely, and for other matters deemed necessary
by the PUC. If the cost to PSNH of such funding exceeds the historical special
assessment of $350,000 per year, PSNH may recover the incremental amount
through an increase to the Delivery Charge during the Initial Delivery Charge
Period, pursuant to the provisions of this section allowing the Delivery Charge
to be adjusted for changes in costs resulting from the imposition or
modification of any tax, program, service or accounting change.
Revenue received by PSNH from the provision of wheeling service across
PSNH's Transmission system or the Transmission system of its affiliates will
continue to be credited on a pro-rata basis against Delivery Charge revenue
requirements. Revenue received by PSNH from the provision of wheeling service
across PSNH's Distribution facilities will also be credited against Delivery
Charge revenue requirements. Such credit shall not affect the level of the
Delivery Charge during the Initial Delivery Charge Period.
B. Stranded Cost Recovery Charge
The Stranded Cost Recovery Charge ("SCRC") will be a non-bypassable charge
as provided in RSA Chapter 374-F:3 to recover the portion of PSNH's Stranded
Costs as well as other specified costs and expenses that are allowed by this
Agreement. Stranded costs to be recovered through the SCRC will consist of
securitized assets and Non-Securitized Stranded Costs, and the net of ongoing
expenses and/or revenue requirements (including decommissioning costs) for any
generating unit, entitlement or obligation that has not been sold or otherwise
divested as of Competition Day. The SCRC will recover the amortization of the
assets and the ongoing expenses, and will be reconciled with a return applied
at the Stipulated Rate of Return to any overrecoveries or underrecoveries of
costs, subject to the provisions of Section V(C), ("Risk Sharing"), except with
respect to the RRB Charge, for which reconciliations shall be calculated in
accordance with the True-Up Mechanism described in Section XIII. Appendix C
shows the estimated balance of the assets as of January 1, 2000, and Appendix D
provides an illustrative amortization schedule for the assets. Appendices C and
D will be updated as required to reflect additional amortization of and/or
prudent capital additions to the listed assets as of Competition Day.
For the purpose of establishing the SCRC, Stranded Costs will be divided
into three parts, as described below. Part 1 will be the RRB Charge, and is
the source of payment for Rate Reduction Bonds. Therefore, the right to receive
all collections in respect of the Part 1 charge will be sold to the Special
Purpose Securitization Entity (see Section XIII). Part 1 is expected to be
billed until the expected maturity date, which is 12 years from the date of
issuance of RRBs, but, in certain circumstances described herein, may be billed
until the legal maturity date of the RRBs as described more fully below.
Part 2 will continue for as long as there are Stranded Cost expense components
in that part for which PSNH is responsible for payment. Part 3 contains other
miscellaneous Stranded Costs, and recovery of Part 3 Stranded Costs by PSNH is
time bounded and full recovery of such costs is not guaranteed to PSNH.
The SCRC shall be a non-bypassable charge pursuant to RSA 374-F:3. A
retail consumer that installs generation to serve its own load will not be
subject to an exit fee. In the event of municipalization of a portion of
PSNH's service territory, pursuant to RSA 38:33 the PUC shall determine, to
a just and reasonable extent, the consequential damages such as stranded
investment in generation, storage, or supply arrangements resulting from the
purchase of plant and property from PSNH and shall establish an appropriate
recovery mechanism for such damages. Any municipality shall be allowed to
initiate or continue the process of establishment, acquisition and expansion of
plants according to RSA Chapter 38 as it exists upon the date of this
Agreement.
1. Part 1 - Securitized Assets
Part 1 of the SCRC (the "RRB Charge") consists of the amounts required to
recover RRB Costs as more fully described in Section XIII. The securitized
assets to be recovered will be the following:
o The difference between North Atlantic Energy Corporation's book value of
Seabrook, determined as of Competition Day, and $100 million. This amount
will be paid by PSNH to NAEC on or before Competition Day to buy down the
value of the Seabrook Power Contract. This contract buy-down is subject to
all required regulatory and lender approvals.
o The book value of Millstone Unit 3 as of the date of the transfer of
ownership to an affiliate. This transfer is subject to all required
regulatory and lender approvals.
o Necessary and prudent costs associated with issuance of and closing on the
securitization financing and any premiums associated with the retirement of
debt and preferred stock from these proceeds up to a maximum of $17 million.
o A portion of the Acquisition Premium and FAS 109 costs related thereto,
which shall be measured as the difference between the proceeds of the RRBs
and the total of the preceding Part 1 costs.
The net book value of the assets that comprise Stranded Costs as of Competition
Day shall form the basis of the amounts to be recovered. Those values as of
the end of each month for calendar year 2000, will be agreed to by the Parties
and expeditiously filed with the PUC. The values shall be used to determine
the levels of Part 1 and Part 3, with the exception that any prudent capital
additions or retirements at Seabrook and Millstone Unit 3 shall be added or
subtracted from the stated amount.
The Part 1 charge will be a discrete and segregated charge in order to meet
the requirements for the targeted Triple-A Rated securitization. Therefore,
all Part 1 collections will be allocated and remitted to the Special Purpose
Securitization Entity (described below in Section XIII). Cash collections of
Part 2 and Part 3 will not be made available to make payments on Rate Reduction
Bonds. Section XIII(D) of this Agreement discusses the relationship between
Part 1 collections and Parts 2 and 3 of the SCRC.
2. Part 2 - Nuclear Decommissioning Costs, IPP Costs and Going Forward Costs
Part 2 of the SCRC will initially recover ongoing expenses for nuclear
decommissioning (for Seabrook, Millstone Unit 3 and Vermont Yankee) and for IPP
costs. After the earlier of the Recovery End Date or the date that Non-
Securitized Stranded Costs are fully amortized, Part 2 will also be credited
with a return on the accumulated deferred income taxes associated with the
securitized assets. The return thereon shall be equal to the weighted average
interest rate on outstanding Rate Reduction Bonds as capped by PSNH's interest
guarantees contained in this Agreement, if applicable. To the extent that PSNH
is unable to divest any asset, entitlement, or obligation, and the PUC has not
exercised its authority to divest under Section VIII(L), after the earlier of
the Recovery End Date or the date that the Non-Securitized Stranded Costs are
fully amortized, such going forward costs related to those assets,
entitlements, or obligations shall thereafter become Part 2 costs with
continued recovery. Such costs shall exclude any previously deferred amounts.
The Part 2 amount to be recovered through the SCRC each month will be the
expenses incurred by PSNH for the items listed above, less associated revenues
and the revenue from the sale of the IPP power on the wholesale market,
adjusted by the prudent costs incurred by PSNH to mitigate these IPP costs via
buyouts, buydowns, or other methods.
In the event that there is insufficient SCRC revenue to meet both Part 1
and Part 2 SCRC requirements, the unrecovered Part 2 amounts will be deferred
for future Part 2 recovery with a return at the Stipulated Rate of Return.
3. Part 3 - Non-Securitized Stranded Costs and Other Expenses and Obligations
Part 3 of the SCRC will be Non-Securitized Stranded Costs and other expenses
and obligations, not otherwise included in Parts 1 or 2, above, offset
by a return on related accumulated deferred income taxes. Non-Securitized
Stranded Costs will be recovered through the SCRC in accordance with the time
frame specified in the Risk Sharing provision set forth below. Non-Securitized
Stranded Costs to be recovered will be the following:
o Any remaining amount of the Acquisition Premium on PSNH's books as of
Competition Day that has not been securitized.
o FAS 109 costs on PSNH's books as of Competition Day related to the non-
securitized portion of the Acquisition Premium.
o The value of unrecovered obligations for retired nuclear power plants
(Connecticut Yankee, Maine Yankee and Yankee Rowe) on PSNH's books as of
Competition Day.
o The balance on PSNH's books as of Competition Day of deferred costs
associated with Independent Power Producers.
o The balance on PSNH's books as of Competition Day of deferred retail FPPAC
costs.
o The value of Hydro Quebec contract buyout payments.
o The value of the Vermont Yankee contract buyout payment.
o Necessary and prudent unamortized loss on reacquired debt and other costs
associated with the accelerated payoff of PSNH and/or NAEC debt, exclusive
of any amounts included in Part 1.
The balance of the Non-Securitized Stranded Costs will be reduced by the
following amounts:
o The net proceeds (sale price less book value less prudent sales expenses
and all associated taxes not otherwise provided for in this Agreement) from
the sale of PSNH's fossil/hydro assets as of the date that the sale closes.
(If the sale price is less than the book value, the balance of the Non-
Securitized Stranded Costs will be increased by the residual balance of the
fossil/hydro assets after subtracting the net proceeds received from the
sale of the assets.)
o The net proceeds from the sale of NAEC's ownership interest in the Seabrook
Nuclear Plant. (If the sale price is less than the book value, the balance
of the Non-Securitized Stranded Costs will be increased by the residual
balance after subtracting the net proceeds received from the sale of NAEC's
ownership interest.)
o $10 million upon transfer of PSNH's market-based wholesale contracts to an
affiliate as described in Section III, the "Write-Off" section of this
Agreement.
o Any net payment received by PSNH resulting from the termination of any
wholesale requirements contract other than the Amended Partial Requirements
Agreement with the New Hampshire Electric Cooperative, Inc.
o The present value of the incremental payments for the All-In Cost of Rate
Reduction Bonds if that cost exceeds the interest rate guarantee made by
PSNH (i.e., 6.25% if the Rate Reduction Bonds are issued on or before
December 31, 1999; 7.25% if the Rate Reduction Bonds are issued during the
time period of January 1, 2000 through and including June 30, 2000). If
the Rate Reduction Bonds are issued on or after July 1, 2000, or if such
Bonds do not achieve a Triple-A Rating, this provision does not apply.
The Part 3 amount recovered through the SCRC each month for Non-Securitized
Stranded Costs will be equal to the amount of Non-Securitized Stranded Costs
amortized each month (assuming a seven year amortization schedule), plus a
return on the balance (net of related accumulated deferred income taxes) of the
Non-Securitized Stranded Costs, plus any underrecovery or any accelerated
amortization as described in Section V(B)(4), the Rate Calculation and
Reconciliation section below, subject to the provisions of Section V(C) (Risk
Sharing). The return applied to the balance of the Non-Securitized Stranded
Costs will be the Stipulated Rate of Return. Other expenses and obligations
recovered through or credited to Part 3 of the SCRC will be the following:
o The revenue requirement associated with any generating asset, entitlement,
and purchased power obligation (other than Part 2 costs related to nuclear
decommissioning or IPP's) prior to the divestiture of such asset,
entitlement or obligation.
o The difference between the expense incurred for the purchase of power to
supply Transition Service and the revenue received from customers for
Transition Service. Such amount may be either negative or positive,
depending on whether the purchase price is less than or greater than the
sale price to Transition Service customers.
o Any positive difference between the expense incurred for the purchase of
power to supply Default Service and the revenue received from customers for
such service.
o Return on the accumulated deferred income taxes associated with the
securitized assets at a rate equal to the weighted average interest rate on
outstanding RRBs as capped by PSNH's interest guarantees contained in this
Agreement, if applicable.
Other expenses and obligations will be reduced by the revenue from the sale
of power from any generating asset, entitlement or purchased power obligation
(other than IPP's) prior to the divestiture of such asset, entitlement or
obligation.
Part 3 of the SCRC will cease as of the earlier of (a) the Recovery End
Date described in described in Section V(C), the Risk Sharing section of this
Agreement, or (b) the date that the Non-Securitized Stranded Costs are fully
amortized. However, to the extent that PSNH is unable to divest any asset,
entitlement or obligation and the PUC has not exercised its authority to divest
under Section VIII(L), after the earlier of (a) or (b) above any such going
forward costs related to those assets, entitlements, or obligations shall
thereafter become Part 2 costs with continued recovery. Such costs shall
exclude any previously deferred amounts. In addition, at the earlier of (a) or
(b) above, the accumulated deferred income taxes associated with the
securitized assets and a return thereon, will become Part 2 credits.
4. Rate Calculation and Reconciliation
a. Prior to Recovery End Date
The overall average level of the SCRC will be 3.79 cents per kilowatt-hour
for the period from Competition Day until the earlier of the date that the non-
securitized Part 3 assets are fully amortized or the Recovery End Date
described in Section V(C), the Risk Sharing section of this Agreement. During
that time, PSNH will compare the amount to be recovered through Parts 1, 2 and
3 of the SCRC during each six-month period with the revenue received from the
billing of the SCRC. If the Part 3 amounts to be recovered exceed the amount
of revenue received through the billing of the SCRC, the difference will be
deferred with a return for possible future recovery as a Part 3 amount during
the next six-month period. The return will equal the Stipulated Rate of
Return. In no event shall such Part 3 deferral extend beyond the Recovery End
Date. If the Part 3 amounts to be recovered are less than the amount of
revenue received through the billing of the SCRC, the difference will be used
to accelerate the amortization of non-securitized Part 3 assets, thereby
shortening the recovery period for such assets. Nothing described in this
paragraph will affect the RRB Charge or its True-Up Mechanism.
As described in Section XIII, "Securitization of Stranded Costs," the RRB
Charge may be increased or decreased pursuant to its True-Up Mechanism;
however, the total average SCRC will be 3.79 cents/kWh prior to the earlier of
the Recovery End Date or the date when non-securitized Part 3 assets have been
fully amortized. Thus, prior to such date, any increase in the RRB Charge will
result in a decrease in recovery of Part 3. To the extent such increase in
the RRB Charge is greater than the amount to be collected via Part 3, recovery
of Part 2 will also be reduced, such that the total average SCRC remains 3.79
cents/kWh. To the extent recovery of Part 1 is decreased pursuant to the True-
Up Mechanism prior to the Recovery End Date, recovery of Part 3 will increase
such that the total average SCRC remains 3.79 cents/kWh.
b. Upon Recovery End Date
Upon the Recovery End Date any remaining Part 3 Non-Securitized Stranded
Cost balances shall be written off.
c. After the Recovery End Date
After the earlier of the Recovery End Date or the date that the Non-
Securitized Stranded Costs are fully amortized, the SCRC will no longer be
frozen at 3.79 cents/kWh, but is expected to drop significantly, thus
providing additional customer savings. Thereafter, any increases or
decreases in Part 1 pursuant to the True-Up Mechanism will result in
corresponding increases or decreases in the SCRC charged to customers.
After the earlier of the Recovery End Date or the date that the Non-
Securitized Stranded Costs are fully amortized, PSNH will calculate Part 2
to be billed upon PUC approval during each prospective six-month period.
Any difference between the amounts to be recovered through Part 2 during any
six-month period and the revenue received through the application of Part 2
during that period will be refunded or recovered with a return during the
subsequent six-month period by reducing or increasing Part 2 for the subsequent
six-month period. The return will be the Stipulated Rate of Return.
C. Risk Sharing
The recovery of Non-Securitized Stranded Costs in Part 3 of the SCRC
described above shall be subject to the following risk sharing provision.
Specifically, PSNH shall forego the right to recover all such Non-Securitized
Stranded Costs that remain unrecovered as of the Recovery End Date. The
Recovery End Date will initially be September 30, 2007, but shall be revised
within 30 days following the closing on the sale of the fossil/hydro assets
described in Section VIII ("Divestiture") by the following durations:
1) The Recovery End Date shall be 20 days earlier for each month beyond
January 1, 2000 that Competition Day occurs.
2) For purposes of computing the Stranded Cost Recovery Charge in this
Agreement, the Parties have assumed that $360 million will be the net proceeds
realized from the sale of the fossil/hydro assets at auction. The Recovery End
Date shall be 30 days earlier for every $10 million by which the net sale
proceeds of the fossil/hydro assets exceeds $360 million, or made later by 30
days for every $10 million by which the net sale proceeds of the fossil/hydro
assets is less than $360 million. An adjustment of less than 30 days will be
made on a pro-rata basis for residual increments, or decrements, less than $10
million.
3) For purposes of computing the Stranded Cost Recovery Charge, the
Parties have assigned a 7.25% All-In Cost to the RRBs. If the Rate Reduction
Bonds are issued prior to July 1, 2000, and achieve a Triple-A Rating, the
Recovery End Date shall be 20 days earlier for each 25 basis points (0.25
percentage points) by which the All-In Cost of the Rate Reduction Bonds is
less than 7.25%.
4) The Recovery End Date shall be 20 days earlier for every 0.1 cents/kWh
that the actual weighted average cost of Transition Service is below the
prices charged to customers as specified in Section V(D)(2), for each of the
first, second and third twelve-month periods following Competition Day.
Similarly, the Recovery End Date shall be made later by 20 days for every
0.1 cents/kWh that the actual average cost of Transition Service exceeds the
prices charged to customers as specified in Section V(D)(2) for each of the
first, second and third twelve-month periods following Competition Day. For
example, if the actual weighted average cost is less than the price specified
in the Transition Service section of this Agreement by 0.2 cents/kWh the first
twelve months, 0.1 for the second, and 0.1 for the third, then the Recovery End
Date would be 80 days earlier. The adjustments to the Recovery End Date shall
be prorated for incremental changes less than 0.1 cents/kWh.
5) In the case of the output of nuclear and IPP entitlements, the Recovery
End Date shall be adjusted for the difference between the wholesale market
prices estimated for purposes of this Agreement and (a) the actual wholesale
price for the sale of output of such entitlements prior to the closing of the
sale of fossil/hydro assets at auction and (b) a proxy for the actual wholesale
price for the sale of the output of such entitlements after the closing of the
sale of the fossil/hydro assets. In the case of the output of the fossil/hydro
units, the Recovery End Date shall be adjusted for the difference between the
wholesale market prices estimated for purposes of this Agreement and the actual
revenue from the sale of the output for the fossil/hydro units prior to
divestiture. For nuclear and IPP entitlements, the proxy wholesale price shall
be determined based on the average price realized from the sale (under the RFP
process approved by the Connecticut Department of Public Utility Control) of
the output of The Connecticut Light and Power Company's and Western
Massachusetts Electric Company's shares of Millstone 2, Millstone 3 and
Seabrook, adjusted for differences in capacity factors. After the Initial
Delivery Charge Period, the proxy prices will be escalated by 3% per year.
The Recovery End Date will be adjusted for these factors as follows:
a) The Recovery End Date shall be 30 days earlier for every $10 million
by which the actual revenue received from the sale of power from PSNH's
fossil/hydro assets for the period beginning on Competition Day and ending on
June 30, 2000 exceeds the estimated revenues, such estimated revenues computed
by multiplying the number of days in the period beginning on Competition Day
and ending on the day of divestiture by $551,000, or made later by 30 days for
every $10 million by which such revenue is less than the estimated revenues.
An adjustment of less than 30 days will be made on a pro-rata basis for
residual increments of less than $10 million.
b) The Recovery End Date shall be 30 days earlier for every $10 million
by which the sum of the (a) actual revenue obtained before fossil/hydro sale
closing and (b) projected revenue, after such closing and as defined below,
received from the sale of power from PSNH's Independent Power Producer ("IPP")
entitlements for the period beginning on Competition Day and ending on
September 30, 2007 exceeds the estimated revenue, or made later by 30 days for
every $10 million by which the sum of such actual and projected revenue is less
than the estimated revenue. The estimated revenue shall be computed as
$240,000,000 plus the product of $91,000 times the number of days beginning on
Competition Day and ending on December 31, 2000. An adjustment of less than
30 days will be made on a pro-rata basis for residual increments of less than
$10 million. The projected revenue from the sale of power from IPP
entitlements shall be computed using the proxy wholesale market prices
described above, and, in order to translate the proxy wholesale price into a
cents per kilowatt-hour number, an annual IPP capacity factor of 95%, and the
yearly megawatt-hour values listed below. The value for the year 2000 shall
be pro-rated for the actual period from Competition Day through December 31,
2000.
Year MWh
2000 1,122,000
2001 1,126,000
2002 1,126,000
2003 1,119,000
2004 1,122,000
2005 1,095,000
2006 964,000
2007 547,500 Through Sept. 30, 2007
c) The Recovery End Date shall be 30 days earlier for every $10 million
by which the sum of the (a) actual revenue obtained before fossil/hydro sale
closing and (b) projected revenue received from the sale of power from PSNH's
Seabrook Power Contract entitlement for the period beginning on Competition Day
and ending on December 31, 2003 exceeds the estimated revenue, or made later by
30 days for every $10 million by which the sum of such actual and projected
revenue is less than the estimated revenue. The estimated revenue shall be
computed as $299,737,000 plus the product of $286,000 times the number of days
beginning on Competition Day and ending on December 31, 2000. An adjustment of
less than 30 days will be made on a pro-rata basis for residual increments of
less than $10 million. The projected revenue from the sale of power from
PSNH's Seabrook entitlement shall be computed using the proxy wholesale market
prices described above, an annual Seabrook capacity factor of 82%, and the
yearly megawatt-hour values listed below. The value for the year 2000 shall
be pro-rated for the actual period from Competition Day through December 31,
2000.
Year MWh
2000 3,165,000
2001 2,851,000
2002 2,852,000
2003 3,154,000
D. Energy Charges
On and after Competition Day, except for Transition Service and Default
Service obligations established by this Agreement and obligations to purchase
power from IPPs, PSNH will no longer have any obligation to build, provide,
plan for, or buy energy, capacity, or other generation related services for its
retail customers. Following Competition Day, three options will be available
to customers for energy service: a Competitive Supplier of the customer's
choice, Transition Service, or Default Service. Transition Service will be
available for a three-year period following Competition Day for those customers
who have not chosen a Competitive Supplier, or as otherwise provided below,
thus providing stable and predictable prices during the transition to a fully
competitive market. Default Service will provide a safety net and assure
universal access for customers who are not receiving energy from a Competitive
Supplier and who are not eligible for Transition Service.
1. Competitive Energy Service
On and after Competition Day, customers may be able to obtain even greater
rate reductions by choosing from among authorized Competitive Suppliers.
2. Transition Service
Transition Service will be available for a three-year period following
Competition Day for those customers who have not chosen a Competitive Supplier,
or as otherwise provided below, thus providing stable and predictable prices
during the transition to a fully competitive market. Transition Service will
be secured by (a) PSNH through a competitive bidding process conducted under
PUC oversight, or (b) an independent third party, as determined by the PUC.
Such oversight shall be in the form and manner prescribed by the PUC, with
any incremental costs of such oversight to be considered administrative costs
of Transition Service. All authorized energy suppliers, including qualified
PSNH affiliates, will be permitted to bid to provide Transition Service. The
possibility of dividing the Transition Service market among the energy
suppliers with the lowest bids will be considered after bid receipt and
analysis, in which case a subsequent round of bidding, at the discretion of
the PUC, may be used to assess its benefits. Transition Service shall be
procured in such time blocks as shall prove efficient and effective after
analysis of the bids is made. PSNH will offer branding to the successful
bidder(s), including use of name identification on bills or bill inserts.
Proposed terms and conditions for the competitive bidding process for
Transition Service (as well as for Default Service) are set out in Appendix E.
The retail price of Transition Service will be 3.70 cents per kWh for the
first twelve months following Competition Day ("year one"), 3.80 cents per kWh
for the second twelve months ("year two"), and 3.90 cents per kWh for the third
twelve months ("year three"). If the weighted average price of the winning
bids in any year is lower than the Transition Service price for that year, the
difference will be used to accelerate the amortization of Stranded Costs
thereby reducing the period of time over which Part 3 of the SCRC will be
recovered. Conversely, if the price obtained through competitive bids is
higher than the Transition Service price for that year, the excess will be
deferred and collected through the non-securitized portion of the SCRC. In
either event, the Recovery End Date shall be adjusted pursuant to Section
V(C)(3).
Customers will be free to terminate Transition Service as of the end of
any billing cycle to purchase from a Competitive Supplier in the market,
without cost or penalty. PSNH shall be notified of such change by the
Competitive Supplier pursuant to the terms of PSNH's Tariff. PSNH will make
customers aware of their right to terminate Transition Service by prominently
displaying a message to that effect on each customer's bill.
An election to terminate Transition Service by customers served under
Tariff rates GV, LG or B will be final. After an election to terminate, such
customers will qualify for Default Service, but not Transition Service.
Remaining customers who choose to terminate Transition Service will be allowed
to return to Transition Service at any time during the first year following
Competition Day. Low-Income customers (as defined in Section V(E)(1), the Low-
Income Electric Assistance Program section of this Agreement) will be allowed
to return to Transition Service at any time during the three-year Transition
Service period. At the end of the three-year Transition Service period all
customers who have not selected a Competitive Supplier will be assigned to one
of the entities that have provided transition power and that qualifies as a
Competitive Supplier. These assignments will be based on the ratio of
transition power provided by each such supplier who is a Competitive Supplier
during the three-year period. Any Transition Service customer subject to such
assignment shall be notified in advance of the assignment in a form and manner
determined by the PUC. The administrative cost of acquiring, billing and
managing Transition Service will be recovered through the Delivery Charge for
all customers.
3. Default Service
Electricity is an essential service, and there is a risk in a competitive
market that some customers will find themselves unable to secure a Competitive
Supplier or they may temporarily be between suppliers. To assure universal
service and system integrity, PSNH will arrange for Default Service to be
provided to customers who are not receiving energy from a Competitive Supplier
and who are not eligible for Transition Service. Default Service shall be
acquired through a competitive bid for the three-year period following
Competition Day (the auction to be conducted as part of the Transition Service
auction described in Appendix E); thereafter, auctions to procure service for
subsequent periods will be conducted at such times and on such terms and
conditions as the PUC may require. Default Service shall be provided pursuant
to terms and conditions established by the PUC. The administrative cost to
acquire, bill and manage Default Service will be recovered as provided by
statute. The price of Default Service shall be the weighted average of all
successful bids. However, during the three-year period when Transition Service
is available, in no event shall the price of Default Service to the customer
be less than the Transition Service prices listed in subparagraph (2) above,
unless otherwise ordered by the PUC, and any differential will be used to
defray Non-Securitized Stranded Costs as provided in Part 3 of the SCRC.
E. System Benefits and Energy Consumption Tax
The System Benefits Charge will be a cents per kilowatt-hour charge
designed to fund PUC-approved public benefit programs, including but not
necessarily limited to the Low- Income Electric Assistance Program and the
Energy Efficiency Programs specified below. The accounting for the System
Benefits Charge by PSNH shall be subject to the approval of the PUC and RSA
374-F:3,VI and 374-F:4,VIII(b), as applicable. The System Benefits Charge
shall be applied equally to all classes of customers and to all kilowatt-hours
billed to customers taking delivery service from PSNH. The Energy Consumption
Tax shall be the amount specified by RSA 83-E:2.
1. The Low-Income Electric Assistance Program
The Parties recognize that electric service is essential, and that programs
and mechanisms that enable low-income residential customers to manage and
afford essential electricity requirements will be necessary, in accordance with
RSA 374-F:3,V(a). To accomplish this, PSNH agrees to implement a "percentage
of income" payment program on Competition Day, consistent with the statewide
low-income Electric Assistance Program proposed by the Low-Income Working Group
and approved by the PUC during oral deliberations on May 10, 1999, as part of
Docket No. DR 96-150.
The Low-Income Electric Assistance Program shall provide service to low-
income residential customers on the basis of an affordable percentage of the
customer's income. Individuals or families whose annual income is less than
150% of the federal poverty level shall be eligible for the low-income program,
subject to funding limitations and such eligibility requirements as may be
established under the PUC-approved guidelines of the Low-Income Working Group.
This program will be funded by a charge assessed uniformly on all kilowatt-
hours billed by PSNH as part of the System Benefits Charge. The portion of the
System Benefits Charge attributable to low-income programs shall be 1.5 mils
per kilowatt-hour, unless otherwise ordered by the PUC.
If it appears that the statewide Low-Income Electric Assistance Program
will not be ready for implementation by Competition Day, PSNH shall file with
the PUC, and seek approval for an interim low-income program or discount rate
to be in place from Competition Day until the implementation of the statewide
program. The interim low-income program or rate will take effect on
Competition Day or upon such other date as may be specified by the PUC. This
interim low-income program or rate shall provide aggregate rate relief to low-
income customers that is reasonably equivalent to the percentage of income
payment program described above.
2. Energy Efficiency Programs
The Parties recognize that cost-effective energy conservation measures are
an important means to reduce energy usage and, in conjunction with lower rates,
to reduce customers' energy bills. Consistent with the legislative directive
at RSA 374-F:3,X that restructuring should include utility-sponsored energy
efficiency programs targeting cost-effective opportunities which may otherwise
be lost due to market barriers, the Parties understand that the PUC will decide
the appropriate level of future funding for energy efficiency, informed by
recommendations of the Energy Efficiency Working Group ("EEWG"). PSNH agrees
to support increased energy efficiency program budgets in the EEWG and before
the PUC, consistent with the System Benefits Charge figures set forth below.
Prior to Competition Day, PSNH will spend amounts ordered by the PUC for
energy efficiency and DSM programs, as established in Docket No. DR 98-174 (the
1999 PSNH Conservation and Load Management proceeding) and in any subsequent
proceeding. If, prior to Competition Day, the PUC has rendered a decision on
the recommendations of the EEWG, the Energy Efficiency Program portion of the
System Benefits Charge implemented on Competition Day shall reflect the results
of that decision. Any changes in the authorized expenditures covered by this
paragraph shall be subject to the rate adjustment provisions for public policy
changes set forth in Section V(F)(1) of this Agreement.
If, as of Competition Day, the PUC has not rendered a decision on the EEWG
recommendations, Energy Efficiency Program charges will be as follows until
such time as the PUC acts: 1 mil per kilowatt-hour during year one following
Competition Day, 1.5 mils per kilowatt-hour during year two, and to 2.5 mils
per kilowatt-hour during year three. The Energy Efficiency Program charge
shall remain at those levels until altered by the PUC or by statute.
F. Other Rate Issues
1. Changes in Nuclear Decommissioning and Public Policy Charges
Prior to Competition Day, any interested person may petition the PUC to
adjust PSNH's bundled rates to reflect changes in the Nuclear Decommissioning
Charge made after August 2, 1999 and/or any new level of public policy
expenditures ordered by the PUC after August 2, 1999. The other Parties to
this Agreement agree to support any such substantiated petition for an increase
by PSNH.
2. Fuel and Purchased Power Adjustment Clause ("FPPAC")
The FPPAC rate will be frozen at the currently effective amount of
0.383 cents/kWh and an FPPAC BA amount of 6.281 cents/kWh until Competition
Day, except as provided for special contracts in Section VII. On Competition
Day, the FPPAC will be eliminated. Any unrecovered FPPAC balances as
determined by the PUC (including deferred FPPAC charges) will be eligible for
recovery as allowed under Part 3 of the SCRC. Inasmuch as the write-off that
PSNH has taken under this Agreement reflects adjustments to historical FPPAC
balances, the recovery of PSNH's FPPAC balance as of August 2, 1999 shall not
be subject to a prudence determination. However, the recovery of any FPPAC
accruals that occur after August 2, 1999 shall be subject to the prudence
standard of this Agreement.
3. Sharing Agreement.
The Sharing Agreement and the Capacity Transfer Agreements between PSNH
and the NU initial system will be terminated as of December 31, 1999 with no
financial compensation due either party, except for capacity and transmission
payments for November and December, 1999, which are currently estimated to be
$8.4 million, and final reconciliation as determined pursuant to FERC contract
requirements for amounts due with respect to entitlements or transactions
occurring before this termination date.
4. The Rate Agreement and the Seabrook Power Contract.
As a condition precedent to Competition Day, NU must have obtained the
consent of the New Hampshire Attorney General, and all other necessary
regulatory and lender approvals, to cancel the November 22, 1989 Rate Agreement
between NU and the State and the November 22, 1989 Seabrook Power Contract
between PSNH and NAEC. The Attorney General hereby consents to such
cancellations, contingent on implementation of this Agreement.
G. Avoided Costs for IPPs
PSNH's responsibilities and avoided cost rates on and after Competition
Day for short-term purchases of IPP power pursuant to the federal Public
Utility Regulatory Policies Act and the New Hampshire Limited Electrical Energy
Producers Act shall be equal to the payments received by PSNH for sales into
the ISO-New England power exchange, adjusted for line losses, wheeling costs,
and administrative costs. This Agreement is not intended to impair existing
rate orders or contracts.
H. Termination of Pilot Program
To allow PSNH to prepare for the implementation of this Agreement, PSNH's
participation in the New Hampshire Retail Competition Pilot Program (Docket No.
DR 95-250) shall terminate as of pilot customer meter readings during the month
following receipt of a Final Order.
VI. TRANSMISSION AND DISTRIBUTION ISSUES
A. Classification of Transmission and Distribution Facilities
PSNH has functionally classified its Transmission and Distribution using
a similar method to that proposed by PSNH in PUC Docket No. DR97-059. The
proposed allocations are subject to PUC approval. The Parties agree that the
allocations satisfy the FERC 7 Factor Test. The line of demarcation between
Transmission and Distribution is at the high side of the facilities that
interconnect with facilities rated 69 kV and above and that step-down to
facilities rated at or below 34.5 kV. Following PUC approval, PSNH shall file
and the Parties shall support a notification of such reclassification with
FERC.
B. White Lake Power Plant
Pursuant to RSA 374-F:3,III, the White Lake Combustion Turbine plant will
be retained by PSNH, and run as needed to maintain reliability and stability on
PSNH's electrical delivery system. Any energy produced by this plant and the
capacity represented by this plant will be sold on the wholesale market or sold
to the New England Independent System Operator ("ISO") at the ISO market
clearing prices in a prudent manner designed to maximize net revenues. The
cost and revenue associated with this plant shall be reflected in the
determination of PSNH's Delivery Charge.
In the event the White Lake power plant is rendered inoperable, the Parties
agree that PSNH shall have the right, subject to PUC approval, to either repair
or replace the unit with another unit of similar capabilities or seek to
modify, upgrade or construct new facilities on the PSNH Transmission and
Distribution system in order to maintain system integrity, if prudent and
consistent with least-cost planning principles. PSNH may, at its discretion,
initiate a request for the siting of a new merchant generator in this
geographical area to support the reliability needs of the PSNH's electrical
system.
VII. SPECIAL CONTRACT, ECONOMIC DEVELOPMENT AND BUSINESS RETENTION CUSTOMERS
As of Competition Day, PSNH will no longer be a retail energy supplier.
Accordingly, it will be necessary as of that date to modify the special
contracts it has with certain customers for the supply of electric energy. To
accomplish this end, all customers served under special contracts in existence
as of Competition Day may elect one of the following three options. Customers
will be informed by PSNH of their option rights at least 60 days prior to
Competition Day. To the extent practicable, Economic Development and Business
Retention customers shall have the same options.
Option 1. The customer may retain the special contract. The prices
will be dictated by the special contract, and the customer will receive energy
under Transition Service and thereafter Default Service with no additional
payments for energy. If the customer's special contract refers to the terms
"FPPAC" and "FPPAC BA," those terms will equal the values established in Order
No 23,139 in Docket No. DR 98-139 of 0.383 cents per kilowatt-hour for FPPAC
and 4.955 cents per kilowatt-hour for FPPAC BA. All electrical power must be
delivered through the PSNH meter except for any self-generation or co-
generation currently permitted under terms of the customer's special contract;
or
Option 2. The customer may have the special contract partially unbundled.
The energy charges under the contract will be reduced by 3.7 cents per
kilowatt-hour. The customer may contract with and receive power from any
Competitive Supplier for the remaining term of the special contract. All
other provisions of the special contract shall remain in effect except for the
provision for PSNH as sole supplier. All electrical power must be delivered
through the PSNH meter except for any self-generation or co-generation
currently permitted under the terms of the customer's special contract.
Once this Option 2 is elected, the customer may not return to Option 1; or
Option 3. Provided there is a termination or cancellation clause in
the special contract, the customer may at any time cancel the remainder of the
special contract and pay whatever termination charges are provided in the
contract. Upon termination the customer will thereafter receive market energy
and take other services under tariffed rates, as any other similarly situated
customer. The proceeds of all termination charge payments will be used to
offset Stranded Costs.
If a special contract customer makes no election on or before Competition
Day, Option 1, above, will be the terms under which the customer will be
served. Upon termination by the expiration of the special contract term or by
the exercise of any termination provision of the special contract, the customer
will thereafter receive market energy and take other services under Tariff
rates.
A portion of the revenue received from special contract, ED and BR
customers will contribute to the payment of Rate Reduction Bonds. Such portion
shall be calculated in a manner similar to the determination of RRB cost
recovery for Tariff customers. Any revenue from those customers in excess of
the sum of the RRB Charge, the System Benefits Charge, the Energy Consumption
Tax, the overall average Delivery Charge, and the Transition Service charge
(if applicable) shall be applied to the recovery of Parts 2 and 3 of the SCRC.
VIII. DIVESTITURE
A. General
PSNH will divest itself of its power generation assets and power
purchase agreements as a result of this Agreement. This divestiture will take
place through several processes including the sale of its existing power
generation facilities at auction. This is in keeping with other divestitures
that have been accomplished throughout New England as restructuring has taken
place. The goals of the asset auctions are to maximize the net proceeds
realized from the sale in order to mitigate Stranded Costs, to provide a
market-based determination of Stranded Costs, and to help establish a
competitive energy market.
It is likely that a time lag will exist between Competition Day, when
customers are free to choose their own Competitive Supplier, and the actual
closing on the sale of any or all of the power generation assets and power
purchase agreements. During this period, the power produced by these assets
and obtained from the power purchase agreements will be sold in the marketplace
in accordance with Section IX, the "Marketing of Energy" section of this
Agreement.
PSNH will have the responsibility to conduct and manage the fossil/hydro
and nuclear auction processes throughout, with oversight by the PUC. The final
sales of fossil/hydro and nuclear assets will require PUC approval.
PSNH will commence the auction of its fossil/hydro generation assets
(except for the White Lake Combustion Turbine and potentially PSNH's ownership
interest in the Wyman Unit 4) no later than 30 days after the date of the Final
Order approving this Agreement. NAEC's ownership share of Seabrook will be
sold via public auction no later than December 31, 2003. Additionally, PSNH
will sell all of its ownership entitlements related to Hydro Quebec.
B. Timing and Details of the Fossil/Hydro Auction
The fossil/hydro auction process will consist of an initial non-binding
bid phase ("First Round") during which time interested parties may bid for the
entire portfolio or specified subsets. In the First Round, interested parties
will be given access to the data room, invited to ask preliminary questions,
and conduct initial due diligence. Following the First Round, a group of the
most qualified bidders will be selected and offered the opportunity to
participate in the Second Round of bidding. During the Second Round, these
bidders will be given the opportunity to conduct detailed due diligence, ask
detailed questions, participate in management interviews, visit the principal
sites and submit binding bids. At the time of the initiation of the Second
Round of bidding, the selected participants will be advised as to any
mandatory groupings of the assets, on which they will be required to bid.
The decision to group assets for final bidding will be based upon the results
of the First Round of bids and other information that is known immediately
prior to the Second Round.
As described in Section VIII(E) of this Agreement, municipalities which
have expressed interest in purchasing hydroelectric generating assets located
in their communities, and which have not reached satisfactory terms with PSNH
to purchase such assets in private sales outside the auction process, will be
included in the Second Round bidding process if (a) they have demonstrated
financial capability to purchase the asset in question, and (b) their First
Round indicative bids were competitive with other bids received from other
bidders.
Following receipt of the binding Second Round bids, PSNH may, with PUC
oversight, elect to conduct an additional round of bidding, in real-time,
including selected finalists, to further improve the prices that will be
realized by PSNH and to improve the terms and conditions of the sale.
PSNH affiliates will be entitled to bid in the fossil/hydro asset
auction provided that any bid by an affiliate will be equal to or greater
than the sum of the book values for all assets on which the affiliate bids.
A code of conduct will be established in consultation with the PUC to address
the participation of any affiliated bidders, and prudent actions will be taken
to make the auction process fair, equitable and impartial to all bidders. To
aid in accomplishing these goals, evaluation of all bids will be conducted on
a "blind" basis, with the bidders' names coded to ensure fair and non-
discriminatory assessment. Additionally, a secure internet web site will be
used to provide data room information and transaction documents related to
the sale to interested parties and a designated financial advisor will serve
as the intermediary for all communications between bidders and PSNH throughout
the bidding process.
Appendix F provides an illustrative timeline and sequence of events for
the fossil/hydro auction process, which may be modified in order to achieve the
goals of the auction process. PSNH acknowledges that the conduct of the auction
is subject to PUC oversight, and that the personnel designated by the PUC to
assist in performing its oversight function will have the right and opportunity
to inquire and consult with PSNH on any aspect of the auction process, on a
timely basis.
C. Facility Descriptions
The PSNH fossil/hydro generating assets to be divested via auction are
described in Appendix G.
D. Approvals
The following approvals have been identified as being required prior to
the closing of any sale, resulting from the fossil/hydro auction or other sale
process:
1. Federal
Federal approvals will be required from FERC for the transfer to the buyer
of any jurisdictional facilities, the jurisdictional hydroelectric projects and
FERC licenses, and the Interconnection and Operation Agreement.
Securities and Exchange Commission ("SEC") approval will be required
because PSNH is a wholly-owned subsidiary of Northeast Utilities, a registered
holding company under the Public Utility Company Holding Company Act of 1935
may be required.
The pre-merger notification requirements of the Hart-Scott-Rodino Act will
require PSNH and the buyer to file notification regarding the intended sale.
2. State
In addition to approvals required from the PUC, the following State
approvals will also be required:
Approval will be required by the Connecticut Department of Public Utility
Control under Conn. Gen. Stat. Section 16-43 for the sale of any utility asset
by PSNH.
Approval will be required by the Vermont Public Service Board under Vt.
Stat. tit. 30, Section 109 for the sale of PSNH's generating plant located in
Canaan, Vermont.
Approval may be required from the Maine Public Utilities Commission under
Me. Rev. Stat. tit. 35-A, Section 1101 for the sale of PSNH's minority interest
in the Wyman 4 generating station located in Maine.
Approvals and appropriate findings from New Hampshire, Massachusetts and
Connecticut regulators under section 32(c) of the Public Utility Holding
Company Act of 1935.
3. Other
The Sale may require prior consent of certain lenders under PSNH's
existing credit agreements. In addition, the sale may require additional
regulatory approvals that will be based on the identity and regulatory
requirements applicable to the selected buyer(s) of the divested assets.
PSNH will diligently seek to obtain all necessary approvals.
E. Municipal Interest in Purchasing Hydroelectric Generating Assets
Prior to the commencement of the fossil/hydro asset auction, PSNH may
enter into agreements for the sale of hydroelectric generating assets to any
interested municipality, subject to PUC approval. Any such assets sold in this
manner will be excluded from the fossil/hydro auction. If no such agreements
are reached, all interested municipalities will be able to participate in the
auction process, subject to the same confidentiality, financial qualification
and other requirements that will be imposed on non-municipal participants in
the auction.
It will be necessary that any arrangements with municipalities for
purchase of a hydroelectric asset satisfy the following requirements:
1. In order to be considered, the proposal from the municipality
must conform to the following offer criteria:
(a) the offer must be for a specific purchase price, not subject
to qualification, and payable in full at closing.
(b) the offer must clearly demonstrate the existence of adequate
funding in place, or binding commitment to provide such funding at closing,
sufficient to pay the price in full at closing.
(c) the offer must be to purchase the same hydroelectric
generating asset, adjacent lands, grant the same employment protections and
benefits and other requirements as PSNH is proposing to establish in the
fossil/hydro auction.
(d) the offer must not contain any major contingencies other
than (i) approval of the price term by the PUC, and (ii) for FERC licensed
facilities, approval by FERC of the transfer of the hydro license to the
buyer.
2. PSNH will have the absolute right to reject any offer which does
not promise to meet or exceed the price which PSNH could reasonably anticipate
receiving for the asset if the asset were to be sold as part of the auction
process.
3. The municipal buyer must enter into a binding purchase and sale
agreement not later than 10 days following the PUC's initial order approving
this Agreement.
4. PUC approval, and all other approvals, must be obtained and
financial closing occur not later than 60 days following a Final Order
approving this Agreement.
F. Hydro Quebec
The purchase and sale of electricity from Hydro-Quebec ("HQ") is part
of a series of agreements among HQ and certain New England utilities
(collectively, the "HQ Participants") governing the interconnection and sale
of energy between NEPOOL and the HQ power systems. PSNH is a HQ Participant.
Interested parties will be invited to bid on PSNH's HQ entitlements. PSNH
will sell at auction its HQ power entitlements and the associated Direct
Current ("DC") transmission rights, which are required to deliver the HQ power
entitlement. The auction of the HQ contracts will occur on a timeline
consistent with that for the fossil/hydro assets, and under similar PUC
oversight, but will be in a separate offering.
The purchase and sale between the HQ Participants and HQ is governed
by the following agreements:
1. HQ Phase II Energy Contract or Firm Energy Contract
This contract, dated October 14, 1985, requires NEPOOL members to purchase
7,000 GWh of energy from HQ each year through August 2000. In the event that
this allotment has not been fulfilled, the contract may be extended until
August 2004 to allow NEPOOL members to meet their energy purchase obligation.
This contract enables PSNH to buy firm energy utilizing its entitlement in the
transmission facility through August 2000. Based on PSNH's firm transmission
facility entitlements, its purchase entitlement under this agreement is on
average 140 MW. Purchases of energy through this entitlement are based on the
Average Fossil Fuel Cost index, which has reflected regional energy market
values.
2. HQ Energy Banking Agreement
This agreement, executed on March 21, 1983, allows NEPOOL participants to
deliver energy to HQ in periods of low NEPOOL incremental cost and receive it
back (less any losses) in periods of high incremental cost. The energy banking
agreement expires in October 2001.
3. HQ Support Agreements
The participating New England utilities, including PSNH, also share in the
cost of service associated with the New England HQ transmission facilities, as
specified in the HQ support agreements. The agreements to which PSNH is a
party include: (1) Terminal Facility Support Agreement; (2) Vermont
Transmission Line Support Agreement; (3) New Hampshire DC Facilities Support
Agreement; (4) Massachusetts DC Facilities Support Agreement; and (5) New
England Power AC Facilities Support Agreements. The first two agreements
were executed on December 1981 and are scheduled to terminate on the same date
as Phase II support agreements. The remaining three agreements were executed
on June 1, 1985, extend 30 years from the date of initial payments, and are
scheduled to terminate on October 31, 2019. These agreements may be extended
for an additional 20 years beyond the scheduled termination date. The annual
cost of these support payments is approximately $10 million for PSNH. Because
support payments are based on cost of service, they may fluctuate from year to
year. During the remaining term of these contracts, the purchaser will assume
responsibility for them and for paying PSNH's share of the transmission support
payments. Costs for assuming these transmission contracts should be reflected
in the purchaser's bid.
G. Wyman Unit 4
PSNH may sell its ownership interest in Wyman Unit 4, located in
Yarmouth, Maine, outside of the fossil/hydro auction process. Should there not
be an executed purchase and sales agreement for the sale of PSNH's ownership
interest in Wyman Unit 4 prior to there being a Final Order approving this
Agreement, then that ownership interest will be included in the fossil/hydro
asset auction.
H. Other Potential Generation Sites
PSNH has identified three parcels of land that may have significant
potential for use as generation sites. These sites have been previously
disclosed within PSNH's 1996 Long-Range Plans for Bulk Power Supply Facilities
filings. These sites are the Rollins Farm site in Newington, NH; the "Ball
Field" adjacent to Merrimack Station in Bow, NH; and the Garvins Falls Road
site in Concord, NH.
PSNH will develop a sales strategy for soliciting interest and
selling these properties no later than 30 days following the selection of a
winning bidder or bidders in the fossil/hydro asset auction. The sales
strategy will include a determination of the highest and best use for the
properties, which will determine the maximized values and identify the
appropriate target markets for these properties. At the time that the sales
process begins, PSNH will identify prospective purchasers, including all
potential bidders in the initial solicitation of interest in the fossil/
hydro auction, as well as other parties who indicate an interest in these
properties.
PSNH shall apply 50% of the amount by which the net proceeds exceed the
net book value as a credit against Stranded Costs and may retain the balance of
such amount for the benefit of its shareholder. PSNH will endeavor to close
these transactions on or before the date of the closing of the fossil/hydro
asset auction.
I. Millstone 3
Subject to receipt of required regulatory and lender approvals, on or
before Competition Day PSNH will transfer its 2.8475% ownership share of
Millstone 3 to an NU affiliate at zero cost. The amount of PSNH's net book
investment in Millstone 3 immediately prior to such transfer will be eligible
for securitization, the cost of which will be recoverable from PSNH's
customers via Part 1 of the SCRC. If PSNH's former share of Millstone 3 is
sold or auctioned after transfer to the affiliate, PSNH and its customers shall
have no claim to any net proceeds.
Subsequent to such transfer, PSNH shall continue to be responsible for
funding its pro rata share of the site-specific decommissioning cost estimate,
calculated on the basis of fully funding the decommissioning trust by December
31, 2026. PSNH may enter into a contract with the NU affiliate which has
acquired its share of Millstone 3 to provide for the payment of these nuclear
decommissioning costs, with full recovery of the costs of that contract being
provided from PSNH's customers via Part 2 of the SCRC. PSNH's obligation
thereunder may be assignable to any future owner of such share of Millstone 3.
PSNH's customers shall have no responsibility for increases in decommissioning
funding above the amount calculated based upon the foregoing payment schedule
at Competition Day.
If for any reason transfer of PSNH's share of Millstone 3 is delayed
beyond Competition Day, beginning on Competition Day and continuing until such
time as PSNH's ownership share of Millstone 3 is transferred, its output will
be sold into the market pursuant to Section IX and all net proceeds will be
applied to Stranded Costs.
J. Vermont Yankee
PSNH is a 4.0% shareholder and sponsor company of the Vermont Yankee
Nuclear Power Corporation ("Vermont Yankee"), a Vermont corporation that owns
and operates a nuclear generating unit ("Unit") having a net capability of
approximately 510 megawatts electric, at a site in Vernon, Vermont. Pursuant
to a Power Contract dated as of February 1, 1968, as amended, and an
Additional Power Contract, dated as of February 1, 1984, each of which have
been approved by the Federal Energy Regulatory Commission, PSNH is entitled to
its pro rata share of the net capacity and electrical output during the Unit's
operating life and is obligated to pay its respective entitlement percentage of
Vermont Yankee's cost of service, including future decommissioning costs.
PSNH, in conjunction with the other sponsor companies, is seeking to
cause Vermont Yankee to sell via private negotiations the Unit and related
assets, including the decommissioning trust. The terms of any such sale will
be set forth in a definitive agreement that provides for a closing that is
subject to receipt of all required regulatory approvals, including that of the
PUC. In such a transaction, PSNH may be obligated to prefund or fund its share
of the future decommissioning costs of the Unit, with full recovery of such
decommissioning costs from PSNH's customers via Part 2 of the SCRC. PSNH
agrees to exercise reasonable efforts to negotiate the buyout or buydown of any
contractual obligations that survive the sale of the Unit. If approved by the
PUC, PSNH shall be entitled to full recovery of such buyout or buydown payments
(exclusive of the decommissioning costs recoverable under Part 2 of the SCRC)
from PSNH's customers via Part 3 of the SCRC. Further, PSNH agrees to pursue
sales terms that limit its responsibility to no more than its pro rata share of
the site-specific decommissioning cost estimate that exists at the time of
closing and that make any future changes to the estimate the express
responsibility of the buyer.
Unless otherwise ordered by the PUC, if the above transaction has not
closed as of July 31, 2000, PSNH will offer for sale through a public auction
process by December 31, 2000 its interest in Vermont Yankee, including its
associated contractual interests and obligations. Any sale pursuant to such
auction process shall be subject to a confidential minimum price condition in
an amount that will be established, in advance, by the PUC and designed to
stimulate participation in the auction and to maximize proceeds. PSNH will be
responsible for conducting the public auction, and the PUC shall oversee the
process and approve any resulting transaction prior to the closing. Such
transaction shall also be subject to the receipt of any other necessary
regulatory and lender approvals.
If for any reason PSNH continues to have power entitlements from Vermont
Yankee, beginning on Competition Day and continuing until such time as PSNH's
entitlements to power from Vermont Yankee end, such entitlements will be sold
in the marketplace in accordance with Section IX, the "Marketing of Energy"
section of this Agreement.
K. Seabrook
PSNH's overmarket obligations under the Seabrook Power Contract with
North Atlantic Energy Corporation ("NAEC") will be securitized and the costs
thereof recovered from PSNH's customers under Part 1 of the SCRC. PSNH will
use such proceeds of securitization to restructure the Seabrook Power Contract
effective as of Competition Day, subject to necessary regulatory approvals,
to provide for the buydown of the value of the Seabrook asset to $100 million,
thereby reducing PSNH's monthly charges under the contract. NAEC may, subject
to PUC approval, apply the restructuring payments it receives from PSNH to
repay capital in a manner designed to most efficiently reduce its costs.
Subsequent to Competition Day, NAEC will seek PUC approval of a
definitive plan to sell via public auction its share of Seabrook, with such
sale to occur no later than December 31, 2003. The public auction shall be
subject to PUC oversight and to the requirements, if any, of the Seabrook Joint
Owners Agreement. NAEC will submit its plan for the sale to the PUC for its
approval and will seek PUC approval after completion of the auction. As part
of the PUC's approval, the PUC shall determine prior to the auction a
confidential minimum bid for this sale, based on comparable transactions
and designed to stimulate participation in the auction and to maximize
proceeds. NAEC shall make all reasonable efforts to include minority ownership
shares (including that of The Connecticut Light and Power Company) in the sale
of Seabrook, so that a controlling interest may be offered. Concurrent
auctions, including ones that may be subject to regulatory oversight other
than by the PUC, may be required to aggregate a controlling shares.
On Competition Day, subject to approval of FERC, NAEC will lower its
overall ROE to 7%, but in the event that the PUC either rejects a proposed sale
of Seabrook, or fails to act on such application within 180 days after NAEC's
proposed sale application is filed with the PUC, the ROE will be increased to
11% on a prospective basis. The increase in ROE is only applicable if the
failure of the sale is through no fault of NU or PSNH.
Upon a successful sale of NAEC's share of Seabrook, the existing Seabrook
Power Contract between PSNH and NAEC shall be terminated. However, subsequent
to such sale, PSNH shall continue to be responsible for funding NAEC's former
ownership share of decommissioning liability, calculated on the basis of full
funding by December 31, 2015, using an estimated decommissioning date of 2015
or as otherwise determined by the Nuclear Decommissioning Finance Committee.
PSNH may enter into a new contract to provide for the payment of Seabrook
nuclear decommissioning costs, with full recovery of the costs of that contract
to be recoverable from PSNH's customers via Part 2 of the SCRC. Under no
circumstances will PSNH's customers have any responsibility for increases in
decommissioning funding above the amount calculated based upon the foregoing
payment schedule as of the sale date.
Beginning on Competition Day and continuing until such time as NAEC's
ownership share of Seabrook is sold and the closing on such sale occurs, its
output will be sold into the market pursuant to Section IX and all net proceeds
will be applied to Stranded Costs.
L. Failed Auction
PSNH will make every reasonable effort to assure that a "failed auction"
does not occur, resulting in some or all of its fossil/hydro generating
stations, Seabrook, or Vermont Yankee not being sold. Steps to minimize the
risk of a failed auction include the bundling of various assets as "must bid"
groupings at the commencement of the Second Round of the auction process,
timing requirements placed upon municipalities as described in Section VIII(E),
and dedicated marketing of the assets throughout the auction process.
Should assets be left unsold as a result of the auction process, the PUC
shall have the authority to divest the asset or obligation. This may be
accomplished by awarding the asset, entitlement, or obligation to the highest
bidder; requiring a PSNH affiliate to pay the minimum auction price in the case
of Seabrook or Vermont Yankee; requiring a PSNH affiliate to pay the net book
value for fossil/hydro generating stations; conducting an absolute auction; or
by such other means as the PUC deems appropriate. If there is no final sale,
PSNH will retain the assets, entitlements, or obligations and bid their output
into the market with the net of costs and revenues included in Part 2 of the
SCRC after the earlier of the Recovery End Date or the date that the Non-
Securitized Stranded Costs are fully amortized.
IX. MARKETING OF ENERGY
A. Prudent Operation of PSNH Generating Assets
Notwithstanding any other provisions of this Agreement, PSNH will be
responsible for prudently operating its fossil/hydro generating assets, and for
prudently managing the generation-related entitlements and purchase obligations
in which it retains an interest until such time as they are sold or transferred
to another entity, or a purchase obligation terminates.
B. Marketing of PSNH Power
1. Fossil Steam, Hydroelectric, Internal Combustion and Nuclear Ownership,
Entitlements or Purchase Obligations
Notwithstanding any other provision of this Agreement, PSNH will be
responsible for the prudent marketing of the output of any generating assets,
entitlements, or purchase obligations which it owns or in which it retains an
interest. Revenues from these sales will include the full capacity and energy
revenue and the revenue from ancillary services related to PSNH's generating
stations and entitlements, and the revenues from the resale of power purchased
under purchase obligations shall include the full revenue derived from the
sale of energy, capacity or other products. All revenue from these sales shall
be used to reduce Non-Securitized Stranded Costs in the order and manner
prescribed in the Stranded Cost Recovery Charge section of this Agreement.
2. Purchases from Qualifying Facilities ("IPPs") at Short Term Avoided Cost
Rates
For so long as PSNH is required to purchase the output from IPPs under
short term avoided cost rates, it shall be deemed prudent for PSNH to sell or
bid IPP power into the pool at the ISO New England market clearing price.
3. Purchases from Qualifying Facilities ("IPPs") under Long-Term Contracts
or PUC-Approved, Long-Term Rate Orders
PSNH will auction its power obtained from IPPs under long-term contracts or
under PUC approved long-term rate orders. Said auctions will be conducted
under PUC oversight and will occur no more often than once every six months.
The auctions may include all IPPs under long-term contracts and long-term rate
orders or the auctions may include combinations thereof. PSNH may establish
reasonable minimum bids for said auctions. If the actual bids submitted in
these auctions do not meet or exceed PSNH's minimum bids or, for good reason,
some IPPs are not included in the auction, PSNH may sell the output from these
IPPs into the pool at a price no less than the ISO New England market clearing
price until the next semiannual auction. The PUC retains jurisdiction to
determine whether the minimum bid and/or the decision to exclude certain IPPs
from the auction was prudent. Revenues derived from the marketing of power
purchased from IPPs under long-term avoided cost rate orders and long-term
contracts shall be included as a credit to Part 2 of the SCRC.
C. Procedure for Review of Plant Operation and Marketing of Power
PSNH shall annually file a report and such other information as the PUC
shall require for review by the PUC supporting PSNH's plant operations and the
results of the sale of the output from PSNH's plants, entitlements and
purchase obligations. Such filings shall be made on a time schedule to be
determined by the PUC.
X. EMPLOYEE PROTECTION
As part of the plan to divest generating assets, certain commitments have
been made to represented and non-represented employees. PSNH believes that
those commitments are comparable to commitments made by other New England
utilities that have divested their generation. Such commitments have been made
to PSNH's fossil/hydro employees and to North Atlantic Energy Service
Corporation's ("NAESCO") nuclear employees.
A. PSNH Fossil/Hydro Represented Employees
PSNH is a party to a Collective Bargaining Agreement ("CBA") with the
International Brotherhood of Electrical Workers ("IBEW"), Local 1837 in New
Hampshire. The purchaser will be required to assume PSNH's obligations under
the IBEW-PSNH Fossil/Hydro CBA at the closing of the asset sale. PSNH has
also agreed to provide certain employment protections for non-represented
employees, which the purchaser will also be obligated to assume at the closing.
In each case, the employee commitments to be undertaken by the purchaser will
also be binding upon any successor or assigns or any other entity acquirer of
the purchaser. Costs associated with subsequent workforce restructuring
activities will be borne solely by the purchaser.
IBEW Local No. 1837 represents the bargaining unit employees serving
fossil/hydro, including PSNH Fossil/Hydro Engineering and Operations ("FHEO")
Stores and Production Maintenance. The purchaser will be required to assume and
perform the CBA in the form in place on the closing date. The current
agreement with the IBEW local was effective as of March 21, 1999 and is
expected to expire on May 31, 2002. Key provisions of the CBA include a 3 year
wage and benefits package, a memorandum of understanding dated March 12, 1999
regarding the separation of the FHEO agreement from the larger PSNH-wide Retail
Business Group agreement, and an addendum to the agreement covering issues
related to the sale and subsequent transfer of fossil/hydro assets to a
purchaser.
B. NAESCO Represented Employees
NAEC will require that any purchaser of a controlling interest in the
facility provide certain assurances to employees at the time of closing.
Specifically, the buyer will commit to become a party to and honor the
collective bargaining agreement with Local Union Number 555 of the Utility
Workers Union of America that is in effect at the time of closing.
Further, NAEC will propose to require that the buyer offer continued
employment for a period of twelve months (except as describe below) following
the closing to persons who were employed in represented positions during the
three months prior to the closing. In addition, NAEC will work with union
leadership on other negotiable benefits similar to those offered to non-
represented employees.
C. PSNH and NAESCO Non-Represented Employees
The purchaser will be required to offer all non-represented fossil/hydro
and nuclear employees a minimum of twelve months of employment (except as
describe below) following the closing at a level of wages and benefits in the
aggregate not less than such employees are receiving immediately prior to the
closing. The purchaser will also be required to provide out-placement
assistance workshops and tuition reimbursement of up to $3,000 per employee
for job-related education courses or training to non-represented employees
whose employment is involuntarily terminated during the six months following
the twelve-month employment period.
If the employment of non-represented employees is terminated during the
first twelve months of employment with the purchaser, for reasons other than
cause, those employees shall be entitled to a severance benefit from the
purchaser. The severance benefit shall include but not be limited to; out-
placement assistance workshops, a lump sum $3,000 payment for retraining
assistance; a one-time payment equal to six months of company contributions for
health care for the employee and the employee's family members covered under
the Northeast Utilities Service Company group insurance plan at the time of
termination; access to an Employee Assistance Program equivalent to that
offered to PSNH/NAESCO employees, for a period consistent with the term of
the health benefits. Additionally, the purchaser shall provide a cash
severance benefit which is the greater of either a) the remainder of pay and
benefits due the employee as a result of the minimum one-year employment
clause or b) a severance payment calculated at two weeks of straight time pay
for each full year of continuous credited service up to a maximum of 52 weeks
of pay, with a minimum of 4 weeks pay.
D. Retirement Benefits for Represented and Non-Represented Employees of
PSNH or NAESCO
1. Pension
The purchaser will be obligated to provide a defined benefit plan that
provides at least a minimum level of pension benefits to any of the PSNH/NAESCO
employees who are employed by the purchaser as of the closing and subsequently
leave employment with the purchaser or subsequent purchasers. The minimum
level of pension benefits that the purchaser will be obligated to provide will
be calculated using the pension benefit formula applicable to the employee
under the PSNH/NAESCO plans as of the closing. The purchaser's obligation with
regards to this pension benefit will be calculated as the difference between
(a) the employee's total pension benefit as calculated utilizing the pension
benefit under PSNH's/NAESCO's plan applicable to the employee as of the
closing, the employee's final average earnings (as so defined in such plan)
with purchaser, and the employee's total years of service with PSNH and/or
NAESCO and the purchaser and, (b) the pension benefit the employee receives
from PSNH or NAESCO, (or any successor or assign). The PSNH/NAESCO portion of
the employee's pension benefit will be calculated by PSNH/NAESCO as of the
closing, based upon the pension benefit formula, years of credited service
and final average earnings applicable to the employee as of the closing.
2. Pension Rule 85
Effective January 1, 2000, PSNH and NAESCO employees are eligible to
receive full pension benefits beginning at age 55 if they have combined age
and years of service totaling at least 85 (the "Rule of 85").
3. Pension Plan Modification
Any employee who is age 50 to 54 on the date of the announcement of the
winning bidder(s) and whose age plus credited years of service equals or
exceeds 65 years and who is subsequently involuntarily separated from
employment by the purchaser, will be eligible for the following additional
retirement benefits: 1) retiree life insurance equivalent to that provided to
NU system retirees, beginning at separation; 2) continuation of health care
benefits at COBRA rates until age 55, after which retiree health care benefits
and contributions apply; and 3) the option to begin pension payments before
age 55.
An employee eligible to begin receiving pension benefits before age 55 will
be entitled to receive the following percentages of the total pension benefit
to which the employee would be entitled at or after age 55:
Employee Benefits Eligibility
-----------------------------
Age when benefits begin Percent of accrued age 65 benefit
55 75%
54 71%
53 67%
52 63%
51 59%
50 55%
4. Pension Benefits - General
The pension benefit must be guaranteed and protected from forfeiture to
the same extent as any ERISA retirement plan benefit. If such benefit should
be subject to Social Security or Medicare taxes that do not apply to ERISA
retirement plan benefits, such benefits will be grossed up to offset any
additional tax liability to the employee.
5. Vesting and Years of Credited Service
The purchaser will apply each employee's prior service with the NU system
companies and service recognition/credited service which was recognized by NU
towards any eligibility, vesting or other waiting period requirements under the
purchaser's employee benefit plans (including, but not limited to, pension
benefits, life insurance, health care benefits, and vacation and sick time),
will waive any pre-existing medical condition provisions under the purchaser's
health care plans in which the employees participate, and will give the
employees credit for any moneys paid toward the annual deductible under such
plans as of the closing. All employees who are vested in the NU plans as of
the closing shall be vested as of the closing in the purchaser's plans.
E. Fossil/Hydro and Nuclear Employees generally
PSNH and NAESCO will consider offering an early retirement program to
all eligible fossil/hydro and nuclear personnel. The cost of this program will
be the responsibility of PSNH.
F. PSNH Retail Business Group (T&D Company) commitments to Union Workers
PSNH will honor all existing collective bargaining agreements for non-
fossil/hydro employees, including T&D employees.
XI. CODE OF CONDUCT
In PUC Order No 22,875 issued in Docket No. DR 96-150 dated March 20,
1998, the PUC permitted retail-marketing companies affiliated with
jurisdictional utilities to compete for retail customers in their affiliated
distribution utility's franchise territory, subject to an appropriate Code of
Conduct to protect against anti-competitive behavior. In that same order, the
PUC stated that, prior to the final implementation of a Code of Conduct, the
equivalent Code of Conduct enacted in California should govern. The California
Code is set out in Appendix I. PSNH agrees to abide by the California Code, as
interpreted by the "New Hampshire Affiliate Transaction Rules Applicable to
PSNH and NU" attached hereto as Appendix H until such time as the PUC adopts
a New Hampshire Code of Conduct. The Parties will recommend that the Code of
Conduct to be adopted by the PUC address issues such as, but not limited to,
physical separation, restrictions on common management or directors,
contractual or financial relationships and preferential treatment.
Regardless of the final PUC order implementing a New Hampshire Code of
Conduct, PSNH agrees: that it will not use its utility status to favor any
affiliated companies, that any customer and/or marketing data provided to any
affiliated company will be simultaneously provided to all other Competitive
Suppliers, that its generating and marketing affiliates will not share office
space or personnel, that its marketing affiliates will not use the name Public
Service of New Hampshire or any similar name, that its affiliates may not
otherwise trade on the name or status of PSNH in marketing efforts, that its
affiliates' books and accounts will be open to inspection by the PUC in
accordance with the provisions of paragraph 11 of Appendix H of this Agreement,
and that it will cooperate to establish market power measurements and
benchmarks that may be used to monitor how the ISO-NE power marketplace is
operating. The Parties agree to recommend that resolution of disputes under
any market power provisions adopted by the PUC should be performed in a manner
consistent with the arbitration procedures now in place under the
Telecommunications Act of 1996.
XII. EXEMPT WHOLESALE GENERATOR STATUS
Should any entity to whom PSNH sells its generating assets, including any
affiliate of PSNH, be qualified to seek Exempt Wholesale Generator status under
Section 32 of the Public Utility Holding Company Act of 1935 and other
federal law, rules and regulations, the Parties agree that they will support
the purchaser's efforts to obtain any necessary approvals and findings from
the PUC.
XIII. SECURITIZATION OF STRANDED COSTS
A. Role of Securitization in Settlement
The Parties recognize that securitization is a useful tool for lowering
customers' bills and maximizing customer benefits. Accordingly, they agree to
support legislation that will allow PSNH to securitize a portion of its
Stranded Costs by issuing $725 million of RRBs in the manner contemplated
by this Agreement. The issuance of such RRBs will allow PSNH to reduce its
cost of capital, thereby significantly reducing rates for customers.
Securitization is expected to account for a material portion of the 18.3% rate
reduction that will be achieved when this Agreement is implemented. The
Parties acknowledge that securitization of Stranded Costs is a pivotal element
of the settlement, and that passage of acceptable legislation and the
successful completion of the proposed bond issue are conditions to implementing
this Agreement.
B. Legislation
Securitization of Stranded Costs may be considered by the PUC under
Chapter 289 of the Session Laws of 1999, section 3. That provision grants the
PUC the authority to review a securitization proposal and issue a conditional
securitization order, subject to subsequent legislative authorization.
Following PUC approval, the Legislature must enact enabling legislation before
the RRBs may be issued. The essential elements of the necessary legislation
are described below. The Parties hereby commit to make all reasonable efforts
to support and seek enactment of such legislation and to close on the RRBs as
expeditiously as possible.
Such legislation must authorize, among other things, the creation by the
PUC of an irrevocable property right to bill and collect nonbypassable RRB
Charges in amounts sufficient to recover RRB Costs associated with $725 million
of RRBs. Such irrevocable property right will be referred to as "RRB
Property."
Pursuant to such legislation, the State of New Hampshire will pledge and
agree with the owners of the RRB Property and holders of RRBs that the State
or any agency thereof, including the PUC, will not limit or alter the RRB
Charge, securitized Stranded Costs, RRB Property, or the finance order and all
rights thereunder, until the RRBs and any interest, fees and expenses
associated therewith are fully discharged, unless adequate provision is made
for the protection of the owners or holders. The legislation will also provide
that RRB Property may be sold in a true sale transaction to a SPSE in order to
facilitate the issuance of RRBs.
Such legislation will direct the PUC to adjust the RRB Charges
periodically in order to ensure the timely recovery of RRB Costs (see the
description of the True-Up Mechanism herein).
The RRB Charges will be non-bypassable pursuant to RSA 374-F:3, and as
provided in Section V(B).
C. PUC Order
Securitization will require the prior approval by the PUC in the form of
a finance order which includes the transaction description, certain findings,
orders and approvals. PSNH will request findings that will maximize the
likelihood of achieving a Triple-A Rating on the RRBs and the marketability
of the RRB issuance.
The PUC will be requested, subject to final action by the Legislature as
provided in 1999 N.H. Laws 289:3, II, among other things, to: (i) approve the
issuance of RRBs in the amount of $725 million, (ii) approve the organization
and capitalization of the SPSE to which the RRB Property will be sold, (iii)
establish the RRB Property and the RRB Charge, (iv) provide for the periodic
adjustment of the RRB Charge via the True-Up Mechanism described herein, (v)
approve the general structure and terms of the RRBs (as summarized below),
(vi) approve the servicing of the RRB Charge by PSNH, as provided in Section
XIII.D.3, as the initial servicer for the RRB Property (the "Servicer"), or any
successor Servicer, under a servicing agreement (the "Servicing Agreement") and
(vii) declare the finance order irrevocable pursuant to the legislation.
D. RRB Transaction Overview
The finance order sought by PSNH will, among other things, require
approval of the following aspects of the RRB transaction, finding that they are
consistent with achieving the highest rating and therefore the lowest cost on
the RRBs.
1. Sale of RRB Property
a. PSNH will form a bankruptcy-remote, wholly owned SPSE.
b. PSNH will capitalize the SPSE in an amount anticipated to be at least
0.50% of the initial principal balance of RRBs. These funds will be deposited
in the Capital Subaccount (see Section XIII(D)(5)(b)). This capitalization is
required in order that PSNH may treat the RRB issuance by the SPSE as debt for
tax purposes.
c. An overcollateralization subaccount will be established up to the level
required to achieve the highest credit rating. The amount will be finalized
prior to the issuance of the RRBs and will depend primarily on rating agency
requirements and tax considerations. Collections of RRB Charges with respect
to overcollateralization will be deposited in the Overcollateralization
Subaccount such that the amount therein will accumulate over time in accordance
with a schedule set forth at issuance (see Section XIII(D)(5)(c)).
d. PSNH will sell the RRB Property to the SPSE in a transaction which will
be intended and treated as a legal true sale and absolute transfer to the
SPSE. A true sale of RRB Property to a bankruptcy-remote SPSE provides that,
in the event of a PSNH bankruptcy, the RRB Property owned by the SPSE will
not become a part of the PSNH bankruptcy estate and PSNH creditors will have
no recourse to the RRB Property or RRB Charges.
2. Issuance of RRBs
a. The SPSE will issue RRBs in one or more series, each of which may be
offered in one or more classes having a different principal amount, term,
interest rate and amortization schedule, and reasonably consistent with the
forecast amortization schedule contained in Appendix D. To the extent allowed
by the PUC in the financing order, the form, term, interest rate (whether
fixed or variable), repayment schedule, classes, number and determination of
credit ratings and other characteristics of RRBs will be determined at the time
of pricing based on then-current market conditions, in order to achieve the
all-in lowest cost financing possible. Under certain circumstances, the RRBs
may be subject to call provisions and may be refinanced through a subsequent
issuance of RRBs to the extent such refinancing would result in a lower
interest cost associated with the RRBs refinanced. Within 90 days of RRB
issuance, PSNH will make an informational filing with the PUC consisting of
an "Issuance Advice Letter" setting forth the final terms of the RRBs.
b. RRBs will be non-recourse to PSNH and its assets and will not be
secured by a pledge of the general credit, full faith or taxing power of the
State of New Hampshire or any agency or subdivision of the State of New
Hampshire.
c. The targeted rating on the RRBs will be Triple-A.
d. The RRB Charge is anticipated to be billed until the expected maturity
date of the RRBs, which is 12 years from their date of issuance. However, to
the extent the RRBs have not been fully amortized by such date, the RRB Charge
may continue to be billed until the RRBs are fully amortized and all costs
related thereto have been paid; provided, however, that in no event will the
RRB Charge be billed beyond the legal maturity date of the RRBs which will not
be longer than 14 years from their date of issuance.
e. RRBs will be secured by all of the assets of the SPSE, including
without limitation (i) the RRB Property, (ii) the rights of the SPSE under all
transaction documents such as the purchase agreement by which the SPSE acquires
all rights in the RRB Property (and including any swap agreements in place with
respect to floating rate RRBs), (iii) the Servicing Agreement by which PSNH, or
any successor servicer, acts as Servicer for the RRB Property, (iv) the
Collection Account (as summarized below), (v) certain investment earnings on
amounts held by the SPSE and (vi) the capital of the SPSE.
f. RRBs will be repaid through the collection of the RRB Charge as
described in Section V(B).
g. The RRB Charges will be non-bypassable as provided in Section V(B).
3. Servicing of RRBs
a. On behalf of the SPSE, PSNH will initially act as the Servicer for the
RRB Property, and PSNH, or any successor Servicer, will be responsible for
calculating, billing, collecting, and remitting the RRB Charge.
b. In consideration for its servicing responsibilities, PSNH or any
successor Servicer will receive a periodic servicing fee which will be
recovered through the RRB Charge. In the event of a failure of any customer
to pay the RRB Charge, PSNH, as Servicer, or any utility successor to PSNH,
is authorized to disconnect service to such customer to the same extent that
a public utility may, under applicable law and regulations, disconnect service
to a customer who fails to pay any charge. If PSNH is replaced as Servicer
due to its imprudence, the PUC may consider such lost periodic servicing fees
when determining new delivery rates.
c. In the event that the PUC decides to allow billing, collection, and
remittance of RRB Charges by a third party supplier within the PSNH service
territory, such authorization must be consistent with the rating agencies'
requirements necessary for the RRBs to receive and maintain the targeted
Triple-A Rating.
d. PSNH or any successor Servicer will periodically remit (as frequently
as required by the rating agencies) collections of RRB Charges to the SPSE.
The SPSE will use the RRB Charge remittances to make payments of interest,
principal, fees and expenses on the RRBs and to fund certain credit enhancement
reserves (the application of such remittances is described further herein).
PSNH may be required to obtain a letter of credit or other credit enhancement
to protect against any cash collection losses resulting from the temporary
commingling of funds.
e. Depending upon the capability of PSNH's systems at the time of
issuance, PSNH may utilize some type of estimation methodology to determine
the amount of RRB Charges to remit to the SPSE; provided, however, that PSNH
will remain liable to remit the amount of RRB Charges that it actually
collects.
4. RRB Charge
a. The RRB Charge will be established at levels intended to provide for
the full recovery of RRB Costs, based upon assumptions including sales
forecasts, payment and charge-off patterns, and lags between SCRC billing and
collection by the Servicer.
b. So that the RRB Charge may recover interest payments on the RRBs, it
will be calculated to reflect the coupon on the RRBs as determined by market
conditions at the time of issuance. If the RRBs are Triple-A Rated and are
issued prior to December 31, 1999, the coupon rate on the RRBs will be
determined by market conditions at the time of pricing, but PSNH guarantees
an All-In Cost of 6.25%. If the RRBs are Triple-A Rated and are issued between
January 1, 2000 and July 1, 2000, the coupon rate on the RRBs will be
determined by market conditions at the time of pricing but PSNH guarantees
an All-In Cost of 7.25%, (see Section V(B)(3) above).
c. The RRB Charge will be billed so long as RRBs are outstanding, but in
no event after the legal final maturity.
5. Credit Enhancement; Overcollateralization and True-Up Mechanism
a. In order for the RRBs to receive a Triple-A rating, the exposure to
losses due to, among other things, shortfalls in projected sales of energy,
longer-than-expected delays in bill collections, and higher-than-estimated
uncollectable accounts must be minimized. This will be accomplished with
various forms of credit enhancement described in the finance order, including
the various components of the Collection Account and the True-Up Mechanism
described below.
b. The RRB Charge collections will be deposited into an interest bearing
Collection Account, which will consist of a General Subaccount (which will hold
the collections with respect to principal, interest, fees, and expenses) and at
least three other interest bearing subaccounts: the Overcollateralization
Subaccount (which will hold collections with respect to Overcollateralization
(see Section XIII(D)(1)(c)), the Capital Subaccount (which will hold PSNH's
initial capital contribution to the SPSE) and the Reserve Subaccount (which
will hold any excess collections of RRB Charge as described below). RRB Charge
collections in excess of scheduled payments of interest, principal, fees and
expenses on RRBs will be allocated to: (i) the Capital Subaccount to the extent
the amount therein has been reduced to below the initial capital contribution,
(ii) the Overcollateralization Subaccount up to the required level set forth
for such date at issuance by the rating agencies and (iii) the Reserve
Subaccount any remaining amounts. To the extent that RRB Charges are
insufficient to make scheduled payments of interest, principal, fees and
expenses on RRBs during any period, the accounts will be drawn upon in the
following order (i) the Reserve Subaccount, (ii) the Overcollateralization
Subaccount and (iii) the Capital Subaccount.
c. The RRB Charge will be calculated (both initially and as a result of
the True-Up Mechanism) to recover an amount in excess of the amounts needed to
make payments of principal, interest, fees and expenses on RRBs (such excess,
"Overcollateralization"). The actual amount of Overcollateralization required
to achieve the highest credit rating will be finalized prior to the issuance
of the RRBs and will depend primarily on rating agency requirements and tax
considerations. The Overcollateralization will be collected over time and
deposited to the Overcollateralization Subaccount such that the amount therein
will accumulate over time in accordance with a schedule set forth at issuance.
d. The RRB Charge will be adjusted up or down pursuant to the True-Up
Mechanism in accordance with the specific methodology described in the finance
order. At the times specified in the order and as approved by the PUC, an RRB
Charge adjustment will be requested such that, during the period for which that
RRB Charge will be billed, RRB Charge collections will be sufficient to: (i)
pay principal and interest on the RRBs in accordance with the expected
amortization schedule, (ii) pay fees and expenses related to RRBs, (iii)
maintain the Overcollateralization Subaccount balance at the required levels
and (iv) restore the capital contribution to the Capital Subaccount to the
extent it has been drawn upon to make payments on RRBs, and (v) reduce the
balance in the Reserve Subaccount to zero. When PSNH anticipates that the
Recovery End Date will occur in six months, it may, at its option, initiate
monthly True-Up Mechanism reconciliations. Similarly, during the twelve months
prior to the expected maturity date and thereafter until the legal maturity
date, PSNH may, at its option, initiate quarterly or monthly True-Up Mechanism
reconciliations. When the RRBs are paid off, any balances in the Over-
collateralization and Reserve will be used to reduce the Part 2 Stranded Costs.
E. Use of Proceeds
The SPSE will transfer the proceeds it received from the issuance of the
RRBs to PSNH as consideration for the RRB Property. PSNH may use the proceeds
of securitization in such manner as the PUC shall approve in the finance order.
F. State Oversight
The New Hampshire State Treasurer, or other State official designated by
the State Treasurer, shall have oversight over the terms and conditions of the
RRB issue, including but not limited to tax aspects and such other arrangements
to which the Parties may mutually agree, to assure that PSNH exercises fiscal
prudence, and achieves the lowest overall cost for the RRBs.
XIV. OTHER PSNH COMMITMENTS
A. Bankruptcy of NU or Other Affiliates
PSNH and NU agree to take all possible steps to insure that the
State, acting on behalf of PSNH's customers, will be entitled to participate as
a party in any bankruptcy of NU, PSNH or any current or future affiliate during
the term in which any Rate Reduction Bonds remain outstanding.
B. Dividend
PSNH agrees that it will not make dividend payments to its parent, NU,
until the earliest of the date that the write-off associated with this
Agreement has been taken; or the date that this Agreement is either terminated
pursuant to Section XVI or disapproved by the PUC.
C. Sale of PSNH or NU
If PSNH's T&D assets are sold within five years of Competition Day, for a
premium above 1.5 times the net book value of those assets, less liabilities
and obligations assumed by the purchaser ("Excess Premium"), 1/3 of the Excess
Premium will be credited to Non-Securitized Stranded Costs. If NU itself is
acquired or otherwise sold or merged during that same time period, it agrees
that notwithstanding any contrary provision of law, the merger, acquisition or
sale shall be subject to the jurisdiction of the PUC under RSA Chapters 369,
374, 378 or other relevant provisions, and that the merger, acquisition or
sale shall be approved only if it be shown to be in the public interest. A
merger of NU that is subject to this section shall not include acquisitions
by NU of other entities.
XV. PROCEEDINGS TO BE TERMINATED UPON IMPLEMENTATION OF SETTLEMENT
A. Federal Court Litigation
On Competition Day, PSNH agrees to dismiss with prejudice the suit it
brought in Federal District Court on the issuance by the PUC of its
February 28, 1997 Final Plan for restructuring (D.N.H. 97-97/ D.R.I. 97-121).
Due to the fact that there are other utility plaintiffs involved in the
litigation, the Parties understand that the case may not be dismissed in its
entirety.
B. Public Utilities Commission Proceedings
PSNH has sought to stay the following proceedings during the pendency of
the approval process for this Agreement, and those proceedings shall be
dismissed with prejudice upon PUC approval and adoption of legislation
authorizing implementation of the Agreement.
1. DR 96-148
This proceeding was brought by the PUC to determine whether PSNH had used
its 'best efforts' to negotiate with IPPs.
2. DR 96-149
This proceeding was brought by the PUC to investigate whether FERC's
"light loading" rules applied to PSNH's purchases from IPPs.
3. DR 96-424
This proceeding was brought to explore whether a commercial customer
should be able to self generate without any obligation to support system costs.
4. DR 97-014 and DR 98-014
These proceedings were brought to consider PSNH's recovery of fuel and
purchased power expenses.
5. DR 97-059
This proceeding was brought to determine new base rates for PSNH.
6. DE 97-167
This proceeding was brought to investigate whether PSNH should have joined
the suit brought by other utilities against NU to recover losses alleged to
have resulted from NU's management of Millstone 3.
7. DF 97-185
This proceeding was brought to allow the PUC to conduct a management
audit of PSNH in relation to the ongoing rate case.
8. DR 98-006 and DR 98-071
These proceedings were brought to evaluate the Least Cost Integrated
Resource Plan ("LCIRP") filing by PSNH.
9. DSF 99-066
This proceeding was brought to complete the annual review of PSNH's
proposed bulk power projects.
XVI. CONDITIONS FOR IMPLEMENTING THE SETTLEMENT
All conditions set forth in this section must be met to the satisfaction
of all Parties as a condition precedent to implementation of this Agreement,
and the Parties hereby agree to take all reasonable measures to ensure
fulfillment of these conditions. The failure of any of these conditions to be
fulfilled will result in termination of the Agreement, subject to the
provisions of Section XVII(D).
A. The PUC must approve this Agreement by a Final Order, without
condition or modification, unless otherwise agreed to by the Parties as
provided in Section XVII(D).
B. PSNH and NAEC must receive approval from the appropriate lenders
pursuant to existing credit agreements.
C. There must be an arrangement in place with one or more suppliers
for the provision of Transition Service and Default Service.
D. Legislation must be enacted allowing the securitization of assets
and the issuance of Rate Reduction Bonds in a manner fully consistent with the
terms of this Agreement.
E. PSNH must close on the issuance of the Rate Reduction Bonds, in the
principal amount of $725 million.
F. PSNH must have entered into agreements to sell power from any
remaining entitlements; or there must be an arrangement in place for PSNH to
sell such entitlements into the wholesale market.
G. All necessary final approvals, without condition or modification,
for other jurisdictional matters must be obtained, as required, from the
Federal Energy Regulatory Commission, the Securities and Exchange Commission,
the Nuclear Regulatory Commission, and the Connecticut Department of Public
Utility Control.
XVII. MISCELLANEOUS
A. Applicable Law
This Agreement shall be governed by the laws of the State of New
Hampshire. The Parties agree that any disputes regarding this Agreement will
be subject to the jurisdiction of the PUC and the appellate jurisdiction of the
New Hampshire Supreme Court.
B. Successors and Assigns
The rights conferred and obligations imposed on the Parties to this
Agreement shall be binding on or inure to the benefit of their successors in
interest or assignees as if such successor or assignee was itself a Signatory
hereto.
C. Entire Agreement
This Agreement contains the entire agreement among the Parties
respecting the subject matter herein and supersedes all prior agreements and
understandings between them, including the Memorandum of Understanding among
the Parties dated June 14, 1999. The agreements contained herein are inter-
dependent and not severable, and they shall not be binding upon, or deemed
to represent positions of, the Parties if they are not approved in full and
without modification or condition by the Commission subject to subsection D
of this section, below.
D. General Provisions
If the PUC does not approve this Agreement in its entirety and without
modification or condition, the Parties shall have an opportunity to amend or
terminate this Agreement. If terminated, this Agreement shall be deemed
withdrawn and shall not constitute a part of the record in any proceeding or
be used for any purpose.
This Agreement is the product of settlement negotiations. The content
of those negotiations shall be privileged and all offers of settlement shall
be without prejudice to the position of any party or participant presenting
such offer.
Acceptance of this Agreement by the PUC shall not be deemed to restrain
the PUC's exercise of its authority to promulgate future orders, regulations
or rules which resolve similar matters affecting other parties in a different
fashion.
The PUC's approval of this Agreement shall endure so long as necessary
to fulfill the express objectives of this Agreement.
The approvals contemplated by this Agreement shall not be construed as
requiring the PUC to relinquish its authority to develop new policies and issue
orders or to the initiate investigations when it deems such actions are in the
public good, except that approval of this Agreement shall be binding with
respect to the matters contained herein, including the Stranded Cost, write-off
and securitization provisions subject only to PUC reconciliation and accounting
as provided in the Stranded Cost Recovery Charge section of this Agreement.
As described below, this Settlement Agreement does not affect the
jurisdiction of the PUC. To the extent that there is a dispute among
parties in Docket No. DR 96-150 regarding the jurisdiction of the PUC and the
FERC over the determination and recovery of Stranded Costs caused by state-
mandated retail access policies, the Parties intend that nothing in this
Settlement Agreement should resolve that dispute, affect the authority of
either regulatory body over this issue, or limit the ability of the Parties
to raise arguments or defenses relating to this jurisdictional issue.
Notwithstanding any other provision of this Agreement, no provision herein
shall be deemed to determine this jurisdictional issue. Accordingly, the
Parties view this Agreement as a negotiated resolution of the issues presented
by the restructuring of PSNH in the context of the PUC's electric utility
restructuring proceeding.
The Parties agree to support this Agreement before the PUC and in any
related legal proceedings or legislative inquiries or hearings, and to take all
such action as is necessary to secure approval and implementation of the
provisions of this Agreement.
Signed this 2nd day of August, 1999
/s/ Jeanne Shaheen /s/ Michael G. Morris
- -------------------------------------- ------------------------------------
Jeanne Shaheen Michael G. Morris
Governor of the State of New Hampshire Chairman, President and Chief
State House Executive Officer
Concord, NH 03301 Northeast Utilities
107 Selden Street
Berlin, CT 06037
/s/ Philip T. McLaughlin /s/ William T. Frain, Jr.
- --------------------------------------- -----------------------------------
Philip T. McLaughlin William T. Frain, Jr.
Attorney General President and Chief Operating
of the State of New Hampshire Officer
33 Capitol Street Public Service Company of
Concord, NH 03301 New Hampshire
1000 Elm Street
P.O. Box 330
Manchester, NH 03105
/s/ Thomas B. Getz
- ---------------------------------------
Thomas B. Getz
Executive Director and
Secretary
New Hampshire Public Utilities
Commission
8 Old Suncook Road
Concord, NH 03301
/s/ Deborah J. Schachter
- ---------------------------------------
Deborah J. Schachter
Director
Governor's Office of Energy
and Community Services
57 Regional Drive
Concord, NH 03301
APPENDIX A - SUMMARY OF PROPOSED RATES
Public Service Company of New Hampshire
Current and Target Revenue by Class
Total Revenue
-----------------------
Billed kWh Current
Rate Class Sales (1) Rates (2) Target (3)
- ---------- ---------- --------- ----------
Residential Service 2,294,071,493 $333,425,361 $272,375,445
General Service 1,421,780,341 182,776,854 150,903,443
Primary General Service 1,219,154,700 133,906,224 108,842,750
Large General Service 559,072,437 57,205,610 45,681,703
Total, general service classes 3,200,007,478 373,888,688 305,427,896
Outdoor Lighting Service 40,858,107 10,553,509 8,621,170
Total Retail 5,534,937,078 $717,867,558 $586,424,511
Revenue, cents/kWh
---------------------
Current Percentage
Rates Target Decrease
------- ------ ----------
Residential Service 14.534 11.873 18.3%
General Service 12.855 10.614 17.4%
Primary General Service 10.984 8.928 18.7%
Large General Service 10.232 8.171 20.1%
Total, general service classes 11.684 9.545 18.3%
Outdoor Lighting Service 25.830 21.100 18.3%
Total Retail 12.970 10.595 18.3%
Note: All amounts are based on the 9/98 test year as proformed, excluding
special pricing.
(1) Sales for the Outdoor Lighting class have been recalculated based on the
new kWh amounts shown in the Delivery Service Tariff.
(2) Represents revenues for the 9/98 test year, proformed to the level of
Tariff 38 (temporary) base rates with an FPPAC rate of 0.383 cents/kWh.
(3) Includes a Transition Service energy charge of 3.700 cents/kWh.
APPENDIX B - ENVIRONMENTAL RESERVE FUND IDENTIFIED SITES
Messer Street former Manufactured Gas Plant ("MGP") (Laconia, NH)
Keene former MGP (Keene, NH)
Nashua former MGP (Nashua, NH)
Dover former MGP (Dover, NH)
Franklin former MGP (Franklin, NH)
Calcutt Landfill (Dover, NH)
Coakley Landfill Superfund Site (Greenland & North Hampton, NH)
Port Refinery Superfund Site (Ryebrook, NY)
Portland - Bangor Disposal Site (Portland, ME)
Manchester Steam former Generating Plant (Manchester, NH)
Cocheco former Generating Plant (Dover, NH)
Seabrook Station former Landfill (Hampton, NH)
APPENDIX C - ESTIMATED BALANCE OF THE ASSETS AS OF JANUARY 1, 2000
12/31/99 12/31/99 12/31/99
Book Market Strandable
Balance Value Assets
-------- -------- ----------
(Millions of Dollars)
Seabrook Over-Market Generation Assets $ 606 $100 $ 506
MP3 Over-Market Generation assets 84 - 84
F/H Over-Market Generation assets 207 360 (153)
Seabrook Deferred Return - NAEC 140 - 140
Seabrook Deferred Return - PSNH 24 - 24
Acquisition Premiums 324 - 324
Acquisition Premiums - F109 194 - 194
Unrecovered Obligation - YAEC, CY, MY 52 - 52
Deferred SPP Costs 120 - 120
Deferred FPPAC Costs 100 - 100
Deferred VY Contract Termination Payments 2 (16) 18
Deferred H/Q Contract Termination Payments - - 62
Market Value of Wholesale Power Contracts - 10 (10)
Unamortized Loss of Reacq. Debt 3 - 13
Financing Costs - - 17
Total Assets $1,856 $454 $1,491
1999 12/31/99 12/31/99
Written-Off Securitized Amortized
----------- ----------- --------
(Millions of Dollars)
Seabrook Over-Market Generation Assets $ - $506 $ -
MP3 Over-Market Generation assets - 84 -
F/H Over-Market Generation assets - - (153)
Seabrook Deferred Return - NAEC 140 - -
Seabrook Deferred Return - PSNH 24 - -
Acquisition Premiums 127 74 123
Acquisition Premiums - F109 76 44 74
Unrecovered Obligation - YAEC, CY, MY - - 52
Deferred SPP Costs - - 120
Deferred FPPAC Costs - - 100
Deferred VY Contract Termination Payments - - 18
Deferred H/Q Contract Termination Payments - - 62
Market Value of Wholesale Power Contracts - - (10)
Unamortized Loss of Reacq. Debt - - 13
Financing Costs - 17 -
Total Assets $367 $725 $399
APPENDIX D - FORECAST AMORTIZATION SCHEDULE
(Thousands of Dollars)
Year-Ending 12/31: 12/31/99 2000 2001 2002
-------- ---- ---- ----
Seabrook Over-Market Generation
Assets Securitized - 27,471 29,531 31,744
MP3 Over-Market Generation
Assets Securitized - 4,534 4,874 5,239
F/H Over-Market Generation Assets - (12,712) (12,712) (12,712)
Seabrook Deferred Return - NAEC
Written-Off 139,991 - - -
Seabrook Deferred Return - PSNH
Written-Off 23,711 - - -
Acquisition Premiums
Written-Off 127,130 - - -
Securitized - 4,038 4,341 4,666
Amortized - 10,245 10,245 10,245
Acquisition Premiums - F109
Written-Off 75,971 - - -
Securitized - 2,413 2,594 2,788
Amortized - 6,122 6,122 6,122
Unrecovered Obligation -
YAEC, CY, MY - 12,228 6,639 6,499
Deferred DOE Assessment - 18 18 18
Deferred SPP Costs - 9,991 9,991 9,991
Deferred FPPAC Costs - 8,348 8,348 8,348
VY Contract Termination Payment - 1,500 1,500 1,500
HQ Contract Termination Payment - 5,167 5,167 5,167
Market Value of Wholesale
Power Contracts - (10,000) - -
Unamort. Loss on Reacq.
Debt - Exist - 263 263 263
Unamort. Loss on Reacq.
Debt - New - 837 837 837
Financing Costs - Securitized - 905 973 1,046
Total 366,803 71,367 78,729 81,760
Total Write-Off 366,803 - - -
Total Securitized - 39,361 42,312 45,483
Total Amortization - 32,006 36,417 36,277
Total 366,803 71,367 78,729 81,760
Balance of Total Stranded Assets 1,123,977 1,052,610 973,880 892,120
Securitization:
Total Payment 90,633 90,633 90,633
Interest Payment (at 7.25%) 51,272 48,321 45,150
Principal Payment 39,361 42,312 45,483
Principal Balance EOY 725,000 685,639 643,327 597,844
Year-Ending 12/31: 2003 2004 2005 2006
---- ---- ---- ----
Seabrook Over-Market Generation
Assets Securitized 34,124 36,681 39,431 42,387
MP3 Over-Market Generation
Assets Securitized 5,632 6,054 6,507 6,995
F/H Over-Market Generation Assets (12,712) (12,712) (12,712) (12,712)
Seabrook Deferred Return - NAEC
Written-Off - - - -
Seabrook Deferred Return - PSNH
Written-Off - - - -
Acquisition Premiums
Written-Off - - - -
Securitized 5,016 5,392 5,796 6,230
Amortized 10,245 10,245 10,245 10,245
Acquisition Premiums - F109
Written-Off - - - -
Securitized 2,997 3,222 3,463 3,723
Amortized 6,122 6,122 6,122 6,122
Unrecovered Obligation -
YAEC, CY, MY 6,325 6,319 5,859 5,633
Deferred DOE Assessment 18 18 18 18
Deferred SPP Costs 9,991 9,991 9,991 9,991
Deferred FPPAC Costs 8,348 8,348 8,348 8,348
VY Contract Termination Payment 1,500 1,500 1,500 1,500
HQ Contract Termination Payment 5,167 5,167 5,167 5,167
Market Value of Wholesale
Power Contracts - - - -
Unamort. Loss on Reacq.
Debt - Exist 263 263 263 263
Unamort. Loss on Reacq.
Debt - New 837 837 837 837
Financing Costs - Securitized 1,125 1,209 1,299 1,397
Total 84,996 88,654 92,134 96,143
Total Write-Off - - - -
Total Securitized 48,893 52,557 56,497 60,732
Total Amortization 36,103 36,097 35,637 35,411
Total 84,996 88,654 92,134 96,143
Balance of Total Stranded Assets 807,123 718,469 626,335 530,191
Securitization:
Total Payment 90,633 90,633 90,633 90,633
Interest Payment (at 7.25%) 41,740 38,076 34,136 29,901
Principal Payment 48,893 52,557 56,497 60,732
Principal Balance EOY 548,951 496,394 439,897 379,165
Year-Ending 12/31: 2007 2008 2009 2010
---- ---- ---- ----
Seabrook Over-Market Generation
Assets Securitized 45,564 48,979 52,651 56,597
MP3 Over-Market Generation
Assets Securitized 7,519 8,083 8,689 9,340
F/H Over-Market Generation Assets (12,712) (12,712) (12,712) (12,712)
Seabrook Deferred Return - NAEC
Written-Off - - - -
Seabrook Deferred Return - PSNH
Written-Off - - - -
Acquisition Premiums
Written-Off - - - -
Securitized 6,697 7,199 7,739 8,319
Amortized 10,245 10,245 10,245 10,245
Acquisition Premiums - F109
Written-Off - - - -
Securitized 4,002 4,302 4,625 4,971
Amortized 6,122 6,122 6,122 6,122
Unrecovered Obligation -
YAEC, CY, MY 2,134 - - -
Deferred DOE Assessment 18 18 18 18
Deferred SPP Costs 9,991 9,991 9,991 9,991
Deferred FPPAC Costs 8,348 8,348 8,348 8,348
VY Contract Termination Payment 1,500 1,500 1,500 1,500
HQ Contract Termination Payment 5,167 5,167 5,167 5,167
Market Value of Wholesale
Power Contracts - - - -
Unamort. Loss on Reacq.
Debt - Exist 263 263 263 263
Unamort. Loss on Reacq.
Debt - New 837 837 837 837
Financing Costs - Securitized 1,502 1,614 1,735 1,865
Total 97,196 99,956 105,216 110,871
Total Write-Off - - - -
Total Securitized 65,284 70,178 75,438 81,093
Total Amortization 31,912 29,778 29,778 29,778
Total 97,196 99,956 105,216 110,871
Balance of Total Stranded Assets 432,995 333,038 227,822 116,950
Securitization:
Total Payment 90,633 90,633 90,633 90,663
Interest Payment (at 7.25%) 25,349 20,455 15,195 9,540
Principal Payment 65,284 70,178 75,438 81,093
Principal Balance EOY 313,881 243,703 168,265 87,172
Year-Ending 12/31: 2011 Total
---- -----
Seabrook Over-Market Generation
Assets Securitized 60,840 506,000
MP3 Over-Market Generation
Assets Securitized 10,041 83,506
F/H Over-Market Generation Assets (12,712) (152,539)
Seabrook Deferred Return - NAEC
Written-Off - 139,991
Seabrook Deferred Return - PSNH
Written-Off - 23,711
Acquisition Premiums
Written-Off - 127,130
Securitized 8,943 74,374
Amortized 10,245 122,936
Acquisition Premiums - F109
Written-Off - 75,971
Securitized 5,344 44,445
Amortized 6,122 73,465
Unrecovered Obligation -
YAEC, CY, MY - 51,636
Deferred DOE Assessment 18 215
Deferred SPP Costs 9,991 119,895
Deferred FPPAC Costs 8,348 100,175
VY Contract Termination Payment 1,500 18,000
HQ Contract Termination Payment 5,167 62,000
Market Value of Wholesale
Power Contracts - (10,000)
Unamort. Loss on Reacq.
Debt - Exist 263 3,150
Unamort. Loss on Reacq.
Debt - New 837 10,044
Financing Costs - Securitized 2,005 16,675
Total 116,950 1,490,780
Total Write-Off - 366,803
Total Securitized 87,172 725,000
Total Amortization 29,778 398,977
Total 116,950 1,490,780
Balance of Total Stranded Assets 0
Securitization:
Total Payment 90,633
Interest Payment (at 7.25%) 3,461
Principal Payment 87,172
Principal Balance EOY -
APPENDIX E - TRANSITION SERVICE / DEFAULT SERVICE PROTOCOL
Transition Service
PSNH will seek Transition Service from qualified bidders on a competitive
basis with Commission oversight by distributing a Request for Proposals (RFP)
for generation services to supply one-hundred (100) percent of the total
Transition Service requirements of its customers for a three-year period
following Competition Day. Based on the bidding results, PSNH will identify
the least-cost Transition Service supply to meet customer needs.
PSNH will competitively procure generation services in an aggregated amount
sufficient to meet one-hundred (100) percent of the entire Transition Service
load, measured at customers' end-use meters on a continuous hour-by-hour basis
during the three-year period. The Company will entertain a fixed bidding
price structure that can be evaluated on a cents/kWh basis. Respondents must be
capable of meeting the hourly, daily and seasonal electricity load fluctuations
associated with customer demand changes, and must be capable of managing the
long-term volatility of Transition Service requirements. Each bidder must
provide evidence of its ability to perform the contractual undertakings that
may result from this request. The term of the contract will be to provide
service for the entire three-year period.
To maximize participation in this solicitation, bidders may offer generation
services in increments as small as five (5) percent of PSNH's total projected
annual Transition Service requirements during the three-year period. To
facilitate potential economy of scale savings, bidders are permitted to compete
for larger shares of PSNH's requirements - up to one-hundred (100) percent of
PSNH's total annual requirements. To ensure proper integration and evaluation
of potential small bids into the total purchase-power target, the size of each
offer must be a multiple of five (5) percent of PSNH's total projected annual
Transition Service requirements.
PSNH will offer branding services to the successful bidder(s), including the
use of name identification on bills or bill inserts. At the end of the three-
year Transition Service period, all customers who have not selected a
Competitive Supplier will be assigned to those entities providing transition
power at that time in accordance with the ratio of transition power provided
by each such supplier during the three-year period. Any Transition Service
customer subject to such assignment will be provided adequate notice by PSNH
in advance of such assignment.
Default Service
Concurrent with the Transition Service RFP, PSNH will seek Default Service
from qualified bidders on a competitive basis with Commission oversight by
distributing a Request for Proposals (RFP) for generation services to supply
one-hundred (100) percent of the total Default Service requirements of its
customers for a three-year period following Competition Day. Based on bidding
results, PSNH will identify the least-cost, Default Service supply to meet
customer needs. An additional bidding process will be conducted in the third
year to procure Default Service for the subsequent year, with annual bidding
thereafter.
PSNH will competitively procure generation services in an aggregated amount
sufficient to meet one-hundred (100) percent of the entire Default Service
loads, measured at customers' end-use meters on a continuous hour-by-hour
basis during the respective time frame. The Company will entertain a fixed
bidding price structure that can be evaluated on a cents/kWh basis. Respondents
must be capable of meeting the hourly, daily and seasonal electricity load
fluctuations associated with customer demand changes, and must be capable of
managing the long-term volatility of Default Service requirements. Each bidder
must provide evidence of its ability to perform the contractual undertakings
that may result from this request. The term of the contract will be to provide
service for the entire solicitation period.
To maximize participation in this solicitation, bidders may offer generation
services in increments as small as five (5) percent of PSNH's total projected
annual Default Service requirements during the respective time frame. To
facilitate potential economy of scale savings, bidders are permitted to compete
for larger shares of PSNH's requirements - up to one-hundred (100) percent of
PSNH's total annual requirements. To ensure proper integration and evaluation
of potential small bids into the total purchase-power target, the size of each
offer must be a multiple of five (5) percent of PSNH's total projected Default
Service requirements.
APPENDIX F - FOSSIL/HYDRO ASSET AUCTION
ILLUSTRATIVE TIMELINE AND SEQUENCE OF EVENTS FOR FOSSIL/HYDRO ASSET AUCTION:
Week
Beginning Action
- --------- ------
4-Jan-00 Receive PUC approval of Agreement
10 Revise Descriptive Memorandum (DM) to conform to PUC
approval
17
24 Finalize revisions to DM
3-Feb-00 PUC Appeal Period concludes
7-Feb-00
14 Launch Auction with press release, invitations to bid -
Round 1 begins
21
28 Distribution of DM's complete
6-Mar-00 Schedule Data Room visits (if needed), respond to bidder
questions
13 Schedule Data Room visits (if needed), respond to bidder
questions
20 Schedule Data Room visits (if needed), respond to bidder
questions
27 Respond to Bidder Questions
3-Apr-00 Indicative bids due
10 Evaluate bids and select Round 2 participants
17 Round 2 Bidders notified and scheduled
24 Site visits and management presentations
1-May-00 Site visits and management presentations
8 Site visits and management presentations
15 Site visits and management presentations
22 Site visits and management presentations
29 Site visits and management presentations
5-Jun-00 Site visits and management presentations
12
19
26 Final bids due
3-Jul-00 Bids reviewed and winners selected
10 Asset Purchase Negotiations conducted
17 Winners announced
24
31 Start state and federal regulatory approval process
Prior to 12/31/2000 Complete Financial Closing on all transactions
PSNH reserves the right after consultation with the Commission, to alter or
modify this schedule as necessary, before or during the auction process to
best satisfy the goals of the auction.
APPENDIX G - DESCRIPTION OF PSNH FOSSIL/HYDRO ASSETS TO BE DIVESTED VIA AUCTION
1. Thermal Facilities:
a. Merrimack Station
Merrimack Station is located south of the Garvins Falls Hydroelectric
Project, along the Merrimack River in Bow, New Hampshire.
Merrimack Station Generating Facilities:
Seasonal claimed Year
Unit Load Role Fuel Capability (Winter)(MW) Installed
- ---- --------- ---- ----------------------- ---------
Unit 1 Base load Coal 122.3 1960
Unit 2 Base load Coal 353.5 1968
CT-1 Peaking Jet 21.1 1968
CT-2 Peaking Jet 21.1 1969
Total 518.0
Merrimack Station is PSNH's prime base load facility with combined
generating capacity from the two coal-fired steam units and two jet fuel-fired
Combustion Turbine units of 518.0 MW. The two coal-fired units are operated by
personnel onsite 24 hours a day, seven days a week. While the units operate in
the base load role most of the time, they can be reduced in load during off-
peak hours. With this capability, these units can provide capacity, energy
and reserve products transacted at the ISO New England power markets.
The two combustion turbine units mainly serve a peaking role, operating
during periods of highest seasonal peak demand or when generation is needed
quickly to maintain electrical system stability. These units typically serve
the capacity and reserve markets, and not the energy market. In addition to
these units, the Merrimack site includes numerous outbuildings, including the
Coal Unloading System and Coal Crusher House, office and storage facilities,
as well as a fly ash disposal area.
b. Newington Station
Newington Station is located on a site of more that 50 acres Thermal
Facility, along the banks of the Piscataqua River in Newington,
New Hampshire. The Newington and the Schiller Station are within a quarter
mile of each other, separated by a public road that ends at the Schiller
plant. The marine terminal and the bulk fuel oil storage, and oil transfer
lines for Newington Station are located on the Schiller site.
Newington Station Generating Facilities
Seasonal Claimed Year
Unit Load Role Fuel Capability (Winter)(MW) Installed
- ---- --------- ---- ----------------------- ---------
Unit 1 Intermediate Oil and gas 415.0 1974
Newington Station is PSNH's prime intermediate load facility, operating as
required by the ISO to meet base, intermediate or peaking demand requirements.
It is the largest single unit in the fossil/hydro system with capability of
415.0 maximum net MW.
Newington Station can burn a variety of fossil fuels including oil and
natural gas making it adaptable to changing fuel markets.
c. Schiller Station
The Schiller Station Thermal Plant is located east of the Newington Thermal
Facility, on the southerly shore of the Piscataqua River in Portsmouth, New
Hampshire. All of the #6 oil and coal for Schiller Station, all of the #6 oil
for Newington Station, and ocean transported coal for Merrimack Station is
received by ship or barge at the main dock at Schiller Station.
Schiller Station Generating Facilities
Seasonal Claimed Year
Unit Load Role Fuel Capability (Winter)(MW) Installed
- ---- --------- ---- ----------------------- ---------
Unit 4 Base/intermediate Coal or oil 48.0 1952
Unit 5 Base/intermediate Coal or oil 49.6 1955
Unit 6 Base/intermediate Coal or oil 49.0 1957
CT-1 Peaking Jet or gas 18.0 1970
Total 164.6
Schiller's steam units have historically served a base load or intermediate
load role for NEPOOL. The units have the capability of starting up and
shutting down daily if needed, but as experienced in 1997, can also effectively
serve in the base load role. Schiller's low cost of fuel and deep water docks
make it an attractive site for generation.
Completed in 1949, Schiller Station is PSNH's third largest generating
plant. The four generating units combine for a total output of 164.6 net MW.
Units 4 and 5 were originally designed to burn coal, and did so for the first
six months of their operation. Both were then converted to burn oil as the
primary fuel. Unit 6 was designed to burn oil originally.
In 1984, Units 4,5 and 6 were converted to coal. Now all three units can
burn coal and/or oil as boiler fuel, making them adaptable to changing fuel
markets. In addition to the steam units, Schiller also has a separate
combustion turbine (CT-1) capable of producing 18 net MW. CT-1 is a jet
engine capable of burning either A V Jet Kero II or natural gas.
2. Hydro Facilities:
a. Smith Station
Smith Station is located on the Androscoggin River in Berlin, Coos County,
New Hampshire near the confluence of the Dead River and the Androscoggin
River. The Station operates one unit with a rated capacity of 14.2 MW.
Smith Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Smith Run-of-river 14.2 1 1948
The project operates in a run-of-river mode. High capacity factors are
achieved at Smith Station due to large upstream reservoirs which maintain
consistent water flows to the station throughout the year. Pond level is
maintained within a narrow band by using a float control mechanism to control
generator output.
b. Gorham Station
Gorham Station is located on the Androscoggin River in the Town of Gorham,
Coos County, New Hampshire, near the confluence of the Peabody River and the
Androscoggin River. The unmanned Station operates four units with an aggregate
rated capacity of 2.1 MW.
Gorham Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Gorham Run-of-river 2.1 4 1923
This run-of-river plant operates automatically as a base load station
generating power from any combination of its units to match river flows.
Gorham benefits from the same reservoir system that supplies water to the
upstream Smith Station. Gorham Station consists of a dam and adjacent canal
gatehouse, a power canal and a four-unit powerhouse. Limited ponding
capability exists. Gorham Station employs an automatic pond level control
system to maximize generator output and maintain pond level within a narrow
band.
c. Androscoggin Reservoir Company (ARCO)
Smith and Gorham Stations on the Androscoggin River receive headwater
benefits from the Union Water Power Company (UWPCO) and ARCO. PSNH is a 12.5
percent owner in ARCO and PSNH's ownership share in ARCO will be transferred to
the Buyer with the purchase of the Upper Hydro Group Hydroelectric Facilities.
PSNH has no ownership share in UWPCO, which has been transferred in ownership
to FPL Group as a result of FPL's purchase of assets from Central Maine Power.
ARCO was created in order to develop an additional storage reservoir for
the Androscoggin Reservoir system, the Aziscohos Lake in Maine. UWPCO serves
as operator for ARCO as well as the Union Water Power storage sites, managing
river flows to maximize utilization of the water for electrical generation
downstream.
Through this managed operation of headwater, PSNH facilities at Smith and
Gorham are targeted to receive a minimum flow of 1,550 cfs throughout the year,
except in rare circumstances during exceptionally dry weather.
d. Canaan Station
Canaan Station is located on the northern Connecticut River in the towns of
Canaan, Vermont and Stewartstown , (West Stewartstown Village) New Hampshire.
It is located 10 miles below the large Murphy Dam at Lake Francis and 82 miles
above Moore Dam, at river mile 370. The plant was built in 1927 and operates
one unit with a rated capacity of 1.1 MW.
Canaan Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Canaan Run-of-river 1.1 1 1927
The unmanned Station is operated as a run-of-river plant and is operated
automatically as a base load unit. The original unit is still in service. Pond
level is maintained within a narrow band by using a float control mechanism to
control generation.
e. Ayers Island Station
Ayers Island Station is located on the Pemigewasset River approximately 12
miles upstream from the U.S. Army Corps of Engineers' Franklin Falls Flood
Control Dam in the Towns of Bristol, Bridgewater, Ashland and New Hampton, New
Hampshire. Small land rights associated with the station are in the towns of
Ashland and Bridgewater. The station operates three units with an aggregate
rated capacity of 9.08 MW. The plant was originally constructed in 1924 and
redeveloped in 1931.
Ayers Island Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Ayers Island Run-of-river 9.1 3 1931
Ayers Island Station operates as a run-of-river facility with a daily
ponding capability. Pond level is maintained within a narrow band by using a
float control mechanism to control generator output, automatically.
f. Eastman Falls Station
Eastman Falls Station is on the Pemigewasett River in Franklin, New
Hampshire. The station operates two units with an aggregate rated capacity of
6.5 MW. The project was originally constructed in 1901 and redeveloped in 1937
and 1983.
Eastman Falls Stations Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Eastman Falls Run-of-river 6.5 2 1983
Eastman Falls Station is operated as an unmanned run-of-the-river plant in
times of higher water flow and as a daily peaking facility at other times
taking advantage of upstream storage capability at Ayers Island. Pond level is
maintained within a narrow band by using a float control mechanism to control
generator output.
g. Amoskeag Station
Amoskeag Station is the southernmost of the three sites comprising the
Merrimack River Project. The station is located on the Merrimack River in
Manchester, New Hampshire, downstream from Hooksett Station. Amoskeag operates
three units with an aggregate rated capacity of 17.5 MW.
Amoskeag Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Amoskeag Run-of-river 17.5 3 1924
Amoskeag Station is operated as a run-of-the river plant in times of
higher water flow and as a daily peaking facility at other times. Pond level is
maintained automatically within a narrow band by using a float control
mechanism to control generator output.
h. Hooksett Station
Hooksett Station is located on the east side of the Merrimack River in
Hooksett, New Hampshire, downstream from the Garvins Falls Station and
Merrimack Station, and upstream from Amoskeag Station. The Station operates
one unit with a rated capacity of 1.9 MW.
Hooksett Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Hooksett Run-of-river 1.9 1 1927
The Hooksett Station is an automated site and is operated as a run-of the-
river facility. In addition to providing power to the NEPOOL transmission grid,
Hooksett provides a reservoir from which water is taken for condenser cooling
at Merrimack Station located a few miles upstream.
Garvins Falls is located on the Merrimack River in Bow, New Hampshire.
The Station operates four units with an aggregate rated capacity of 12.1 MW.
Garvins Falls Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Garvin Falls Run-of-river 12.1 4 1981
The discharge capability of the headgate structure is sufficient to operate
all four units at full load. For high flows, the units are operated so as to
utilize as much of the available water as possible. During times of moderate
and low flows, operation is scheduled to obtain the maximum on-peak energy
based on available head and relative overall unit efficiency. The newly
installed Units 1 and 2 are operated for as long as possible to take advantage
of their greater efficiency, while Units 3 and 4 are operated at times of
higher flow.
j. Jackman Station
Jackman Station consists of a dam, located on Franklin Pierce Lake, and a
penstock, surge tank and powerhouse, located in Hillsborough, New Hampshire.
The lake and project are fed from the North Branch of the Contoocook River.
This project is not subject to FERC jurisdiction because it is not classified
as a navigable waterway. The Station was constructed in 1926 and operates one
turbine with a rated capacity of 3.6 MW.
Jackman Station Generating Facilities
Seasonal Claimed Year Last
Station Load Role Capability (MW) Units Unit Installed
- ------- --------- ---------------- ----- --------------
Jackman Run-of-river 3.6 1 1926
Jackman Station is operated in an essentially run-of-river mode,
automatically by a float or pond level control mechanism at the dam. The
Station operates as a base load unit whenever adequate water flows are
available.
3. Remote Combustion Turbines:
Lost Nation Combustion Turbine
The Lost Nation Combustion Turbine is located in the town of
Northumberland, in northern New Hampshire. Lost Nation serves primarily as a
peaking unit, operating during the periods of highest seasonal peak demand.
Additionally this unit is called upon when a quick response is needed for
additional generation to maintain electrical system stability. While capable
of providing several NEPOOL products, the unit typically serves the capacity
and reserve markets, but not the energy market.
Lost Nation CT Generating Facilities
Seasonal Claimed Year Last
Station Load Role Fuel Capability (MW) Units Unit Installed
- ------- --------- ---- ---------------- ----- --------------
Lost Nation Peaking Oil 19.1 1 1969
APPENDIX H - New Hampshire Affiliate Transaction Rules
Applicable to PSNH and NU
Introduction:
Northeast Utilities ("NU") is a registered holding company system which
provides centralized services to its affiliated companies. NU believes that
these integrated, centralized services increase efficiency through economies
of scale which translate to lower prices to all customers and are particularly
significant for NU because of the relative size of the NU system.
The Commission has not yet undertaken a rulemaking to establish final
rules regarding affiliate separation and codes of conduct for New Hampshire
utility companies. However, the Commission indicated in Order No. 22,875 in
Docket No. DR 96-150, that utilities should operate in the interim period prior
to adoption of final rules in accordance with the California Affiliate
Transaction Rules. The California Affiliate Transaction Rules are attached as
Appendix I hereto. Based upon an analysis of these rules and the interpretation
provided below, the Parties, as an element of the settlement of which this
document is a part, agree that NU will comply with the California rules in this
interim period. The Parties agree to the interpretation provided below as an
integral element of this Settlement Agreement.
Specific Provisions:
PSNH and NU's unregulated competitive marketing affiliates agree to abide
by the following provisions regarding separation of activities and services in
accordance with the California Affiliate Transaction Rules.
1. NU will maintain distinct corporations with separate books and records,
for its distribution operations and its competitive marketing activities. PSNH
shall not share employees, facilities, space or services with NU's unregulated
competitive marketing affiliates, except as allowed herein. PSNH will not
provide services to NU's unregulated competitive marketing affiliates unless
it also provides the same on a comparable basis to all competitors pursuant
to a tariff on file with the Commission.
2. NU will continue to maintain its management services company, Northeast
Utilities Service Company ("NUSCO") providing shared services to its various
affiliates as they require and in accordance with the regulations of the
Securities and Exchange Commission ("SEC") pursuant to the Public Utility
Holding Company Act of 1935. SEC regulations require NUSCO to charge
affiliates for services at cost in accordance with SEC approved allocation
procedures. Resulting costs charged to the distribution companies by NUSCO will
continue to be subject to review and verification by the Commission in
accordance with its authority over regulated retail utility rates and
operations.
3. NUSCO will continue to provide corporate services on a shared basis in the
areas of accounting, billing, financial, administrative, regulatory, legal,
information technology, communication and executive services.
4. NU's unregulated competitive marketing affiliates will hire its own
employees to conduct competitive sales and marketing, including customer
service, and will not utilize employees of NUSCO for such activities.
5. NU's unregulated competitive marketing affiliates staff may utilize shared
corporate facilities of NUSCO along with other NUSCO personnel, but will be
physically separated from PSNH and NUSCO staff engaged in customer service,
customer account management and similar functions for PSNH. (For purposes of
these provisions, physically separate shall be defined as being located on a
separate floor of NU's facilities.)
6. NU's unregulated competitive marketing affiliates staff may use the same
computer and telephone networks as other NUSCO and distribution company staff;
but will not have access to the proprietary customer information of NU's
distribution companies, such as customer databases or other competitively
sensitive information, unless such information has been made available
previously to nonaffiliated suppliers. Password protection for sensitive
information will be maintained to ensure confidentiality.
7. Power procurement functions for the distribution company are limited to the
selection of suppliers and administration of Transition and Default Service in
accordance with the provisions of the Settlement Agreement and the requirements
of the Commission. In addition, NU has in place a code of conduct approved by
the Federal Energy Regulatory Commission ("FERC") governing the restrictions on
sharing of information between affiliates involved in wholesale power
transactions. This FERC-approved code of conduct, and the filing of open access
wholesale transmission tariffs, were prerequisites to FERC's approval of
tariffs for market-based wholesale rates filed by the NU companies.
8. NUSCO will ensure that its provision of services in accordance with the
above provisions does not allow for any preferences to be given to NU's
unregulated competitive marketing affiliates or to allow other activities
proscribed under the rules to occur.
9. NU will conduct formal training for all employees relative to the need for
internal barriers to information sharing in advance of Competition Day.
10. None of NU's unregulated competitive marketing affiliates will use the name
"Public Service of New Hampshire" or any similar name, nor may such affiliates
otherwise trade on the name or status of PSNH in marketing efforts.
11. The books and accounts of NU's unregulated competitive marketing affiliates
which conduct business in the New Hampshire competitive electric market will be
open to inspection by the Commission. The NU affiliate providing such books
and accounts may seek to have them declared "Trade Secrets" pursuant to RSA
Chapter 350B and "confidential, commercial, or financial information" pursuant
to RSA Chapter 91A, and thus be accorded confidential treatment by the
Commission and exempted from disclosure pursuant to these laws and Rule Puc
204.04(a)(4). The decision to provide confidential treatment will be subject to
the ongoing jurisdiction of the PUC.
APPENDIX I - THE CALIFORNIA AFFILIATE TRANSACTION RULES
California Affiliate Transaction Rules
I. Definitions
Unless the context otherwise requires, the following definitions govern the
construction of these Rules:
A. "Affiliate" means any person, corporation, utility, partnership, or other
entity 5 per cent or more of whose outstanding securities are owned,
controlled, or held with power to vote, directly or indirectly either by
a utility or any of its subsidiaries, or by that utility's controlling
corporation and/or any of its subsidiaries as well as any company in which
the utility, its controlling corporation, or any of the utility's
affiliates exert substantial control over the operation of the company
and/or indirectly have substantial financial interests in the company
exercised through means other than ownership. For purposes of these Rules,
"substantial control" includes, but is not limited to, the possession,
directly or indirectly and whether acting alone or in conjunction with
others, of the authority to direct or cause the direction of the management
or policies of a company. A direct or indirect voting interest of 5% or
more by the utility in an entity's company creates a rebuttable presumption
of control.
For purposes of this Rule, "affiliate" shall include the utility's parent
or holding company, or any company which directly or indirectly owns,
controls, or holds the power to vote 10% or more of the outstanding voting
securities of a utility (holding company), to the extent the holding
company is engaged in the provision of products or services as set out in
Rule II B. However, in its compliance plan filed pursuant to Rule VI, the
utility shall demonstrate both the specific mechanism and procedures that
the utility and holding company have in place to assure that the utility is
not utilizing the holding company or any of its affiliates not covered by
these Rules as a conduit to circumvent any of these Rules. Examples
include but are not limited to specific mechanisms and procedures to assure
the Commission that the utility will not use the holding company or another
utility affiliate not covered by these Rules as a vehicle to (1)
disseminate information transferred to them by the utility to an affiliate
covered by these Rules in contravention of these Rules, (2) provide
services to its affiliates covered by these Rules in contravention of these
Rules or (3) to transfer employees to its affiliates covered by these Rules
in contravention of these Rules. In the compliance plan, a corporate
officer from the utility and holding company shall verify the adequacy
of these specific mechanisms and procedures to ensure that the utility
is not utilizing the holding company or any of its affiliates not
covered by these Rules as a conduit to circumvent any of these Rules.
Regulated subsidiaries of a utility, defined as subsidiaries of a utility,
the revenues and expenses of which are subject to regulation by the
Commission and are included by the Commission in establishing rates for
the utility, are not included within the definition of affiliate. However,
these Rules apply to all interactions any regulated subsidiary has with
other affiliated entities covered by these rules.
B. "Commission" means the California Public Utilities Commission or its
succeeding state regulatory body.
C. "Customer" means any person or corporation, as defined in Sections 204,
205 and 206 of the California Public Utilities Code, that is the ultimate
consumer of goods and services.
D. "Customer Information" means non-public information and data specific to
a utility customer which the utility acquired or developed in the course
of its provision of utility services.
E. "FERC" means the Federal Energy Regulatory Commission.
F. "Fully Loaded Cost" means the direct cost of good or service plus all
applicable indirect charges and overheads.
G. "Utility" means any public utility subject to the jurisdiction of the
Commission as an Electrical Corporation or Gas Corporation, as defined
in California Public Utilities Code Sections 218 and 222.
II. Applicability
A. These Rules shall apply to California public utility gas corporations
and California public utility electrical corporations, subject to
regulation by the California Public Utilities Commission.
B. For purposes of a combined gas and electric utility, these Rules apply
to all utility transactions with affiliates engaging in the provision
of a product that uses gas or electricity or the provision of services
that relate to the use of gas or electricity, unless specifically
exempted below. For purposes of an electric utility, these Rules apply
to all utility transactions with affiliates engaging in the provision of
a product that uses electricity or the provision of services that relate
to the use of electricity. For purposes of a gas utility, these Rules
apply to all utility transactions with affiliates engaging in the
provision of a product that uses gas or the provision of services that
relate to the use of gas.
C. These Rules apply to transactions between a Commission-regulated utility
and another affiliated utility, unless specifically modified by the
Commission in addressing a separate application to merge or otherwise
conduct joint ventures related to regulated services.
D. These rules do not apply to the exchange of operating information,
including the disclosure of customer information to its FERC-regulated
affiliate to the extent such information is required by the affiliate to
schedule and confirm nominations for the interstate transportation of
natural gas, between a utility and its FERC-regulated affiliate, to the
extent that the affiliate operates an interstate natural gas pipeline.
E. Existing Rules: Existing Commission rules for each utility and its
parent holding company shall continue to apply except to the extent they
conflict with these Rules. In such cases, these Rules shall supersede
prior rules and guidelines, provided that nothing herein shall preclude
(1) the Commission from adopting other utility-specific guidelines; or
(2) a utility or its parent holding company from adopting other utility-
specific guidelines, with advance Commission approval.
F. Civil Relief: These Rules shall not preclude or stay any form of civil
relief, or rights or defenses thereto, that may be available under state
or federal law.
G. Exemption (Advice Letter): A Commission-jurisdictional utility may be
exempted from these Rules if it files an advice letter with the
Commission requesting exemption. The utility shall file the advice
letter within 30 days after the effective date of this decision adopting
these Rules and shall serve it on all parties to this proceeding. In
the advice letter filing, the utility shall:
1. Attest that no affiliate of the utility provides services as defined
by Rule II B above; and
2. Attest that if an affiliate is subsequently created which provides
services as defined by Rule II B above, then the utility shall:
a. Notify the Commission, at least 30 days before the affiliate
begins to provide services as defined by Rule II B above, that such
an affiliate has been created; notification shall be accomplished
by means of a letter to the Executive Director, served on all
parties to this proceeding; and
b. Agree in this notice to comply with the Rules in their entirety.
H. Limited Exemption (Application): A California utility which is also a
multi-state utility and subject to the jurisdiction of other state
regulatory commissions, may file an application, served on all parties
to this proceeding, requesting a limited exemption from these Rules or a
part thereof, for transactions between the utility solely in its capacity
serving its jurisdictional areas wholly outside of California, and its
affiliates. The applicant has the burden of proof.
A. These Rules should be interpreted broadly, to effectuate our stated
objectives of fostering competition and protecting consumer interests.
If any provision of these Rules, or the application thereof to any
person, company, or circumstance, is held invalid, the remainder of the
Rules, or the application of such provision to other persons, companies,
or circumstances, shall not be affected thereby.
III. Nondiscrimination
A. No Preferential Treatment Regarding Services Provided by the Utility:
Unless otherwise authorized by the Commission or the FERC, or permitted
by these Rules, a utility shall not:
1. represent that, as a result of the affiliation with the utility, its
affiliates or customers of its affiliates will receive any different
treatment by the utility than the treatment the utility provides to
other, unaffiliated companies or their customers; or
2. provide its affiliates, or customers of its affiliates, any preference
(including but not limited to terms and conditions, pricing, or timing)
over non-affiliated suppliers or their customers in the provision of
services provided by the utility.
B. Affiliate Transactions: Transactions between a utility and its affiliates
shall be limited to tariffed products and services, the sale or purchase of
goods, property, products or services made generally available by the
utility or affiliate to all market participants through an open,
competitive bidding process, or as provided for in Sections V D and V E
(joint purchases and corporate support) and Section VII (new products and
services) below, provided the transactions provided for in Section VII
comply with all of the other adopted Rules.
C. Provision of Supply, Capacity, Services or Information: Except as
provided for in Sections V D, V E, and VII, provided the transactions
provided for in Section VII comply with all of the other adopted Rules,
a utility shall provide access to utility information, services, and
unused capacity or supply on the same terms for all similarly situated
market participants. If a utility provides supply, capacity, services,
or information to its affiliate(s), it shall contemporaneously make the
offering available to all similarly situated market participants, which
include all competitors serving the same market as the utility's
affiliates.
1. Offering of Discounts: Except when made generally available by the
utility through an open, competitive bidding process, if a utility
offers a discount or waives all or any part of any other charge or fee
to its affiliates, or offers a discount or waiver for a transaction in
which its affiliates are involved, the utility shall contemporaneously
make such discount or waiver available to all similarly situated
market participants. The utilities should not use the "similarly
situated" qualification to create such a unique discount arrangement
with their affiliates such that no competitor could be considered
similarly situated. All competitors serving the same market as the
utility's affiliates should be offered the same discount as the
discount received by the affiliates. A utility shall document the
cost differential underlying the discount to its affiliates in the
affiliate discount report described in Rule III F 7 below.
2. Tariff Discretion: If a tariff provision allows for discretion in its
application, a utility shall apply that tariff provision in the same
manner to its affiliates and other market participants and their
respective customers.
3. No Tariff Discretion: If a utility has no discretion in the application
of a tariff provision, the utility shall strictly enforce that tariff
provision.
4. Processing Requests for Services Provided by the Utility: A utility
shall process requests for similar services provided by the utility in
the same manner and within the same time for its affiliates and for
all other market participants and their respective customers.
C. Tying of Services Provided by a Utility Prohibited: A utility shall not
condition or otherwise tie the provision of any services provided by the
utility, nor the availability of discounts of rates or other charges or
fees, rebates, or waivers of terms and conditions of any services
provided by the utility, to the taking of any goods or services from its
affiliates.
D. No Assignment of Customers: A utility shall not assign customers to
which it currently provides services to any of its affiliates, whether
by default, direct assignment, option or by any other means, unless that
means is equally available to all competitors.
E. Business Development and Customer Relations: Except as otherwise
provided by these Rules, a utility shall not:
1. provide leads to its affiliates;
2. solicit business on behalf of its affiliates;
3. acquire information on behalf of or to provide to its affiliates;
4. share market analysis reports or any other types of proprietary or
non-publicly available reports, including but not limited to market,
forecast, planning or strategic reports, with its affiliates;
5. request authorization from its customers to pass on customer
information exclusively to its affiliates;
6. give the appearance that the utility speaks on behalf of its
affiliates or that the customer will receive preferential treatment
as a consequence of conducting business with the affiliates; or
7. give any appearance that the affiliate speaks on behalf of the
utility.
F. Affiliate Discount Reports: If a utility provides its affiliates a
discount, rebate, or other waiver of any charge or fee associated with
services provided by the utility, the utility shall, within 24 hours of
the time at which the service provided by the utility is so provided,
post a notice on its electronic bulletin board providing the following
information:
1. the name of the affiliate involved in the transaction;
2. the rate charged;
3. the maximum rate;
4. the time period for which the discount or waiver applies;
5. the quantities involved in the transaction;
6. the delivery points involved in the transaction;
7. any conditions or requirements applicable to the discount or waiver,
and a documentation of the cost differential underlying the discount
as required in Rule III B 2 above; and
8. procedures by which a nonaffiliated entity may request a comparable
offer.
A utility that provides an affiliate a discounted rate, rebate, or other waiver
of a charge or fee associated with services provided by the utility shall
maintain, for each billing period, the following information:
9. the name of the entity being provided services provided by the utility
in the transaction;
10. the affiliate's role in the transaction (i.e., shipper, marketer,
supplier, seller);
11. the duration of the discount or waiver;
12. the maximum rate;
13. the rate or fee actually charged during the billing period; and
14. the quantity of products or services scheduled at the discounted rate
during the billing period for each delivery point.
All records maintained pursuant to this provision shall also conform to FERC
rules where applicable.
IV. Disclosure and Information
A. Customer Information: A utility shall provide customer information to its
affiliates and unaffiliated entities on a strictly non-discriminatory
basis, and only with prior affirmative customer written consent.
B. Non-Customer Specific Non-Public Information: A utility shall make non-
customer specific non-public information, including but not limited to
information about a utility's natural gas or electricity purchases,
sales, or operations or about the utility's gas-related goods or
services, electricity-related goods or services, available to the
utility's affiliates only if the utility makes that information
contemporaneously available to all other service providers on the same
terms and conditions, and keeps the information open to public inspection.
Unless otherwise provided by these Rules, a utility continues to be bound
by all Commission-adopted pricing and reporting guidelines for such
transactions. Utilities are also permitted to exchange proprietary
information on an exclusive basis with their affiliates, provided the
utility follows all Commission-adopted pricing and reporting guidelines
for such transactions, and it is necessary to exchange this information in
the provision of the corporate support services permitted by Rule V E
below. The affiliate's use of such proprietary information is limited to
use in conjunction with the permitted corporate support services, and is
not permitted for any other use. Nothing in this Rule precludes the
exchange of information pursuant to D.97-10-031.
C. Service Provider Information:
1. Except upon request by a customer or as otherwise authorized by the
Commission, a utility shall not provide its customers with any list of
service providers, which includes or identifies the utility's
affiliates, regardless of whether such list also includes or identifies
the names of unaffiliated entities.
2. If a customer requests information about any affiliated service
provider, the utility shall provide a list of all providers of gas-
related, electricity-related, or other utility-related goods and
services operating in its service territory, including its affiliates.
The Commission shall authorize, by semi-annual utility advice letter
filing, and either the utility, the Commission, or a Commission-
authorized third party provider shall maintain on file with the
Commission a copy of the most updated lists of service providers which
have been created to disseminate to a customer upon a customer's
request. Any service provider may request that it be included on such
list, and, barring Commission direction, the utility shall honor such
request. Where maintenance of such list would be unduly burdensome
due to the number of service providers, subject to Commission approval
by advice letter filing, the utility shall direct the customer to a
generally available listing of service providers (e.g., the Yellow
Pages). In such cases, no list shall be provided. The list of
service providers should make clear that the Commission does not
guarantee the financial stability or service quality of the service
providers listed by the act of approving this list.
D. Supplier Information: A utility may provide non-public information and
data which has been received from unaffiliated suppliers to its affiliates
or non-affiliated entities only if the utility first obtains written
affirmative authorization to do so from the supplier. A utility shall not
actively solicit the release of such information exclusively to its own
affiliate in an effort to keep such information from other unaffiliated
entities.
E. Affiliate-Related Advice or Assistance: Except as otherwise provided in
these Rules, a utility shall not offer or provide customers advice or
assistance with regard to its affiliates or other service providers.
F. Record-Keeping: A utility shall maintain contemporaneous records
documenting all tariffed and nontariffed transactions with its affiliates,
including but not limited to, all waivers of tariff or contract provisions
and all discounts. A utility shall maintain such records for a minimum of
three years and longer if this Commission or another government agency so
requires. The utility shall make such records available for third party
review upon 72 hours' notice, or at a time mutually agreeable to the
utility and third party.
If D.97-06-110 is applicable to the information the utility seeks to
protect, the utility should follow the procedure set forth in D.97-06-110,
except that the utility should serve the third party making the request in
a manner that the third party receives the utility's D.97-06-110 request
for confidentiality within 24 hours of service.
G. Maintenance of Affiliate Contracts and Related Bids: A utility shall
maintain a record of all contracts and related bids for the provision of
work, products or services to and from the utility to its affiliates for
no less than a period of three years, and longer if this Commission or
another government agency so requires.
H. FERC Reporting Requirements: To the extent that reporting rules imposed
by the FERC require more detailed information or more expeditious
reporting, nothing in these Rules shall be construed as modifying the
FERC rules.
V. Separation
A. Corporate Entities: A utility and its affiliates shall be separate
corporate entities.
B. Books and Records: A utility and its affiliates shall keep separate
books and records.
1. Utility books and records shall be kept in accordance with applicable
Uniform System of Accounts (USOA) and Generally Accepted Accounting
Procedures (GAAP).
2. The books and records of affiliates shall be open for examination by
the Commission and its staff consistent with the provisions of Public
Utilities Code Section 314.
C. Sharing of Plant, Facilities, Equipment or Costs: A utility shall not
share office space, office equipment, services, and systems with its
affiliates, nor shall a utility access the computer or information
systems of its affiliates or allow its affiliates to access its computer
or information systems, except to the extent appropriate to perform
shared corporate support functions permitted under Section V E of these
Rules. Physical separation required by this rule shall be accomplished
preferably by having office space in a separate building, or, in the
alternative, through the use of separate elevator banks and/or security-
controlled access. This provision does not preclude a utility from
offering a joint service provided this service is authorized by the
Commission and is available to all non-affiliated service providers on
the same terms and conditions (e.g., joint billing services pursuant to
D.97-05-039).
D. Joint Purchases: To the extent not precluded by any other Rule, the
utilities and their affiliates may make joint purchases of good and
services, but not those associated with the traditional utility merchant
function. For purpose of these Rules, to the extent that a utility is
engaged in the marketing of the commodity of electricity or natural gas
to customers, as opposed to the marketing of transmission and distribution
services, it is engaging in merchant functions. Examples of permissible
joint purchases include joint purchases of office supplies and telephone
services. Examples of joint purchases not permitted include gas and
electric purchasing for resale, purchasing of gas transportation and
storage capacity, purchasing of electric transmission, systems operations,
and marketing. The utility must insure that all joint purchases are
priced, reported, and conducted in a manner that permits clear
identification of the utility and affiliate portions of such purchases,
and in accordance with applicable Commission allocation and reporting
rules.
E. Corporate Support: As a general principle, a utility, its parent
holding company, or a separate affiliate created solely to perform
corporate support services may share with its affiliates joint corporate
oversight, governance, support systems and personnel. Any shared
support shall be priced, reported and conducted in accordance with the
Separation and Information Standards set forth herein, as well as other
applicable Commission pricing and reporting requirements.
As a general principle, such joint utilization shall not allow or
provide a means for the transfer of confidential information from the
utility to the affiliate, create the opportunity for preferential
treatment or unfair competitive advantage, lead to customer confusion,
or create significant opportunities for cross-subsidization of
affiliates. In the compliance plan, a corporate officer from the utility
and holding company shall verify the adequacy of the specific mechanisms
and procedures in place to ensure the utility follows the mandates of
this paragraph, and to ensure the utility is not utilizing joint
corporate support services as a conduit to circumvent these Rules.
Examples of services that may be shared include: payroll, taxes,
shareholder services, insurance, financial reporting, financial planning
and analysis, corporate accounting, corporate security, human resources
(compensation, benefits, employment policies), employee records, regulatory
affairs, lobbying, legal, and pension management.
Examples of services that may not be shared include: employee recruiting,
engineering, hedging and financial derivatives and arbitrage services, gas
and electric purchasing for resale, purchasing of gas transportation and
storage capacity, purchasing of electric transmission, system operations,
and marketing.
F. Corporate Identification and Advertising:
1. A utility shall not trade upon, promote, or advertise its affiliate's
affiliation with the utility, nor allow the utility name or logo to
be used by the affiliate or in any material circulated by the affiliate,
unless it discloses in plain legible or audible language, on the first
page or at the first point where the utility name or logo appears that:
a. the affiliate "is not the same company as [i.e. PG&E, Edison, the
Gas Company, etc.], the utility,";
b. the affiliate is not regulated by the California Public Utilities
Commission; and
c. "you do not have to buy [the affiliate's] products in order to
continue to receive quality regulated services from the utility."
The application of the name/logo disclaimer is limited to the use of
the name or logo in California.
2. A utility, through action or words, shall not represent that, as a
result of the affiliate's affiliation with the utility, its affiliates
will receive any different treatment than other service providers.
3. A utility shall not offer or provide to its affiliates advertising space
in utility billing envelopes or any other form of utility customer
written communication unless it provides access to all other
unaffiliated service providers on the same terms and conditions.
4. A utility shall not participate in joint advertising or joint marketing
with its affiliates. This prohibition means that utilities may not
engage in activities which include, but are not limited to the
following:
a. A utility shall not participate with its affiliates in joint sales
calls, through joint call centers or otherwise, or joint proposals
(including responses to requests for proposals (RFPs)) to existing
or potential customers. At a customer's unsolicited request, a
utility may participate, on a nondiscriminatory basis, in non-sales
meetings with its affiliates or any other market participant to
discuss technical or operational subjects regarding the utility's
provision of transportation service to the customer;
b. Except as otherwise provided for by these Rules, a utility shall not
participate in any joint activity with its affiliates. The term
"joint activities" includes, but is not limited to, advertising,
sales, marketing, communications and correspondence with any existing
or potential customer;
c. A utility shall not participate with its affiliates in trade shows,
conferences, or other information or marketing events held in
California.
5. A utility shall not share or subsidize costs, fees, or payments with
its affiliates associated with research and development activities or
investment in advanced technology research.
G. Employees:
1. Except as permitted in Section V E (corporate support), a utility and
its affiliates shall not jointly employ the same employees. This Rule
prohibiting joint employees also applies to Board Directors and
corporate officers, except for the following circumstances: In
instances when this Rule is applicable to holding companies, any board
member or corporate officer may serve on the holding company and with
either the utility or affiliate (but not both). Where the utility is
a multi-state utility, is not a member of a holding company structure,
and assumes the corporate governance functions for the affiliates, the
prohibition against any board member or corporate officer of the
utility also serving as a board member or corporate officer of an
affiliate shall only apply to affiliates that operate within California.
In the case of shared directors and officers, a corporate officer from
the utility and holding company shall verify in the utility's compliance
plan the adequacy of the specific mechanisms and procedures in place to
ensure that the utility is not utilizing shared officers and directors
as a conduit to circumvent any of these Rules.
2. All employee movement between a utility and its affiliates shall be
consistent with the following provisions:
a. A utility shall track and report to the Commission all employee
movement between the utility and affiliates. The utility shall
report this information annually pursuant to our Affiliate
Transaction Reporting Decision, D.93-02-016, 48 CPUC2d 163, 171-
172 and 180 (Appendix A, Section I and Section II H.).
b. Once an employee of a utility becomes an employee of an affiliate,
the employee may not return to the utility for a period of one year.
This Rule is inapplicable if the affiliate to which the employee
transfers goes out of business during the one-year period. In the
event that such an employee returns to the utility, such employee
cannot be retransferred, reassigned, or otherwise employed by the
affiliate for a period of two years. Employees transferring from
the utility to the affiliate are expressly prohibited from using
information gained from the utility in a discriminatory or exclusive
fashion, to the benefit of the affiliate or to the detriment of other
unaffiliated service providers.
c. When an employee of a utility is transferred, assigned, or otherwise
employed by the affiliate, the affiliate shall make a one-time
payment to the utility in an amount equivalent to 25% of the
employee's base annual compensation, unless the utility can
demonstrate that some lesser percentage (equal to at least 15%) is
appropriate for the class of employee included. All such fees
paid to the utility shall be accounted for in a separate memorandum
account to track them for future ratemaking treatment (i.e., credited
to the Electric Revenue Adjustment Account or the Core and Non-core
Gas Fixed Cost Accounts, or other ratemaking treatment, as
appropriate), on an annual basis, or as otherwise necessary to ensure
that the utility's ratepayers receive the fees. This transfer
payment provision will not apply to clerical workers. Nor will it
apply to the initial transfer of employees to the utility's holding
company to perform corporate support functions or to a separate
affiliate performing corporate support functions, provided that that
transfer is made during the initial implementation period of these
rules or pursuant to a Section 851 application or other Commission
proceeding. However, the rule will apply to any subsequent transfers
or assignments between a utility and its affiliates of all covered
employees at a later time.
d. Any utility employee hired by an affiliate shall not remove or
otherwise provide information to the affiliate which the affiliate
would otherwise be precluded from having pursuant to these Rules.
e. A utility shall not make temporary or intermittent assignments, or
rotations to its affiliates.
H. Transfer of Goods and Services: To the extent that these Rules do not
prohibit transfers of goods and services between a utility and its
affiliates, all such transfers shall be subject to the following pricing
provisions:
1. Transfers from the utility to its affiliates of goods and services
produced, purchased or developed for sale on the open market by the
utility will be priced at fair market value. Transfers from an
affiliate to the utility of goods and services produced, purchased or
developed for sale on the open market by the affiliate shall be priced
at no more than fair market value.
2. For goods or services for which the price is regulated by a state or
federal agency, that price shall be deemed to be the fair market
value, except that in cases where more than one state commission
regulates the price of goods or services, this Commission's pricing
provisions govern.
3. Goods and services produced, purchased or developed for sale on the open
market by the utility will be provided to its affiliates and
unaffiliated companies on a nondiscriminatory basis, except as otherwise
required or permitted by these Rules or applicable law.
4. Transfers from the utility to its affiliates of goods and services not
produced, purchased or developed for sale by the utility will be priced
at fully loaded cost plus 5% of direct labor cost.
5. Transfers from an affiliate to the utility of goods and services not
produced, purchased or developed for sale by the affiliate will be
priced at the lower of fully loaded cost or fair market value.
VI. Regulatory Oversight
A. Compliance Plans: No later than December 31, 1997, each utility shall
file a compliance plan demonstrating to the Commission that there are
adequate procedures in place that will preclude the sharing of information
with its affiliates that is prohibited by these Rules. The utility should
file its compliance plan as an advice letter with the Commission's Energy
Division and serve it on the parties to this proceeding. The utility's
compliance plan shall be in effect between the filing and a Commission
determination of the advice letter. A utility shall file a compliance plan
annually thereafter by advice letter served on all parties to this
proceeding where there is some change in the compliance plan (i.e., when a
new affiliate has been created, or the utility has changed the compliance
plan for any other reason).
B. New Affiliate Compliance Plans: Upon the creation of a new affiliate
which is addressed by these Rules, the utility shall immediately notify
the Commission of the creation of the new affiliate, as well as posting
notice on its electronic bulletin board. No later than 60 days after
the creation of this affiliate, the utility shall file an advice letter
with the Energy Division of the Commission, served on the parties to
this proceeding. The advice letter shall demonstrate how the utility
will implement these Rules with respect to the new affiliate.
C. Affiliate Audit: No later than December 31, 1998, and every year
thereafter, the utility shall have audits prepared by independent
auditors that verify that the utility is in compliance with the Rules
set forth herein. The utilities shall file this audit with the
Commission's Energy Division beginning no later than December 31, 1998,
and serve it on all parties to this proceeding. The audits shall be at
shareholder expense.
D. Witness Availability: Affiliate officers and employees shall be made
available to testify before the Commission as necessary or required,
without subpoena, consistent with the provisions of Public Utilities
Code Section 314.
VII. Utility Products and Services
A. General Rule: Except as provided for in these Rules, new products and
services shall be offered through affiliates.
B. Definitions: The following definitions apply for the purposes of this
section (Section VII) of these Rules:
1. "Category" refers to a factually similar group of products and
services that use the same type of utility assets or capacity. For
example, "leases of land under utility transmission lines" or "use of
a utility repair shop for third party equipment repair" would each
constitute a separate product or service category.
2. "Existing" products and services are those which a utility is offering
on the effective date of these Rules.
3. "Products" include use of property, both real and intellectual, other
than those uses authorized under General Order 69-C.
1. "Tariff" or "tariffed" refers to rates, terms and conditions of
services as approved by this Commission or the Federal Energy
Regulatory Commission (FERC), whether by traditional tariff, approved
contract or other such approval process as the Commission or the FERC
may deem appropriate.
C. Utility Products and Services: Except as provided in these Rules, a
utility shall not offer nontariffed products and services. In no event
shall a utility offer natural gas or electricity commodity service on a
nontariffed basis. A utility may only offer for sale the following
products and services:
1. Existing products and services offered by the utility pursuant to
tariff;
2. Unbundled versions of existing utility products and services, with the
unbundled versions being offered on a tariffed basis;
3. New products and services that are offered on a tariffed basis; and
4. Products and services which are offered on a nontariffed basis and
which meet the following conditions:
a. The nontariffed product or service utilizes a portion of a utility
asset or capacity;
b. such asset or capacity has been acquired for the purpose of and is
necessary and useful in providing tariffed utility services;
c. the involved portion of such asset or capacity may be used to offer
the product or service on a nontariffed basis without adversely
affecting the cost, quality or reliability of tariffed utility
products and services;
d. the products and services can be marketed with minimal or no
incremental capital, minimal or no new forms of liability or
business risk being incurred by the utility, and minimal or no
direct management control; and
c. the utility offering is restricted to less than 1% of the number of
customers in its customer base.
D. Conditions Precedent to Offering New Products and Services: This Rule
does not represent an endorsement by the Commission of any particular
nontariffed utility product or service. A utility may offer new
nontariffed products and services only if the Commission has adopted and
the utility has established:
1. A mechanism or accounting standard for allocating costs to each new
product or service to prevent cross-subsidization between services a
utility would continue to provide on a tariffed basis and those it
would provide on a nontariffed basis;
2. A reasonable mechanism for treatment of benefits and revenues derived
from offering such products and services, except that in the event
the Commission has already approved a performance-based ratemaking
mechanism for the utility and the utility seeks a different sharing
mechanism, the utility should petition to modify the performance-
based ratemaking decision if it wishes to alter the sharing mechanism,
or clearly justify why this procedure is inappropriate, rather than
doing so by application or other vehicle.
3. Periodic reporting requirements regarding pertinent information related
to nontariffed products and services; and
4. Periodic auditing of the costs allocated to and the revenues derived
from nontariffed products and services.
E. Requirement to File an Advice Letter: Prior to offering a new category
of nontariffed products or services as set forth in Section VII C above,
a utility shall file an advice letter in compliance with the following
provisions of this paragraph.
1. The advice letter shall:
a. demonstrate compliance with these rules;
b. address the amount of utility assets dedicated to the non-utility
venture, in order to ensure that a given product or service does
not threaten the provision of utility service, and show that the
new product or service will not result in a degradation of cost,
quality, or reliability of tariffed goods and services;
c. demonstrate that the utility has not received recovery in the
Transition Cost Proceeding, A.96-08-001, or other applicable
Commission proceeding, for the portion of the utility asset
dedicated to the non-utility venture; and
d. address the potential impact of the new product or service on
competition in the relevant market.
2. In the absence of a protest alleging non-compliance with these Rules
or any law, regulation, decision, or Commission policy, or allegations
of harm, the utility may commence offering the product or service 30
days after submission of the advice letter.
3. A protest of an advice letter filed in accordance with this paragraph
shall include:
a. An explanation of the specific Rules, or any law, regulation,
decision, or Commission policy the utility will allegedly violate
by offering the proposed product or service, with reasonable
factual detail; or
b. An explanation of the specific harm the protestant will allegedly
suffer.
4. If such a protest is filed, the utility may file a motion to dismiss
the protest within 5 working days if it believes the protestant has
failed to provide the minimum grounds for protest required above. The
protestant has 5 working days to respond to the motion.
1. The intention of the Commission is to make its best reasonable
efforts to rule on such a motion to dismiss promptly. Absent a
ruling granting a motion to dismiss, the utility shall begin offering
that category of products and services only after Commission approval
through the normal advice letter process.
F. Existing Offerings: Unless and until further Commission order to the
contrary as a result of the advice letter filing or otherwise, a utility
that is offering tariffed or nontariffed products and services, as of
the effective date of this decision, may continue to offer such products
and services, provided that the utility complies with the cost allocation
and reporting requirements in this rule. No later than January 30, 1998,
each utility shall submit an advice letter describing the existing products
and services (both tariffed and nontariffed) currently being offered by the
utility and the number of the Commission decision or advice letter
approving this offering, if any, and requesting authorization or continuing
authorization for the utility's continued provision of this product or
service in compliance with the criteria set forth in Rule VII. This
requirement applies to both existing products and services explicitly
approved and not explicitly approved by the Commission.
G. Section 851 Application: A utility must continue to comply fully with
the provisions of Public Utilities Code Section 851 when necessary or
useful utility property is sold, leased, assigned, mortgaged, disposed
of, or otherwise encumbered as part of a nontariffed product or service
offering by the utility. If an application pursuant to Section 851 is
submitted, the utility need not file a separate advice letter, but shall
include in the application those items which would otherwise appear in
the advice letter as required in this Rule.
H. Periodic Reporting of Nontariffed Products and Services: Any utility
offering nontariffed products and services shall file periodic reports
with the Commission's Energy Division twice annually for the first two
years following the effective date of these Rules, then annually thereafter
unless otherwise directed by the Commission. The utility shall serve
periodic reports on the service list of this proceeding. The periodic
reports shall contain the following information:
1. A description of each existing or new category of nontariffed products
and services and the authority under which it is offered;
2. A description of the types and quantities of products and services
contained within each category (so that, for example, "leases for
agricultural nurseries at 15 sites" might be listed under the category
"leases of land under utility transmission lines," although the
utility would not be required to provide the details regarding each
individual lease);
3. The costs allocated to and revenues derived from each category; and
4. Current information on the proportion of relevant utility assets used
to offer each category of product and service.
I. Offering of Nontariffed Products and Services to Affiliates: Nontariffed
products and services which are allowed by this Rule may be offered to
utility affiliates only in compliance with all other provisions of these
Affiliate Rules. Similarly, this Rule does not prohibit affiliate
transactions which are otherwise allowed by all other provisions of these
Affiliate Rules.
EXHIBIT 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment, dated as of May 14, 1999, is to the Employment Agreement, dated
as of August 21, 1996, by and between Northeast Utilities Service Company (the
"Company") and Bruce D. Kenyon ("Executive"), as amended. Terms used but not
defined in this Amendment shall have the meanings assigned to them in the
Employment Agreement.
In consideration of Executive's continued employment by the Company, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, the Company and Executive agree as follows:
A. That the following sentence is added to the end of Section 1.5, Retirement
and Benefit Coverages:
Following Executive's death after commencement of the Special Retirement
Benefit, that portion of his Special Retirement Benefit which was to
consist of a life annuity of not more than fifteen years' duration will be
continued to his surviving spouse, until the earlier of the end of the
fifteen year period or her death, as a monthly payment equal to 60 percent
of the monthly payment made to Executive for such life annuity.
B. That the following sentence is added to the end of Section 5.5, Voluntary
Termination:
Notwithstanding the foregoing, if Executive voluntarily terminates the
Employment Term following a "substantial change in responsibilities
resulting from a material change in the business of Northeast Utilities"
(as determined by the Chief Executive Officer of Northeast Utilities in
consultation with the chairman of the Compensation Committee of the Board
of Trustees of Northeast Utilities), and on the date of termination
Executive has at least three years of service with the Company, then
Executive will be deemed to have an additional year of service for all
purposes of the Special Retirement Benefit.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Amendment as of the date first above written.
NORTHEAST UTILITIES SERVICE COMPANY EXECUTIVE
By /s/ Cheryl W. Grise /s/ Bruce D. Kenyon
Its Senior Vice President, Bruce D. Kenyon
Secretary and General Counsel
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<OTHER-OPERATING-EXPENSES> 1,102,527
<TOTAL-OPERATING-EXPENSES> 1,127,284
<OPERATING-INCOME-LOSS> 44,782
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