<PAGE>
File No. 70-7055
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 23
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NEW ENGLAND ENERGY INCORPORATED
25 Research Drive
Westborough, Massachusetts 01582
(Name of companies filing this statement and
address of principal executive offices)
NEW ENGLAND ELECTRIC SYSTEM
(Name of top registered holding company in parent system)
John G. Cochrane Robert King Wulff
Treasurer Corporation Counsel
25 Research Drive 25 Research Drive
Westborough, MA 01582 Westborough, MA 01582
(Names and address of agents for service)
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Purpose of Post-Effective Amendment No. 23
- ------------------------------------------
Form U-1 Application/Declaration in this File No. 70-7055, as
most recently amended by Post-Effective Amendment No. 22, became
effective by Order of the Commission dated December 21, 1993 (HCAR
35-25958), as supplemented by Order dated August 24, 1994 (HCAR
35-26110). Form U-1, as previously amended, is further amended by
this Post-Effective Amendment No. 23, by which New England Energy
Incorporated (NEEI) seeks Commission authorization to extend
through 1998 authorization to contribute up to an additional
$30 million to its partnership with Samedan Oil Corporation (the
Partnership) for exploration and development of existing oil and
gas prospects of the Partnership. This authorization excludes
management fee payments made to Samedan pursuant to the Partnership
Agreement.
Item 1. Description of Proposed Transaction
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A. Background
-------------
NEEI is a subsidiary of New England Electric System (NEES), a
registered holding company under the Public Utility Holding Company
Act of 1935 (the Act), engaged in various activities relating to
fuel supply for the NEES system as authorized by the Commission.
These activities have included participation in ventures for
acquisition, exploration, development and production of oil and
gas, the conversion of such production by sales to non-affiliates,
and the sale of fuel to its affiliate, New England Power Company
(NEP). NEEI is also authorized to engage in fuel procurement and
inventory transactions, and transportation of fuel for NEP. NEP is
the generation and transmission subsidiary of the NEES system and
provides electric energy at wholesale principally to the retail
operating companies within the NEES system.
The Commission originally authorized NEEI's participation in
oil and gas exploration and development activities in 1974 (HCAR
No. 18635). Since that date, NEEI has participated in these
activities principally through its Partnership with Samedan, a
subsidiary of Noble Affiliates, Inc. The Partnership was also
authorized in the Commission's original order in 1974, and the
relationship between NEEI and Samedan has been thoroughly
documented in this File and File Nos. 70-5543 and 70-6823.
Since January 1, 1987, the Partnership has ceased to
participate in new prospects. Samedan continues to manage the
exploration, development and production of Partnership prospects
initiated before that date. Management of properties includes, in
addition to the operation of producing wells, further exploration
and development of existing oil and gas prospects and marketing of
production. Under their Partnership agreement, NEEI and Samedan
<PAGE>
are obligated to make capital contributions to be used to pay the
costs and expenses of the Partnership.
As managing partner, Samedan evaluates Partnership prospects
for potential oil and gas reserves on the basis of geological and
geophysical testing, examination and analysis. Samedan is also
responsible for determining what exploration and/or development of
prospects can be economically carried out given prevailing and
expected market and other conditions. As a 50% owner of
Partnership properties, Samedan has a clear financial stake in the
economical exploration, development, and production of reserves.
B. Summary of Results of NEEI Program
-------------------------------------
Special Considerations Concerning NEEI Old Properties
and New Properties
-----------------------------------------------------
Pursuant to the Commission's Order dated October 22, 1985 in
File No. 70-6958, NEEI's interests in properties owned by the
Partnership are divided into (i) prospects recorded on NEEI's books
at December 31, 1983 (Old Properties or Old Program), and (ii)
prospects recorded on NEEI's books after December 31, 1983 (New
Properties or New Program). All properties owned by the
Partnership are managed by Samedan as a whole without distinction
as to acquisition dates.
NEEI Old Program
----------------
The Old Program is composed of prospects entered into through
December 31, 1983. NEEI has invested approximately $807 million in
exploration and development of Old Program properties through
June 30, 1994. This investment has resulted in the discovery of
58 million equivalent barrels of proved and probable oil and gas
reserves from Old Program properties. This figure includes
44 million equivalent barrels already produced. Revenue associated
with this production has totaled approximately $663 million.
All costs and expenses related to NEEI's interest in its Old
Program, including exploration and development costs and capital
costs (but excluding any return after 1982 on equity invested in
the program) are capitalized into a Full Cost Pool. In accordance
with the modified Pricing Policy, these costs in the Full Cost Pool
are amortized and passed through to NEP under the Fuel Purchase
Contract. Losses of $46.4 million incurred by NEEI in 1993 are
being passed on to NEP under the Fuel Purchase Contract during
1994, and are being recovered by NEP from its customers. For the
six months ended June 30, 1994, NEEI has accrued losses of
approximately $21 million.
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Total amortization costs of the Full Cost Pool plus production
expenses associated with Old Properties' production have been and
are expected to remain above market prices for that production.
However, the market value of production and reserves added by
continued development and production of these properties is
expected to be greater than the costs associated with these
exploration, development and production activities. Continued
development, therefore, maximizes the value of the properties and
minimizes the costs to NEP and its ratepayers.
The most recent internal review of the Old Program was
conducted in June, 1994. That review included an analysis of the
impact on NEP's ratepayers from a sale of the Old Program
properties versus continuing to produce out these properties.
Numerous assumptions about crude oil and natural gas prices,
reserve additions, exploration and development spending, and the
timing of production and interest rates were made. These
assumptions are outlined in Exhibits G-2, H-1, and H-2 of this
filing. The estimated present value of future losses to NEP's
ratepayers from producing out the Old Program properties under
these assumptions range from ($114) million to ($139) million. See
Exhibit I. Based on 1993 and the first quarter of 1994 market
transactions for reserve purchases of approximately $4.25 per
equivalent barrel as reported in Strevig & Associates, an industry
publication, NEEI estimates that a sale of Old Program properties
at the end of 1994 would yield proceeds of about $50 million.
After subtracting from these proceeds the estimated remaining
unrecovered full cost pool amount at December 31, 1994 of
$280 million and reflecting permanent tax benefits of $15 million,
NEP's ratepayers would be facing an immediate loss of ($247)
million including 1994's estimated loss of $32 million (see Exhibit
H-3). From the perspective of NEP's ratepayers, NEEI believes that
this review clearly demonstrates that producing out the Old Program
properties is in the best interests of NEP's ratepayers.
NEEI management continues to review the economic outlook for
NEEI's oil and gas properties. At this time, NEEI believes that
proceeding with economical exploration and development of existing
prospects is necessary to maximize their full value for the benefit
of NEP's ratepayers.
C. Contributions to the Partnership through 1998
-------------------------------------------------
NEEI expects to be required by the Partnership Agreement to
invest up to a total of $30 million in the Partnership through 1998
and requests authorization of the Commission to invest up to that
amount in the Partnership. This amount is based on NEEI's
understanding of the operators' current geologic knowledge and
interpretation of economic conditions. Included in this request is
approximately $5 million for future plugging and abandonment costs
and removal of platforms. However, technical difficulties and
uncertainty involving these projects may result in higher costs to
<PAGE>
abandon these prospects in compliance with provisions in the leases
or governing statutes. NEEI estimates that almost all of this
investment will be related to the Old Program. Minimal investments
may also be required, however, in the two remaining New Program
properties. In addition, NEEI expects to pay Samedan $4 million in
management fees through 1998. NEEI's investment request does not
include management fees, which NEEI considers an operating type
expense. This new authority will take effect upon granting of
Commission authorization and will supplement any remaining
authority in 1994.
However, since estimates only approximate those costs that
will actually be incurred through 1998, NEEI requests authority to
invest in the Partnership through 1998 up to an additional
$10 million in order to provide for contingencies. Because of the
possible need to make this additional investment on short notice,
NEEI requests that the Commission include in its notice this
request for an additional $10 million in order that by a further
filing when and if the need arises, NEEI may receive Commission
approval of this $10 million without the need for publishing an
additional notice.
Exhibit G-1 shows NEEI's estimated sources and uses of funds
through 2005 and shows that NEEI will finance its investments in
the Partnership through 2005 from a combination of the following
sources: (i) production revenues, (ii) payments from NEP including
collection of losses under the Fuel Purchase Contract,
(iii) investments from NEES, and (iv) bank loans. Exhibit G-2
shows NEEI's estimated production by year through 2000 and the
total remaining reserves to be produced after the year 2000.
Together, these exhibits clearly show that NEEI's oil and gas
program is winding down.
Item 2. Fees, Commissions and Expenses
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Services incidental to the transactions described herein will
be performed by New England Power Service Company at the actual
cost thereof. New England Power Service Company is an affiliated
service company operating pursuant to Section 13 of the Act and the
Commission's rules thereunder. The cost of such services is not
expected to exceed $5,000, of which $2,500 will be incurred by the
Corporate Department (including attorneys) and $2,500 by the
Treasury Department (including accountants). These amounts include
a $2,000 filing fee paid by wire transfer to the Commission at the
time of filing this Post-Effective Amendment No. 23.
Item 3. Applicable Statutory Provisions
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The proposed transactions require approval of the Commission
under sections 9(a) and 10 of the Act.
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Item 4. Regulatory Approval
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With respect to the proposed transactions for which
authorization is requested, no federal or state commission or
regulatory body, other than the Commission, has jurisdiction.
Item 5. Procedure
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Applicant requests that the Commission's order with respect to
this Amendment No. 23 be issued as soon as the rules allow.
Applicant (i) does not request a recommended decision by a
hearing officer, (ii) does not request a recommended decision by
any other responsible officer of the Commission, (iii) hereby
specifies that the Division of Investment Management may assist in
the preparation of the Commission's decision, and (iv) hereby
requests that there be no 30-day waiting period between the date of
issuance of the Commission's Order and the date on which it is to
become effective.
Item 6. Exhibits and Financial Statements
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Exhibits
G-1 NEEI Estimated Cash Flow through 2005
G-2 NEEI Estimated Production Program
H-1 West Texas Intermediate Crude Oil Price Projections
H-2 Wellhead Natural Gas Price Projections
H-3 NEP Customer Impact from January 1, 1995 Sale of NEEI Oil
and Gas Properties
I Present Value of Losses
N-1 Proposed Form of Notice
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned Company has duly caused
this Post-Effective Amendment No. 23 in the Commission's File No.
70-7055 to be signed on its behalf by the undersigned officer
thereunto duly authorized.
NEW ENGLAND ENERGY INCORPORATED
s/ John G. Cochrane
By
John G. Cochrane
Treasurer
Date: October 5, 1994
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EXHIBIT INDEX
-------------
Exhibit Description Page
- ------- ----------- ----
G-1 NEEI Estimated Cash Flow Filed
Through 2005 herewith
G-2 NEEI Estimated Production Filed
herewith
H-1 West Texas Intermediate Filed
Crude Oil Price Projections herewith
H-2 Wellhead Natural Gas Filed
Price Projections herewith
H-3 NEP Customer Impact from Filed
January 1, 1995 Sale of NEEI herewith
Oil and Gas Properties
I Present Value of Losses Filed
herewith
N-1 Proposed Form of Notice Filed
herewith
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<TABLE>
Exhibit G-1
Total NEEI Estimated Cash Flow
Through 2005
($ in Millions)
------------------------------
<CAPTION>
Sources 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Total
- ------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues* $ 49 $ 42 $ 32 $ 27 $ 22 $ 18 $ 14 $ 10 $ 7 $ 4 $ 1 $226
Tax Benefits/(Payable) (17) (15) (10) (7) (8) (8) (8) (6) (4) (3) (1) (87)
NEP Payments (Prior
Year Loss) 32 29 24 18 18 18 16 12 9 6 3 185
NEES Equity 2 2 2 2 2 2 2 1 0 0 0 15
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total $ 66 $ 58 $ 48 $ 40 $ 34 $ 30 $ 24 $ 17 $ 12 $ 7 $ 3 $339
Uses
- ----
Exploration & Development $ 12 $ 8 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 0 $ 0 $ 0 $ 50
Management Fee 2 1 1 1 1 1 1 0 0 0 0 8
Bank Interest 10 9 7 5 4 2 2 1 0 0 0 40
Production Expense, G&A 7 6 5 4 3 3 1 0 0 0 0 29
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total $ 31 $ 24 $ 18 $ 15 $ 13 $ 11 $ 9 $ 6 $ 0 $ 0 $ 0 $127
Available for Debt Payment 35 34 30 25 21 19 15 11 12 7 3 212
Bank Debt at Year-End $170 $136 $106 $ 81 $ 60 $ 41 $ 26 $ 15 $ 3 $ 0 $ 0
_______________
<FN>
*The production assumptions for the Old Program are contained in Exhibit G-2.
</TABLE>
<PAGE>
Exhibit G-2
NEEI Estimated Production Program
(MMBBLS Equivalent)
---------------------------------
Year Old Program
---- -----------
1994 3.6
1995 3.6
1996 3.1
1997 2.3
1998 2.0
1999 1.6
2000 1.2
----
Total through 2000 17.4
2001-2005 2.3
----
Grand Total 19.7
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Exhibit H-1
West Texas Intermediate Crude Oil
Price Projections
---------------------------------
Base Case Outside Experts
--------- ---------------
($/BBL) ($/BBL)
1994 16.00 15.75
1995 16.97 18.30
1996 18.18 19.80
1997 19.29 20.50
1998 20.27 21.50
1999 21.29 22.25
2000 22.15 22.95
2001 23.04 23.70
2002 23.97 24.45
2003 24.81 25.25
2004 25.69 26.05
2005 26.59 27.15
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Exhibit H-2
Wellhead Natural Gas
Price Projections
--------------------
Base Case Outside Experts
--------- ---------------
($/MCF) ($/MCF)
1994 2.22 2.29
1995 2.22 2.30
1996 2.22 2.42
1997 2.22 2.58
1998 2.22 2.71
1999 2.22 2.82
2000 2.27 2.94
2001 2.36 3.06
2002 2.45 3.20
2003 2.56 3.33
2004 2.66 3.47
2005 2.76 3.62
<PAGE>
Exhibit H-3
NEP Customer Impact
from January 1, 1995
Sale of NEEI Oil and Gas Properties
-----------------------------------
Estimated 12/31/94 Cost
of Fuel Reserves: $280.0 MM
Less: Estimated Sale Proceeds (50.0)
(12.2 MMBOE's @ $4.25 per BBL)
Less: Remaining Tax Benefits (15.0)
Plus: 1994 Accrued Loss (1) 32.0
------
Total Loss to NEP Customers $247.0 MM
---------------
(1) See Exhibit G-1.
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Exhibit I
Present Value of Customer Losses
from Producing Out Reserves
(10% Discount Rate)
--------------------------------
Price Cases
-----------------------------------
Loss:
Year Loss: Outside
Loss Paid Base Case Expert
- --------- --------- -------
1995 $ 32 MM $ 31 MM
1996 29 27
1997 24 20
1998 18 13
1999 18 13
2000 18 12
---- ----
Total through
2000 $139 $116
2001-2005 47 32
---- ----
Total $186 $148
==== ====
Discounted Value
@ 10% $139 MM $114 MM
<PAGE>
Exhibit N-1
PROPOSED FORM OF NOTICE
New England Energy Incorporated (NEEI), 25 Research Drive,
Westborough, Massachusetts, 01582, a subsidiary of New England
Electric System (NEES), a registered holding company, has filed a
Post-Effective amendment to its previously filed application
pursuant to sections 9(a) and 10 of the Act.
NEEI has been engaged since 1974 in various activities
relating to fuel supply for the NEES system, including
participation in ventures for exploration, development and
production of oil and gas, the conversion of such production, and
the sale of fuel to its affiliate, New England Power Company. NEEI
has participated in most of its oil and gas exploration and
development through its partnership with Samedan Oil Corporation
(Samedan), a subsidiary of Noble Affiliates, Inc.
NEEI seeks from the Commission authorization to contribute up
to $30 million to its partnership with Samedan (the Partnership)
through December 31, 1998, for exploration and development of
existing oil and gas prospects of the Partnership. In addition,
NEEI seeks Commission authorization to contribute up to an
additional $10 million to the partnership in order to provide for
contingencies. This authorization excludes management fee payments
made to Samedan. This new authority will take effect upon granting
of Commission authorization and will supplement any remaining
authority in 1994. NEEI has not participated in new oil and gas
prospects initiated after December 31, 1986.
