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File No. 070-09195
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 4
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EASTERN ENTERPRISES
9 Riverside Road
Weston, Massachusetts 02193
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(Name of company or companies filing this statement and
addresses of principal executive office)
EASTERN ENTERPRISES
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(Name of top registered holding company parent of each applicant or declarant)
David W. Walker, Esq L. William Law, Jr., Esq.
Foley, Hoag & Eliot LLP Senior Vice President and General Counsel
One Post Office Square Eastern Enterprises
Boston, Massachusetts 02109 9 Riverside Road
Weston, Massachusetts 02193
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(Names and addresses of agents for service)
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1. Applicant hereby amends Item 6, Exhibits and Financial Statements, by filing
the following:
D-2a Order of Clarification by the Massachusetts Department of
Telecommunications and Energy, issued September 25, 1998
2
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SIGNATURE
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Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Amendment to be signed on
its behalf by the undersigned officer thereunto duly authorized.
EASTERN ENTERPRISES(1)
Date: September 28, 1998 By: /s/ Walter J. Flaherty
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Walter J. Flaherty
Senior Vice President and Chief
Financial Officer
(1) Reference is hereby made to the declaration of trust establishing Eastern
Enterprises (formerly Eastern Gas and Fuel Associates) dated July 18, 1929, as
amended, a copy of which is on file in the office of the Secretary of the
Commonwealth of Massachusetts. The name "Eastern Enterprises" refers to the
trustees under said declaration as trustees and not personally; and no trustee,
shareholder, officer or agent of Eastern Enterprises shall be held to any
personal liability in connection with the affairs of said Eastern Enterprises,
but the trust estate only is liable.
3
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EXHIBIT INDEX
See Item 6, "Exhibits and Financial Statements," for statement of locations of
exhibits incorporated by reference.
Exhibit No. Description
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D-2a Order of Clarification by the Massachusetts Department of
Telecommunications and Energy, issued September 25, 1998
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Exhibit D-2a
THE COMMONWEALTH OF MASSACHUSETTS
DEPARTMENT OF
TELECOMMUNICATIONS AND ENERGY
September 25, 1998
D.T.E. 98-27-A
Joint Petition of Eastern Enterprises and Essex County Gas Company for approval
of a merger by the Department of Telecommunications and Energy, pursuant to G.L.
c. 164, ss. 96. Eastern Enterprises and Essex County Gas Company also seek the
Department's approval of a rate plan for Essex, pursuant to G.L. c. 164, ss. 94.
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APPEARANCES: Robert J. Keegan, Esq.
Robert N. Werlin, Esq.
Cheryl M. Kimball, Esq.
Keegan, Werlin & Pabian, LLP
21 Custom House Street
Boston, Massachusetts 02108
FOR: EASTERN
ENTERPRISES AND
ESSEX COUNTY GAS COMPANY
PETITIONERS
-and-
L. William Law, Jr., Esq.
Senior Vice President and General Counsel
Eastern Enterprises
9 Riverside Road
Weston, Massachusetts 02193
FOR: EASTERN ENTERPRISES
PETITIONER
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Scott Harshbarger, Attorney General
By: James W. Stetson, Esq.
George C. Brooks, Esq.
Assistant Attorneys General
Regulated Industries Division
200 Portland Street
Boston, Massachusetts 02114
INTERVENOR
Warren H. Pyle, Esq.
Bryan C. Decker, Esq.
Pyle, Rome & Lichten, P.C.
90 Canal Street, 4th Floor
Boston, Massachusetts 02114
FOR: LOCAL 12086,
USWA, AFL-CIO AND THE ALLIANCE OF UTILITY
WORKERS' UNIONS
INTERVENORS
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D.T.E. 98-27-A Page 1
I. INTRODUCTION
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On September 21, 1998, Eastern Enterprises ("Eastern") and Essex County
Gas Company ("Essex") (collectively, "Petitioners") jointly filed with the
Department of Telecommunications and Energy ("Department") a Motion for
Clarification of the Department's Order of September 17, 1998, in EASTERN
ENTERPRISES AND ESSEX COUNTY GAS COMPANY, D.T.E. 98-27 ("Order" or
"EASTERN-ESSEX ACQUISITION"). The Motion "seek[s] clarification with regard to
one issue on which the Order is silent. That issue centers on whether the
Department envisions that the cost-allocation system required to be developed
for the purpose f allocating common costs between Boston Gas and Essex will be
used to establish rates for Boston Gas [Company] during the term of the Rate
Plan for Essex." Motion at 1. The Department issued a Procedural Notice to the
intervenors in this matter: (i) the Attorney General of the Commonwealth, (ii)
the United Steelworkers of America, AFL-CIO, Local 12086, and (iii) the Alliance
of Utility Workers (the last two named, collectively "Unions").(1) On September
24, 1998, the Attorney General filed an Objection to the Motion
("Objection").(2)
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(1) Comments of other parties on a movant's request for
clarification of a Department Order are useful; but the
Department, logically enough, remains the best judge of what
our orders intend.
(2) In the cover letter to his Opposition to the Motion (styled as
"Objection"), the Attorney General stated his objection to the
time allowed by the Department for parties to respond to the
Motion (Attorney General Cover Letter at 1, n.1).
Determination of what constitutes a reasonable period to
respond to a motion is a function of circumstances and lies
within the sound exercise of the Department's discretion,
consistent with fairness. The circumstances attendant on the
Motion warrant the timing set in the Procedural Notice (which
established a time for return of comments at noon on September
24, later extended by the Department to close of business):
(1) the Motion was brief and focused on one issue; (2) a copy
of the Motion accompanied the faxed Procedural Notice (receipt
confirmed) and
(continued...)
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D.T.E. 98-27-A Page 2
In his Objection, the Attorney General asserts that the potential
impact of the allocation issue was "expressly addressed" in the Order, and,
thus, that the Order was not silent on the issue (Objection at 2-3). The
Attorney General further argues that the Department's "express finding" that the
Petitioners' incremental cost approach is not an acceptable method for pricing
affiliate transactions "leaves no interpretation that the Companies' proposed
incremental methodology can be used for any purposes, including on an interim
basis, during the rate freeze period" (ID. at 3, emphasis in original, CITING
the Order at 47). The Attorney General concludes that the Petitioners' issue is
not a proper subject for clarification in that they actually are requesting
reconsideration of a settled issue (ID. at 4).
II. STANDARD OF REVIEW
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Clarification of previously issued orders may be granted when an order
is silent as to the disposition of a specific issue requiring determination in
the order, or when the order contains language that is so ambiguous as to leave
doubt as to its meaning. BOSTON EDISON COMPANY, D.P.U. 92-1A-B at 4 (1993);
WHITINSVILLE WATER COMPANY, D.P.U. 89-67-A at 1-2 (1989). Clarification does not
involve reexamining the record for the purpose of substantively modifying a
decision. BOSTON EDISON COMPANY, D.P.U. 90-35-A at 3 (1992), CITING FITCHBURG
GAS & ELECTRIC LIGHT COMPANY, D.P.U. 18296/18297, at 2 (1976).
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(2)(...continued)
duplicated service by the movant on the intervenors; (3)
authoritative and timely disposition of the Motion would
clarify the terms of the transaction, whose outcome has been
awaited by Essex's workforce. Finally, as noted, the Motion
asked the Department to clarify our statements on an issue
unbriefed by the intervenors.
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D.T.E. 98-27-A Page 3
III. ANALYSIS AND FINDINGS
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In response to the Petitioners' Motion for Clarification, we first
assess whether the Department's Order was, in fact, silent on a cental issue and
whether that issue "requir[es] determination" in accordance with our standard of
review.(3) The Order analyzed the question of allocating common costs between
Eastern's subsidiary Boston Gas Company and its intended subsidiary Essex.
EASTERN-ESSEX ACQUISITION, D.T.E. 98-27, at 45-48. The Petitioners had proposed
to allocate only incremental costs to Essex (Tr. 1, at 136-137). The Attorney
General is correct in noting that the Order directed the Petitioners to develop
and file a detailed method for allocating costs between Essex and Boston Gas.
But the Order was silent on the question of uses to which that directed filing
would be put. Therefore, clarification is warranted.
Silence on this question carried no particular implication but could, at
least theoretically, give rise to an inference that would negate the "explicitly
recognized" opportunity, EASTERN-ESSEX ACQUISITION, D.T.E. 98-27, at 14,
accorded to Eastern to recover merger-related costs through synergistic
cost-saving measures. Despite the Order's silence, the issue was expressly
presented to the Department during the proceeding and is not newly raised by the
movants. The Motion, at 5 CITING Tr. 3 at 61-62, points to testimony of one of
the Petitioners' witnesses, showing that question of deferred use of any
required allocation between Boston Gas and Essex was of record and thus within
the Department's contemplation, even if unexpressed, is issuing its Order.
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(3) In response to the Attorney General's argument that the
Petitioners' Motion is a request for reconsideration, the
Department finds that the issue raised in the Motion is not
one previously decided. The issue is one on which the
Department was silent.
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D.T.E. 98-27-A Page 4
The matter the Petitioners raise "requir[es] determination" under our
standard of review, because the Order was silent as to the disposition of the
issue. Although contradicted by the Order's express findings, overall policy,
and general tenor, such an inference needs to be directly dealt with now, before
the acquirer, Eastern, can fairly be expected to incur the certain and
substantial economic costs of completing the transaction. The Department
reaffirms its explicit recognition of Eastern's opportunity to recoup merger
costs over the period of the Rate Plan through allocation of expected
productivity gains to shareholders. EASTERN-ESSEX ACQUISITION, D.T.E. 98-27, at
14 and 70. The required allocation filing will give the Department insight into
how synergies would result and how savings could be captured for the benefit of
both Boston Gas and Essex ratepayers after the end date of the Rate Plan. ID. At
47.
Accordingly, notwithstanding the requirement, appearing in Section IV.
E.2 of the Order, ID., at 46-48, that the Petitioners "develop a cost allocation
system for transactions between Boston Gas and Essex consistent with Department
precedent" and file it with the Department, the allocation of such common costs
will not be used by the Department for purposes of setting rates for Boston Gas
during the ten-year duration of Essex's Rate Plan. SEE Motion at 8. This
clarification is necessary to remedy the Department's silence as to the
disposition of a specific issue requiring determination in the Order.
The Order also was silent on the appropriateness of the incremental
cost assignment method during the term of the Rate Plan. We have clarified above
that we will not use the cost allocation method directed by the Department,
EASTERN-ESSEX ACQUISITION, D.T.E. 98-27, at 47, for purposes of setting rates
for Boston Gas during the term of the Rate Plan. We also need to clarify that,
throughout the term of the Rate Plan, the Petitioners will assign to Essex all
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D.T.E. 98-27-A Page 5
incremental costs that Boston Gas incurs as a result of the merger. See Motion
at 7. As noted by the Petitioners, the incremental cost approach during the Rate
Plan is necessary to ensure that Boston Gas customers will be "held harmless."
ID. Moreover, this approach will ensure that Boston Gas will not subsidize Essex
customers, and will still allow merger savings to be allocated to shareholders.
EASTERN-ESSEX ACQUISITION, D.T.E. 98-27, at 14. The incremental cost approach
will be supplanted at the end of the Rate Plan by the cost allocation approach
that the Petitioners were directed in the Order to develop, consistent with
then-applicable Department precedent.
IV. ORDER
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Accordingly, after due notice and consideration, the Department
GRANTS: The Petitioners' Motion for Clarification of the Department's
Order and the relief sought by that Motion; and
ORDERS: That the Department's Order of September 17, 1998, in EASTERN
ENTERPRISES AND ESSEX COUNTY GAS COMPANY, D.T.E. 98-27, be and hereby is
supplemented by, and clarified in accordance with, the terms set forth herein.
By Order of the Department,
/s/ Janet Gail Besser
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Janet Gail Besser, Chair
/s/ James Connelly
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James Connelly, Commissioner
/s/ W. Robert Keating
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W. Robert Keating, Commissioner
/s/ Paul B. Vasington
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Paul B. Vasington, Commissioner
/s/ Eugene J. Sullivan, Jr. (jc)
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Eugene J. Sullivan, Jr, Commissioner
A true copy
Attest:
/s/ Mary L. Cottrell
Mary L. Cottrell
Secretary
