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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)
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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 enter into a new
business participating in a project with a company which processes coal ash
produced as a by-product of electrical generation.
Item 1. Description of Proposed Transaction:
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NEERI is pursuing a joint arrangement with Separation Technologies, Inc.
(STI), the developer of a process for separating unburned carbon from coal
ash. In connection with this joint arrangement, NEERI will be called on to
invest in STI projects and to provide certain consulting services to STI.
In New England, a large amount of electrical generation is coal-fired,
resulting in coal ash waste products. Ash from burning coal and oil accounts
for the largest volume of solid wastes produced by generating facilities owned
by New England Power Company (NEP), an affiliate of NEERI. Given this large
quantity of ash, it is highly desirable to encourage the development of
recycling techniques to convert this ash waste to productive uses. As part of
NEESPLAN 4, the System's latest planning study, the System has established
coal ash recycling as a key initiative and has a stated goal of recycling 100%
of its coal ash by the year 2000. NEP has entered into a contract with STI to
permit STI to process ash waste from its Salem Harbor generating station and
is negotiating a contract with STI for its Brayton Point generating station.
NEP's contracts with STI do not involve any equity participation by NEP and
NEP is not interested in pursuing such participation. Although NEP desires
the continued development of coal ash recycling technology, NEP does not
believe that this development would be an appropriate risk to be supported by
its electric customers.
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STI has developed a system of economically separating unburned carbon
from coal (or fly) ash produced by utility generating plants. The separated
carbon can be reburned by the utility. The processed ash can be sold as a
cement substitute in the manufacture of concrete. In order to be viable as a
cement substitute, processed ash must have a carbon content of 3% or less;
STI's technology is capable of consistently and economically producing
processed ash of this quality.
NEERI's participation in this joint arrangement with STI is functionally
related to the System in that it will promote the continued development of
technology for reducing waste ash disposal costs, and will reduce fuel costs
through the reburning of carbon. NEERI's work with STI will also enable the
System to further its solid waste recycling efforts committed to as part of
its NEESPLAN 4 planning study.
As part of its joint arrangement with STI, NEERI proposes to enter into
a project with STI involving the processing of coal ash at an electric
generation facility in the New England/New York region (the NE/NY Project)
owned by a non-affiliated electric company (Owner). NEERI plans to invest
$700,000 in the NE/NY Project in return for a percentage of the NE/NY Project
revenue stream. STI proposes to collaterally assign to NEERI certain payments
to be made to STI by Owner under a contract to process ash waste. NEERI
expects to recover its investment in STI over a seven to ten year period.
This contract with Owner is still being negotiated. In addition, NEERI will
provide to STI consulting services for a fee. The consulting services would
include marketing and engineering advice. STI will be responsible for
processing the ash at the Owner's facility.
NEERI proposes to enter into similar joint arrangements with STI at
other locations where STI equipment will be installed. NEERI's investment in
these other utility locations is anticipated to range between $0.5 and $2.0
million per installation.
NEERI and STI intend to perform research to further refine the carbon-
rich and low carbon processed waste stream and to find other applications for
the STI separation process in recycling. Such further refinement of the waste
streams is expected to improve the value of those waste streams and the
profitability of the STI process investments. Examples of such higher value
waste stream products include particle size classification for higher strength
concrete products, substitutes for plastics fillers materials, and substitutes
for carbon black products. Research in recycling will involve the use of the
STI process in plastics recycling.
NEERI requests authorization for the following activities:
a. to participate in the NE/NY Project with STI;
b. to invest up to $700,000 in the NE/NY Project with STI.
c. to invest up to $2,000,000 per project in other utility coal ash
separation projects with STI with a cumulative investment not to
exceed $10 million.
d. to perform research and development activities in high value
product development and recycling in an amount not to exceed $1
million.
NEERI intends to offer marketing and engineering advice and consulting
services to STI. In connection with projects which exceed the funding limits
in item (c) above, NEERI will seek further authority from the Commission prior
to investing any equity funds in such other projects. NEERI may use existing
authority to explore and develop these other projects.
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NEERI believes that its investment in STI meets the criteria set forth
by the Commission for ownership of a non-utility functionally related business
(see CSW Credit Inc. HCAR No. 25995 and Jersey Central Power & Light HCAR No.
24348) as follows: NEERI's investment will evolve from the overall electric
utility business of the NEES system; NEERI's investment in STI will not be
significant in relation to the NEES system's total financial resources; and
the successful development, manufacture and marketing of STI's ash processing
technology has the potential to benefit electric customers of NEERI's
affiliates as well as be a beneficial investment for NEERI. As described
above, the STI technology should be a valuable tool in addressing the solid
waste disposal concerns of NEERI's affiliates.
As NEERI enters into additional projects with STI, NEERI shall provide
details of these projects in its quarterly filings with the Commission under
Rule 24. NEERI will also break down the STI investments from its other
investments in its quarterly financials filed at that time.
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.) NEES proposes
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. The aggregate amount
of all investments (including amounts previously authorized by the Commission)
by NEES in NEERI shall not exceed $13.95 million.
Item 2. Fees, Commissions and Expenses
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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 $5,000, 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
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Sections 6(a) and 7 are believed to be applicable to the issuance of
additional notes by NEERI;
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.
Item 4. Regulatory Approval
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No Federal or state commission or regulatory body, other than the
Commission, has jurisdiction over the proposed transactions.
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Item 5. Procedure
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The Applicants request that the Commission take action with respect to
this Application/Declaration without a hearing being held, on or before
December 1, 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:
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(a) Exhibits
*B Agreement(s) with STI
*F Opinion of Counsel
H Proposed Form of Notice
*To be filed by amendment
(b) Financial Statements
NEERI financial statements are filed quarterly with the Commission with a
Certificate of Notification pursuant to Rule 24. Financial Statements for
NEES have been omitted because the proposed transaction is not material to
NEES.
Item 7. Environmental Effects
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The transactions proposed by this Application/Declaration do not involve
a major Federal action significantly affecting the quality of the human
environment.
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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
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
By: s/Michael E. Jesanis
__________________________________________
Michael E. Jesanis, Treasurer
NEW ENGLAND ELECTRIC RESOURCES, INC.
By: s/John G. Cochrane
__________________________________________
John G. Cochrane, Treasurer
Dated: September 30, 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 Agreement(s) with STI To be filed by
amendment
F Form of Opinion To be filed by
amendment
H Proposed Form of Notice Filed herewith
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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 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. 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 $700,000 in a coal ash
processing project at an electric generation facility located in the New
England/New York region, and authority to invest up to $10,000, 000 in
other coal ash processing and recycling projects, with a company that
has developed a technology for separating carbon from the coal-ash waste
products of electrical generation plants. NEERI also seeks
authorization to invest up to $1,000,000 in research and development
activities in connection with higher value coal ash waste stream
products and recycling. NEES seeks authority to provide additional
financing for NEERI in an amount not to exceed $11,700,000 through non-
interest bearing subordinated loans or capital contributions.
