File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO
THE ACQUISITION OF A SUBSIDIARY IN CONNECTION WITH
THE PROVISION OF POWER MARKETING AND OTHER SERVICES
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
(Name of company filing this statement
and address of principal executive office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company parent of
applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, BOSTON, MASSACHUSETTS 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
ARTHUR I. ANDERSON, P.C.
McDermott, Will & Emery
75 State Street
Boston, MA 02109
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTION.
OVERVIEW OF APPLICATION/DECLARATION
Eastern Utilities Associates ("EUA"), a Massachusetts business trust
and a registered holding company under the Public Utility Holding Company
Act of 1935 ("Act") is filing this application-declaration with the
Securities and Exchange Commission ("Commission"). The Applicant seeks
Commission approval: (i) to acquire for a purchase price of One Thousand
Dollars ($1,000) 100 shares of common stock, $.01 par value, ("Shares") of
EUA Energy Services, Inc., a Massachusetts corporation ("Energy Services")
which has a 30% ownership interest in Duke/Louis Dreyfus (New England) LLC, a
Delaware limited liability company (the "LLC"); and (ii) to the extent not
exempted from prior Commission authorization to make capital contributions,
open account advances and/or short term loans bearing interest at EUA's
effective cost of borrowing to, and purchase additional capital stock from
Energy Services ("Investments") in an aggregate amount not to exceed
$3,000,000, plus provide further credit support for Energy Services or the
LLC in forms including, but not limited to, guarantees and other forms of
credit support in an aggregate amount with Investments not to exceed
$15,000,000. EUA also requests authorization for Energy Services from time
to time to the extent not exempted from prior Commission authorization (i)
to issue securities to EUA in connection with the Investments and (ii) to
make investments in and provide credit support to the LLC upon such terms
as it deems appropriate on the basis of the market conditions that exist
when such investments are made or credit support is furnished. EUA also
requests authorization for the LLC to issue securities to Energy Services
to the extent that such issuances are not exempted from prior Commission
authorization.
THE LLC
The LLC was formed with Duke/Louis Dreyfus L.L.C., a Nevada limited
liability company ("D/LD"), for the purpose of providing energy services to
customers in the New England states: Connecticut, Maine, Massachusetts,
New Hampshire, Rhode Island and Vermont (the "Territory"), including buying
and selling electric power and brokering purchases and sales of electric
power ("Power Marketing"); buying and selling fuel and brokering purchase
and sales of fuel ("Fuels Marketing"); and engineering, consulting,
financing, leasing, operations and maintenance services with respect to
equipment for the production of electricity or steam, efficiency services
and processes, and equipment retrofit (the "LLC Business"). The LLC in
appropriate circumstances will use options, puts, futures and other similar
transactions to offset the price risk of a purchase or sale of energy or
energy products by taking an opposite position to that purchase or sale and
may also determine to acquire or lease generating facilities in the future,
if the acquisition of such generation assets would not subject the LLC to
regulation as an electric utility subsidiary of EUA under the Act. Any
such acquisition of generating capacity will be effected in compliance with
Section 32 of the Act and the rules and regulations promulgated thereunder,
or such other provisions of the Act and the rules and regulations
promulgated thereunder as may be applicable.
Energy Services and D/LD (together, the "Members") are the only
Members of the LLC. The operating agreement for the LLC is filed as
Exhibit B-1 hereto (filed under claim of confidential treatment pursuant to
Rule 104). According to the terms of the operating agreement, the LLC will
terminate on December 6, 2025 unless sooner terminated in accordance with
the terms of the operating agreement.
The LLC will initially conduct its Power Marketing activities in the
wholesale energy markets in the Territory. The LLC will sell energy to
wholesale and retail customers to the extent permitted without becoming an
"electric utility company" or a "gas utility company" within the meaning of
the definitions of such terms in Sections 2(a)(3) and 2(a)(4) of the Act.
The business affairs of the LLC are to be managed by a six-person
Executive Committee (the "Committee"). D/LD is entitled to appoint four
members to the Committee and Energy Services is entitled to appoint two
members. Each member of the Committee will have one vote at Committee
meetings. A majority of the Committee members at which a quorum is present
shall govern the actions of the LLC, except for certain enumerated actions
which require the affirmative vote of at least one Committee member
appointed by Energy Services and except for certain reserve powers of the
Members.
The LLC will not initially engage in Power Marketing or Fuels
Marketing transactions with any of the utility company subsidiaries of EUA:
Montaup Electric Company, Blackstone Valley Electric Company, Eastern
Edison Company, and Newport Electric Corporation (collectively, the
"Utility Subsidiaries"). The LLC will not provide any goods or services to
the Utility Subsidiaries other than on a cost basis or on such other terms
as the Commission may hereafter authorize. The LLC, on the one hand, and the
associate companies in the EUA system (other than the Utility Subsidiaries
and EUA Service Corporation) on the other, may provide services to each other
at market prices or on terms no less favorable to the LLC or the associate
company than if the transaction had been entered into with an independent
third party. EUA Service and the LLC may provide goods or services to each
other on a cost basis.
The net profits of the LLC are to be divided in accordance with each
Member's percentage interest in the LLC.
A Member may not transfer, in whole or in part, its LLC interest,
except (i) to an affiliate with the consent of the other Member and (ii) to
the other Member upon an event of default as defined in the operating
agreement.
LEGAL ANALYSIS
EUA is of the opinion that the proposed activities of the LLC and
Energy Services are consistent with the requirements of Section 11(b) of
the Act for the following reasons:
Section 11(b)(1) of the Act limits the operations of a registered
holding company system to a single integrated public utility system, and to
such other businesses as are reasonably incidental, or economically
necessary or appropriate to the operations of such integrated public
utility system. Section 11(b)(1) further states that the Commission may
permit as reasonably incidental, or economically necessary or appropriate
to the operations of one or more integrated public utility systems the
retention of an interest in any business which the Commission shall find
necessary or appropriate in the public interest or for the protection of
investors or consumers and not detrimental to the proper functioning of
such system or systems.
The Commission has previously authorized activities similar to those
to be engaged in by the LLC. The Commission has authorized UNITIL
Corporation to establish an electric power brokering subsidiary (File No.
70-8074, Holding Company Act Release No. 25186 (May 24, 1993)) and more
recently has authorized a subsidiary of Northeast Utilities to engage in
Power Marketing in the New England states as well as in Delaware,
Pennsylvania, New Jersey, Maryland and New York (File No. 70-8641, Holding
Company Act Release No 70-8641 (August 18, 1995)). As noted above, the LLC
Business will be conducted in New England. The Commission has
recognized the uniqueness of New England for purposes of meeting the
requirements of Section 11(b)(1) of the Act because of the highly
integrated operations of the New England Power Pool. (See e.g., File No.
70-7287 Release No. 35-24273 (December 19, 1986) authorizing EUA to acquire
EUA Cogenex Corporation). Moreover, the fact that it would be possible for
the LLC to engage in Power Marketing without Commission authorization if
the LLC were to become an exempt wholesale generator ("EWG") within the
meaning of Section 32 of the Act, suggests that the Commission should allow
EUA to have an interest in a power marketer that does not also own an EWG.
A number of registered holding companies have received authorization from
the Federal Energy Regulatory Commission ("FERC") for an associate EWG to
engage in Power Marketing activities. See Entergy Power Marketing
Corporation, 73 FERC Section 61,063 (1995); Southern Energy Marketing, Inc.,
71 FERC Section 61,376 (1995), CNG Power Services Corporation, 69 FERC
Section 61,002 (1994).
FERC JURISDICTION: UTILITY STATUS UNDER THE ACT
LLC under FERC jurisdiction
Since the LLC will be engaging in the business of Power
Marketing, it will need to obtain the approval of FERC for market based
rates. In granting an order, FERC will consider whether there are any
likely opportunities for discriminatory practices favoring any affiliated
utility companies participating in the same markets as competitors who are
likely to be customers of the LLC. FERC may also impose conditions to guard
against such subsidization in granting an order. The interests of consumers
will thus be protected by this FERC oversight.
No utility company directly involved; LLC not a utility
company.
Neither the LLC nor any Member will be a utility company under
the Act. It is the belief of the applicant that the Commission's position
taken in the no-action letter, dated December 6, 1994, with respect to
Inter-Coast Power Marketing Co. ("Inter-Coast") would substantially apply
to the status of the LLC. In that letter, the Commission's Staff stated
that it would not recommend any enforcement action to the Commission under
the Act, including Section 2(a)(3) thereof, against Inter-Coast, which did
not intend to own or operate an electric power generating, distribution or
transmission facility, in the event it entered into contracts for the
purchase and resale of electric power and for transmission capacity in
connection with power marketing transactions. In effect, the Staff took
the position that Inter-Coast would not to be deemed an electric utility
company under the Act even though it was an affiliate of an electric
utility. (If the LLC were to own generation facilities that qualified for
EWG status, the LLC would not be a utility by virtue of the provisions of
Section 32 of the Act.)
ADDITIONAL REQUESTS FOR AUTHORIZATION
In addition to the requests for Commission authorization enumerated in
paragraph I above, EUA also requests authorization from the Commission to
the extent required under the Act for the transactions described in this
paragraph.
The source of the funds for Investments and credit support by EUA will
be short-term borrowings under the EUA System's existing bank lines of
credit, internally generated cash, and by repayment of the funds advanced
to Energy Services.
EUA proposes and hereby requests authorization to borrow funds through
the period ending December 31, 1999 through the issuance and sale of short-
term notes to banks ("Notes") in aggregate amounts outstanding at any one
time not to exceed $15 million. The Notes will be issued to banks and
renewed from time to time as funds are required prior to December 31, 1999
provided no Notes will mature after September 30, 2000.
Notes will be issued to banks pursuant to informal credit line
arrangements which provide for borrowings at a floating prime rate or at
available fixed money market rates. Notes will mature in not more than one
year from the date of issuance. Notes bearing interest at the floating
prime rate will be subject to prepayment at any time without premium.
Notes bearing interest at available money market rates, which in all cases
will be less than the prime rate at time of issuance, will not be
prepayable.
Credit lines with banks are subject in some cases to commitment fees.
The list of existing bank credit lines, applicable commitment fees and
effective cost of borrowings are set forth in Exhibit G hereto. The
existing bank credit lines expire at June 30, 1996 and their continued
availability is subject to continuing review by the banks involved. Bank
credit lines and arrangements may be increased or decreased or changed and
additional lines may be obtained from other banks not shown on the exhibit.
The existing credit line arrangements provide for borrowing at the
prime rate or money market rates together with a commitment fee equal to
3/16 of 1% multiplied by the line of credit.
EUA requests authorization for the LLC, on the one hand, and the
associate companies in the EUA system (other than the Utility Subsidiaries
and EUA Service Corporation), on the other, to provide services to each
other at market prices or on terms no less favorable to the LLC or the
associate company than if the transaction had been entered into with an
independent third party pursuant to an exception from the requirements of
Section 13(b) and Rule 90 and 91 thereunder.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
The fees, Commissions and expenses of the Applicant expected to be
paid or incurred, directly or indirectly, in connection with the
transactions described will be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
The sections of the Act and rules or exemptions thereunder that the
Applicant believes are or may be applicable to the transactions proposed
are set forth below:
Acquisition of Shares of Sections 9(a) and 10, Rule 45
and Investments in Energy Services
by EUA.
Investments by Energy Services in LLC Sections 9(a), 10, Rule 45
Provision of Services Sections 12(f), 13; Rules 90 and 91
by associate companies
of EUA and LLC to each other
Guaranty by EUA of obligations Section 12(b); Rule 45
of and credit support by EUA
to, Energy Services and the LLC
Guaranty of obligation of, Section 12(b); Rule 45
and credit support by Energy
Service to, LLC
Issuance of Notes by EUA to Sections 6 and 7, Rule 52
banks, of securities by
Energy Services to EUA, and
of securities by LLC to
Energy Services
To the extent that the proposed transactions are considered by the
Commission to require authorization, approval or exemption under any
Section of the Act or rules thereunder, other than those specifically
referred to above, request for such authorization, approval or exemption is
hereby made.
ITEM 4. REGULATORY APPROVALS.
No state Commission and no Federal Commission, other than FERC and the
Commission, has jurisdiction over the proposed transactions.
ITEM 5. PROCEDURE.
(a) In order to be in a position to carry out the proposed
transactions at the most advantageous time, the Applicant requests that the
Commission issue its order hereon on the earliest practical date.
(b) It is not considered necessary that there be a recommended
decision by a hearing officer or by any other responsible officer of the
Commission. The Office of Public Utility Regulation may assist in the
preparation of the decision of the Commission, and it is believed that a
thirty (30) day waiting period between the issuance of the order of the
Commission and the day on which the order is to become effective would not
be appropriate.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (* Filed herewith)
(** Confidential treatment requested pursuant to Rule 104(b))
(*** Incorporated by reference pursuant to Rule 22)
(a) Exhibits.
Exhibit A-1 Articles of Organization and by-laws of
Energy Services (to be filed by amendment).
Exhibit B-1** Operating Agreement.
Exhibit F Opinion of counsel (to be filed by
amendment).
Exhibit G*** EUA System Lines of Credit
(Exhibit G, File No. 70-8713)
Exhibit H* Proposed Form of Notice.
(b) Financial Statements.
To be filed by amendment.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The transactions described in Item 1. do not involve major federal
actions significantly affecting the quality of the human environment. No
Federal agency has prepared or is preparing an environmental impact
statement with respect to the proposed transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned Applicants have duly caused this statement to be
signed on their behalf by the undersigned duly authorized individuals.
EASTERN UTILITIES ASSOCIATES
By: /s/ Clifford J. Hebert, Jr.
Clifford J. Hebert, Jr.
Treasurer
Dated December 21, 1995
EXHIBIT B-1, OPERATING AGREEMENT, FILED WITH CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT G, EUA SYSTEM LINES OF CREDIT, INCORPORATED BY REFERENCE,
FILE 70-8713
(PROPOSED FORM OF NOTICE)
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- , 70- )
Eastern Utilities Associates ("EUA"), a registered holding
company, has filed a declaration with this Commission pursuant to
Sections 9(a), 10, 12(b), 12(f) and 13 of the Public Utility
Holding Company Act of 1935 (the "Act") and Rules 45(a), 90 and
91 promulgated thereunder.
To the extent not exempted from prior Commission
authorization, EUA seeks authorization from the Commission to
acquire the Shares for $1,000 from Energy Services, to make
Investments in Energy Services in an aggregate amount not to
exceed $3,000,000, plus provide further credit support for Energy
Services or the LLC in forms including, but not limited to
guarantees and other forms of credit support in an aggregate
amount with Investments not to exceed $15,000,000. To the extent
not exempted from prior Commission authorization, EUA also
requests authorization for Energy Services from time to time (i)
to issue securities to EUA in connection with the Investments and
(ii) to make investments in and provide credit support to the LLC
upon such terms as it deems appropriate on the basis of the
market conditions that exist when such investments are made or
credit support is furnished. EUA also requests authorization for
the LLC to issue securities to Energy Services to the extent that
such issuances are not exempted from prior Commission
authorization.
The source of the funds for Investments and credit support
by EUA will be short-term borrowings under the EUA System's
existing bank lines of credit, internally generated cash, and by
repayment of the funds advanced to Energy Services.
EUA proposes and hereby requests authorization to borrow
funds through the period ending December 31, 1999 through the
issuance and sale of short-term notes to banks ("Notes") in
aggregate amounts outstanding at any one time not to exceed $15
million. The Notes will be issued to banks and renewed from time
to time as funds are required prior to December 31, 1999 provided
no such notes will mature after September 30, 2000.
Notes will be issued to banks pursuant to informal credit
line arrangements which provide for borrowings at a floating
prime rate or at available fixed money market rates. Notes will
mature in not more than one year from the date of issuance.
Notes bearing interest at the floating prime rate will be subject
to prepayment at any time without premium. Notes bearing
interest at available money market rates, which in all cases will
be less than the prime rate at time of issuance, will not be
prepayable.
Credit lines with banks are subject in some cases to
commitment fees. The existing bank credit lines expire at June
30, 1996 and their continued availability is subject to
continuing review by the banks involved. Bank credit lines and
arrangements may be increased or decreased or changed and
additional lines may be obtained from other banks not shown on
the exhibit.
The existing credit line arrangements provide for borrowing
at the prime rate or money market rates together with a
commitment fee equal to 3/16 of 1% multiplied by the line of
credit.
EUA requests authorization for the LLC, on the one hand, and
the associate companies in the EUA system (other than Blackstone
Valley Electric Company, Eastern Edison Company, Newport Electric
Corporation, Montaup Electric Company (the "Utility Subsidiaries")
and EUA Service Corporation), on the other, to provide services to
each other at market prices or on terms no less favorable to the LLC
or the associate company than if the transaction had been entered
into with an independent third party pursuant to an exception from
the requirements of Section 13(b) and Rule 90 and 91 thereunder.
The LLC may provide goods or services at cost to EUA Service
Corporation and the Utility Subsidiaries. EUA Service may provide
goods or services to the LLC at cost.
NOTICE IS FURTHER GIVEN that any interested person may, not
later than _______________, 1996, 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 5th Street, N.W., Judiciary Plaza, 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.
Secretary
