SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
OCEAN STATE POWER OCEAN STATE POWER II
P.O. Box 561 P.O. Box 561
Harrisville, RI 02830 Harrisville, RI 02830
(Names of companies filing this statement
and addresses of principal executive offices)
EASTERN UTILITIES ASSOCIATES
and
NEW ENGLAND ELECTRIC SYSTEM
(Names of top registered holding company parents)
Jacek Makowski Kenneth M. Simon, Esquire
Chairman, Management Committees Peter E. Meier, Esquire
Ocean State Power Dickstein, Shapiro & Morin
Ocean State Power II 2101 L Street, N.W.
P.O. Box 561 Washington, D.C. 20037
Harrisville, RI 02830
(Names and addresses of agents for service)
Item 1. Description of the Proposed Transaction.
By this filing, Ocean State Power ("OSP") and Ocean State Power
II ("OSP II") (OSP and OSP II, collectively, the "Applicants")
seek authorization from the Securities and Exchange Commission
(the "Commission") under the Public Utility Holding Company Act
of 1935, as amended (the "Act"), to enter into financing
arrangements (the "Financing") pursuant to which Applicants may
borrow up to $25,000,000 aggregate principal amount of secured
revolving debt (the "Revolver") by issuing notes (the "Revolver
Notes") with maturities not in excess of ten (10) years from the
date of initial borrowing of the Revolver (including
reborrowings, renewals, replacements and extensions). The
Applicants are also requesting an exemption from the competitive
bidding requirements of Rule 50 in connection with the proposed
Financing pursuant to Rule 50(a)(2). The Applicants propose to
use the proceeds from the Revolver to fund capital expenditures,
to pay transaction costs and other costs in connection with the
Financing, and to provide liquidity in general.
A. Background
OSP and OSP II are each Rhode Island general partnerships.*1
Each of OSP and OSP II are subsidiaries of both EUA-OSC and
Resources, and indirect subsidiaries of both Eastern Utilities
Associates ("EUA") and New England Electric System ("NEES").
EUA and NEES are registered holding companies and the parents of
EUA-OSC and Resources, respectively.
OSP is the owner of the first 250 MW unit ("Unit 1") of a two
unit, 500 MW combined cycle electric generating facility located
at Burrillville, Rhode Island (the "Site"). OSP II is the owner
of the second 250 MW unit ("Unit 2") (Unit 1 and Unit 2,
collectively, the "Facility"). Unit 1 began commercial
operation in December 1990, and Unit 2 began commercial
operation in October 1991.
OSP and OSP II have each entered into unit power agreements
(collectively, the "Unit Power Agreements") under which OSP and
OSP II have agreed to sell the capacity and corresponding energy
of Unit 1 and Unit 2, respectively, to Boston Edison Company
(23.5% of each Unit); New England Power Company, a subsidiary of
NEES (48.5% of each unit); Montaup Electric Company, a
subsidiary of EUA (22% of each Unit); and Newport Electric
Corporation, a subsidiary of EUA (6% of each Unit)
(collectively, the "Power Purchasers").
By order dated December 23, 1988 (HCAR No. 24790) in File No.
70-7540 ("Order 7540"), the Commission approved the construction
and term financing for Unit 1 and certain related transactions,
including the conveyance of the interconnection facilities
constructed by OSP to Blackstone Valley Electric Company
("Blackstone") on the date of commencement of commercial
operations (the "Commercial Date") of OSP pursuant to an
interconnection agreement (the "Interconnection Agreement"). By
order dated September 28, 1989 (HCAR No. 24960) in File No.
70-7630 ("Order 7630"), the Commission approved the construction
and term financing for Unit 2 and certain related transactions,
including the amendment of the Interconnection Agreement in
order to add OSP II as a party to that Agreement for certain
purposes. By order dated October 2, 1992 (HCAR No. 25645) in
File No. 70-7893 ("Order 7893"), the Commission approved the
refinancing of the construction and term financing for Unit 1
and Unit 2 and certain related transactions (the "Construction
Loan Refinancing"), including the creation by OSP and OSP II of
a finance subsidiary, OSP Finance Company ("OSP Finance
Company").
B. Proposed Transaction
1. The Revolver Notes
The Applicants propose to issue one or more Revolver Notes to
evidence debt incurred under a revolving line of credit to be
established with one or more lending institutions (collectively
the "Lender"). The Revolver Notes will be issued in an
aggregate principal amount of up to $25,000,000 with the
maturity date not to exceed ten (10) years from the date of
borrowing under the Revolver (the "Final Maturity"), subject to
reborrowing, renewal or extension as described below. The
Revolver Notes will be issued pursuant to a loan agreement (the
"Revolver Loan Agreement") between the Applicants and the
Lender. The proceeds of the Revolver Notes will be used to fund
capital expenditures, to pay transaction costs and other costs
in connection with the Financing, and to provide liquidity in
general.
The Revolver Notes will bear interest at a floating rate not to
exceed the then current market rate for revolving debt of
comparable issuers. The Revolver Notes may be prepaid in whole
or in part by the Applicants at any time prior to the Final
Maturity date without premium or penalty. The principal amount
of optional prepayments may be re-borrowed by the Applicants at
any time prior to the Final Maturity date. The Revolver Notes
may be subject to mandatory prepayment, without penalty or
premium, upon the occurrence of certain loss events, which
prepayment obligation may be limited in certain situations. The
Revolver Notes may be renewed, replaced, or extended for
additional periods (as so renewed, replaced or extended, the
"Renewed Revolver Notes") pursuant to the terms of the Revolver
Loan Agreement, including any renewal, replacement or extension
of the Revolver Loan Agreement.
The obligations of the Applicants to the Lender under the
Revolver Notes will be secured, jointly and severally, under a
security agreement dated as of October 19, 1992, as amended,
among the Applicants and State Street Bank and Trust Company, as
collateral agent (the "Guarantor Security Agreement"), and all
of the collateral subject to the Guarantor Security Agreement
will be shared ratably and pari passu in right of security among
the Lender and the holders of the notes (the "Refinancing
Notes") issued in connection with the Construction Loan
Refinancing. In order to become entitled to the benefits of the
Guarantor Security Agreement, the Lender will execute a
supplement thereto (the "Guarantor Security Agreement
Supplement"). The Guarantor Security Agreement creates a
first-priority security assignment of the Applicants' interests
in the Unit Power Agreements subject only to the exclusive
security interest of Tennessee Gas Pipeline Company, a supplier
of gas transportation services to the Facility, in certain
components of the revenues received under the Unit Power
Agreements. As noted above, the Commission approved the terms
of the Refinancing, including the execution and delivery by the
Applicants of the Guarantor Security Agreement, in Order 7893.
2. Exemption from Competitive Bidding
The Applicants believe that they are exempt from the competitive
bidding requirements of Rule 50 by operation of subsection
(a)(2) thereof. The Revolver Notes will be debt of a maturity
not in excess of ten (10) years, will be issued to a commercial
bank, and will not be for resale to the public, and no finder's
fee or other fee, commission or remuneration will be paid in
connection therewith to any third party for negotiating the
transaction.
C. Reservation of Jurisdiction
Pursuant to Rule 24(c)(3), the Applicants request that the
Commission reserve jurisdiction over the exercise by the
Applicants of any right to replace, extend or renew the Revolver
Notes for additional periods in excess of an aggregate of ten
(10) years from the date of initial borrowing of the Revolver
pursuant to the Revolver Loan Agreement, including any renewal
or extension of the Revolver Loan Agreement, and the issuance of
the Renewed Revolver Notes in connection therewith. The
Applicants anticipate that the Renewed Revolver Notes will not
be issued until after the effective date of this
Application/Declaration. The Applicants will supplement this
filing in order to provide any further information required with
respect to the renewal or extension of the Revolver Loan
Agreement, if any, and the issuance of the Renewed Revolver
Notes, prior to renewal, replacement or extension for additional
periods in excess of an aggregate of ten (10) years.
Item 2. Fees, Commission and Expenses.
The Applicants will pay all costs, including legal fees incurred
by the Lender, in connection with the proposed Financing.
Exhibit G hereto is an estimate of fees.
Item 3. Applicable Statutory Provisions.
The proposed transaction is subject to the following provisions
of the Act and the Commission's Rules thereunder:
Sections 6(a), 7 and 12(c) of the Act and Rule 42 thereunder are
applicable to the issuance of the Revolver Notes pursuant to the
Revolver Note Agreement.
The Applicants are requesting an exemption from the competitive
bidding requirements of Rule 50 under subsection (a)(2) thereof
in connection with the proposed Financing.
The Applicants are requesting that the Commission, pursuant to
Rule 24(c)(3), reserve jurisdiction with respect to the issuance
of the Renewed Revolver Notes pursuant to the Revolver Loan
Agreement, as the Revolver Loan Agreement may be renewed,
replaced or extended.
Item 4. Regulatory Approvals.
The Rhode Island Division of Public Utilities and Carriers (the
"Division") has jurisdiction over the Applicants' execution of
the Revolver Loan Agreement and the issuance of the Revolver
Notes pursuant thereto. The proposed transaction will only be
consummated after receipt of the necessary Division approval and
after authorization by this Commission. No other federal or
state commission, other than the Commission, has jurisdiction
over the proposed transaction.
Item 5. Procedure.
The Applicants request that the Commission take action with
respect to this Application/Declaration without a hearing being
held. The Applicants (i) do not request a recommended decision
by a hearing officer, (ii) do not request a recommended decision
by any other responsible officer of the Commission, (iii) hereby
specify that the Division of Investment Management may assist in
the preparation of the Commission's decision, (iv) hereby
request that this Application/Declaration be noticed as promptly
as possible and (v) request that there be no 30-day waiting
period between the date of issuance of the Commission's order
and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements.
(a) Exhibits.
*A Form of Revolver Loan Agreement2
*B Form of Revolver Note
*C-1 Guarantor Security Agreement
*C-2 Guarantor Security Agreement Supplement
*D Form of Renewed Revolver Note
E-1 Application to Rhode Island Division of Public Utilities
and Carriers
OSP-1 to Exhibit E-1: Direct Testimony of Richard M. King, Jr.
OSP-2 to Exhibit E-1: Summary Term Sheet of Proposed Revolver
OSP-3 to Exhibit E-1: Present and Proforma Capital Structure
OSP-4 to Exhibit E-1: Orders of the Rhode Island Division of
Public Utilities and Carriers Approving Previous Financings of
OSP and OSP II. [The material contained in Exhibit OSP-4 to
Exhibit E-1 was previously filed with the Commission (1) on
September 22, 1989 as Exhibit D-2 in Commission File No.
70-7630, (2) on December 16, 1988 as Exhibit D-1 in File No.
70-7540, and (3) on July 30, 1992 as Exhibit D-2 in File No.
70-7893, and so is omitted herefrom.]
*E-2 Order of Rhode Island Division of Public Utilities and
Carriers
*E-3 Letter to Rhode Island Siting Board Regarding the Order of
Rhode Island Division of Public Utilities and Carriers
*F Opinion of Counsel
*G Schedule of Estimated Fees and Expenses
H Form of Notice
(b) Financial Statements.
*1-a Balance Sheet of OSP.
*1-b Statement of Income for OSP.
*2-a Balance Sheet of OSP II.
*2-b Statement of Income for OSP II.3
* To be filed by amendment
Financial statements of the Applicants' top registered holding
companies, EUA and NEES, are being omitted because they are not
considered necessary to the disposition of the transactions
contemplated herein.
Item 7. Information as to Environmental Effects.
The transactions proposed herein, and the requested action of
the Commission in respect thereof, do not involve a major
federal action significantly affecting the quality of the human
environment.
SIGNATURES
Pursuant to the requirement of the Public Utility Holding
Company Act of 1935, each of the undersigned has duly caused
this statement to be signed on their behalf by the undersigned
officers thereunto duly authorized as of this 21st day of
January, 1994.
Ocean State Power
By JMC Ocean State Corporation, a
general partner
By: /s/ Carlos A. Riva
Name: Carlos A. Riva
Title: President
Ocean State Power II
By JMC Ocean State Corporation,
a general partner
By: /s/ Carlos A. Riva
Name: Carlos A. Riva
Title: President
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS
DIVISION OF PUBLIC UTILITIES AND CARRIERS
APPLICATION FILING OF OCEAN STATE POWER AND OCEAN STATE POWER II
SEEKING APPROVAL UNDER RHODE ISLAND GENERAL LAWS SECTIONS
39-3-15 THROUGH 39-3-23 FOR REVOLVING CREDIT FACILITY Docket
No. D-93-______
A. Introduction
Ocean State Power ("OSP") and Ocean State Power II ("OSP II")
seek the approval of the Division of Public Utilities and
Carriers in connection with the establishment of a revolving
credit facility for use in connection with the operations by OSP
and OSP II of the Facility (as that term is hereinafter
defined). Under the transaction that is proposed, OSP and OSP II
will obtain from a commercial lending institution a credit
facility which will enable OSP and/or OSP II to borrow up to a
maximum of $25,000,000 on a revolving basis to fund capital
expenditures, to pay transaction costs and to provide liquidity
for the operation of the Facility. The repayment obligation to
the lender under the revolving credit facility will be the joint
and several obligation of OSP and OSP II.
B. Description of the Proposed Transaction
1. Background
OSP and OSP II are each Rhode Island general partnerships.1 OSP
is the owner of the first 250-megawatt unit ("Unit 1") of a
two-unit, 500-megawatt, combined-cycle natural gas-fired
electric generating facility (the "Facility") located in
Burrillville, Rhode Island. OSP II is the owner of the second
250-megawatt unit ("Unit 2"). Unit 1 began commercial operation
in December, 1990, and Unit 2 began commercial operation in
October, 1991.
OSP and OSP II have each entered into firm, "take or pay"
20-year unit power sale agreements (the "Power Sale
Agreements"), under which OSP and OSP II have agreed to sell the
capacity and corresponding energy of Unit 1 and Unit 2,
respectively, to Boston Edison Company (23.5% of each Unit),: to
New England Power Company (48.5% of each Unit); to Montaup
Electric Company (22.0% of each Unit); and to Newport Electric
Corporation (6% of each Unit).
2. Structure and Use of the Revolver
It is proposed that OSP and OSP II obtain from a commercial
bank or lending institution senior secured revolving debt in the
aggregate principal amount of up to $25,000,000. (hereinafter
referred to as the "Revolver"). Each of OSP and OSP II may
borrow under the Revolver, provided that the aggregate principal
amount of borrowings shall at no time exceed the maximum amount
of the Revolver. The repayment obligation under the Revolver
will be the joint and several obligation of OSP and OSP II. The
obligations of OSP and OSP II will be non-recourse as to the
Partners of OSP and OSP II and their respective officers,
directors, employees, parents, controlling persons and
affiliates.
The proceeds of the Revolver will be used by OSP and OSP II to
fund capital expenditures, to pay transaction costs and to
provide liquidity in general in connection with the operation of
the Facility.
The Revolver will have a final maturity date of seven (7) years
after the date of the initial borrowing under the Revolver.2
Principal borrowings under the Revolver will mature on the final
maturity date. Interest on principal borrowings under the
Revolver will bear interest at a rate not to exceed two percent
(2%) per annum plus the Base Rate in effect from time to time
or, at the option of OSP and OSP II, at a rate not to exceed
four and one-half percent (4.5%) per annum plus the Eurodollar
Rate in effect from time to time.3 Interest on Base Rate
borrowings (computed on the basis of a 365/366-day year) will be
payable monthly in arrears and at the final maturity date;
interest on Eurodollar borrowings (computed on the basis of a
360-day year) of less than three months will be payable on the
last day of the relevant interest period and at the final
maturity date; and interest on Eurodollar borrowings of greater
than three months shall be payable quarterly in arrears, at the
last day of the relevant interest period and at the final
maturity date. Borrowings under the Revolver may be prepaid and
reborrowed at any time by OSP and/or OSP II prior to the final
maturity date without penalty or premium.
OSP Finance Company ("OSPFC") was incorporated as a business
corporation on July 30, 1992 under the laws of the State of
Delaware. The voting stock of OSPFC is owned 50% by OSP and 50%
by OSP II. It was organized in connection with the refinancing
of the construction and term debt of OSP and OSP II. To secure
their joint and several guarantee of OSPFC's obligations under
the 1992 refinancing in the original aggregate principal amount
of $208,000,000, OSP and OSP II each granted a first-priority
security assignment of its interest in the Power Sale Agreements
to which either OSP or OSP II is a party, pursuant to that
certain Security Agreement dated as of October 19, 1992, as
amended, by and among OSP, OSP II and State Street Bank and
Trust Company as the Collateral Agent (the "Guarantor Security
Agreement"), subject only to the exclusive security interest of
Tennessee Gas Pipeline Company (a supplier of gas transportation
services to the Facility) in certain components of the revenues
received under the Power Sale Agreements. The obligations of OSP
and OSP II to the lender under the Revolver will also be secured
under the Guarantor Security Agreement, and all of the
collateral subject to the Guarantor Security Agreement will be
shared ratably and pari passu in right of security between the
lender providing the Revolver to OSP and OSP II and the holders
of the Senior Notes issued in 1992 by OSPFC in connection with
the construction and term debt refinancing. Such refinancing was
approved by the Division in Docket No. D-92-2 by Order No. 13988
on July 24, 1992, and that refinancing transaction was closed as
of October 19, 1992.
3. Requests for Financing Proposals
OSP and OSP II anticipate that they will request proposals for
the Revolver from not less than four (4) commercial banks or
financial institutions.
C. Conclusion
OSP and OSP II hereby request the approval of the Division to
enter into this proposed financial transaction (and future renewals,
extensions or replacements thereof), pursuant to R.I.G.L. Section 39-3-15
through 39-3-23. Additional detailed information about the proposed
financial transaction and in support of this request is attached hereto and
submitted herewith to the Division in accordance with the applicable
statutes and regulations.
Respectfully submitted,
OCEAN STATE POWER
Date: November , 1993 By:______________________
JACEK MAKOWSKI, Chairman
Management Committee*
P.O. Box 561
1575 Sherman Farm Road
Harrisville, Rhode Island 02830
(401) 568-9550
OCEAN STATE POWER II
Date: November , 1993 By:______________________
JACEK MAKOWSKI, Chairman
Management Committee*
P.O. Box 561
1575 Sherman Farm Road
Harrisville, R.I. 02830
(401) 568-9550
Attorneys for OSP and OSP II
PETER J. MCGINN
RICHARD A. SHERMAN
Tillinghast Collins & Graham
One Old Stone Square
Providence, Rhode Island 02903
(401) 456-1200
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
Sworn to and subscribed before me on this day of November, 1993.
_______________________
Notary Public
Commonwealth of Massachusetts
* Note: R.I.G.L. Section 39-3-17(a)(1) states that for applications
such as this, the statement filed by the public utility with the Division
shall be signed by the President of the corporation. However, since both
OSP and OSP II are Rhode Island general partnerships, there is no such
corporation president. Comparable authority rests with the Chairman of the
Management Committee of each partnership, whose signature appears above.
1
The investors in both partnerships and their respective
ownership and voting interests are identical. The partners of
both OSP and OSP II are: JMC Ocean State Power Corporation, a
subsidiary of J. Makowski Company, Inc.; TCPL Power Ltd., a
subsidiary of TransCanada PipeLines Limited; Narragansett Energy
Resources Company, a subsidiary of New England Electric System;
and EUA Ocean State Corporation, a subsidiary of Eastern
Utilities Associates. The partners of OSP and of OSP II are
referred to herein collectively as the "Partners."
2 By this application OSP and OSP II also seek the approval of
the Division for future renewals, extensions or replacements of
the original Revolver for additional periods on substantially
the same terms and conditions as the original Revolver.
3 Base Rate means the interest rate that U.S. banks announce
from time to time as their base rate; this rate is now
approximately six percent (6%). Eurodollar Rate means the
interest rate that international banks charge each other for
loans in Eurodollars (Eurodollars are U.S. dollars held in banks
outside the U.S.A.); this rate currently ranges from
approximately
3 1/16% to 3 7/16%. In general, the Base Rate is approximately
2.5% higher than the Eurodollar Rate.
Direct Testimony of Richard H. King, Jr.
Q. Please state your name and business address.
A. Richard H. King, Jr., One Bowdoin Square, Boston,
Massachusetts.
Q. By whom are you employed and in what capacity?
A. I work for J. Makowski Associates, Inc., the operating
subsidiary of J. Makowski Company, Inc. ("Makowski"), and my
title is Vice President, Finance.
Q. Please describe briefly your education and business
background.
A. I have a Bachelor of Arts degree from Middlebury College in
Vermont. I worked for approximately four years in the financial
services industry for the Bank of Boston. I joined Makowski in
1989.
Q. In your current position, what are your responsibilities?
A. I am involved in providing financial services and lender
relations assistance to various energy projects and companies in
which Makowski owns a partial or controlling interest, or for
which J. Makowski Management Corporation ("JMMC") or other
Makowski subsidiaries provide management services. In this case,
Makowski companies own an interest in both Ocean State Power
("OSP") and Ocean State Power II ("OSP II"), and JMMC manages
OSP and OSP II. Thus, I have been heavily involved in the
financings and ongoing loan administration for both OSP and OSP
II.
Q. Will you please provide a brief description of OSP and of OSP
II.
A. OSP is a Rhode Island general partnership formed to develop,
finance, build and operate Unit 1 of the 500-megawatt,
combined-cycle, natural gas-fired electric generating facility
in Burrillville, Rhode Island ("Facility"). OSP II is a Rhode
Island general partnership formed to develop, finance, build and
operate Unit 2 of the Facility. The general partners
("Partners") of each partnership are JMC Ocean State Power
Corporation, a Makowski subsidiary; TCPL Power Ltd., a
subsidiary of TransCanada PipeLines Limited; Narragansett Energy
Resources Company, a subsidiary of New England Electric System;
and EUA Ocean State Corporation, a subsidiary of Eastern
Utilities Associates.
Q. Will you please give a brief description of OSP Finance
Company ("OSPFC").
A. OSPFC is a corporation existing and organized under the laws
of the State of Delaware. OSP and OSP II each own 50% of the
issued and outstanding common stock of OSPFC. OSPFC was formed
to facilitate the refinancing in 1992 of the construction and
term debt of OSP and OSP II.
Q. What is the subject of your testimony?
A. OSP and OSP II are requesting the approval of the Division
under Sections 39-3-15 through 39-3-23 of the Rhode Island
General Laws for the proposed establishment of a revolving
credit facility for use in connection with the operations of OSP
and OSP II. Under the transaction that is proposed, OSP and OSP
II will obtain from a commercial lending institution a credit
facility of up to $25,000,000 which will enable them to borrow
on a revolving basis (hereinafter sometimes referred to as the
"Revolver") to fund capital expenditures, to pay transaction
costs and to provide liquidity for the operation of the
Facility. Each of OSP and OSP II will be able to borrow under
the Revolver, provided that the aggregate principal amount of
borrowings shall at no time exceed the maximum amount of the
Revolver. The repayment obligation to the lender under the
Revolver will be the joint and several obligation of OSP and OSP
II.
Q. What is the proposed use of the Revolver?
A. The proposed use of the Revolver is to fund capital
expenditures, to pay transaction costs associated with the
implementation of the Revolver, and to provide liquidity in
general for the operation of the Facility. The Revolver is
needed as a distinct source of cash for anticipated and
unanticipated capital expenditure requirements such as equipment
replacements or additions. OSP and OSP II do not have a source
of cash other than the cash flow generated from operations and
working capital cash (which is fully utilized over the course of
the monthly cash cycle to finance the timing differences in the
payment of operating expenses and the receipt of power sale
revenues).
OSP and OSP II expect to receive up to a seven-year commitment
from a commercial bank for the Revolver. OSP and OSP II would be
permitted to borrow and reborrow up to the maximum amount of the
Revolver throughout the term of this commitment. The Revolver is
not expected to have any scheduled repayment obligations prior
to the final maturity date. Nevertheless, OSP and OSP II expect
that they will choose to repay Revolver borrowings on an ongoing
basis to maintain an approximate 1:1 debt-to-equity ratio,
although they will not be required to do so.
OSP and OSP II expect that the actual manner in which funds
borrowed under the Revolver will be drawn and repaid will be
similar to the following example. The Revolver could be used to
fund the purchase of a $5,000,000 major part replacement. At
first, using the Revolver, OSP or OSP II would borrow the full
$5,000,000 amount of the capital expenditure. Over the
succeeding months, because OSP and OSP II intend to maintain an
approximate long-term debt-to-equity ratio of 1:1, distributions
to the Partners would be expected to be reduced and applied to
the Revolver balance until $2,500,000 of the borrowing has been
repaid. At that time, 50% of the funding for the capital
expenditure would have been financed with long-term debt and 50%
would have been funded with Partner equity. The remaining
$2,500,000 Revolver balance would be repaid with revenues
received in accordance with the cost-of-service provisions of
the Power Sale Agreements.
The Revolver financing structure offers the benefits of (i)
financing capital expenditures at a lower all-in rate than if
financed 100% by Partner equity, (ii) not impairing the
Facility's cash cycle by using cash which is needed for working
capital and (iii) providing immediate liquidity so as to
minimize any potential financial disruption to Facility
operations.
OSP and OSP II also desire to have the approval of the Division
to renew, extend the term or replace the Revolver after the
final maturity date set by the lender. It is expected that OSP
and OSP II will need the use of the Revolver for at least the
duration of the Power Sale Agreements and the firm natural gas
supply contracts (each of which is for a term of twenty (20)
years). Therefore, if the Division grants regulatory approval of
the original Revolver, it would appear efficient and reasonable
to extend such initial approval to any renewal, extension or
replacement of the original Revolver so long as the terms and
conditions of any such renewal, extension or replacement are
substantially the same as the terms and conditions of the
original Revolver.
Q. With regard to the planned transaction, what are some of the
key terms and provisions that are proposed?
A. As mentioned above, OSP and OSP II will obtain from a
commercial bank or lending institution revolving debt in an
aggregate principal amount not to exceed $25,000,000. The
repayment obligation under the Revolver will be the joint and
several obligation of OSP and OSP II. The obligations of OSP and
OSP II will be non-recourse as to the Partners of OSP and OSP II
and their respective officers, directors, employees, parents,
controlling persons and affiliates.
The Revolver is expected to have a final maturity date of seven
years after the date of the initial borrowing under the
Revolver. Principal borrowings under the Revolver will mature on
the final maturity date. Interest on principal borrowings under
the Revolver will bear interest at a rate not to exceed two
percent (2%) per annum plus the Base Rate in effect from time to
time or, at the option of OSP and OSP II, at a rate not to
exceed four and one-half percent (4.5%) per annum plus the
Eurodollar Rate in effect from time to time.1 Interest on Base
Rate borrowings (computed on the basis of a 365/366-day year)
will be payable monthly in arrears and at the final maturity
date. Interest on Eurodollar borrowings (computed on the basis
of a 360-day year) of less than three months will be payable on
the last day of the relevant interest period and at the final
maturity date; and interest on Eurodollar borrowings of greater
than three months shall be payable quarterly in arrears, at the
last day of the relevant interest period and at the final
maturity date. In the case of all borrowings which are prepaid,
interest will be payable on the date of prepayment.
Q. What form and type of security will be given by OSP and OSP
II in connection with the proposed transaction?
A. To secure their joint and several guarantee of OSPFC's
obligations under the 1992 refinancing in the original aggregate
principal amount of $208,000,000, OSP and OSP II each granted a
first-priority security assignment of its interest in the Power
Sale Agreements to which either OSP or OSP II is a party,
pursuant to that certain Security Agreement dated as of October
19, 1992, as amended, by and among OSP, OSP II and State Street
Bank and Trust Company as the Collateral Agent (the "Guarantor
Security Agreement"), subject only to the exclusive security
interest of Tennessee Gas Pipeline Company (a supplier of gas
transportation services to the Facility) in certain components
of the revenues received under the Power Sale Agreements. The
obligations of OSP and OSP II to the lender under the Revolver
will also be secured under the Guarantor Security Agreement, and
all of the collateral subject to the Guarantor Security
Agreement will be shared ratably and pari passu in right of
security between the commercial lender providing the Revolver to
OSP and OSP II and the holders of the Senior Notes issued in
1992 by OSPFC in connection with the construction and term debt
refinancing.
Q. Can you address whether the proposed transaction will have
any ratepayer impact in Rhode Island?
A. The implementation of the Revolver is expected to have a
positive impact on the ratepayer for the following reasons.
First, the total cost of capital under the Revolver is expected
to be less than the alternative financing methods considered by
OSP and OSP II, as more fully discussed below. Furthermore,
under the Revolver, it is anticipated that 50% of the cost of
capital expenditures will be ultimately funded with debt and 50%
will be ultimately funded with equity contributions from the
Partners. Since OSP and OSP II do not have a source of cash for
capital expenditures other than the cash flow generated from
operations and working capital cash, if debt financing were not
arranged, these expenditures would have to be 100% equity
financed by the Partners, which would require a higher all-in
rate of return than the proposed Revolver structure.
Secondly, establishing the Revolver will provide savings to the
ratepayer in terms of minimizing transaction costs for financing
various capital expenditures. The Revolver will be established
as a revolving credit facility with a term of up to seven years
which will be used repeatedly over its term for a number of
capital projects. Financing for each individual capital
expenditure is not expected to need to be arranged and will
result in savings of transaction costs.
Q. Are there any unusual features of the proposed transaction
which may have a significant impact on the Division's ability to
regulate OSP and OSP II?
A. No. The Division will retain its regulation over OSP and OSP
II under Section 39-3-15 and other authorities, subject as
before to any areas in which the Federal Energy Regulatory
Commission's ("FERC") authority preempts regulation at the state
level. In addition, OSP and OSP II will submit to the Division
post-closing copies of any documents from the proposed
transaction which might be classified as "affiliate agreements"
under Sections 39-3-27 and 39-3-28.
Q. From what other regulatory bodies are OSP and OSP II seeking
authorization for the proposed transaction?
A. OSP, OSP II and the parent companies of certain of the
Partners in the partnerships must obtain approval of the
proposed transaction from the Securities and Exchange Commission
("SEC") under the Public Utility Holding Company Act of 1935.
The SEC is expected to issue its required order after the
Division issues its decision.
Q. Do your preceding testimony, the application to the Division
from OSP and OSP II and the Summary Term Sheet attached as
Exhibit OSP-2 provide a summary of the proposed contents of the
transaction documents?
A. Yes, they do. The proposed transaction's closing documents
will eventually include Revolver Notes, a Revolver Loan
Agreement, a Supplement to Guarantor Security Agreement and
additional documentation as required.
Q. Can you also provide a summary of alternative structures,
terms and conditions to the proposed transaction?
A. Alternative structures to the proposed Revolver were
considered and were ultimately dismissed as they seemed to be
administratively burdensome, less flexible and more costly.
First, a one-year line of credit was considered, but it would
need to be renewed and renegotiated each year, and this process
would be expensive and time-consuming.
Second, a private placement was considered; however, the size
of the credit facility sought - up to $25,000,000 - is too small
to attract the interest of a sufficient number of financial
institutions to result in a price-competitive bid for the
Revolver. In addition, a typical private placement structure
would not provide the necessary flexibility to pay down and
reborrow funds.
Finally, soliciting bids from groups of banks in addition to
individual banks was considered; however, the size of the credit
facility sought is too small to allow for more than one bank to
generate sufficient return to result in a price-competitive bid
for the Revolver.
Q. Was Exhibit OSP-3 containing a Present and Proforma Capital
Structure presentation for both OSP and OSP II, showing the
effect of the proposed transaction, prepared by you or under
your supervision?
A. It was prepared under my supervision.
Q. In your opinion, will the proposed refinancing transaction
for OSP and OSP II be consistent with the public good and in the
best interests of the parties purchasing the power produced by
the Facility?
A. Yes, in my opinion the proposed transaction will be
consistent with the public good and is in the best interest of
the parties purchasing the power produced by the Facility. Q. Mr. King,
does this complete your prepared direct testimony in this matter?
A. Yes. it does.
Respectfully submitted,
Date: November , 1993 ___________________________
Richard H. King, Jr.
On behalf of Ocean State Power
and Ocean State Power II
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
Sworn to subscribed before me on this day of November,
1993.
___________________________
Notary Public
Commonwealth of Massachusetts
1 Base Rate means the interest rate that U.S. banks announce
from time to time as their base rate; this rate is now
approximately six percent (6%). Eurodollar Rate means the
interest rate that international banks charge each other for
loans in Eurodollars (Eurodollars are U.S. dollars held in banks
outside the U.S.A.); this rate currently ranges from
approximately
3 1/16% to 3 7/16%.
OCEAN STATE POWER AND OCEAN STATE POWER II
REVOLVER
FINANCING TERMS AND CONDITIONS
The principal terms and conditions of the Revolver are outlined
below. It is anticipated that the definitive documentation for
the Revolver will incorporate additional provisions customary for
debt issuances in the commercial bank market.
Revolver Borrowers: Ocean State Power and Ocean State Power II,
Rhode Island general partnerships ("OSP" and "OSP II",
respectively, and collectively the "Revolver Borrowers").
Defined Terms: Capitalized terms used but not defined herein
shall have the meanings set forth in the Note and Guaranty
Agreement dated as of October 19, 1992 among OSP Finance Company
(a Delaware Corporation owned 50% each by OSP and OSP II), OSP and
OSP II (the "Note Agreement").
Debt Offered: $25,000,000 aggregate principal amount of secured
revolving debt (the "Revolver").
Each Revolver Borrower may make borrowings under the
Revolver, to be evidenced by a promissory note of each Revolver
Borrower, provided that the aggregate principal amount of
borrowings shall at no time exceed $25,000,000.
The obligations of the Revolver Borrowers shall be joint and
several, but non recourse as to their partners and their
respective officers, employees, parents or affiliates.
Use of Proceeds: The proceeds of the Revolver will be used by
the Revolver Borrowers, respectively, to fund capital
expenditures, to pay transaction costs, and to provide liquidity
in general.
The Facility: A two-unit, 500 megawatt, combined-cycle, natural
gas-fired electric power plant owned by the Revolver Borrowers and
located in Burrillville, Rhode Island. Each Revolver Borrower
owns and operates one unit of the Facility.
Interest: Interest on principal borrowings under the Revolver
shall bear interest at a rate of [___]% per annum plus the Base
Rate (to be defined) in effect from time to time or, at the option
of the Revolver Borrowers, at a rate of [___]% per annum plus the
Eurodollar Rate (to be defined) in effect from time to time.
Interest on Base Rate borrowings shall be computed on the basis of
a 365/366-day year and interest on Eurodollar Rate borrowings
shall be computed on the basis of a 360-day year. For Base Rate
borrowings, interest shall be payable monthly in arrears and at
Final Maturity. For Eurodollar borrowings of three months or
less, interest shall be payable on the last day of the relevant
interest period and at Final Maturity. For Eurodollar borrowings
of greater than three months, interest shall be payable quarterly
in arrears, on the last day of the relevant interest period and at
Final Maturity. In the case of all borrowings which are prepaid,
interest shall be payable on the date of such prepayment.
Final Maturity: 7 years from date of initial borrowing under
Revolver.
Amortization: Principal borrowings under the Revolver shall
mature and be due and payable by the Revolver Borrowers, without
premium or penalty, on the date of Final Maturity.
Optional Prepayments: Borrowings under the Revolver may be
prepaid, in whole or in part, by the Revolver Borrowers at any
time prior to the Final Maturity date without premium or penalty.
The principal amount of optional prepayments may be re-borrowed by
the Revolver Borrowers at any time prior to the Final Maturity
date.
Unit Power Agreements: The following utilities (the "Power
Purchasers") have agreed to purchase power produced by the
Facility on a firm "take or pay" basis for terms of 20 years from
each unit's respective date of operation under certain power
purchase contracts (collectively, the "Unit Power Agreements") :
Purchaser Percent
New England Power Company 48.5%
Boston Edison Company 23.5%
Montaup Electric Company 22.0%
Newport Electric Corporation 6.0%
Credit Support/
Collateral Security: To secure its joint and several guarantee of
OSP Finance Company's obligations under the Notes issued pursuant
to the Note Agreement in the original aggregate principal amount
of $208,000,000, each Revolver Borrower has made a first-priority
security assignment of its interest in the Unit Power Agreements
to which such Revolver Borrower is a party pursuant to a security
agreement dated as of October 19, 1992, as amended, among OSP and
OSP II and State Street Bank and Trust Company, as collateral
agent (the "Guarantor Security Agreement"), subject only to the
exclusive security interest of Tennessee Gas Pipeline Company, a
supplier of gas transportation services to the Facility, in
certain components of the revenues received under the Unit Power
Agreements. The obligations of the Revolver Borrowers to the
lender under the Revolver will also be secured under the Guarantor
Security Agreement, and all of the collateral subject to the
Guarantor Security Agreement shall be shared ratably and pari
passu in right of security among the Holders of the Notes issued
pursuant to the Note Agreement and the lender under the Revolver.
In order to become entitled to the benefits of the Guarantor
Security Agreement, such lender shall execute a supplement
thereto.
Collateral Agent: State Street Bank and Trust Company.
Conditions;
Representations and
Warranties; Covenants: Usual and customary provisions for a
revolving loan agreement of this type, which shall be generally
comparable to like provisions in the Note Agreement.
Governing Law: New York (Rhode Island for Security Agreements).
<TABLE>
OCEAN STATE POWER
PRO FORMA BALANCE SHEET
<CAPTION>
<S> <C> <C> <C>
PROJ'D DEC 30
PRIOR TO REVOLV ADJUSTMENTS (A) PRO FORMA
--------------- --------------- ---------------
ELECTRIC PLANT $231,300,000 $0 $231,300,000
LESS ACCUMULATED DEP $34,100,000 $0 $34,100,000
--------------- --------------- ---------------
NET ELEC PLAN IN PROCESS $197,200,000 $0 $197,200,000
--------------- --------------- ---------------
CURRENT ASSETS
CASH SITE FUND $600,000 $0 $600,000
RECEIVABLES $17,200,000 $0 $17,200,000
FUEL INVENTORY $1,500,000 $0 $1,500,000
SPARE PARTS $3,200,000 $0 $3,200,000
PREPAID EXPENSE $100,000 $0 $100,000
--------------- --------------- ---------------
$22,600,000 $0 $22,600,000
DEFERRED CHARGES AND OTHER ASSETS
PREPAID RENT $0 $0 $0
UNAMORTIZED DEBT EXPENSE $3,230,000 $125,000 $3,355,000
SITE RESTORATION FUND $1,970,000 $0 $1,970,000
OTHER $200,000 $0 $200,000
--------------- --------------- ---------------
$5,400,000 $125,000 $5,525,000
--------------- --------------- ---------------
TOTAL ASSETS $225,200,000 $125,000 $225,325,000
=============== =============== ===============
</TABLE>
<TABLE>
<S> <C> <C> <C>
PROJ'D DEC 30
PRIOR TO REVOLV ADJUSTMENTS (A) PRO FORMA
--------------- --------------- ---------------
CAPITALIZATION
PARTNERS CAPITAL $96,840,000 $0 $96,840,000
LONG-TERM DEBT $98,000,000 $0 $98,000,000
REVOLVER $0 $125,000 $125,000
--------------- --------------- ---------------
$194,840,000 $125,000 $194,965,000
--------------- --------------- ---------------
CURRENT LIABILITIES
CURRENT MAT OF LONG-TERM DEBT $6,000,000 $0 $6,000,000
ACCRUED INTEREST ON DEBT $350,000 $0 $350,000
CURRENT PAYABLES $6,000,000 $0 $6,000,000
--------------- --------------- ---------------
$12,350,000 $0 $12,350,000
--------------- --------------- ---------------
RESERVES AND DEFERRED CREDITS
DEFERRED FED INCOME TAXES $8,100,000 $0 $8,100,000
UNAMORTIZED ITC $6,600,000 $0 $6,600,000
SITE RESTORATION $1,970,000 $0 $1,970,000
DEFERRED REVENUE $0 $0 $0
DEFERRED RENT REVENUE $1,340,000 $0 $1,340,000
--------------- --------------- ---------------
$18,010,000 $0 $18,010,000
--------------- --------------- ---------------
TOTAL PARTNERS CAP AND LIAB $225,200,000 $125,000 $225,325,000
=============== =============== ===============
</TABLE>
___ __________________________
(A) Adjustment of $125,000 represents OSP's 50% share of the estimated
transaction costs of $250,000 for implementing the Revolver. At the
time of the closing, no other Revolver borrowings are projected.
<TABLE>
OCEAN STATE POWER II
PRO FORMA BALANCE SHEET
<CAPTION>
<S> <C> <C> <C>
PROJ'D DEC 30
PRIOR TO REVOLV ADJUSTMENTS (A) PRO FORMA
--------------- --------------- ---------------
ELECTRIC PLANT $175,600,000 $0 $175,600,000
LESS ACCUMULATED DEP $18,940,000 $0 $18,940,000
--------------- --------------- ---------------
NET ELEC PLAN IN PROCESS $156,660,000 $0 $156,660,000
--------------- --------------- ---------------
CURRENT ASSETS
CASH SITE FUND $600,000 $0 $600,000
RECEIVABLES $18,500,000 $0 $18,500,000
FUEL INVENTORY $1,500,000 $0 $1,500,000
SPARE PARTS $3,200,000 $0 $3,200,000
PREPAID EXPENSE $100,000 $0 $100,000
--------------- --------------- ---------------
$23,900,000 $0 $23,900,000
DEFERRED CHARGES AND OTHER ASSETS
PREPAID RENT $1,340,000 $0 $1,340,000
UNAMORTIZED DEBT EXPENSE $3,320,000 $125,000 $3,445,000
SITE RESTORATION FUND $1,460,000 $0 $1,460,000
OTHER $50,000 $0 $50,000
--------------- --------------- ---------------
$6,170,000 $125,000 $6,295,000
--------------- --------------- ---------------
TOTAL ASSETS $186,730,000 $125,000 $186,855,000
=============== =============== ===============
</TABLE>
<TABLE>
<S> <C> <C> <C>
PROJ'D DEC 30
PRIOR TO REVOLV ADJUSTMENTS (A) PRO FORMA
--------------- --------------- ---------------
CAPITALIZATION
PARTNERS CAPITAL $85,530,000 $0 $85,530,000
LONG-TERM DEBT $84,000,000 $0 $84,000,000
REVOLVER $0 $125,000 $125,000
--------------- --------------- ---------------
$169,530,000 $125,000 $169,655,000
--------------- --------------- ---------------
CURRENT LIABILITIES
CURRENT MAT OF LONG-TERM DEBT $5,140,000 $0 $5,140,000
ACCRUED INTEREST ON DEBT $300,000 $0 $300,000
CURRENT PAYABLES $6,600,000 $0 $6,600,000
--------------- --------------- ---------------
$12,040,000 $0 $12,040,000
--------------- --------------- ---------------
RESERVES AND DEFERRED CREDITS
DEFERRED FED INCOME TAXES $3,700,000 $0 $3,700,000
UNAMORTIZED ITC $0 $0 $0
SITE RESTORATION $1,460,000 $0 $1,460,000
DEFERRED REVENUE $0 $0 $0
DEFERRED RENT REVENUE $0 $0 $0
--------------- --------------- ---------------
$5,160,000 $0 $5,160,000
--------------- --------------- ---------------
TOTAL PARTNERS CAP AND LIAB $186,730,000 $125,000 $186,855,000
=============== =============== ===============
</TABLE>
___ __________________________
(A) Adjustment of $125,000 represents OSP II's 50% share of the estimated
transaction costs of $250,000 for implementing the Revolver. At the
time of the closing, no other Revolver borrowings are projected.
EXHIBIT LIST
OSP - 1 Direct Testimony of Richard H. King, Jr.
OSP - 2 Summary Term Sheet of Proposed Revolver
OSP - 3 Present and Proforma Capital Structure
OSP - 4 Orders of the Division Approving Previous
Financings of OSP and OSP II
EXHIBIT H
PROPOSED FORM OF NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- , 70- )
OCEAN STATE POWER
OCEAN STATE POWER II
Ocean State Power ("OSP") and Ocean State Power II ("OSP II,"
and OSP and OSP II, collectively, the "Applicants"), both at
P.O. Box 561, Harrisville, RI 02830, each indirect subsidiaries
of both Eastern Utilities Associates ("EUA") and New England
Electric System ("NEES"), registered holding companies, have
filed an application-declaration under sections 6(a), 7 and
12(c) of the Public Utility Holding Company Act of 1935 (the
"Act") and Rules 42 and 50 thereunder.
The Applicants propose to enter into financing arrangements (the
"Financing") pursuant to which the Applicants may borrow up to
$25,000,000 aggregate principal amount of secured revolving debt
(the "Revolver") by issuing notes (the "Revolver Notes") with
maturities not in excess of ten (10) years from the date of
initial borrowing of the Revolver (including reborrowings,
renewals, replacements and extensions). The Applicants propose
to use the proceeds from the Revolver to fund capital
expenditures, to pay transaction costs and other costs in
connection with the Financing, and to provide liquidity in
general.
The obligations of the Applicants under the Revolver Notes will
be secured, jointly and severally, under a security agreement
dated as of October 19, 1992, as amended, among the Applicants
and State Street Bank and Trust Company, as collateral agent
(the "Guarantor Security Agreement"). All of the collateral
subject to the Guarantor Security Agreement will be shared
ratably and pari passu in right of security among one or more
lending institutions (collectively the "Lender") and the holders
of the notes (the "Refinancing Notes") issued in connection with
the refinancing of the construction and term financing of the
two units of a 500 MW combined cycle electric generating
facility owned by the Applicants. In order to become entitled
to the benefits of the Guarantor Security Agreement, the Lender
will execute a supplement thereto (the "Guarantor Security
Agreement Supplement"). The Guarantor Security Agreement
creates a first-priority security assignment of the Applicants'
interests in their respective unit power agreements subject only
to the exclusive security interest of Tennessee Gas Pipeline
Facility, in certain components of the revenues received under
their respective unit power agreements. The specific terms of
the financing are proposed to be determined by negotiation.
The Applicants request that they be granted an exemption from
the competitive bidding requirements of Rule 50 for the issuance
of the Revolver Notes by operation of subsection (a)(2) thereof.
The Applicants also request that the Commission reserve
jurisdiction pursuant to Rule 24(c)(3) with respect to any
renewal or extension of the Revolver Notes for additional
periods in excess of ten (10) years from the date of initial
borrowing of the Revolver.
NOTICE IS FURTHER GIVEN that any interested person may, not
later than , 1994, request in writing that a hearing be
held on such matter, stating the nature of his interest, the
reasons for such request, and the issues of fact or law raised
by said application/declaration which he desires to controvert;
or he may request that he be notified if the Commission should
order a hearing thereon. Any such request should be addressed:
Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. A copy of such request should be
served personally or by mail upon the applicant/declarant at the
above-stated address and proof-of-service (by affidavit or, in
case of an attorney at law, by certificate) should be filed with
the request. At any time after said date the
application/declaration, as filed or as it may be amended, may
be granted and permitted to become effective as provided in Rule
23 of the General Rules and Regulations promulgated under the
Act, or the Commission may grant exemption from such rules as
provided in Rules 20(a) and 100 thereof or take such other
action as it may deem appropriate. Persons who request a
hearing or advice as to whether a hearing is ordered will
receive any notices and orders issued in this matter, including
the date of the hearing (if ordered) and any postponements
thereof.
For the Commission, by the Division of Corporate Regulation,
pursuant to delegated authority.
1 * The investors in both partnerships, and their
respective ownership and voting interests, are identical. The
partners in OSP and OSP II are JMC Ocean State Corporation ("JMC
Ocean State"), a subsidiary of J. Makowski Company, Inc.
("JMC"), TCPL Power Ltd. ("TCPL Power"), a subsidiary of
TransCanada PipeLines Limited ("TransCanada"), Narragansett
Energy Resources Company ("Resources"), a subsidiary of New
England Electric System ("NEES"), and EUA Ocean State
Corporation ("EUA-OSC"), a subsidiary of Eastern Utilities
Associates ("EUA"). The partners in OSP and OSP II are referred
to collectively herein as the "Partners."
2 * To be filed by amendment.
3
