<PAGE>
File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NEW ENGLAND ELECTRIC SYSTEM
and
NEW ENGLAND ELECTRIC RESOURCES, INC.
(Name of company filing this statement)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
NEW ENGLAND ELECTRIC SYSTEM
(Name of top registered holding company parent in system)
Michael E. Jesanis Robert King Wulff
Treasurer Corporation Counsel
25 Research Drive 25 Research Drive
Westborough, Massachusetts 01582 Westborough, Massachusetts 01582
(Names and addresses of agents for service)
<PAGE>
New England Electric Resources, Inc. (NEERI), a wholly-owned, non-
utility subsidiary of New England Electric System (NEES), was organized for
the purpose of pursuing new business opportunities. By its order dated
September 4, 1992, the Commission specifically authorized NEERI to perform
consulting services on electric utility matters for non-affiliates (Release
No. 35-25621).
NEES is a registered holding company under the Public Utility Holding
Company Act of 1935 (the Act) owning electric utility subsidiaries, New
England Power Service Company (NEPSCO, a service company subsidiary), and an
energy company subsidiary (collectively, the System).
Neither NEES nor any subsidiary has an ownership interest in an exempt
wholesale generator (EWG) or foreign utility company (FUCO) as defined in
Sections 32 and 33 of the Act. Additionally, neither NEES nor any subsidiary
is a party to, or has any rights under, a service, sales or construction
agreement with an EWG or FUCO.
By its Order dated April 1, 1994, the Commission specifically authorized
NEERI to perform electrical related services for non-affiliates (Release No.
35-26017). Such services include designing, engineering, installing,
constructing and/or procuring electrical related materials. By its Order
dated May 25, 1994, the Commission specifically authorized NEERI to invest in
Quality Power Systems, Inc., a start-up company formed to develop, manufacture
and market a low harmonic distortion uninterruptible power supply (Release No.
35-26057).
In the Application/Declaration on Form U-1, File No. 70-7950, the
Applicants made the following statement: "To the extent that NEERI desires to
take advantage of new business opportunities outside of the consulting service
area, further authorization from the Commission would be sought". By the
present filing, NEERI seeks to obtain Commission approval to invest funds in
research and development activities in the areas of environmental, new
generation and transmission technologies, and electric end-use technologies.
NEERI also proposes to invest in local enterprises.
Item 1. Description of Proposed Transactions:
- ---------------------------------------------
A. Research and Development Fund
NEERI seeks approval to invest $10 million in pursuing research and
development activities in the areas of environmental, new generation and
transmission technologies, and electric end-use technologies. The research
and development activities will involve studies, investigations and research
in connection with evaluating business opportunities for NEERI. NEERI
anticipates that the electric industry will evolve rapidly over the next few
years due to a changing regulatory regime and increasing environmental
concerns. This business environment will present many problems requiring
innovative and prompt solutions. Not all candidate solutions will possess the
necessary mix of technical feasibility, environmental soundness and economic
viability to make them beneficial investments for NEERI or the System and its
customers and shareholders. NEERI's access to immediately available research
and development funds will permit it to promptly evaluate new technologies and
efficiently identify workable, beneficial solutions worthy of investment by
NEERI and the System. This research and development fund will allow NEERI to
investigate the technical and commercial viability of potential projects
thoroughly before making individual project participation filings with the
SEC.
The types of projects and technologies which NEERI intends to pursue
include, without limitation, the following:
<PAGE>
(1) Instrumentation for the continuous monitoring of pollutants
currently or potentially covered by Clean Air Act standards or
having negative operational impacts on electric generation
equipment.
(2) Biomass gasification technology to efficiently convert biological
waste into electricity. This would contribute to the fulfillment
of one of the System's environmental commitments made in NEESPLAN
4, its most recent planning study.
(3) Electro-osmotic and other electrical techniques for soil
demoisturization, hazardous waste containment, and heat pump
efficiency improvements.
(4) The development of fuel cell technology for the alternative
generation of electricity.
(5) Electro-technologies, energy efficiency and power quality
measures.
(6) Other developing environmental, new generation and transmission
technologies, and electric end-use technologies.
NEERI anticipates that $10 million will be sufficient to allow it to
investigate the above-mentioned technologies.
NEERI's research and development activities in the area of
environmental, new generation and transmission technologies, and electric end-
use technologies are functionally related to the electric utility business of
its affiliates in that they will advance the development of technologies that
may prove valuable to the System in its efforts to comply with the Clean Air
Act and other environmental regulation, and in its efforts to take advantage
of economic benefits derived from innovations in the area of electricity
generation and transmission, and electric end-use technologies.
Therefore, NEERI requests authorization through 1998 to invest up to
$10 million in research and development activities, as discussed above,
without further authorization by the Commission. In connection with the
above-mentioned research and development activities, NEERI may take some form
of ownership of the results of these activities, or, to some extent,
participate in the gross revenues generated by these activities. NEERI
agrees, however, that any acquisition of securities by it using any of the
research and development funds requested herein will remain subject to further
Commission authorization.
As NEERI enters into research and development projects, NEERI shall
provide details of these projects in its quarterly filings with the Commission
under Rule 24. NEERI will also break down its research and development fund
expenditures from its other expenditures and investments in its quarterly
filings filed at that time.
B. Investment in Local Enterprises
In the course of developing the above mentioned technologies, NEERI
anticipates acquiring securities of non-affiliated industrial or other non-
utility enterprises located within the service territory of its electric
utility affiliates ("Local Enterprises"). NEERI has not acquired, and does
not intend to acquire, securities of any industrial development companies
organized for the purpose of, and in accordance with a state law that
specifically relates to, promoting the development of business and industry in
the state, in an annual aggregate amount exceeding $5 million. NEERI's total
cost of acquiring securities of Local Enterprises will not exceed an annual
<PAGE>
aggregate amount of $1 million. No acquisition by NEERI pursuant to Rule
40(a)(5) will result in NEERI acquiring 5% or more of the voting securities of
any Local Enterprise. NEERI will not acquire securities in a Local Enterprise
where such acquisition would cause NEERI to become an affiliate of such Local
Enterprise within the meaning of the Act. Therefore, pursuant to the
exemption to Section 9(a) provided in Rule 40(a)(5), NEERI requests authority
to invest amounts not exceeding $1 million annually to acquire the securities
of Local Enterprises.
C. Financing by NEES
The Commission originally granted authority for NEES to provide
financing to NEERI in an amount not to exceed $1 million. (See Order dated
September 4, 1992, Release 35-25621.) The Commission later granted authority
for NEES to provide additional financing to NEERI in the amount of $1 million
(see Order dated April 1, 1994, Release No. 35-26017) and in the amount of
$250,000 (See Order dated May 25, 1994, Release No. 35-26057.) By Form U-1
Application/Declaration filed September 30, 1994 (File No. 70-8475), NEES
proposed to provide additional financing for NEERI by making capital
contributions up to an additional $11,700,000 and/or by lending to NEERI from
time to time additional amounts not to exceed $11,700,000 at any one time,
such loans to be in the form of non-interest bearing subordinated notes.
NEES now proposes to provide further additional financing for NEERI as
follows:
(1) $10 million for the purpose of NEERI's establishment of a research
and development fund; and
(2) up to $1 million annually for the purpose of NEERI's acquisition
of securities of Local Enterprises (the "Local Enterprise Fund").
NEES proposes to provide up to $1 million to NEERI for the Local
Enterprise Fund each succeeding year without further authorization
by the Commission.
NEES proposes to provide the above additional financing by making
capital contributions to NEERI up to an additional $10 million (exclusive of
the Local Enterprise Fund) and/or by lending to NEERI from time to time
additional amounts not to exceed $10 million (exclusive of the Local
Enterprise Fund) at any one time, such loans to be in the form of non-interest
bearing subordinated notes. The aggregate amount of all investments
(including amounts previously authorized by the Commission and amounts
previously proposed to be so authorized) by NEES in NEERI shall not exceed
$23.95 million (exclusive of the Local Enterprise Fund).
Item 2. Fees, Commissions and Expenses
- ---------------------------------------
Services incidental to the transactions described herein will be
performed by NEPSCO and billed to NEERI at the actual cost thereof. NEPSCO is
an affiliated service company operating pursuant to Section 13 of the Act and
the Commission's rules thereunder. The cost of such services to be paid by
NEERI is not expected to exceed $250,000, to be incurred primarily by the
Corporate Department (including attorneys) and 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
application/declaration.
Item 3. Applicable Statutory Provisions
- ----------------------------------------
Sections 6(a) and 7 are believed to be applicable to the issuance of
additional notes by NEERI.
<PAGE>
Sections 9(a), 10, 12, and Rule 45 are believed to be applicable to the
acquisition by NEES of additional notes of NEERI and the making of additional
capital contributions by NEES to NEERI.
Section 9(a) and Rule 40 are believed to be applicable to the
acquisition by NEERI of the securities of Local Enterprises.
Item 4. Regulatory Approval
- ----------------------------
No Federal or state commission or regulatory body, other than the
Commission, has jurisdiction over the proposed transactions.
Item 5. Procedure
- ------------------
The Applicants request that the Commission take action with respect to
this Application/Declaration without a hearing being held, on or before
December 15, 1994.
The Applicants (i) do not request a recommended decision by a hearing
officer, (ii) do not request a recommended decision by any other responsible
officer of the Commission, (iii) hereby specify that the Division of
Investment Management may assist in the preparation of the Commission's
decision, and (iv) hereby request that there be no 30-day waiting period
between the date of issuance of the Commission's Order and the date on which
it is to become effective.
Item 6. Exhibits:
- ------------------
(a) Exhibits
*F Opinion of Counsel
H Proposed Form of Notice
I Form of Subordinated Note
*To be filed by amendment
(b) Financial Statements
1-A Balance Sheet of NEES at June 30, 1994, actual and pro-forma
1-B Statement of Income and Retained Earnings for NEES for
twelve months ended June 30, 1994**
**The proposed transactions will have no material effect on the Income
Statement of NEES.
There were no material events, not in the ordinary course of business,
since the date of the balance sheets.
NEERI financial statements are filed quarterly with the Commission with
a Certificate of Notification pursuant to Rule 24.
Item 7. Environmental Effects
- ------------------------------
The transactions proposed by this Application/Declaration do not involve
a major Federal action significantly affecting the quality of the human
environment.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this Application/
Declaration on Form U-1 to be signed on their behalf, as indicated by the
undersigned officers thereunto duly authorized by such companies.
NEW ENGLAND ELECTRIC SYSTEM
s/ Michael E. Jesanis
__________________________________________
Michael E. Jesanis, Treasurer
NEW ENGLAND ELECTRIC RESOURCES, INC.
s/ John G. Cochrane
__________________________________________
John G. Cochrane, Treasurer
Dated: October 31, 1994
The name "New England Electric System" means the trustee or trustees for the
time being (as trustee or trustees but not personally) under an agreement and
declaration of trust dated January 2, 1926, as amended, which is hereby
referred to, and a copy of which as amended has been filed with the Secretary
of the Commonwealth. Any agreement, obligation or liability made, entered
into or incurred by or on behalf of New England Electric System binds only its
trust estate, and no shareholder, director, trustee, officer or agent thereof
assumed or shall be held to any liability therefore.
<PAGE>
EXHIBIT AND FINANCIAL STATEMENT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
F Form of Opinion To be filed by
amendment
H Proposed Form of Notice Filed herewith
I Form of Subordinated Note Filed herewith
FINANCIAL STATEMENT
NO.
- -------------------
1-A Balance Sheet of NEES at June 30,
1994, actual and pro-forma Filed herewith
1-B Statement of Income and Retained
Earnings for NEES for twelve
months ended June 30, 1994 Filed herewith
<PAGE>
EXHIBIT H
PROPOSED FORM OF NOTICE
New England Electric System (NEES), a registered holding company, and
its subsidiary New England Electric Resources, Inc. (NEERI), have filed Form
U-1 Application/Declaration File No. 70-____ under Sections 6(a), 7, 9(a), 10,
and 12 of the Public Utility Holding Company Act of 1935 (the Act) and Rules
40 and 45 thereunder.
By Order dated September 4, 1992 (Release No. 35-25621), NEERI was
authorized to enter into the business of performing consulting services on
electric utility matters for non-affiliates. NEES' investment in NEERI was
also authorized. By Order dated April 1, 1994 (Release No. 35-26017), NEERI
was authorized to provide electrical related services for non-affiliates; NEES
was authorized to make an additional investment in NEERI. By Order dated
May 25, 1994 (Release No. 35-26057), NEERI was authorized to invest in a
start-up company formed to develop, manufacture and market a low harmonic
distortion uninterruptible power supply; NEES was authorized to make
additional investments in NEERI. NEERI now seeks authorization to invest up
to $10,000,000 in research and development activities in connection with
environmental, new electrical generation and transmission technologies, and
electric end-use technologies. NEES seeks authority to provide additional
financing for NEERI in an amount not to exceed $10,000,000 through non-
interest bearing subordinated loans or capital contributions. Further, in
order to allow NEERI to acquire securities in local enterprises pursuant to
Rule 40 under the Act, NEES also seeks authority to provide additional
financing for NEERI in an annual aggregate amount not to exceed $1,000,000
through non-interest bearing subordinated loans or capital contributions.
<PAGE>
EXHIBIT I
OPEN ACCOUNT ADVANCE
SUBORDINATED PROMISSORY NOTE
$_____________________ DATED:_________________
FOR VALUE RECEIVED, the undersigned NEW ENGLAND ELECTRIC RESOURCES, INC.
(NEERI), a Massachusetts corporation hereby promises to pay to NEW ENGLAND
ELECTRIC SYSTEM (NEES) ON DEMAND, but in any event, no later than ____________
the principal sum of ________________________ DOLLARS ($____________) or, if
less, the aggregate unpaid principal amount of all advances made by NEES to
NEERI pursuant to authority granted by orders of the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935 (the 1935 Act)
without interest. All such advances and all payments made on account of the
principal hereof shall be recorded by NEES and endorsed on the grid attached
hereto which is part of this Subordinated Promissory Note.
TERMS OF SUBORDINATION
(a) The principal on this Subordinated Promissory Note is and shall be
subordinated in right of payment in all respects to all other indebtedness of
NEERI to any lender which is not an "affiliate" of NEERI, as that term is
defined in the 1935 Act (hereinafter, "Senior Debt").
(b) Without limiting the foregoing subparagraph (a), (i) no payment on
this Subordinated Promissory Note shall be made or received, directly or
indirectly, in cash or other property or by set-off or in any other manner
(including, without limitation, from or by way of collateral), so long as any
Senior Debt remains outstanding, except that prepayments of principal on this
Subordinated Promissory Note may be made and received so long as, but only so
long as, at the time of such payments and immediately after giving effect
thereto, no Event of Default, or event which, with the giving of notice or the
lapse of time, or both, would become an Event of Default exists under the
provisions of any Senior Note or any other instrument evidencing Senior Debt
or any agreement under which Senior Debt is then outstanding, and (ii) in the
event of any insolvency or bankruptcy proceedings directly or indirectly
involving NEERI, then all principal of and interest (including, without
limitation, any and all interest which shall accrue after the filing of any
petition in bankruptcy) on, the Senior Debt shall first be paid in full before
any payment on account of principal, premium (if any) or interest is made upon
this Subordinated Promissory Note, and in any such proceedings any payment or
distribution of any kind or character, whether in cash, securities or other
property, to which the holder of this Subordinated Promissory Note would be
entitled if this Subordinated Promissory Note were not subordinated to the
Senior Debt shall be made by the liquidating trustee or agent or other person
making such payment or distribution, or by the holder of this Subordinated
Promissory Note if received by him, directly to the holders of the Senior Debt
to the extent necessary to make payment in full of the Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to or
for the holders of the Senior Debt.
(c) The foregoing provisions regarding subordination are intended
solely for the purpose of defining the relative rights of the holders of the
Senior Debt on the one hand and the holder of this Subordinated Promissory
Note on the other hand. Nothing contained herein, is intended to or shall
<PAGE>
impair, as between NEERI and the holder of this Subordinated Promissory Note,
the obligation of NEERI to pay to the holder of this Subordinated Promissory
Note the principal of such Subordinated Promissory Note, subject, in each
case, to the rights under the foregoing subparagraphs of the holders of the
Senior Debt.
NEW ENGLAND ELECTRIC RESOURCES, INC.
DRAFT
By: _______________________________
Title:
<PAGE>
ADVANCES AND
REPAYMENTS OF PRINCIPAL
Advances and payments of principal of this Subordinated Promissory Note
were made on the dates and in the amounts specified below:
Amount of
Principal Balance of
Amount of Prepaid or Principal Notation
Date Loan Repaid Unpaid Made By:
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ----------
<PAGE>
<TABLE>
FINANCIAL STATEMENT 1-A
PAGE 1 OF 2
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Balance Sheet
At June 30, 1994
(Actual and Pro Forma)
(Unaudited)
ASSETS
------
<CAPTION>
Actual Adjustments Pro Forma
------ ----------- ---------
(In Thousands)
<S> <C> <C> <C>
Investments:
Common stocks of subsidiaries, at equity $1,508,845 $1,508,845
Notes of subsidiaries 51,894 $ 24,449 76,343
Other investments 657 657
---------- -------- ----------
Total investments 1,561,396 24,449 1,585,845
---------- -------- ----------
Current assets:
Cash 33 33
Temporary cash investments - subsidiary company 3,100 (3,100)
Interest, dividends and accounts receivable
(including $32,550,000 from subsidiaries) 32,622 (21,349) 11,273
Other current assets 30 30
---------- -------- ----------
Total current assets 35,785 $(24,449) 11,336
---------- -------- ----------
Deferred federal income taxes 2,215 2,215
---------- -------- ----------
$1,599,396 $1,599,396
========== ======== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Outstanding - 64,969,652 shares $ 64,970 $ 64,970
Paid-in capital 736,567 736,567
Retained earnings (including $565,695,000 of
undistributed subsidiary earnings) 757,192 757,192
---------- -------- ----------
Total common share equity 1,558,729 1,558,729
---------- -------- ----------
Current liabilities:
Accounts payable (including $211,000 to subsidiaries) $ 1,094 1,094
Other accrued expenses 500 500
Dividends payable 33,110 33,110
---------- -------- ----------
Total current liabilities 34,704 34,704
---------- -------- ----------
Deferred credits 5,963 5,963
---------- -------- ----------
$1,599,396 $1,599,396
========== ======== ==========
</TABLE>
<PAGE>
FINANCIAL STATEMENT 1-A
PAGE 2 OF 2
New England Electric System
(Parent Company Only)
The pro forma adjustments to show the estimated effect of the proposed
transactions on the foregoing Balance Sheet at June 30, 1994 are as follows:
Debit - Notes of subsidiaries $24,449,000*
Credit - Temporary cash investments - subsidiary company $ 3,100,000
Interest, dividends and accounts receivable $21,349,000
To reflect (1) a subordinated interest-free note from New England Electric
System in the amount of $24.449 million to New England Electric Resources,
Inc. and (2) the funding of this contribution through the utilization of
(i) temporary cash investments and (ii) interest, dividends and accounts
receivable.
_______________
* Represents all financing authority previously authorized ($2.25 million per
Orders dated September 4, 1992, Release No. 35-25621; April 1, 1994, Release
No. 35-26017; and May 25, 1994, Release No. 35-26057), pending for
authorization ($11.7 million per File No. 70-8475), and requesting for
authorization ($10 million for research and development fund and up to
$1 million annually for the Local Enterprise Fund per this filing) net of
$501,000 of financing already provided by New England Electric System to New
England Electric Resources, Inc.
<PAGE>
FINANCIAL STATEMENT 1-B
PAGE 1 OF 1
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Statement of Income
Twelve Months Ended June 30, 1994
(Unaudited)
(In Thousands)
Equity in earnings of subsidiaries $ 209,496
Interest income - subsidiaries 308
---------
Total income from subsidiaries 209,804
Other income 109
---------
Total income 209,913
Corporate and fiscal expenses (includes $1,827,000 for cost
of services billed by an affiliated company) (17,553)
Federal income taxes 6,986
---------
Income before interest 220,480
Interest 132
---------
Net income $ 220,348
=========
Statement of Retained Earnings
Retained earnings at beginning of period $ 685,398
Net income 220,348
Dividends declared on common shares (146,507)
Premium on redemption of preferred stock of subsidiaries (2,047)
---------
Retained earnings at end of period $ 757,192
=========
