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File No. 70-8303
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
TO
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)
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The Form U-1 Application/Declaration filed November 12, 1993
is amended by deleting New England Power Service Company as an
applicant.
Item 1 is amended and restated as follows:
Item 1. Description of Proposed Transactions:
In early 1993, NEES was approached to contribute funds for
the development of certain patented technology for a low harmonic
distortion uninterruptible power system (UPS). In recent years
power quality has become an important issue with electric
customers. This UPS will have certain unique features and
characteristics that should make it commercially successful.
These include minimal harmonic distortion, high efficiency, a
modular design, low heat loss, low maintenance and high
reliability. The UPS is a mechanical device that applies
computer technology developed by Digital Equipment Corporation
(DEC) and licensed to Quality Power Systems, Inc. (QPS). See the
License Agreement in Exhibit B-2 hereto. DEC is the largest
single electric customer of NEES' retail electric company
subsidiaries.
QPS intends to develop, manufacture and market UPS and is
committed to locating its manufacturing facility for UPS in
either Massachusetts or New Hampshire within the retail electric
service territory of NEES's retail electric company subsidiaries.
In mid 1993, NEPSCO, acting on behalf of NEES, made a research
and development grant of $250,000 to QPS to assist in the
development of UPS. NEPSCO used funds from NEES to make this
payment. In return for this grant and to encourage our continued
support, QPS gave NEPSCO the right to receive at no cost $250,000
of QPS's convertible debentures. (See Exhibit B-1) NEPSCO has
assigned this right to NEERI effective January 1, 1994. (See
Exhibit B-1A) Such right expires on April 1, 1994 unless
extended. Before exercising its rights to receive these
convertible debentures, it was made clear to QPS that appropriate
approvals under the Act were required. If NEERI receives said
approvals and exercises its right to receive QPS's convertible
debentures, all rights to receive a product grant of two UPS per
year for the first four years of commercial production would
terminate. (See Section 3 of the Agreement as amended, Exhibits
B-1 and B-1A.) Since NEERI has no direct need for the UPS, it
currently intends to exercise its right to receive QPS's
convertible debentures promptly upon receipt of said approvals.
The convertible debentures would pay quarterly interest
after June 1, 1994, at the Bank of Boston base rate plus 2% and
if not converted as hereinafter described, would have a maturity
of ten years from date of issuance. These debentures would not
have sinking fund provisions nor prepayment provisions nor
general voting rights. On or before December 31, 1995, the
$250,000 of convertible debentures may be converted by NEERI into
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9.9% of the common stock of QPS (990 shares of a total of 10,000
shares). NEERI understands that a subsidiary of Eastern
Utilities Associates (EUA), a registered holding company under
the Act, is also acquiring 9.9% of the common stock of QPS. The
acquisition of common stock of QPS by an EUA subsidiary is not
covered by this filing. NEERI would be allowed to have one
member on the Board of Directors of QPS. The Board would have
six or seven members.
NEERI believes that development of an affordable mechanism
for insuring uninterrupted power supply would be a valuable tool
for many of the System's electric consumers. As automation has
progressed, vulnerability to minute interruptions in electrical
power has increased. Many electric customers rate quality of the
power supply as their primary concern. NEERI believes that the
technology developed and patented by DEC has the potential to
meet the needs of electric customers, including those of its
affiliated electric utilities. NEESPLAN 4, the System's updated
planning study, identifies power quality as an area in which the
System will expand and focus its efforts. Two prototypes of the
UPS have already been manufactured and one will be tested by
NEPSCO in the near future. Depending upon the results of
testing, QPS expects to begin commercial manufacturing and
marketing of UPS in mid-1994. It is expected that the UPS will
have a market price of about $25,000 per unit. [With respect to
past Commission precedence on the "functional relationship" of
entering into this type of new business, see Orders of the
Commission dated December 11, 1991, November 2, 1992, and
July 30, 1993 (HCAR Nos. 25424, 25667, and 25861) authorizing
investment in electronic light bulb technology and Orders dated
July 25, 1991, and July 13, 1992 (HCAR Nos. 25353 and 25580)
authorizing investment in patented communications systems.]
NEERI requests authority to exercise its right to such
convertible debentures and if it so elects, to convert these
debentures on or before December 31, 1995 to 9.9% of the common
stock of QPS. In addition, NEERI requests the authority to
invest up to an additional $100,000 in QPS in the form of
subordinated loans having an interest rate and other terms to be
negotiated at the time of the loan. QPS, as a start-up company,
may require additional funds prior to full commercialization of
its product and NEERI wants to be in a position to make limited
additional investments in a prompt manner. As a start-up
company, QPS has limited financial resources to meet financial
emergencies.
NEERI does not intend to be directly involved in the
manufacture, marketing or selling of the UPS. However, it may
offer marketing advise and consulting services to QPS and permit
its name to be used as part of marketing efforts.
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Financing by NEES
The Commission previously 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
$250,000 grant made to QPS is currently carried on NEES's books
as an expense. NEES proposes to transfer this amount to NEERI's
books and NEERI would treat it as an investment in QPS. To the
extent that this transfer and reclassification is viewed as a
contribution of capital by NEES, NEES proposes that this be
authorized in addition to the $1 million previously authorized.
If NEERI invests up to an additional $100,000 in QPS, NEERI may
use funds from NEES provided under its existing $1 million
authority.
Long-Term Plans with QPS
NEERI's interests in holding an equity position in QPS are
limited to promoting the development of the UPS and assisting a
local company in this development. The UPS will have a limited
product life and NEERI recognizes that at an appropriate time in
the future it may no longer be consistent with its long term
interests to continue its equity position. However, at this very
early development stage of the UPS product, it is not possible to
determine when in the future it would pursue divesting its equity
position.
"Item 3. Applicable Statutory Provisions" is deleted and
replaced with the following:
Section 9(a), 10, 12, and Rule 45 are believed to be
applicable to the making of capital contributions by NEES to
NEERI.
Sections 9(a) and 10 are believed to be applicable to the
acquisition by NEERI of the convertible debentures of QPS and
common stock of QPS and NEERI's entering into a new business.
These Sections are also believed to be applicable to additional
$100,000 investment in QPS, if required in the form of
subordinated loans.
"Item 6. Exhibits" is amended by adding the following
exhibits to subpart (a):
B-1A Amendment No. 1 dated as of January 1, 1994
H Proposed Form of Notice
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused
this Amendment No. 1 to 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: March 3, 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.
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EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
B-1A Amendment No. 1 dated Filed herewith
as of January 1, 1994
H Proposed Form of Notice Filed herewith
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Exhibit B-1A
AMENDMENT NO. 1
The Agreement dated as of June 1, 1993, between New England
Power Service Company (NEPSCO) and Quality Power Systems, Inc.
(QPS) is hereby amended as of January 1, 1994.
In consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable
considerations, receipt whereof is hereby acknowledged, it is
agreed as follows:
1. Section 3 of the Agreement is amended by striking the
date "January 1, 1994" and replacing it with the date "March 31,
1994."
2. Section 6 of the Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"Section 6. Option for Convertible Debentures
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QPS hereby grants to New England Electric Resources,
Inc. (NEERI, an affiliate of NEPSCO and designee of NEPSCO)
an option to convert the grant of $250,000 into convertible
debentures of equal amount. The convertible debentures
would pay quarterly interest commencing June 1, 1994, at the
Bank of Boston base rate plus 2% and if not converted as
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hereinafter provided, would have a maturity of ten years
from date of issuance. These debentures would not have
sinking fund provisions nor prepayment provisions nor
general voting rights.
On or before December 31, 1995, the $250,000 of
convertible debentures may be converted by NEERI into 9.9%
of the common stock of QPS (990 common shares) taking into
account the issuance of common stock to a subsidiary company
of Eastern Utilities Associates and to the original four
investors in QPS. If QPS issues additional common stock
beyond its initial issuance of 10,000 shares, QPS shall
issue additional shares to NEERI at no additional cost in an
amount that maintains NEERI's common stock percentage at
9.9%.
QPS acknowledges that NEERI requires regulatory
approvals before exercising the option to convert the grant
to convertible debentures. In order to provide reasonable
time for the regulatory process, such option to convert
shall expire on March 31, 1994."
3. Section 7 of the Agreement is amended by deleting it in
its entirety and replacing it with the following:
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"Section 7. Board of Directors
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QPS agrees that NEERI may if it so requests have one
member of the Board of Directors. The Board of Directors
will be comprised of six members (included in the six would
be a NEERI representative and a representative of Eastern
Investment Corporation, a subsidiary of Eastern Utilities)
and may be enlarged to seven with prior written consent of
NEERI which shall not be unreasonably withheld."
4. Pursuant to Section 6 and 7, NEPSCO has designated
NEERI to be its designee and NEERI has consented to such
designation.
5. Any number of counterparts of this Amendment to be
executed and each shall have the same force and effect as the
original.
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IN WITNESS WHEREOF the signatories have caused this
Amendment to be executed under seal by their duly authorized
officers or agents.
New England Power Service Company
ATTEST: By: s/John G. Cochrane
s/Kirk L. Ramsauer Title: Vice President
Date: January 19, 1994
New England Electric Resources, Inc.
ATTEST: By: s/John L. Levett
s/Geraldine M. Zipser Title: President
Date: January 19, 1994
Quality Power Systems, Inc.
ATTEST: By: s/Edmund Rosa
s/Donald W. Christiansen Title: President
Date: January 21, 1994
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EXHIBIT H
PROPOSED FORM OF NOTICE
New England Electric System (NEES), a registered holding
company, and its subsidiaries New England Power Service Company
and New England Electric Resources, Inc. (NEERI), a non-utility
subsidiary, have filed Form U-1 Application/Declaration File No.
70-8303 pursuant to Sections 9(a), 10, and 12 of the Public
Utility Holding Company Act of 1935 and Rule 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.
NEERI now seeks authorization to acquire convertible debentures
having a principal amount of $250,000 in a company producing an
uninterruptible power system and authorization to convert these
debentures, on or before December 31, 1995, into 9.9% of the
common stock of said company. NEERI also seeks authority to make
further investments in such company not to exceed $100,000 in the
aggregate. Such further investments will be in the form of
subordinated loans. In connection with the assignment of NEES'
rights to NEERI, NEES seeks authorization to make a capital
contribution of $250,000 to NEERI in addition to its current
authorization to make limited investments in NEERI.
