Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
THE BERKSHIRE GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)
MASSACHUSETTS 04-1731220
(State of Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
115 Cheshire Road
Pittsfield, Massachusetts 01201
413-442-1511
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
-------------------
SCOTT S. ROBINSON, President
115 Cheshire Road, Pittsfield, Massachusetts 01201
(413) 442-1511
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
-------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [x]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
[ ] _______________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered per share offering price registration fee
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.50
par value................ 200,000 shares *$23.75 $4,750,000 $1,320.50
- - ----------------------------------------------------------------------------------------------------------
<FN>
<F*> Used only for the purpose of calculating the amount of the registration
fee pursuant to Rule 457(c), based upon the average of the reported bid
and asked prices of such securities on November 5, 1998.
</FN>
</TABLE>
PROSPECTUS
200,000 Shares
[Berkshire Gas Logo]
The Berkshire Gas Company
Common Stock
-------------------
All of the Shares of Common Stock being offered are being sold by the
Company. Our Common Stock is listed and traded on the NASDAQ National
Market System under the symbol "BGAS." The last reported sale price of the
Common Stock on the NASDAQ National Market System on November 9, 1998 was
$23.25 per share.
-------------------
All of the securities being offered will be sold through our Share Owner
Dividend Reinvestment and Stock Purchase Plan.
The price of these securities will be a percentage of the average of the
daily high and low sales prices for our Common Stock on the NASDAQ National
Market System, for the five consecutive trading days up to and including the
date of the purchase. (See the response to Question 11 - What will be the
price of the Common Stock purchased under the Plan? - on P.6)
-------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
-------------------
This Prospectus is dated November 10, 1998
The Berkshire Gas Company
115 Cheshire Road
Pittsfield, Massachusetts 01201
(413-442-1511)
Share Owner Dividend Reinvestment and Stock Purchase Plan
200,000 Shares
Common Stock, $2.50 Par Value
The Share Owner Dividend Reinvestment and Stock Purchase Plan (the
"Plan") of The Berkshire Gas Company (the "Company") provides holders of
record of Common Stock of the Company a simple and convenient method of
investing in additional shares of Common Stock of the Company.
Participants in the Plan may:
* automatically reinvest cash dividends on all or a portion of their
shares;
* make optional cash investments in the Company at any time, from a
minimum amount of $15.00 in any calendar month, to a maximum amount
of $5,000 in any calendar quarter; or
* reinvest their cash dividends and make optional cash investments in
the Company.
The price for shares purchased through the Plan shall be equal to 97%
of the average of the daily high and low sales prices for the Company's
Common Stock (as quoted in the NASDAQ National Market System) for the five
consecutive trading days prior to and including the date of purchase (the
"Average"). If the price of shares to be purchased under the Plan falls
below the book value of such shares, then the price for such shares shall be
equal to 100% of the Average.
Participants may not purchase shares of Common Stock through the Plan
if the price for such shares would be less than their par value.
The Company will not pay any underwriting discounts or commission in
connection with the sale of the Common Stock pursuant to the Plan. The
Company realizes proceeds from such sales equal to the sales price less
customary administrative and legal fees.
This Prospectus relates to authorized shares of Common Stock of the
Company registered under the Plan.
-------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this Prospectus is November 10, 1998.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or
any prospectus supplement is accurate as of any date other than the date on
the front of those documents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public
over the Internet at the SEC's web site at http://www.sec.gov. You may also
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Additional updating information with respect to the securities and the
Plan may be provided in the future to the Plan participants by means of
appendices to this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d)
of the Securities Exchange Act of 1934 until we sell all of the securities
or deregister all remaining unsold securities.
* The Company's Annual Report on Form 10-K for the year ended June
30, 1998, filed pursuant to the Securities Exchange Act of 1934
which contains, either directly or by incorporation by reference,
audited financial statements for the Company's most recent fiscal
year.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Cheryl M. Clark,
The Berkshire Gas Company,
115 Cheshire Road,
Pittsfield, Massachusetts 01201
Telephone: (413) 442-1511.
THE COMPANY
The Berkshire Gas Company is a public utility company incorporated in
Massachusetts in 1853. We are engaged primarily in the distribution, sale
and transportation of natural gas for residential, commercial and industrial
use, and also sell and lease gas-burning equipment and market liquefied
petroleum gas through our Berkshire Propane operations. We have also formed
a strategic marketing alliance with Conectiv/CNE, LLC to engage in energy
marketing activities. We provide natural gas service in nineteen
communities, including the cities of Pittsfield and North Adams, the towns
of Adams, Amherst, Great Barrington, Greenfield and Williamstown, and twelve
similar municipalities. While primarily residential in character, our
service territory also includes industrial, agricultural and educational
facilities and resort areas. Our utility business is subject to the
regulatory jurisdiction of the Massachusetts Department of
Telecommunications and Energy with respect to rates, adequacy of service,
issuance of securities, accounting and other matters.
THE OFFERING
We are offering 200,000 shares of the Company's Common Stock.
USE OF PROCEEDS
We cannot predict either the number of shares of Common Stock that
will ultimately be sold pursuant to the Plan or the prices at which such
shares will be sold. We intend to use the proceeds from any such sales from
time to time to purchase additional property, plant and equipment or to
repay temporary indebtedness incurred to finance such additions.
DESCRIPTION OF THE PLAN
The following is a description of the Plan presented in a question and
answer format.
Purpose
1. What is the purpose of the Plan?
The purpose of the Plan is to provide holders of record of Common
Stock of the Company a simple and convenient method of investing cash
dividends and optional cash payments in additional shares of Common Stock of
the Company. Also, because participants in the Plan will purchase shares
directly from us, we will receive funds needed for our corporate purposes
(see "Use of Proceeds" herein).
Advantages
2. What are the advantages of the Plan?
Participants in the Plan may:
* automatically reinvest cash dividends on all or a portion of their
shares;
* make optional cash investments in the Company at any time, from a
minimum amount of $15.00 in any calendar month, to a maximum amount
of $5,000.00 in any calendar quarter; or
* reinvest their cash dividends and make optional cash investments in
the Company.
The shares of Common Stock purchased on behalf of participants in the
Plan generally will be purchased at a discounted price, which price, and the
restrictions thereon, are more fully explained in the answer to Question 11
of this Prospectus.
Participants in the Plan will not pay any brokerage commissions,
service charges, or other expenses in connection with purchases under the
Plan. Since fractional shares, as well as full shares, may be credited to
participants' accounts, participants may fully invest funds. In addition,
dividends in respect of such fractional shares, as well as full shares, will
be credited to participants' accounts. Participants avoid the necessity for
safekeeping of stock certificates for shares credited to their accounts.
Regular statements of account simplify record keeping.
Plan Administration
3. Who administers the Plan for participants?
The Plan is administered by the Share Owner Dividend Reinvestment and
Stock Purchase Plan Committee (the "Committee") appointed by our Board of
Directors. The Committee shall determine the rights of the participants in
accordance with the Plan and interpret the Plan as it deems necessary or
desirable in connection with its operation. The Committee may adopt such
rules and regulations as it deems appropriate to promote the objectives of
the Plan. All correspondence with regard to the Plan, except communications
otherwise specified herein to be directed to the Agent referred to in
Question 4, should be addressed to The Berkshire Gas Company, Attention:
Secretary of the Share Owner Dividend Reinvestment and Stock Purchase Plan
Committee, 115 Cheshire Road, Pittsfield, Massachusetts 01201.
4. Who is the agent for the Plan participants?
The designated agent under the Plan is State Street Bank and Trust
Company (the "Agent"). The Agent will be responsible for investing
participants' funds and keeping continuous records of participants'
accounts. The Agent will send participants statements of account at least
quarterly and perform other duties for Plan participants as needed. All
authorization forms, optional cash payments, notices of withdrawal and other
communications with the Agent should be sent to:
State Street Bank and Trust Company
P.O. Box 8209
Boston, Massachusetts 02101-8209
If State Street Bank and Trust Company ceases to act as Agent under the
Plan, either the Company or the Committee will designate another agent.
Eligibility and Participation
5. Who is eligible to participate?
* All holders of record of ten or more shares of Common Stock of the
Company who are not employed by us;
* All of our employees who own of record one or more shares; and
* Shareholders of the Company who hold their shares in "street" name
may participate in the Plan through the Depository Trust Company.
(You should contact your broker for this service.) These
shareholders, however, may only reinvest dividends and may not use
optional cash payments for the purchase of shares through the Plan.
6. How may an eligible person join the Plan?
A shareholder may join the Plan at any time by signing an
"Authorization Form" and returning it to the Agent. Authorization Forms are
automatically sent to new shareholders or may be obtained upon request from
the Company at the address set forth in Question 3 or from the Agent at the
address set forth in Question 4. A shareholder may also join the Plan by
telephoning the Transfer Agent at 1-800-426-5523.
7. What does the Authorization Form provide?
The Authorization Form directs:
(a) us to pay to the Agent the cash dividends on all or a specified
portion of the shares of Common Stock in a participant's name and on all
shares credited to such participant's Plan account; and
(b) the Agent to use these cash dividends, together with any optional
cash payments made by the participant, to purchase shares of Common Stock
from us.
The Authorization Form provides for the purchase of shares through the
following investment options:
* Reinvest dividends on all of the shares held by a participant;
* Reinvest dividends on fewer than all of the shares held by a
participant and continue to receive cash dividends on the other
shares; or
* Invest by making optional payments at any time in any amount from a
minimum of $15.00 in any calendar month to a maximum aggregate of
$5,000.00 in any calendar quarter, whether or not dividends are
being reinvested.
A participant may change the investment option at any time by signing
a new Authorization Form and returning it to the Agent, or by telephone as
noted above in Question 6.
Cash dividends on shares credited to the participant's account under
the Plan are automatically reinvested in additional Common Stock.
8. When may a shareholder join the Plan?
A shareholder may enroll in the Plan at any time. The Authorization
Form or telephone request must be received by the Agent by the last day of
the month immediately preceding the month in which the next dividend is paid
in order to reinvest that dividend. If received after that date, the
shareholder's participation in the Plan will become effective on the next
dividend payment date. Dividends historically have been paid on the
fifteenth day of the months of January, April, July and October, but the
Company reserves the right to change its dividend payment dates at any time,
or to suspend dividend payments at any time.
For example, in order to invest a quarterly dividend payable on
October 15, 1998, a shareholder's Authorization Form must be received by the
Agent no later than September 30, 1998. If the Authorization Form is
received after September 30, 1998, the dividend payable on October 15, 1998
will be paid in cash and the shareholder's participation in dividend
reinvestment will commence on the next dividend payment date.
Cost to Participants
9. Are there any costs to the participants under the Plan?
We will pay all of the administration fees incurred in connection with
the Plan. Plan participants will not have to pay any brokerage fees or
transfer taxes when they purchase shares of Common Stock from us through the
Plan. However, participants will bear certain expenses upon their withdrawal
from the Plan or if we terminate the Plan (see Question 19).
Purchases
10. How many shares of Common Stock will the Agent purchase for
participants?
The number of shares to be purchased by the Agent for a particular
participant in the Plan will depend upon the amount of dividends to which
the participant is entitled, any optional cash payments made by the
participant, and the purchase price of the Common Stock. For a given
participant, the Agent will purchase that number of shares, including
fractional shares computed to four decimal places, equal to the total dollar
amount to be invested by that participant divided by the purchase price per
share of the Common Stock.
11. What will be the price of the Common Stock purchased under the Plan?
The price for shares purchased through the Plan shall be equal to 97%
of the average of the daily high and low sales prices for the Company's
Common Stock (as quoted in the NASDAQ National Market System) for the five
consecutive trading days prior to and including the date of purchase (or, in
the event that the NASDAQ National Market System is closed on the day of
purchase, for the five consecutive trading days immediately preceding the
date of purchase) (the "Average"). If the price of shares to be purchased
under the Plan falls below the book value of the shares, then the price
shall be equal to 100% of the Average. We will provide written notification
to Plan participants in the event we suspend the "discount" price.
Participants may not purchase shares of Common Stock through the Plan
if the price for a share would be less than the par value of such share,
currently $2.50.
Optional Cash Payments
12. How are optional cash payments made?
Optional cash payments may be made at any time, from a minimum amount
of $15 in any calendar month to a maximum of $5,000.00 in any calendar quarter.
Optional cash payments may be made in varying amounts and there is no
obligation to make regular optional cash payments. Checks or money orders
for optional cash payments must be made payable to State Street Bank and
Trust Company and mailed to the Agent at the address set forth herein under
Question 4.
13. When must optional cash payments be received by the Agent to be
invested?
Optional cash payments will be invested on the fifteenth of each
month, whether or not such date is a business day. Optional cash payments
must be received by the Agent no later than the fifteenth day of any month
in order to be invested that month. Optional cash payments received by the
Agent after the fifteenth of the month will be held for investment in the
following month.
YOU WILL NOT RECEIVE ANY INTEREST ON OPTIONAL CASH PAYMENTS
If you make an optional cash payment and then decide that you do not
want to make that investment, you must make a written request to the Agent
to return your optional cash payment and the Agent must receive this request
at least 48 hours prior to the next investment date for optional cash
payments. Otherwise, your optional cash payment will be invested in Common
Stock through the Plan.
Reports to Participants
14. What record will a participant have of his or her purchases?
Each participant (of record) in the Plan will receive from the Agent a
statement of account at least quarterly showing amounts invested, purchase
prices, shares purchased and other information for the preceding quarter and
the year-to-date. These statements are a participant's continuing record of
the cost of such participant's purchases and should be retained for income
tax purposes.
15. What other reports will participants receive?
Plan participants (of record) will receive the same communications
sent to every other holder of the Company's Common Stock, including our
Annual Report to Shareholders, a Notice of Annual Meeting of Shareholders
and Proxy Statement, a proxy, and income tax information forms reporting
dividends paid. Shareholders who hold their shares in street name may
request these reports from us or their broker.
Certificates for Shares
16. Will certificates be issued to participants for shares purchased under
the Plan?
Normally, participants will not receive certificates for Common Stock
purchased under the Plan. The participant's quarterly statement of account
will show the number of shares held in the participant's account under the
Plan. However, within five business days of receipt by the Agent of a
written request from a participant, certificates for any number of whole
shares credited to a participant's account under the Plan will be issued to
the participant. Any remaining full shares and any fractional share will
continue to be held in the participant's account. Certificates for
fractional shares will not be issued under any circumstances. The issuance
of certificates will not terminate the participant's continuation of the
Plan. Any request for the issuance of certificates to a participant should
be mailed to the Agent at the address set forth under Question 4.
Shares credited to the account of a participant in the Plan may not be
acceptable as collateral for loans. A participant who wishes to pledge such
shares should request that certificates for such shares be issued and
delivered to such participant.
17. In whose name will certificates be registered when issued to a
participant?
The certificates will be issued in the name under which the
participant's shares were registered upon enrolling in the Plan.
Withdrawal from the Plan
18. When may a participant withdraw from the Plan?
A participant may withdraw from the Plan at any time. If a notice of
withdrawal is received by the Agent at least ten days prior to the record
date for the next dividend, such dividend and all subsequent dividends will
be paid in cash to the withdrawing participant. If such notice of withdrawal
is received by the Agent subsequent to the date specified, such dividends
will be invested under the Plan for the participant's account. All
subsequent dividends will be paid in cash to the withdrawing participant.
Investment of any optional cash payments will be cancelled upon receipt by
the Agent of such notice of withdrawal at least 48 hours prior to an
investment date for optional cash payments, and any optional cash payments
received prior to such withdrawal date will be returned to the withdrawing
participant.
Any shareholder who has withdrawn from the Plan may re-enroll at any
time upon submission of an Authorization Form or telephone request to the
Transfer Agent, as provided under Question 6. Until such time, dividends
will be paid to such shareholder in cash.
19. How does a participant withdraw from the Plan?
In order to withdraw from the Plan, a participant must write to the
Agent at the address set forth under Question 4, notifying the Agent that
such participant is withdrawing from the Plan. The notice must also state
the participant's account number. To facilitate the withdrawal, the
participant may forward the bottom portion of such participant's most recent
quarterly account statement.
When a participant withdraws from the Plan, or upon termination of the
Plan by the Company, the Agent will cause a certificate or certificates for
the full shares credited to the participant's account to be issued and
delivered to the participant. The participant's interest in any fractional
share will be converted to cash using a share price equal to the average of
the daily high and low sales prices for the Company's Common Stock for the
five consecutive trading days ending on and including such date of
withdrawal. Upon withdrawal from the Plan, the participant may also request
in writing that some or all of the shares, both whole and fractional, held
in such participant's Plan account be sold. If the participant so requests,
the Agent will sell such shares and deliver to the participant the proceeds,
less a handling charge of 5% of the proceeds received from such sale or
$5.00 (whichever is less), and any broker's commissions and transfer taxes
payable.
Shares will be sold for the participant only upon the receipt by the
Agent of clear written instructions to sell at the prevailing market price
and the proper documents to effect the sale. Such documents include a stock
power, signed by the registered owner exactly as such owner's name appears
on the Agent's records, with signature guaranteed according to the Uniform
Commercial Code by a commercial bank that is a member of the Federal Deposit
Insurance Corporation or by a member firm of the New York, American, Boston,
Midwest or Pacific Stock Exchange (Medallion Guarantee). If the shares are
held of record in the name of a corporation, partnership, trust or other
fiduciary or if a record owner has died, the Agent may require certified and
current evidence of authority before accepting a request to sell shares
credited to a participant.
Voting Rights
20. How are participant's shares voted?
All shares owned by the participant, whether held by the shareholder
directly or by the Agent under the Plan for such shareholder's account, will
be aggregated for voting purposes. Each participant in the Plan will receive
a proxy indicating the total number of shares of Common Stock held by the
participant, including shares registered in such participant's name and
shares credited to such participant's account under the Plan.
Instruction forms for voting purposes will be forwarded to the
participant. Alternatively, a participant may vote the shares registered in
such participant's name and shares credited to such participant's Plan
account in person at meetings of the Company's shareholders.
Income Tax Information
21. What are the federal income tax consequences of participation in the
Plan?
a. General:
In general, participants in the Plan have the same federal income tax
obligations with respect to reinvested dividends as with dividends not
reinvested under the Plan. We understand that Participants are treated for
federal income tax purposes as having received, on the dividend payment
date, a dividend equal to the full amount of the cash dividend payable on
such date with respect to (1) shares of Common Stock held in the
participant's account under the Plan, and (2) shares of Common Stock owned
directly by the participant (the dividends from which may or may not be
reinvested under the Plan). This is required even though the reinvested
dividends are not actually received but are applied to the purchase of
additional shares.
To the extent that Plan participants purchase shares through the Plan
at a discount, for federal income tax purposes, such participants will be
deemed to have received income equal to the value of the additional shares,
or fraction thereof, purchased as a result of the discount.
The tax basis of shares purchased through the Plan is the purchase
price, before discount if any, per share of the stock on the investment
date. (See Question 11.) The holding period for shares purchased with
dividends or optional cash payments begins on the day after the applicable
date of investment.
A participant will not realize any taxable income upon receiving
certificates for whole shares, either upon request for certificates for
those shares or upon withdrawal from or termination of the Plan. However, a
participant may realize ordinary income or a capital gain or loss on any
cash payment that is made in settlement of a fractional share upon
withdrawal from or termination of the Plan. Ordinary income or capital gain
or loss may also be realized upon withdrawal from the Plan, when any or all
whole shares are sold by the participant. The amount of income, capital gain
or loss will be the difference between the amount received and the tax basis
for both the fractional and whole shares which are sold.
b. Tax Information Forms:
Following each tax year, the Company sends each participant a United
States Information Return (Form 1099 Div. B) reporting the taxable dividends
and the aggregate discount received by the participant for that tax year.
This form contains the information necessary for each participant to
complete the dividend income information on such participant's federal
income tax return. Generally, the amount in the box labeled "Total Dividends
For The Calendar Year" should be included on a participant's federal income
tax return as taxable income.
Tax consequences will vary depending on the special circumstances of
each participant (and for shares purchased between 1982 and 1985, where
taxes on reinvested dividends may have been deferred under then effective
law). For additional information and any questions regarding tax
consequences of participation in the Plan, participants should consult their
own tax advisors.
22. What provision is made for foreign shareholders whose dividends are
subject to United States' income tax withholdings?
In the case of those foreign shareholders whose dividends are subject
to United States' income tax withholding, the Agent will first deduct the
amount of such taxes and then apply the remaining amount of the
participant's dividend to the purchase of Common Stock. If such foreign
participants desire to invest the full amount of their dividends, they may
tender cash payments to the Agent equal to the amount of tax withheld. The
minimum optional cash payment requirement of $15.00 will be waived to
accommodate all payments, regardless of size, made by foreign shareholders
for this express purpose. Such payments will be invested for the foreign
shareholders for this express purpose. Such payments will be invested for
the foreign participants on the regular dividend investment date for all
participants if received by the Agent prior to that date. In addition,
foreign shareholders may make optional cash payments.
Miscellaneous
23. What are the responsibilities of the Agent and the Company under the
Plan?
Neither we nor the Agent will be liable for any act done in good faith
or for any good faith omission to act in administering the Plan including,
without limitation, any claim of liability arising out of failure to
terminate a participant's account upon such participant's death prior to
receipt of notice in writing of such death.
Participants should recognize that neither we nor the Agent can assure
them of a profit or protect them against a loss on the shares purchased by
participants under the Plan, nor guarantee the existence, frequency or
amount of any future dividends on the shares declared or paid by us.
24. May the Plan be changed or discontinued?
Although we hope that shareholder response will justify continuing the
Plan indefinitely, we reserve the right to modify, suspend or terminate the
plan at any time, specifically including, but not limited to the operation
of the 3% price discount referred to above. Notice of any such action will
be mailed to all participants at their address of record.
If we terminate the Plan:
* we will issue certificates for whole shares credited to a
participant's account under the Plan; and
* we will pay the participant, in cash, the value of any fractional
share credited to the participant's account, in lieu of issuing a
certificate for that fractional share.
* We reserve the right to interpret and regulate the Plan as may be
necessary, appropriate or desirable in connection with the
operation of the Plan.
25. What happens if a participant sells or transfers all the shares
registered to the participant?
If a participant sells or transfers all of the shares registered in
the participant's name:
* participation in the Plan will terminate automatically;
* certificates for whole shares credited to the former participant's
account under the Plan will be issued to the former participant;
and
* a cash payment will be made to the former participant for any
fractional share, in each case, as of the date of such transfer or
sale, in lieu of issuing a certificate to the former participant
for that fractional share.
DIVIDENDS ON COMMON STOCK
The following table sets forth the cash dividends declared and paid on
the Company's Common Stock for the periods shown:
<TABLE>
<CAPTION>
Dividend
Quarter Ended Per Share
------------- ---------
<S> <C>
March 31, 1996 $.275
June 30, 1996 $.28
September 30, 1996 $.28
December 31, 1996 $.28
March 31, 1997 $.28
June 30, 1997 $.285
September 30, 1997 $.285
December 31, 1997 $.285
March 31, 1998 $.285
June 30, 1998 $.29
September 30, 1998 $.29
</TABLE>
We intend to declare and pay dividends quarterly on our Common Stock,
but we can make no representations concerning the amount or frequency of
future dividends. The Board of Directors determines, from time to time,
whether to declare dividends in the light of the Company's earnings, cash
position and other relevant factors. Reference is made to "Description of
Common Stock" herein for information with respect to limitations on the
payment of dividends.
COMMON STOCK PRICE RANGE
Our Common Stock is traded on the NASDAQ National Market System. The
table below sets forth the high and low average of the bid and asked prices
for shares of our Common Stock, as reported by the National Quotation
Bureau, Incorporated, for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1996 $16.75 $15.00
June 30, 1996 $16.00 $14.75
September 30, 1996 $16.75 $14.88
December 31, 1996 $18.00 $15.25
March 31, 1997 $17.50 $15.25
June 30, 1997 $16.00 $15.00
September 30, 1997 $17.38 $15.25
December 31, 1997 $23.50 $16.25
March 31, 1998 $25.63 $21.50
June 30, 1998 $24.75 $21.63
September 30, 1998 $25.00 $19.50
</TABLE>
These quotations represent prices between dealers and do not include
retail markup, markdown or commission. They do not necessarily represent
actual transactions. On November 5, 1998, the daily high sales price was
$23.75 and the daily low sales price was $23.75.
DESCRIPTION OF COMMON STOCK
As of November 9, 1998, the capital stock of the Company consisted of
4,600,000 shares of Common Stock, $2.50 par value, of which 2,370,961 were
issued and outstanding, and 3,121 shares of Class A 4.8% Cumulative
Preferred Stock, $100 par value per share, were issued and outstanding.
The information set forth below is summarized from the Articles of
Organization, as amended, of the Company and the Indenture referred to
below, each as amended or supplemented from time to time, which either have
been previously filed with the Securities and Exchange Commission and are
incorporated herein by reference, or are filed herewith as exhibits. The
statements and descriptions contained in this Prospectus may not be complete
and are qualified in their entirety by reference to such exhibits.
Dividend Rights
The holders of Common Stock shall be entitled to receive such
dividends as may be declared by the Board of Directors subject to the
preferential rights of the holders of Preferred Stock to receive full
cumulative quarterly dividends at the rates set forth in the title of each
class and series thereof before any dividends are paid to the holders of
Common Stock.
Limitation on Payment of Dividends on Common Stock
The Company's charter provisions relating to its Preferred Stock and
the provisions of the Company's Indenture, as supplemented and amended,
securing the Company's outstanding First Mortgage Bonds impose certain
restrictions on the payment of cash dividends on, or repurchases of, Common
Stock. Under the most restrictive of these provisions $3,576,115 of retained
earnings was unrestricted at September 30, 1998.
Voting Rights
Except as provided by law or otherwise provided below, the holders of
Common Stock have the sole voting rights and are entitled to one vote for
each share held of record. In addition, holders of fractional shares are
permitted a vote equal to their fractional interest. The Company's Board of
Directors is classified into three classes. There are no cumulative voting
rights, which means that a majority of the Common Stock voting at any
election can elect the directors for the class whose term is then expiring.
The Company's Articles of Organization and By-laws contain provisions
specifying the vote necessary to take certain actions. The approval of a
business combination not approved by a two-thirds vote of the Board of
Directors requires a 75% vote of the Common shareholders. The approval of an
amendment removing or altering that provision or provisions concerning the
classification of directors, filling vacancies on the Board of Directors and
notice requirements for shareholder meetings also require a 75% vote of the
Common shareholders.
Charter Provisions That May Affect Attempts To Change Control Of The Company
The Company's Articles of Organization and By-Laws contain provisions
that may have the effect of delaying or deterring a change in control of the
Company by requiring a vote of 75% of the Company's outstanding Common
shares for approval of certain business combinations of the Company and
another entity, which the Company's Board of Directors has not approved by a
two-thirds majority. Other provisions concerning classification of the
Board, filling vacancies on the Board and notice requirements also may have
such an effect, but those provisions operate regardless of whether
extraordinary corporate transactions are proposed.
Miscellaneous
The Common Stock has no conversion rights and is not subject to
redemption. The outstanding shares of Common Stock are, and the shares to be
issued under the Plan will be, when issued and paid for, fully paid and non-
assessable.
We distribute to our shareholders annual reports containing audited
financial statements, and, in addition, twelve-month condensed financial
statements in each quarter.
The transfer agent of the Company's Common Stock is State Street Bank
and Trust Company, Boston, Massachusetts.
LEGAL OPINIONS
Legal matters in connection with this offering will be passed upon for
the Company by Rich, May, Bilodeau & Flaherty, P.C., Old South Building, 294
Washington Street, Boston, Massachusetts 02108, general counsel for the
Company. The Chairman of the Board of Directors of the Company, Franklin M.
Hundley, is of counsel to, and a former a managing director of the firm of
Rich, May, Bilodeau & Flaherty, P.C.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended June 30, 1998 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
INDEMNIFICATION
The Company's By-Laws permit the Company's directors and officers (and
persons who occupy such positions in other companies at the request of the
Company) to be indemnified for liabilities arising in connection with any
action, suit or proceeding prosecuted to a final determination on the merits
(except for any costs or expenses as to which such person shall be finally
adjudged to be liable), and any action, suit or proceeding which is settled
with the approval of the court having jurisdiction thereof, but only in such
amount (which shall not include any sum ordered to be paid by such
indemnified person to the Company) as such court shall determine to be fair
and reasonable under the circumstances. Indemnification payments properly
authorized may include reimbursement for the amount of the claim or judgment
and expenses of defense, including legal fees. Massachusetts law allows such
indemnification, but limits provision of indemnification where a person is
adjudicated not to have acted in good faith in the reasonable belief that
such action was in the best interest of the corporation. Indemnification is
also available to officers and directors in connection with certain actions
taken by them in reliance upon governmental regulations, rules, orders and
determinations. Certain liabilities arising under the Securities Act of 1933
may be covered by this indemnification provision, although the By-Laws
provide that indemnification of liabilities arising under such Act shall be
available only to the extent that such rights of indemnification may be
determined to be valid by a court of competent jurisdiction. Massachusetts
law also allows a corporation to purchase and maintain insurance on behalf
of such persons against any liabilities incurred in the capacity of director
or officer and the Company has such insurance.
Pursuant to a vote by Common shareholders at their 1987 Annual
Meeting, the Company's Articles of Organization were amended to provide
that, to the fullest extent that the General Laws of the Commonwealth of
Massachusetts as they exist on the date of such vote, or as they may
thereafter be amended, permit the limitation or elimination of the liability
of directors, no director of the Company shall be personally liable to the
Company or its shareholders for monetary damages for breach of fiduciary
duty, notwithstanding any provision of law imposing such liability. No
amendment to or repeal of this provision shall apply to or have any effect
on the liability or alleged liability of any director of the Company with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable.
===========================================================================
The Berkshire Gas Company
SHARE OWNER
DIVIDEND REINVESTMENT
and
STOCK PURCHASE PLAN
Common Stock
($2.50 Par Value)
November 10, 1998
PROSPECTUS
===========================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following are the estimated expenses in connection with the
proposed issuance and distribution of the Common Stock:
<TABLE>
<S> <C>
Registration Fee $ 1,321
Printing $ 6,000
Accounting Fees $ 1,200
Legal Fees $12,000
Miscellaneous Expenses $ 1,000
-------
Total (estimated) $21,521
</TABLE>
Item 15. Indemnification of Directors and Officers
The general effect of the Company's Bylaws with respect to insurance
for and indemnification of directors and officers is set forth in Part I of
this Registration Statement under "INDEMNIFICATION" and is incorporated
herein by this reference.
Item 16. List of Exhibits
See Exhibit Index at page II-5.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price set represent no more than
20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering;
(4) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(5) To furnish the Division of Corporation Finance a letter
informing said Division when all of the securities registered
have been sold.
The issuer hereby undertakes to transmit or cause to be transmitted to
all participants in the Plan (except those who, having the same address as a
shareholder of the registrant, have consented in writing that only one copy
of such material need be sent to such address), who do not otherwise receive
such material as shareholders of the issuer, at the time and in the manner
such material is sent to its shareholders generally, copies of all reports,
proxy statements and other communications distributed to its shareholders
generally. This issuer also undertakes to transmit to the Commission for
its information copies of all such material which is not otherwise furnished
to or filed with the Commission pursuant to any other requirement of the
Commission. Copies of such material transmitted to the Commission pursuant
to this undertaking shall not be deemed to be "filed" as a part of the
registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto
authorized, in the City of Pittsfield, Massachusetts, on the 6 day of
November, 1998.
THE BERKSHIRE GAS COMPANY
BY: /s/ Michael J. Marrone
Michael J. Marrone, Vice President
Treasurer and Chief Financial Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott S. Robinson and Michael J.
Marrone, and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about said matters, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed below by the following persons and in
the capacities indicated on the 6 day of November, 1998.
(i) Principal Executive Officer:
/s/ Scott S. Robinson, President
Scott S. Robinson
(ii) Principal Financial Officer and
Principal Accounting Officer:
/s/ Michael J. Marrone, Vice President, Treasurer
Michael J. Marrone and Chief Financial Officer
(iii) Directors:
/s/ George R. Baldwin
George R. Baldwin
/s/ John W. Bond
John W. Bond
/s/ Paul L. Gioia
Paul L. Gioia
/s/ Franklin M. Hundley
Franklin M. Hundley
/s/ James R. Keys
James R. Keys
/s/ Scott S. Robinson
Scott S. Robinson
/s/ Robert B. Trask
Robert B. Trask
EXHIBIT INDEX
Certain of the following exhibits are filed herewith or will be filed
herewith by amendment. Certain other of the following exhibits have
heretofore been filed with the Commission and pursuant to Rule 411 are
incorporated herein by reference.
<TABLE>
<CAPTION>
Sequential
Exhibits* Description of Exhibit Page Number
- - --------- ---------------------- -----------
<S> <C>
Exhibit 1. Underwriting Agreement.
Not applicable.
Exhibit 2. Plan of acquisition, reorganization arrangement,
liquidation or succession.
Exhibit 4. Instruments defining rights of security holders,
including indentures.
4(a) First Mortgage Indenture and Deed of Trust, dated
as of July 1, 1954, between Pittsfield Coal Gas
Company (now the Berkshire Gas Company) and
Chemical Bank & Trust Company (now Chemical Bank),
Trustee (Exhibit 4(c) to the Company's Registration
Statement on Form S-1, File No. 2-19808).
4(b) First Supplemental Indenture, dated as of June 1,
1956, between the Company and Chemical Corn
Exchange Bank (now Chemical Bank), Trustee
(Exhibit 4(d) to the Company's Registration
Statement on Form S-1, File No. 2-19808).
4(c) Second Supplemental Indenture, dated as of
October 1, 1957, between the Company and
Chemical Corn Exchange Bank (now Chemical Bank),
Trustee (Exhibit 4(e) to the Company's Registration
Statement on Form S-1, File No. 2-19808).
4(d) Third Supplemental Indenture, dated as of
October 1, 1958, between the Company and
Chemical Corn Exchange Bank (now Chemical Bank),
Trustee (Exhibit 4(f) to the Company's
Registration Statement on Form S-1, File
No. 2-19808).
4(e) Fourth Supplemental Indenture, dated as of
August 1, 1960, between the Company and
Chemical Bank New York Trust Company (now
Chemical Bank), Trustee. (Exhibit 4(e) to the
Company's Registration Statement on Form S-2,
File No. 33-1492).
4(f) Fifth Supplemental Indenture, dated as of
June 1, 1962, between the Company and Chemical
Bank New York Trust Company (now Chemical Bank),
Trustee. Filed as Exhibit 4(f) to the
Company's Registration Statement on Form S-2,
File No. 33-1492, and incorporated herein by
reference.
4(g) Sixth Supplemental Indenture, dated as of
February 1, 1965, between the Company and
Chemical Bank New York Trust Company
(now Chemical Bank),Trustee. Filed as Exhibit
4(g) to the Company's Registration Statement
on Form S-2, File No. 33-1492, and incorporated
herein by reference.
4(h) Seventh Supplemental Indenture, dated as of
October 1, 1965, between the Company and
Chemical Bank New York Trust Company
(now Chemical Bank), Trustee. Filed as Exhibit
4(h) to the Company's Registration Statement on
Form S-2, File No. 33-1492, and incorporated
herein by reference.
4(i) Eighth Supplemental Indenture, dated as of
September 1, 1967, between the Company and
Chemical Bank New York Trust Company (now
Chemical Bank), Trustee. Filed as Exhibit 4(i)
to the Company's Registration Statement on
Form S-2, File No. 33-1492, and incorporated
herein by reference.
4(j) Ninth Supplemental Indenture, dated as of
April 1, 1969, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(j)
to the Company's Registration Statement on Form
S-2, File No. 33-1492, and incorporated herein
by reference.
4(k) Tenth Supplemental Indenture, dated as of
March 1, 1972, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(k)
to the Company's Registration Statement on Form
S-2, File No. 33-1492, and incorporated herein
by reference.
4(l) Eleventh Supplemental Indenture, dated as of
April 15, 1975, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(l)
the Company's Registration Statement on Form S-2,
File No. 33-1492, and incorporated herein by
reference.
4(m) Twelfth Supplemental Indenture, dated as of
November 27, 1978, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(m)
to the Company's Registration Statement on
Form S-2, File No. 33-1492, and incorporated
herein by reference.
4(n) Thirteenth Supplemental Indenture, dated as
of October 15, 1981, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(n)
to the Company's Registration Statement on Form
S-2, File No. 33-1492, and incorporated herein
by reference.
4(o) Fourteenth Supplemental Indenture, dated as
of August 19, 1983, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(o)
to the Company's Registration Statement on Form
S-2, File No. 33-1492, and incorporated herein
by reference.
4(p) Fifteenth Supplemental Indenture, dated as of
August 19, 1985, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(p)
to the Company's Registration Statement on Form
S-2, Registration No. 33-1492, and incorporated
herein by reference.
4(q) Sixteenth Supplemental Indenture, dated as of
January 1, 1988, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(q)
to the Company's Registration Statement on Form
S-3, Registration No. 33-27785, and incorporated
herein by reference.
4(r) Seventeenth Supplemental Indenture, dated as
of February 1, 1989, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(r)
to the Company's Registration Statement on Form
S-3, Registration Statement No. 33-27785, and
incorporated herein by reference.
4(s) Eighteenth Supplemental Indenture, dated as of
September 1, 1991, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(x)
to the Company's Registration Statement on Form
S-3, Registration Statement No. 33-64302, and
incorporated herein by reference.
4(t) Nineteenth Supplemental Indenture, dated as of
September 1, 1992, between the Company and
Chemical Bank, Trustee. Filed as Exhibit 4(z)
to the Company's Registration Statement on Form
S-3, Registration Statement No. 33-64302, and
incorporated herein by reference.
4(u) Debenture Indenture, dated as of November 1,
1986, between the Company and Centerre Trust
Company of St. Louis (now Boatmen's Trust
Company), as Trustee. Filed as Exhibit 4(q) to
the Company's Registration Statement on Form S-2,
Registration Statement No. 33-9509, and
incorporated herein by reference.
4(v) Senior Note Agreement, dated as of
July 1, 1990, between the Company and
Allstate Life Insurance Company. Filed as Exhibit
4(w) to the Company's Registration Statement
on Form S-3, Registration Statement No. 33-64302,
and incorporated herein by reference.
4(w) Charter of the Company. Filed as Exhibit 3(a)
to the Company's Form 8, amending the Company's
Form 10-Q for the fiscal quarter ended September
30, 1984, File No. 0-1857- 3, and incorporated
herein by reference.
4(x) Amendment to the Company's Charter, dated
October 30, 1985. Filed as Exhibit 3(b) to the
Company's Registration Statement on Form S-2,
Registration Statement No. 33-1492, and
incorporated herein by reference.
4(y) Amendment to the Company's Charter, dated
July 14, 1986. Filed as Exhibit 3(a) to the
Company's Form 10-K for the fiscal year
ended June 30, 1986, File No. 0-1857-3, and
incorporated herein by reference.
4(z) Amendment to the Company's Charter, dated
October 28, 1986. Filed as Exhibit 4(v) to the
Company's Registration Statement on Form S-3,
Registration Statement No. 33-27785, and
incorporated herein by reference.
4(aa) Amendment to the Company's Charter, dated
June 15, 1992. Filed as Exhibit 4(y) to the
Company's Registration Statement on Form S-3,
Registration Statement No. 33-64302, and
incorporated herein by reference.
4(bb) Amendment to the Company's Charter, dated
July 29, 1994. (Exhibit 4(bb) on the Company
Registration Statement on Form S-2, Registration
Statement No. 33-83828).
Exhibit 5. Opinion regarding legality.
**5 Opinion of Rich, May, Bilodeau & Flaherty, P.C.
Exhibit 8. Opinion regarding tax matters.
Not applicable.
Exhibit 12. Statement regarding computation of ratios.
Not applicable.
Exhibit 15. Letter regarding unaudited interim financial
information.
Not applicable.
Exhibit 23. Consents of Experts and counsel.
**23(a) Consent of Deloitte & Touche LLP, independent
certified public accountants.
**23(b) Consent of Rich, May, Bilodeau & Flaherty,
P.C. (included in opinion filed as Exhibit
5 to this Registration Statement).
Exhibit 24. Power of Attorney.
**24(a) Power of Attorney (set forth on page II-3
of this Registration Statement).
Exhibit 25. Statement of eligibility of trustee
Not applicable.
Exhibit 26. Invitations for competitive bids.
Not applicable.
Exhibit 27. Financial data schedules.
Not applicable.
Exhibit 99. Additional Exhibits
*99(a) A copy of the Order of the Massachusetts
Department of Public Utilities dated November 5,
1998, relating to the issue and the sale of
200,000 shares of common stock pursuant to
the Plan.
<FN>
<F*> Exhibit numbers designated in Regulation S-K
<F**> Filed herewith
</FN>
</TABLE>
November 10, 1998
The Berkshire Gas Company
115 Cheshire Road
Pittsfield, MA 01201
Dear Sirs/Mesdames:
You are seeking to register, pursuant to the Securities Act of 1933,
an aggregate of 200,000 shares of Common Stock, $2.50 par value, of The
Berkshire Gas Company (the "Company"), under the Company's Share Owner
Dividend Reinvestment and Stock Purchase Plan. You have requested that we
furnish to you an opinion that is to be filed as Exhibit 5 to the
Registration Statement on Form S-3 (the "Registration Statement") relating
to such shares.
We have examined the Company's charter documents and the Company's By-
laws, each as amended, copies of the resolutions adopted by the Board of
Directors of the Company, the Registration Statement, and such other
documents as we have deemed pertinent. We have participated in the filing
with the Massachusetts Department of Telecommunications and Energy ("MDTE")
of the Company's application and petition relating to authorization and
approval of the issue and sale of such shares and we have examined the order
of the MDTE relating thereto. We have made such examination of law as we
have felt necessary in order to render this opinion.
It is our understanding that the purpose of the above-described
offering is to provide the Company with funds to finance additions to the
Company's property, plant and equipment or to repay temporary indebtedness
incurred to finance such additions.
Based on the foregoing, we are of the opinion and advise you that,
under the applicable rules and regulations of the Securities and Exchange
Commission, the Registration Statement will become effective upon the filing
thereof with the Securities and Exchange Commission; we are further of the
opinion that, with respect to the 200,000 shares of stock being registered,
such shares will be legally issued, fully paid and non-assessable when
issued and delivered for the consideration described in the Registration
Statement.
This opinion does not pass on the application of the securities or
"Blue Sky" laws of the various states.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We further consent to the use of our name and to
all references to us included in or made a part of the Registration
Statement.
Very truly yours,
/s/ RICH, MAY, BILODEAU & FLAHERTY, P.C.
RICH, MAY, BILODEAU & FLAHERTY, P.C.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
for the Share Owner Dividend Reinvestment and Stock Purchase Plan of the
Berkshire Gas Company on Form S-3 of our report dated August 12, 1998,
appearing in the Annual Report on Form 10-K of The Berkshire Gas Company for
the year ended June 30, 1998 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Hartford, Connecticut
November 10, 1998
The Commonwealth of Massachusetts
DEPARTMENT OF TELECOMMUNICATIONS AND ENERGY
November 5, 1998
D.T.E. 98-61/87
Petition of The Berkshire Gas Company and Berkshire Gas Mergeco Gas Company,
Inc. for approvals related to a reorganization merger to establish a Holding
Company pursuant to G.L. c. 164, [Section Sign] 96.
Petition of The Berkshire Gas Company to the Department of
Telecommunications and Energy pursuant to G.L. c. 164, [Section Sign] 14 for
approval and authorization to issue and sell not more than 200,000
additional shares of common stock.
APPEARANCES: James M. Avery, Esq.
Emmett E. Lyne, Esq.
K. Jill Rizzotti, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
The Old South Building
294 Washington Street
Boston, MA 02108-4675
FOR: THE BERKSHIRE GAS COMPANY and
BERKSHIRE GAS MERGECO GAS COMPANY, INC.
Petitioners
Scott Harshbarger, Attorney General
By: James W. Stetson
Assistant Attorney General
200 Portland Street
Boston, Massachusetts 02114
Intervenor
Timothy A. Clark, General Counsel
Colonial Gas Company
40 Market Street
Lowell, MA 01852
-and-
Jeffrey F. Jones, Esq.
Constantine Athanas, Esq.
Palmer & Dodge, LLP
One Beacon Street
Boston, MA 02108
FOR: COLONIAL GAS COMPANY
Limited Participant
TABLE OF CONTENTS
I. INTRODUCTION Page 1
II. PROCEDURAL HISTORY Page 2
III. COMPANIES' PROPOSAL Page 2
A. Merger Page 2
B. DRIP Petition Page 5
C. Exemption Request Page 6
IV. CONSISTENCY OF HOLDING COMPANY PROPOSAL WITH THE
PUBLIC INTEREST Page 6
A. Introduction Page 6
B. Standard of Review Page 7
C. Specific Considerations Page 9
1. Impact on Rates Page 9
2. Impact on Quality of Service Page 11
3. Impact on Competition Page 12
4. The Financial Integrity of the
Post-Merger Entity Page 13
5. Societal Costs Page 14
6. Impact on Economic Development Page 14
7. Alternatives to the Merger Page 15
D. Conclusion Page 16
V. CONDITIONS OF APPROVAL Page 16
A. Dividend Policy Page 16
1. Introduction Page 16
2. Analysis and Findings Page 17
B. Cost of Capital Page 18
C. Asset Transfers Page 19
1. Description of Company Proposal Page 19
2. Analysis and Findings Page 19
VI. MANAGEMENT AGREEMENT Page 20
A. Description Page 20
B. Analysis and Findings Page 22
VII. TAX SHARING AGREEMENT Page 24
A. Description Page 24
B. Analysis and Findings Page 24
VIII. STOCK ISSUANCE Page 26
A. Standard of Review Page 26
B. Mergeco Page 28
1. Description of Proposal Page 28
2. Analysis and Findings Page 28
C. Dividend Reinvestment Plan Stock Issuance Page 29
1. Description of the Proposed Financing Page 29
2. Capital Structure of the Company Page 31
3. Analysis and Findings Page 32
IX. EXEMPTION FROM SEPARATION REQUIREMENTS OF THE
STANDARDS OF CONDUCT Page 33
A. Introduction Page 33
B. Analysis and Findings Page 34
X. ORDER Page 36
I. INTRODUCTION
On June 23, 1998, Berkshire Gas Company ("Berkshire" or "Company") and
Berkshire Gas Mergeco Gas Company, Inc. ("Mergeco") (together, the
"Companies") filed a petition for approval ("Restructuring Petition")
pursuant to G.L. c. 164, [Section Sign] 96, of an Agreement and Plan of
Merger ("Reorganization Plan") with the Department of Telecommunications and
Energy ("Department"). In its Reorganization Plan, Berkshire proposes to
create a holding company, Berkshire Energy Resources ("BER"), to directly
own the common stock of Berkshire. The Companies have requested Department
approval of their Reorganization Plan.
On August 14, 1998, Berkshire also requested Department approval and
authorization, pursuant to G.L. 164, [Section Sign] 14, for the issuance and
sale of an additional 200,000 shares of common stock, $2.50 par value,
pursuant to Berkshire's Share Owner Dividend Reinvestment and Stock Purchase
Plan (the "DRIP") ("DRIP Petition"). The Department granted the Companies'
motion to review these petitions on a consolidated basis.
On October 7, 1998, Berkshire filed a request pursuant to 220 C.M.R.
[Section Sign] 12.03(17) for a limited exemption from the separation
requirements of 220 C.M.R. [Section Sign] 12.03(15) ("Exemption Request"),
with respect to certain employees who will serve in management positions for
Berkshire, and the non-regulated affiliates of Berkshire.
This Order approves the Companies' petitions to (1) create a holding
company to directly hold the common stock of Berkshire and (2) issue and
sell an additional 200,000 shares of common stock, $2.50 par value, pursuant
to Berkshire's DRIP. This Order denies, without prejudice, the Companies'
Exemption Request. This Order also sets forth certain ratepayer
protections. The Companies must implement the protections as a condition of
their corporate restructuring, in order to safeguard the public interest.
II. PROCEDURAL HISTORY
On July 30, 1998, the Department held a public hearing in its offices
regarding the Restructuring Petition, docketed as D.T.E. 98-61. The
Department granted limited participant status to Colonial Gas Company
("Colonial"). The Attorney General intervened pursuant to G.L. c. 12,
[Section Sign] 11E, on August 14, 1998.
On September 29, 1998, the Department held a public hearing in its
offices regarding the DRIP Petition, docketed as D.T.E. 98-87. On the same
day, the Department held a combined evidentiary hearing in D.T.E. 98-61 and
D.T.E. 98-87. The Companies presented two witnesses: Michael J. Marrone,
vice president, treasurer and chief financial officer of Berkshire; and
John J. Reed, president of Reed Consulting Group. The evidentiary record
consists of 53 exhibits. On October 8, 1998, the Companies filed a brief in
support of their petitions.
III. COMPANIES' PROPOSAL
A. Merger
Currently, Berkshire is an investor-owned public utility that serves
19 communities in western Massachusetts. Berkshire also operates a retail
propane business as a division and has entered into a strategic marketing
alliance with Conectiv/CNE, LLC, a joint venture formed by a subsidiary of
Connecticut Energy Corporation and a subsidiary of Delmarva Power & Light
Company.
The Companies request Department approval of their Reorganization Plan
to create a holding company that will directly hold the common stock of
Berkshire (Exh. BG-MJM-1, at 2). Pursuant to the Reorganization Plan,
Berkshire has formed BER,(1) a Massachusetts business trust, and Mergeco,
BER's wholly-owned subsidiary and a Massachusetts gas utility corporation
that has no present business or assets of its own (id. at 11). Under the
Reorganization Plan, Berkshire will become a subsidiary of BER through the
merger of Berkshire with and into Mergeco, with Berkshire being the
surviving entity (id. at 12). The Companies assert that their proposal is
essentially identical to the corporate restructuring approved by the
Department in Boston Edison Company, D.P.U./D.T.E. 97-63 (1998) (id. at 2).
___________________
(1) By Order dated January 30, 1998, the Department approved the
investment in BER of such amounts required to submit the
Reorganization Plan to Berkshire's shareholders and regulatory
authorities having jurisdiction. The Berkshire Gas Company, D.T.E.
97-107 (1998).
The Companies represent that the following events will occur
simultaneously at the time of the merger: (1) each share of Mergeco common
stock issued and outstanding immediately prior to the merger will be changed
and converted into one share of Berkshire common stock, $2.50 par value; (2)
each share of Berkshire's common stock issued and outstanding immediately
prior to the merger will be changed and converted into one common share of
BER; and (3) each share of BER issued and outstanding immediately prior to
the merger will be cancelled (id. at 12). The Companies further represent
that Berkshire cumulative preferred stock will not be affected by the merger
(id. at 15). The Companies also claim that their long-term debt securities,
assuming the negotiation of acceptable consents or amendments, will be
similarly unaffected (id.). The Companies state that, as a result of the
merger, (1) Berkshire will become a wholly-owned subsidiary of BER, (2) all
of BER's common shares outstanding immediately after the merger will be
owned by the holders of Berkshire's common stock outstanding immediately
prior to the merger, and (3) Mergeco will cease to exist as a separate legal
entity (id.). The Companies explain that the retail propane operations and
energy marketing activities of Berkshire, currently performed through
divisions of Berkshire, will be transferred to new subsidiaries after the
merger (Exh. BG-MJM-1, at 5).
In its Proxy Statement/Prospectus dated March 17, 1998, Berkshire
proposes the following corporate structure (Exh. BG-MJM-5, at 22-23). The
Companies state that the current board of directors of Berkshire will become
the board of trustees of BER (id. at 22). The Company also reports that
Berkshire's current officers will continue to serve as officers for
Berkshire and also will serve in comparable senior positions for non-
regulated affiliates of Berkshire (id. at 23). The Companies report that
Berkshire also will perform certain services for its affiliates pursuant to
the terms of a Management Services Agreement ("Management Agreement") (Exhs.
BG-MJM-1, at 13; BG-MJM-6, at 1; RR-DTE-4(a)).
B. DRIP Petition
Berkshire proposes to issue and sell from time to time up to 200,000
additional shares of common stock through the Company's DRIP (DRIP Petition
at 2). Berkshire explains that the DRIP allows the common stock cash
dividends to be automatically reinvested in additional, original issue
shares of common stock of the Company (id. at 3). Berkshire notes that
participation in the DRIP is optional and is available to holders of ten or
more shares of common stock, or to any Berkshire employee who owns one or
more shares of common stock (id.).
Berkshire seeks approval of the DRIP Petition concurrently with the
Restructuring Petition because Berkshire anticipates that the merger
probably will not be completed before the end of 1998 and that it will not
have an adequate number of shares available for issuance pursuant to the
DRIP for the interim period prior to the proposed corporate restructuring
(id. at 4; Exh. BG-MJM-10, at 4). Therefore, Berkshire determined that it
was necessary to increase the number of shares authorized for issuance
pursuant to the DRIP rather than suspend the DRIP pending completion of the
merger (DRIP Petition at 4; Exh. BG-MJM-10, at 4).
Berkshire states that, upon approval of the Reorganization Plan by the
Department, the DRIP will be assumed by BER (Exh. BG-MJM-10, at 3-4).
Berkshire reports that participants in the DRIP will continue to be able to
invest their dividends in BER's common shares, as well as purchase
additional common shares and make optional payments to acquire such shares
(id. at 4). The Company represents that it will take appropriate action to
achieve compliance with applicable federal securities laws upon approval of
the DRIP Petition (id. at 6-7).
C. Exemption Request
During the course of the evidentiary hearing, the Department raised
the issue of whether the overlap of management between Berkshire's regulated
and non-regulated entities was consonant with the Department's Standards of
Conduct, 220 C.M.R [Section Sign] 12.00, et seq. (Tr. at 37-45).
Therefore, Berkshire filed the Exemption Request with respect to certain
senior executives that would serve Berkshire as well as its non-regulated
affiliates, including its competitive energy affiliate (id. at 46).
IV. CONSISTENCY OF HOLDING COMPANY PROPOSAL WITH THE PUBLIC INTEREST
A. Introduction
Through the merger, Berkshire would be transformed from a publicly
traded stock corporation to a corporation whose equity would be entirely
owned by a holding company. Of the commonwealth's ten investor-owned local
gas distribution companies ("LDCs"),(2) five are currently affiliates of
holding companies(3) (Exh. BG-JR-1, at 4). In addition to Berkshire, two of
the other remaining LDCs that are not affiliates of holding companies, Bay
State Gas Company ("Bay State") and Colonial, are currently involved in
transactions that, if completed, will result in their becoming affiliates of
holding companies(4) (id. at 4). It should be noted that, with the
Department's Order in D.P.U./D.T.E. 97-63, all investor-owned electric
utility companies in Massachusetts now operate within a holding company
structure (id. at 3).
___________________
(2) The ten LDCs are: Berkshire, Bay State Gas Company, Blackstone Gas
Company, Boston Gas Company, Colonial, Commonwealth Gas Company, Essex
County Gas Company, Fall River Gas Company, North Attleboro Gas
Company and Unitil/Fitchburg Gas and Electric Company.
(3) The five LDCs that already are affiliates of holding companies are:
Boston Gas Company, Commonwealth Gas Company, Unitil/Fitchburg Gas and
Electric Company, North Attleboro Gas Company, and Essex County Gas
Company (Exh. BG-JR-1, at 4).
(4) The Department is currently reviewing these transactions in
proceedings docketed as D.T.E. 98-31 for Bay State and D.T.E. 98-71
for Colonial.
B. Standard of Review
The Department's authority to review and approve mergers and
acquisitions is found at G.L. c. 164, [Section Sign] 96, which, as a
condition for approval, requires the Department to find that mergers and
acquisitions are "consistent with the public interest." In Boston Edison
Company, D.P.U. 850, at 6-8 (1983), the Department construed [Section Sign]
96's standard of consistency with the public interest as requiring a
balancing of the costs and benefits attendant on any proposed merger or
acquisition. The Department stated that the core of the consistency
standard was "avoidance of harm to the public." D.P.U. 850, at 5.
Therefore, under the terms of D.P.U. 850, a proposed merger or acquisition
is allowed to go forward upon a finding by the Department that the public
interest would be at least as well served by approval of a proposal as by
its denial. D.P.U. 850, at 5-8; Eastern-Essex Acquisition, D.T.E. 98-27, at
8 (1998).(5) The Department has reaffirmed that it would consider the
potential gains and losses of a proposed merger to determine whether the
proposed transaction satisfies the [Section Sign] 96 standard. D.T.E. 98-
27, at 8; D.P.U./D.T.E. 97-63, at 7; Mergers and Acquisitions, D.T.E. 93-
167-A at 6, 7, 9 (1994). The public interest standard, as elucidated in
D.P.U. 850, must be understood as a "no net harm," rather than a "net
benefit" test.(6) D.T.E. 98-27, at 8. The Department considers the special
factors of an individual proposal to determine whether it is consistent with
the public interest. Id.; D.P.U./D.T.E. 97-63, at 7; Mergers and
Acquisitions at 7-9. To meet this standard, costs or disadvantages of a
proposed merger must be accompanied by offsetting benefits that warrant
their allowance. D.T.E. 98-27, at 8; D.P.U./D.T.E. 97-63, at 7; D.T.E. 93-
167-A at 18-19.
___________________
(5) The Department issued its Order in Eastern-Essex Acquisition, D.T.E.
98-27 (1998) on September 17, 1998, which was after hearings were
completed and briefs had been filed in this case.
(6) The Department notes that a finding that a proposed merger or
acquisition would probably yield a net benefit does not mean that such
a transaction must yield a net benefit to satisfy G.L. c. 164,
[Section Sign] 96 and Boston Edison, D.P.U. 850.
Various factors may be considered in determining whether a proposed
merger or acquisition is consistent with the public interest pursuant to
G.L. c. 164, [Section Sign] 96. These factors were set forth in Mergers and
Acquisitions: (1) effect on rates; (2) effect on the quality of service;
(3) resulting net savings; (4) effect on competition; (5) financial
integrity of the post-merger entity; (6) fairness of the distribution of
resulting benefits between shareholders and ratepayers; (7) societal costs,
such as job loss; (8) effect on economic development; and (9) alternatives
to the merger or acquisition. D.T.E. 98-27, at 8-9; D.P.U./D.T.E. 97-63, at
7-8; D.T.E. 93-167-A at 7-9. This list is illustrative and not exhaustive,
and the Department may consider other factors when evaluating a [Section
Sign] 96 proposal. D.T.E. 98-27, at 9; D.T.E. 93-167-A at 9.
C. Specific Considerations
As described above, the Department has developed a nine-factor test to
examine the benefits and costs of a proposed merger of utility companies.
D.P.U. 93-167-A at 7-9. Because the standard of review was designed to
apply to mergers between operating companies or acquisitions by one company
of another, not all of the factors are relevant to or determinative of the
issues raised by this holding company proposal. In considering the special
circumstances of this proposal, the Department's analysis focuses on the
following factors: (1) impact on rates; (2) impact on the quality of
service; (3) impact on competition; (4) the financial integrity of the post-
merger entity; (5) societal costs; (6) impact on economic development; and
(7) alternatives to the merger or acquisition. D.P.U./D.T.E. 97-63, at 12-
13. These are the factors that we use in our analysis. However, the result
of the analysis on any single factor is not controlling. Our review and
judgment under G.L. c. 164, [Section Sign] 96, and in D.P. U. 850, is of the
proposal taken as a whole and of the consistency of the proposal with the
public interest.
1. Impact on Rates
Berkshire states that it is not proposing any changes in its rates
(Ex. BG-MJM-1, at 7; Tr. at 20). The Department may find that a proposal is
consistent with the public interest if, upon consideration of its
significant aspects viewed as a whole, the public interest is at least as
well served by approval of the proposal as by its denial. D.P.U. 850, at 8.
Thus, the Companies need not demonstrate that Berkshire's rates will
decrease upon the formation of the holding company.
The formation of a holding company, assuming the adoption of
appropriate safeguards by the Department, likely will have no adverse impact
on Berkshire's rates because the Company will continue to operate and be
regulated in virtually the same manner as under the current structure (Tr.
at 20). The Companies' proposal is not a merger whereby two entities seek
enhanced efficiency through the elimination of duplicate services and
departments. In the instant case, the regulated business of Berkshire will
operate in the same manner before and after the formation of the holding
company. The Company's current rates are established pursuant to the terms
of the Department's Order in The Berkshire Gas Company, D.P.U. 92-10 (1993),
and, more recently, with respect to the unbundling of such rates, a
settlement approved by the Department in The Berkshire Gas Company, D.T.E.
98-65 (1998). Any future adjustments to the Company's rates will be subject
to the same regulatory scrutiny applied today. See G.L. c. 164, [Section
Sign] 94. Therefore, the public will be held harmless in accordance with
the standard set forth in D.P.U. 850, at 8, i.e., that the public interest
is at least as well served by approval of the proposal as by its denial. In
addition, as discussed below, the Department will ensure through appropriate
safeguards that ratepayers will not pay increased rates due to cross-
subsidization or excessive dividend payments. The Department notes that our
ability to ensure compliance with these safeguards is, in fact, enhanced
under a holding company structure.
2. Impact on Quality of Service
Berkshire claims that the regulated utility operations will be central
to the proposed holding company and that the Company will continue its
commitment to customer service and relevant operating and safety
requirements (Exh. BG-MJM-1, at 8). Berkshire claims that the quality of
service will not be negatively affected and that, if there is any effect, it
will be to encourage Berkshire to maintain its high standards (id.; Tr. at
20).
The Company has stated that its desire to enter other business
ventures is driving, at least in part, the present proposal to restructure
its corporate organization (Exh. BG-MJM-1, at 6). The Department recognizes
that as a regulated utility enters new areas of unregulated business, the
potential exists for the diversion of the regulated utility's resources to
the unregulated business, resulting in degradation of service quality.
Likewise, potential exists that the less profitable resources of an
affiliated unregulated company may be transferred to the regulated business,
leading to poor service quality in the regulated business. Berkshire notes
three incentives to maintain high standards in its service quality:
continued rate regulation, revised service quality standards if it withdraws
from the merchant function and is subject to the requirements of
performance-based rates, and potential to increase efficiency as a result of
a more appropriate corporate structure (Exh. BG-MJM-1, at 8). In the
present situation, the Department determines that, pursuant to G.L. 164
[Section Sign] 93, its authority to investigate service quality problems
pursuant to a petition from elected officials or groups of twenty or more
affected customers provides adequate protection from degradation in the
quality of service of Berkshire. In addition, the Department expects that
in the future, the quality of service monitoring under performance-based
ratemaking will protect customers from a degradation in the quality of
service. Therefore, the Department concludes that the formation of a
holding company need not, and likely will not, have an adverse effect on
quality of service.
3. Impact on Competition
Berkshire states that few competitors are currently in western
Massachusetts and that few competitors are likely to enter the region's
natural gas market initially (Exh. BG-MJM-1, at 9). The Company states that
the proposed merger will have a positive effect on competition by opening
this regional market to greater competition and helping to develop the
region's economy (id.; Exh. DTE-1-4; Tr. at 21-22). The Department has
encouraged a holding company corporate structure to maintain clear lines
between and among competitive and non-competitive business ventures and to
encourage the growth of competition. D.P.U. 96-100, at 74-79; D.P.U./D.T.E.
97-63, at 12; D.T.E. 97-24, at 24-25. Further, the Companies state that the
proposed corporate separation of Berkshire's energy marketing operation in a
marketing affiliate separated from its regulated business will eliminate
significant barriers to entry in the natural gas market (Exh. BG-MJM-1, at
4). The Department finds that the implementation of the holding company
structure most likely will have a positive effect upon competition in the
natural gas industry by removing potential barriers to market entry for
Berkshire, and by separating Berkshire's regulated and unregulated
operations.
4. The Financial Integrity of the Post-Merger Entity
The major difference between the current structure of Berkshire and
the proposed holding company structure will be the accounting treatment of
the utility. The Department recognizes that there can be additional risks
to ratepayers upon the formation of the holding company. Diversification,
without appropriate ratepayer protections, could result in an increase to
the overall risk profile of Berkshire. The Department finds that the risks
of increased diversification into energy and other related businesses should
be borne by the shareholders, not ratepayers. D.P.U./D.T.E. 97-63, at 18.
Furthermore, Berkshire has agreed to be governed by safeguards comparable to
those imposed with respect to BECo's corporate restructuring to establish a
holding company corporate structure (Exhs. DTE-1-19; DTE-1-20).(7) Thus,
the formation of a holding company will not affect the financial stability
of the post-merger utility as long as appropriate safeguards are established
to protect ratepayers from the risks inherent in increased diversification.
These safeguards are discussed in Section V, below.
___________________
(7) The safeguards include (1) monitoring of dividend payments by
Berkshire to BER, (2) determining the cost of capital on a stand-alone
basis, (3) pricing of the transfer of rate-base assets consistent with
the Standards of Conduct, and (4) maintaining a log of all
transactions with affiliated companies.
5. Societal Costs
The Department's analysis of societal costs focuses on the public
benefits and costs that may be caused by the Companies' proposal, and
specifically looks at the impact on employment. D.P.U. 93-167-A, at 8;
D.P.U./D.T.E. 97-63, at 19. According to the Companies, although a merger
or acquisition typically results in some loss of jobs where two companies
possess redundant capacities, the proposed formation of a holding company
may create employment opportunities (Exh. BG-MJM-1, at 9; Tr. at 22-23). In
fact, Berkshire notes a modest increase in its own hiring as a result of the
Company's restructuring efforts (Exh. DTE-1-5; Tr. at 22-23). Accordingly,
we find that the Reorganization Plan will impose no societal costs and may,
in fact, help create jobs in western Massachusetts.
6. Impact on Economic Development
The Companies claim that one of the most significant public benefits
of their holding company proposal is its impact on economic development in
western Massachusetts (Exh. BG-MJM-1, at 10). The Companies assert that the
anticipated increase in competition in the energy market will enhance
economic development in the area (id. at 10).
Although forecasts of economic development resulting from any action
can never be certain, the Department recognizes that economic development is
affected by, among other things, changes in employment opportunities, levels
of wages, and the price and quality of goods and services offered. The
Department has determined, in Section IV(C)(5), above, that the Companies'
proposal is not likely to have a negative effect on employment. Moreover,
the Department has determined that the quality of the Companies' service
would not suffer as a result of implementing this proposal. Given these
findings, the Department determines that there likely would be no negative
effect on economic development as a result of the formation of the holding
company.
7. Alternatives to the Merger
When a utility requests approval for a traditional merger or
acquisition, the Department may review alternatives, including other
acquisition or merger partners, creation of affiliates and reorganization of
existing assets. Berkshire considered "several" potential corporate
structures when analyzing how to respond to the changing regulatory
environment (Exhs. BG-MJM-1, at 10; DTE-1-6). Among these were (1)
maintaining its existing corporate structure and (2) establishing separate
corporate subsidiaries wholly owned by Berkshire. The Company states that
the first alternative did not provide the degree of separation consistent
with the principles articulated in the Department's Standards of Conduct,
220 C.M.R. [Section Sign] 12.00 et. seq. (Exh. DTE-1-6). An evaluation of
the second alternative led the Company to conclude that it would frustrate
its ability to participate in the market (Exh. DTE-1-6). The Companies
contend that formation of a holding company would allow them to adjust to
and compete in the evolving energy marketplace (id.).
The Department finds that the other alternatives to the holding
company structure would not provide the complete separation that the
Department requires in regulating utility versus non-utility businesses and
would frustrate Berkshire's ability to pursue opportunities in competitive
markets and. With the holding company structure, BER will be able to
participate in the competitive energy market through Berkshire Energy
Marketing, thereby increasing the number of participants in the energy
services market. Therefore, the Department finds the corporate
restructuring is in the public interest.
D. Conclusion
Based on the foregoing analyses, the Department determines that the
holding company structure is appropriate for the Company. However, the
Department has several specific concerns given the potential for abuse
inherent in this structure that the Department addresses by the imposition
of certain conditions on the Companies' formation of a holding company. We
find that, with these appropriate conditions, the public interest standard
of [Section Sign] 96 is met by the approval of the Companies' proposal. We
address these conditions in Section V, below.
V. CONDITIONS OF APPROVAL
A. Dividend Policy
1. Introduction
Under the current corporate structure, Berkshire pays dividends to its
shareholders and may not, without Department approval, reinvest its earnings
in its unregulated businesses that might be established as separate
corporate entities. Berkshire is similarly limited in its ability to make
investments in joint ventures with third parties in competitive markets.
However, under the proposed holding company structure, Berkshire would pay
dividends to BER, which may choose to (1) invest some or all of the dividend
income received from Berkshire into its non-utility subsidiaries without
Department approval, (2) retain the income, or (3) disburse the income to
its own shareholders as dividends (Companies Brief at 22). The issue is
whether the Department should condition the approval of the holding company
proposal on the Company's adopting a particular dividend policy.
2. Analysis and Findings
The Department has previously analyzed the issues involved in a
dividend policy for corporate restructuring resulting in a holding company
and found that restrictions on dividend payments are necessary only under
extraordinary circumstances, for example, when the financial health of the
company is in question. D.P.U./D.T.E. 97-63, at 25-27. A review of the
Company's Annual Report to Shareholders for 1997 shows that over the last
ten years, Berkshire has had reasonable earnings and a reasonable dividend
payout policy, and that the Company has maintained a reasonable level of
equity in its total capitalization (Exh. BG-MJM-11, Annual Report at 14-15).
The Company's financial health is not in jeopardy and there is no evidence
that the Company's actions with respect to the dividend policy would harm
Berkshire. Therefore, in this case, we find restrictions on Berkshire's
dividend payments are not necessary.
The Department recognized, in D.T.E. 97-63, the concerns about the
overlap of the officers of the holding company and the regulated utility
raised by intervenors in that case. D.T.E. 97-63, at 26. This overlap does
not diminish the obligation of the officers of Berkshire to give first
priority to the capital needs of the regulated utility and to protect its
financial integrity. The Department will monitor the dividend payments of
Berkshire and BER, and therefore directs the Company to report the level of
payments to the Department whenever dividends are declared. In fact,
Berkshire has already indicated its willingness to comply with such
directives (Exh. DTE-1-19). If a pattern of inappropriate levels of
dividend payments threatens to emerge, the Department will investigate and
could impose restrictions at that time, if necessary. The Department also
finds that restrictions on dividend payments unique to Berkshire are not
necessary at this time.
B. Cost of Capital
Berkshire proposes that its cost of capital continue to be established
on a "stand-alone" basis after the formation of the holding company (Exh.
DTE-1-2). The Company proposes to continue the rate-setting approach that
it has followed in determining its cost of capital (id.). The utility's
own capital structure will be used to calculate the weighted average cost of
capital and the utility's embedded cost of long-term debt and preferred
stock will be employed with the capital structure (id.). The cost of equity
will continue to be developed from a proxy group of gas distribution
companies (id.).
The Company's proposal for determining the cost of capital is
consistent with the Department's policy of determining an operating
utility's cost of capital on a stand-alone basis, and not on the basis of
the holding company's cost of capital. Therefore, the Companies' proposal
is approved.
C. Asset Transfers
1. Description of Company Proposal
Under the Companies' proposal, they will not initially transfer any
rate-base assets to any new unregulated entity (Exh. BG-MJM-1, at 8). The
Company plans to transfer certain facilities used by its retail propane
operation to a new subsidiary of BER, Berkshire Propane, Inc. (id.).
Berkshire claims that these assets have never been rate-base assets and
that, therefore, this transfer would have no effect on Berkshire's cost of
service (id.). Berkshire states that these assets will be transferred to
the propane subsidiary at net book value (id.).
Berkshire proposes that all transfers of rate-base assets will be made
at the higher of net book value or fair market value in accordance with 220
C.M.R. [Section Sign]12.04(1) (Companies Brief at 23-24). Berkshire states
that its proposal maximizes the value of the asset and ensures that the
benefits from the sale or transfer are passed on appropriately to the
utility's ratepayers (id. at 24). Further, Berkshire proposes that any
asset transfers from an affiliate to Berkshire will be at a rate not higher
than the fair market value of the asset (id.). In addition, Berkshire has
indicated that it will provide, as part of its initial filing in future rate
case proceedings, detailed information concerning asset transfers made since
the end of the test year used in the Company's previous rate case filing
(Exh. DTE-1-20).
2. Analysis and Findings
Regarding the transfer of facilities associated with the propane
operation to the propane subsidiary at net book value, the Department
approves the transfer. In fact, the facilities were never included in
Berkshire's rate base. Further, we find that the asset transfer pricing
proposals put forth by Berkshire are consistent with the Department's
Standards of Conduct. 220 C.M.R. [Section Sign]12.04. Therefore, in
accordance with the Companies' proposal, the Department directs the
Companies to price any rate-base asset transfers from Berkshire to its
affiliates at the higher of net book value or fair market value, and to
price any asset transfers from an affiliate to Berkshire at no higher than
the market price for the asset. Further, we also expect Berkshire to comply
with the other requirements of 220 C.M.R. [Section Sign]12.04, including the
requirement to maintain a log of all transactions with affiliated companies.
VI. MANAGEMENT AGREEMENT
A. Description
The Companies state that BER will have no employees of its own, beyond
its three officers, for some time to come. However, it will be required to
maintain some corporate functions, such as shareholder relations, investor
relations, and accounting and legal operations (Exh. BG-MJM-1, at 13). In
order to provide BER with the requisite services, the Company entered into a
Management Agreement with BER (id.; Exh. BG-MJM-6). In response to a record
request from the Department, Berkshire provided a revised Management
Agreement(8) ("Revised Agreement") in order to reflect more clearly its
intent regarding the pricing of services by Berkshire for BER (RR-DTE-4(a)).
The Revised Agreement provides that Berkshire will furnish BER and its
affiliates specific services upon request, provided that the Company has
available personnel and resources (id. at 2). If, after consultation with
BER, the Company determines that third-party services are necessary,
Berkshire will arrange for the appropriate services on behalf of BER (id.).
___________________
(8) Berkshire provided revised language stating explicitly that as
compensation for services rendered by Berkshire, BER will pay the
higher of fully allocated costs or fair market value where a
measurable market exists for the service.
BER would request the desired services on an as-needed basis through
purchase orders, which may be amended from time to time through written
change orders (id. at 2-3). In return, BER would compensate Berkshire for
those services, based on direct labor, indirect labor, and capital
expenditures (id.). Berkshire proposes to charge BER the higher of (1) the
fully-allocated costs for the services provided or (2) a rate based on the
fair market value of those services provided to BER, as determined by
Berkshire, if there is a measurable market for such services (id. at 3). If
Berkshire's charges to BER are different from the Company's full embedded
costs, the Company will record reasonable third-party offers to provide like
services at market prices, and will maintain records comparing each rate to
Berkshire's own marginal costs of providing such services (id. at 4).
The Company states that it considered the merits of forming a service
company to provide services to BER and its subsidiaries instead of entering
into a management services agreement (Exh. DTE-1-12). The Company contends
that, initially, the proposed corporate structure would be relatively simple
and a service company is not warranted (id.). Berkshire states that if a
more complex corporate structure evolves with more than one regulated
utility, then the formation of a service company may be appropriate (id.).
Further, the Company asserts that the allocation factors established under
the Management Agreement address any potential concerns that would justify a
service company (id.). Therefore, the Company concludes, at this time, that
there would be no advantage gained by the formation of a service company
(id.). However, Berkshire stated that it will continue to evaluate the
merits of forming a service company (id.).
B. Analysis and Findings
Section 94B subjects contracts entered into by gas companies and an
affiliated company to Department review and approval. In evaluating
[Section Sign] 94B proposals, the Department requires utilities to
demonstrate that (1) the proposal provides a reasonable method of allocating
liabilities and benefits between a utility company and its affiliate, and
(2) the methods employed in structuring the proposal are sufficient to
protect the interests of a utility company's ratepayers. In addition, such
contracts are required to be consistent with the Standards of Conduct. 220
C.M.R. [Section Sign]12.00 et. seq.
The holding company structure we approve here is relatively simple and
only a very limited number of employees would be providing services to
Berkshire and its un-regulated affiliates. The Department has examined the
cost allocation method proposed by Berkshire, which applies allocation
factors specifically developed for the company in its most recent base rate
proceeding. The Berkshire Gas Company, D.P.U. 92-210 (1993). The
Department's Standards of Conduct state that a distribution company may
provide services to an affiliate provided that the price charged for such
services is equal to or greater than the distribution company's fully
allocated cost to provide the service. 220 C.M.R. [Section Sign] 12.04(2).
This pricing policy provides sufficient assurance that affiliates will not
gain competitive advantages at the expense of ratepayers. 220 C.M.R.
[Section Sign]12.00 et. seq.. Therefore, the Department approves the
Revised Agreement.(9)
___________________
(9) The Department notes that the actual implementation of the Management
Agreement must comply with all of the Standards of Conduct, including 220
C.M.R. [Section Sign] 12.03(4), related to non-discriminatory access to
certain products and services provided by the distribution company to a
competitive energy affiliate.
Regarding the formation of a service company, while a well-structured
service company may result in an allocation of common costs among multiple
affiliates that is more explicit than what may be offered through a
management services arrangement, the formation of a service company would be
a form of corporate separation, which the Department has previously
determined that we lack clear authority to mandate. D.P.U./D.T.E. 97-63, at
65. Further, the Department is persuaded by the Company's argument that
given the relatively simple holding company structure we approve here, at
this time a service company does not appear to be warranted. However,
future circumstances (for example, mergers, acquisitions, or further energy
diversification) might make a service company's creation beneficial to
ratepayers. Therefore, the Company is directed to continue to evaluate the
merits of a service company, as it has already indicated it intends to do.
VII. TAX SHARING AGREEMENT
A. Description
The proposed Tax Sharing Agreement provides that, each year, BER and
its subsidiaries, including Berkshire, would calculate their income tax
liability on a stand-alone basis (Exhs. BG-MJM-1, at 14; BG-MJM-7). In
turn, each subsidiary would make tax payments to BER based on the
calculation of its stand-alone tax liability, if any liability exists (Exh.
BG-MJM-1, at 14). In the event that a subsidiary generates a tax loss or
other tax benefit that is available to BER in its consolidated income tax
return, BER would make payments to the subsidiary consistent with the value
of such tax benefits at the marginal tax rate (id.). According to the
Companies, because certain tax items must be treated on a consolidated
basis, to the extent that a particular subsidiary's specific tax benefits
are applied to the consolidated return, that subsidiary is allocated the
benefit of that tax item for purposes of determining its share of the
consolidated tax liability (Exh. BG-MJM-7). Payments of any amount due
under the tax sharing agreement may be made in cash or otherwise recognized
on the books of BER and its subsidiary (id.).
B. Analysis and Findings
The Tax Sharing Agreement requires Berkshire to potentially advance
funds to BER in connection with the filing of a consolidated tax return.
This payment could be considered an advance that would require Department
approval pursuant to G.L. c. 164, [Section Sign] 17A. Pursuant to G.L. c.
164, [Section Sign] 17A, a gas or electric company must obtain written
Department approval in order to "loan its funds to, guarantee or endorse the
indebtedness of, or invest its funds in the stock, bonds, certificates of
participation or other securities of, any corporation, association or
trust...." The Department has indicated that such proposals must be
"consistent with the public interest," that is, a [Section Sign] 17A
proposal will be approved if the public interest is at least as well served
by approval of the proposal as by its denial. The Bay State Gas Company,
D.P.U. 91-165, at 7 (1992).
The Department has stated that it will interpret the facts of each
[Section Sign] 17A case on its own merits. A determination that the
proposal is consistent with the public interest considers the overall
anticipated effect on ratepayers of the potential harms and benefits of the
proposal by weighing a number of factors, including, but not limited to:
the nature and complexity of the proposal; the relationship of the parties
involved in the underlying transaction; the use of funds associated with the
proposal; the risks and uncertainties associated with the proposal; the
extent of regulatory oversight on the parties involved in the underlying
transaction; and the existence of safeguards to ensure the financial
stability of the utility. D.P.U. 91-165, at 8. The Department finds that
the Tax Sharing Agreement provides a reasonable method of allocating
liabilities and benefits among the Company, BER, and its other affiliates.
The Department also finds that the methods employed in the Tax Sharing
Agreement are sufficient to protect the interests of the Company's
ratepayers. Accordingly, the Tax Sharing Agreement is approved.
VIII. STOCK ISSUANCE
A. Standard of Review
In order for the Department to approve the issuance of stock, bonds,
coupon notes, or other types of long-term indebtedness,(10) the Department
must determine that the proposed issuance meets two tests. First, the
Department must assess whether the proposed issuance is reasonably necessary
to accomplish some legitimate purpose in meeting a company's service
obligations, pursuant to G.L. c. 164, [Section Sign] 14. Fitchburg Gas &
Electric Light Company v. Department of Public Utilities, 395 Mass. 836, 842
(1985) ("Fitchburg II") citing Fitchburg Gas & Electric Light Company v.
Department of Public Utilities, 394 Mass. 671, 678 (1985) ("Fitchburg I")).
Second, the Department must determine whether the Company has met the net
plant test.(11) Colonial Gas Company, D.P.U. 84-96 (1984).
___________________
(10) Long-term refers to periods of more than one year after the date of
issuance. G.L. c. 164, [Section Sign] 15A.
(11) The net plant test is derived from G.L. c. 164, [Section Sign] 16.
The Court has found that, for the purposes of G.L. c. 164, [Section
Sign] 14, "reasonably necessary" means "reasonably necessary for the
accomplishment of some purpose having to do with the obligations of the
company to the public and its ability to carry out those obligations with
the greatest possible efficiency." Fitchburg II at 836, citing, Lowell Gas
Light Company v. Department of Public Utilities, 319 Mass. 46, 52 (1946).
In cases where no issue exists about the reasonableness of management
decisions regarding the requested financing, the Department limits its
[Section Sign] 14 review to the facial reasonableness of the purpose to
which the proceeds of the proposed issuance will be put. Canal Electric
Company, et al., D.P.U. 84-152, at 20 (1984); see, e.g., Colonial Gas
Company, D.P.U. 90-50, at 6 (1990). The Fitchburg I and II and Lowell Gas
cases also established that the burden of proving that an issuance is
reasonably necessary rests with the company proposing the issuance, and that
the Department's authority to review a proposed issuance "is not limited to
a 'perfunctory review'." Fitchburg I at 678; Fitchburg II at 842, citing
Lowell Gas at 52.
Where issues concerning the prudence of the Company's capital
financing have not been raised or adjudicated in a proceeding, the
Department's decision in such a case does not represent a determination that
any specific project is economically beneficial to a company or to its
customers. In such circumstances, the Department's determination in its
Order may not in any way be construed as ruling on the appropriate
ratemaking treatment to be accorded any costs associated with the proposed
financing. See, e.g., Boston Gas Company, D.P.U. 95-66, at 7 (1995).
Regarding the net plant test, a company is required to present
evidence that its net utility plant (original cost of capitalizable plant,
less accumulated depreciation) equals or exceeds its total capitalization
(the sum of its long-term debt and its preferred and common stock
outstanding) and will continue to do so following the proposed issuance.
Colonial Gas Company, D.P.U. 84-96, at 5 (1984). If the Department
determines at that time that the fair structural value of the net plant and
land and the fair value of gas inventories owned by such a utility are less
than its outstanding stock and debt, it may prescribe such conditions and
requirements as it deems best to make good within a reasonable time the
impairment of the capital stock. G.L. c. 164, [Section Sign] 16.
B. Mergeco
1. Description of Proposal
Mergeco has an authorized capitalization consisting of 200,000 shares
of common stock, $1 par value, of which 100 shares have been subscribed for
by BER, and which, subject to the approval of the Department, will be issued
and sold to BER at a price of $1 per share (Restructuring Petition at 2).
The Companies request that the Department authorize and approve the proposed
issuance of 100 shares of Mergeco common stock to BER (id. at 5). The
Companies claim the proposed issuance is reasonably necessary to effect the
holding company structure (id.).
2. Analysis and Findings
The Department finds that the issuance of 100 shares of common stock
by Mergeco, at a par value of $1.00, is a necessary mechanism for the
purpose of forming Mergeco and thus effecting the proposed merger.
Accordingly, the Department finds that the proposed stock issuance is
reasonably necessary and is in accordance with G.L. c. 164, [Section Sign]
14.
With regard to the net plant test of G.L. c. 164, [Section Sign] 16,
the record indicates that Mergeco has no assets and, thus, cannot meet the
net plant test. However, the Department notes that the intended purpose of
the stock issuance is to set up a transient framework of the consummation of
the merger and acquisition of Berkshire by BER. The merger would extinguish
the corporate existence of Mergeco, and consequently, remedy any net plant
deficiency of Mergeco. D.T.E. 98-27, at 74. The purpose of the net plant
test is to protect investors from hidden watering of stock. Id.
Application of the net plant test has no place in a transaction as patent
and transparent as the instant one. Id. No public protective purpose
would be served by applying the test here. It is sufficient to note that
the transaction is structured to prevent any adverse risk to the investing
public and immediately to correct any theoretical problems with Mergeco
shares. Id. Therefore, the Department finds it unnecessary to impose
further conditions on Mergeco under G.L. c. 164, [Section Sign] 16.
C. Dividend Reinvestment Plan Stock Issuance
1. Description of the Proposed Financing
The Company requests approval by the Department of the issuance and
sale from time to time of up to 200,000 additional shares of authorized
common stock pursuant to the Company's Dividend Reinvestment and Stock
Purchase Plan (DRIP Petition at 1). According to the Company, the net
proceeds of such issuances and sales will be applied to repay short-term
bank loans incurred from time to time for the purpose of financing additions
to the Company's property, plant, and equipment and for such other uses as
the Department may authorize (id. at 4). The Company states that
participants in the DRIP may invest in additional shares of common stock by
(1) having cash dividends on all or a portion of their shares automatically
reinvested, (2) investing in additional common stock by making optional cash
payments at any time in any amount from a minimum $15.00 in any calendar
month to a maximum of $5,000 in any calendar quarter, and (3) investing both
their cash dividends and optional cash payments (Exh. DTE-2-1(c) at 1). The
price of shares purchased by participants in the DRIP is established at 97
percent of the average of the daily high and low sales price of the
Company's common stock in the over-the-counter market(12) during the five
consecutive trading days ending on and including the day of purchase (id.).
In the event that the discounted common share price falls below the book
value of the stock, the three percent discount will be suspended until such
time as the price exceeds the book value (id.). The Company also declares
that no shares will be available for purchase under the DRIP at less than
par value (id.). Participation in the DRIP is optional and is available to
holders of ten or more shares of common stock or to any employee of the
Company who owns one or more shares of common stock (id. at 4). The Company
states that the DRIP is administered externally by Boston EquiServe,
associated with State Street Bank and Trust Company (Exh. DTE-2-6). All
administrative fees for the DRIP are paid by the shareholders (id.; Tr. at
50).
___________________
(12) The price of the Company's common stock is currently quoted in the
NASDAQ National Market Stock tables.
The Company entered into evidence the certificate of vote taken by the
board of directors on August 29, 1998, which authorized the issue and sale
of 200,000 additional shares of common stock pursuant to the DRIP (Exh. BG-
MJM-12). As of June 30, 1998, 4,600,000 shares of common stock were
authorized by shareholders for issuance for proper corporate purposes,
including issuance pursuant to the DRIP. As of June 30, 1998, 2,315,914
authorized shares of common stock were actually issued and outstanding, and
69,307 authorized shares of common stock were still reserved for issuance
and sale under the DRIP (DRIP Petition at 2). Previously, the Department
has approved the issuance and sale by the Company of a number of shares
pursuant to the DRIP. See D.P.U. 40 (1980) (approving initial issuance of
common stock under the DRIP); D.P.U. 84-219 (1984); D.P.U. 89-59 (1989);
D.P.U. 90-83 (1990); D.P.U. 93-182 (1992); and D.P.U. 96-64 (1996).
2. Capital Structure of the Company
As of June 30, 1998, the Company's capitalization comprised
$40,000,000 long-term debt, consisting of senior notes of $24,000,000, first
mortgage bonds series P of $10,000,000, and a current portion of long-term
debt in the amount of $6,000,000 (Exhs. BG-MJM-10, at Sch. 4; BG-MJM-11, at
25 of the Annual Report to shareholders); 2,315,914 shares of common stock,
authorized and outstanding, having a par value of $2.50 per share and a
total par value of $5,789,785; 3,212 shares of preferred stock, authorized
and outstanding, having a par value of $100 per share and a total par value
of $321,200; and a premium on common stock of $18,835,026 (DRIP Petition at
1). The total capitalization of the Company, as of June 30, 1998, is
therefore equal to $64,946,011.(13)
___________________
(13) The total capitalization of $64,946,011 is equal to the sum of
$40,000,000 long-term debt, plus $5,789,785 total par value of common
stock, plus $321,200 total par value of preferred stock, plus
$18,835,026 premium on common stock.
3. Analysis and Findings
The Department, pursuant to G.L. c. 164 [Section Sign] 16, requires
any company requesting approval to issue new stock, bonds, or other
securities to demonstrate that its net utility plant supports the additional
amount of financing. Colonial Gas Company, D.P.U. 84-96, at 8 (1984).
Under the net plant test, a company must present evidence showing that its
net utility plant (utility plant less accumulated depreciation) is equal to
or greater than its total capitalization (the sum of long-term debt,
preferred stock and common stock outstanding). Id. at 5.
As of June 30, 1998, the Company's utility plant in service was
$106,057,000, with accumulated depreciation of $31,371,000 resulting in net
utility plant in service of $74,686,000 (Exh. BG-MJM-10, at Sch. 3). As of
June 30, 1998, the Company's total capitalization consisted of $64,946,011,
resulting in an excess of net utility plant in service over outstanding
capital of $9,739,989 (id.). The proposed issuance of 200,000 shares plus a
remaining balance of 69,307(14) shares authorized but not issued yet would
increase the total capitalization of $6,073,546,(15) resulting in an excess
of net utility plant over outstanding capital of $3,666,443. Therefore,
under the Department's precedent regarding the calculation of the net plant
test, the Department finds that the Company's proposed financing meets the
net plant test.
___________________
(14) The computation of the net plant test takes account of 69,307 shares
of common stock previously authorized by the Department in D.P.U. 96-
64 but that are still unissued.
(15) The amount of $6,073,546 is equal to the total value (total par value
plus premium on common stock) of 269,307 shares of common stock
computed at the price of $23.25 per share less the 3 percent discount
established in the Company's DRIP (Exh. BG-MJM-10, at Sch. 4).
The Department also finds that the evidence presented in this case
demonstrates that the Company intends to use the proceeds of the proposed
financing to reduce short-term debt(16) incurred to finance additions to the
Company's plant, property and equipment and to provide permanent financing
to such additions (Exhs. BG-MJM-10, at 5; DTE-2-2). Accordingly, the
Department finds that the Company's proposed issuance of an additional
200,000 shares of common stock is reasonably necessary for the purposes for
which it is proposed. Issues concerning the prudence of the Company's
financing have not been addressed in this proceeding, and the Department's
decision in this case does not represent a determination that any project is
economically beneficial to the Company or its customers. The Department
emphasizes that its determination in this Order shall not in any way be
construed as a ruling relative to the appropriate rate making to be accorded
any costs associated with the proposed financing.
___________________
(16) As of June 30, 1998, the Company recorded $7,085,000 as short-term
indebtedness (Exh. DTE-2-2; DRIP Petition at 2; Tr. at 12).
IX. EXEMPTION FROM SEPARATION REQUIREMENTS OF THE STANDARDS OF CONDUCT
A. Introduction
The Company states that initially, the employees of BER will consist
only of its three officers, Scott S. Robinson, Michael J. Marrone, and
Cheryl M. Clark (Exh. BG-MJM-8). The three BER officers are, and will
continue to be, along with Robert M. Allessio, officers of Berkshire (Exh.
BG-MJM-9). These four individuals will also serve as officers of the
proposed competitive affiliates, Berkshire Propane, Inc. and Berkshire
Energy Marketing, Inc., the latter of which the Company indicated would
constitute a "competitive energy affiliate" as defined at 220 C.M.R.
[Section Sign]12.02(4) (Exemption Request at 2). Berkshire seeks an
exemption from the separation requirements of 220 C.M.R. [Section
Sign]12.03(15) for these individuals (Exemption Request at 4). Berkshire
asserts that as officers, these individuals will only be charged with senior
management or executive tasks and generally will not be involved in the day-
to-day operations of Berkshire Energy Marketing, Inc (id. at 3).
Currently, Berkshire does not have any affiliated entities.(17) After
the Department's approval of the proposed merger, BER expects to initially
operate two affiliates in non-regulated operations (Companies Brief at 20-
21). Berkshire states that it and its non-regulated affiliates will
maintain separate facilities, separate staffs (excepting the officers named
above), separate computer systems, and separate functions as required by 220
C.M.R. [Section Sign]12.00 et. seq. (Exemption Request at 3).
___________________
(17) As noted above, Berkshire Propane operates as a division of Berkshire.
B. Analysis and Findings
Pursuant to the Standards of Conduct, an exemption from the
prohibition of sharing employees may be granted upon a showing that the
shared employees would be in the best interests of the ratepayers, have
minimal anti-competitive effect, and that the costs can be fully allocated
between the distribution company and its affiliate. 220 C.M.R. [Section
Sign] 12.03(17).
The Companies state that, because Berkshire has a small executive
staff, its costs would increase and consequently rates for the regulated
utility would increase, if it is compelled to have separate directors and
officers for its distribution company (Exemption Request at 3; Tr. at 41-
42). The Companies state that the four officers who will be shared by
Berkshire and its unregulated affiliates will not be involved in the day-to-
day operations of the entities and will not provide any competitively
sensitive information to such affiliate (Exemption Request at 3). Further,
the Companies note that the non-regulated businesses will be conducted
separately from the regulated business at the operational level, with
separate operational staff, separate computer systems, and separate
facilities (id.). The Department recognizes that there may be separation of
the regulated company from the competitive energy affiliate at the
operational level, but there is no evidence in the record that assuages our
concern that the sharing of management employees between a distribution
company and a competitive energy affiliate would not result in the very
anti-competitive activity that 220 C.M.R. [Section Sign] 12.03(15) is meant
to eliminate. This competitive risk outweighs the prospect of savings for
ratepayers derived from having Berkshire share officers with its competitive
affiliates. Because the Companies have the burden of proof in seeking an
exemption pursuant to 220 C.M.R. [Section Sign] 12.03(17), the lack of
sufficient record evidence regarding competitive protections is fatal to
Berkshire's request, although the Companies may renew their request for an
exemption and proffer further evidence on this issue.
Based on the foregoing analysis, the Department finds that the
Companies have failed to meet their burden for seeking an exemption from the
separation requirements of 220 C.M.R. [Section Sign] 12.03(15), and
therefore the request is denied, without prejudice(18).
___________________
(18) COM/Energy has raised similar issues regarding the separation
requirements of the Standards of Conduct in a letter to the
Department, dated July 31, 1998. The Department will address these
issues.
X. ORDER
After due notice, hearing and consideration, the Department
VOTES: That pursuant to Section 14 of Chapter 164, the proposed
issuance of common stock of Berkshire Gas Mergeco Gas Company, Inc. to BER
is reasonably necessary to effect corporate restructuring; and
VOTES: That pursuant to Section 14 of Chapter 164, the proposed
issuance of common stock of Berkshire Gas Mergeco Gas Company, Inc. to BER
is in the public interest; and
VOTES: That the issuance and sale, from time to time, by Berkshire Gas
Company of not in excess of 200,000 shares of common stock, $2.50 par value,
pursuant to its Share Owner Dividend Reinvestment and Stock Purchase Plan,
is reasonably necessary for the purpose for which the Company has
petitioned; and it is
ORDERED: That pursuant to Section 14 of Chapter 164, the issuance by
Mergeco of 100 shares of its common stock to BER in consideration of payment
of $100 by BER is hereby approved and authorized; and it is
FURTHER ORDERED: That pursuant to Section 96 of Chapter 164, the
merger to form a holding company structure for Berkshire and the terms
thereof are consistent with the public interest; and it is
FURTHER ORDERED: That pursuant to Section 96 of Chapter 164, the
Agreement and Plan of Merger dated as of February 19, 1998, and the merger
of Mergeco into Berkshire pursuant thereto is hereby approved and
authorized; and it is
FURTHER ORDERED: That pursuant to Sections 17A and 94B of Chapter 164,
the Tax Sharing Agreement between Berkshire and BER is hereby approved and
authorized; and it is
FURTHER ORDERED: That pursuant to Section 94B of Chapter 164, the
Department approves the Management Services Agreement between Berkshire and
BER, and it is
FURTHER ORDERED: That the Department denies, without prejudice,
Berkshire's request for an exemption from any applicable restrictions within
220 C.M.R. [Section Sign]12.03(15) with respect to the four senior
executives that will serve Berkshire and its proposed non-regulated energy
marketing affiliate to be known as Berkshire Energy Marketing, Inc.; and it
is
FURTHER ORDERED: That the Department hereby approves and authorizes
the issuance and sale from time to time of not in excess of additional
200,000 Berkshire shares of common stock, $2.50, par value, pursuant to its
Share Owner Dividend Reinvestment and Stock Purchase Plan; and it is
FURTHER ORDERED: That the net proceeds from Berkshire's issuance and
sale of all such securities issued pursuant to its Share Owner Dividend
Reinvestment and Stock Purchase Plan shall be used for the purposes set
forth herein; and it is
FURTHER ORDERED: That the Secretary of the Department notify the
Secretary of State of the issuance of stock and deliver a certified copy of
this Order to the Secretary of State within five business days hereof; and
it is
FURTHER ORDERED: That Berkshire comply with all directives contained
in this Order.
By Order of the Department,
/s/ Janet Gail Besser
_____________________________
Janet Gail Besser, Chair
/s/ James Connelly
_____________________________
James Connelly, Commissioner
/s/ W. Robert Keating (jgb)
_____________________________
W. Robert Keating, Commissioner
/s/ Paul B. Vasington (jc)
_____________________________
Paul B. Vasington, Commissioner
/s/ Eugene J. Sullivan
_____________________________
Eugene J. Sullivan, Jr., Commissioner
A true copy
Attest
/s/ Mary L. Cottrell
_________________________________
Mary L. Cottrell, Secretary
Appeal as to matter of law from any final decision, order or ruling of the
Commission may be taken to the Supreme Judicial Court by an aggrieved party
in interest by the filing of a written petition praying that the Order of the
Commission be modified or set aside in whole or in part.
Such Petition for appeal shall be filed with the Secretary of the Commission
within twenty days after the date of service of the decision, order or filing
of the Commission, or within such further time as the Commission may allow
upon request filed prior to the expiration of twenty days after the date of
service of said decision, order or ruling. Within ten days after such petition
has been filed, the appealing party shall enter the appeal in the Supreme
Judicial Court siting in Suffolk County by filing a copy thereof with the
Clerk of said Court. (Sec. 5, Chapter 25, G.L. Ter. Ed., as most recently
amended by Chapter 485 of the Acts of 1971).
