<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 1935 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 undertake
preliminary development activities in connection with potential projects
involving EWGs and/or FUCOs.
Item 1. Description of Proposed Transactions:
- ---------------------------------------------
A. EWG and FUCO Project Development Activities
Exempt Wholesale Generators ("EWGs"), as defined in the 1935 Act, are
exempt from the 1935 Act (Section 32(e)). Foreign Utility Companies
("FUCOs"), as defined in the 1935 Act, are exempt from the 1935 Act except as
otherwise provided under Section 33 thereof (Section 33(a)(1)). These EWG and
FUCO exemptions apply whether or not the EWG or FUCO is a subsidiary,
affiliate, or associate of a holding company.
Section 32(g) of the 1935 Act permits registered holding companies to
acquire and hold securities of, or an interest in the business of, EWGs
without prior approval from the Commission. Registered holding companies are
permitted to acquire and hold, without prior Commission approval, securities
of, or interests in the business of, FUCOs pursuant to Section 33(c)(1) of the
1935 Act and rules and regulations promulgated thereunder. The Commission has
not yet issued rules or regulations pursuant to Section 33(c)(1) concerning
ownership of FUCOs by holding companies.
With respect to EWGs and FUCOs, the following activities remain subject
to Commission jurisdiction: (i) issuance of securities by a registered
holding company for purposes of financing the acquisition of an EWG or FUCO,
(ii) guaranteeing of EWG or FUCO securities by a registered holding company,
and (iii) entering into service, sales or construction contracts, or the
maintenance or creation of any other relationship (other than as set forth in
<PAGE>
Section 32(g)) between an EWG or FUCO and a registered holding company, its
affiliates, associates or subsidiaries. (Section 32(h)).
However, prior Commission approval is not required for financing the
acquisition, or guaranteeing the securities, of an EWG, if the requirements of
Rule 53(a)(1)-(4) and (b)(1)-(3) are complied with. See Order of the
Commission, Release No. 35-25977. Rule 53 requires, among other things, that
aggregate EWG investment not exceed 50 percent of the system's consolidated
retained earnings, that the holding company maintain its books in accordance
with the Rule, and that no more than 2 percent of the system's domestic public
utility employees render services to EWGs or FUCOs in which the system holds
an interest.
In future, NEERI intends to take advantage of the EWG and FUCO
investment opportunities afforded by Sections 32, 33 and Rule 53 of the 1935
Act. NEERI has not determined how it will structure its participation in its
EWG and FUCO investments. NEERI may choose to invest in EWG and FUCO projects
by pursuing cooperative arrangements with others, by independent investment,
by forming one or more EWG/FUCO subsidiaries, or by structuring a "project
parent" arrangement similar to that approved in the Commission's Order of
August 3, 1994, Release No. 35-26096. NEERI seeks authorization to invest an
amount not exceeding $10 million in research and development activities for
exploring EWG/FUCO investments and investment structures beneficial for NEERI
and the System.
These research and development activities will include EWG/FUCO project
identification, site investigations, technical research, legal research and
drafting, contract, license, option, and other negotiations, entering into
contracts, licenses, and other similar agreements, preliminary market surveys
and analyses, and other activities connected with investigating, analyzing and
initiating EWG and FUCO commercial projects (the "Development Activities").
NEERI will not use any funds authorized for Development Activities to
acquire an interest in the business of any EWG or FUCO within the meaning of
the 1935 Act. NEERI will not invest in any EWG or FUCO project, investment in
which requires the Commission's approval under the 1935 Act, without
requesting and receiving such approval.
NEES requests authority to provide financing to NEERI in an amount not
exceeding $10 million for the purposes of funding the Development Activities.
B. Acquisition of EWGs and FUCOs
NEERI and NEES propose to make investments in EWGs and FUCOs without
prior approval of the Commission to the extent such prior approval is not
required under Sections 32 and 33 of the 1935 Act and the rules and
regulations promulgated thereunder. Neither NEES nor NEERI will make any EWG
or FUCO investment that involves financing the acquisition of an EWG or FUCO,
guaranteeing the securities of an EWG or FUCO, entering into sales, service or
construction contracts with an EWG or FUCO, or which creates a relationship
between a NEES company and an EWG or FUCO which is not covered by Section
32(g) or 33(c)(1) of the 1935 Act, without prior Commission approval.
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
<PAGE>
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. By
Form U-1 Application/Declaration filed October 31, 1994 (File No. 70-8513),
NEES proposed to provide additional financing for NEERI by making capital
contributions up to an additional $11,000,000 and/or by lending to NEERI from
time to time additional amounts not to exceed $11,000,000 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 in
an aggregate amount not to exceed $10 million for purposes of funding the
Development Activities.
NEES proposes to provide the above additional financing by making
capital contributions to NEERI up to an additional $10 million and/or by
lending to NEERI from time to time additional amounts not to exceed $10
million at any one time, such loans to be in the form of non-interest bearing
subordinated notes. The Form of Subordinated Note is attached hereto as
Exhibit I. 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 $34.95 million.
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;
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.
Sections 32, 33, and Rule 53 are believed to be applicable to EWG and
FUCO project participation by NEERI and NEES.
Item 4. Regulatory Approval
- ----------------------------
No Federal or state commission or regulatory body, other than the
Commission, has jurisdiction over the proposed transactions.
<PAGE>
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 March 1, 1995.
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 September 30, 1994, Actual
and Pro-forma
1-B Statement of Income and Retained Earnings for NEES for
twelve months ended September 30, 1994
2-A Balance Sheet of NEERI at September 30, 1994, Actual
and pro-forma
2-B Statement of Income and Retained Earnings for NEERI
for twelve months ended September 30, 1994
The pro-forma financial statements assume NEES provides financing
to NEERI in the form of non-interest bearing subordinated notes.
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: January 20, 1995
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 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 INDEX
Financial
Statement
No. Description Page
- --------- ------------------------- -------------
1-A Balance Sheet of NEES at Filed herewith
September 30, 1994, Actual
and Pro-forma
1-B Statement of Income and Retained Filed herewith
Earnings for NEES for twelve months
ended September 30, 1994
2-A Balance Sheet of NEERI at Filed herewith
September 30, 1994, Actual and
Pro-forma
2-B Statement of Income and Retained Filed herewith
Earnings for NEERI for twelve months
ended September 30, 1994
<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 $10,000,000 in preliminary
research and development activities in connection with exploring
potential EWG and/or FUCO investments. 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.
<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.
<PAGE>
(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 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.
By: _______________________________
Title:
<PAGE>
<TABLE>
Financial Statement 1-A
Page 1 of 2
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Balance Sheet
At September 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 $1,520,875 $1,520,875
Notes of subsidiaries 52,092 $ 10,000 62,092
Other investments 2,277 2,277
---------- -------- ----------
Total investments 1,575,244 10,000 1,585,244
---------- -------- ----------
Current assets:
Cash 42 42
Temporary cash investments - subsidiary company 1,400 (1,400)
Interest and dividends receivable of subsidiaries 45,106 (8,600) 36,506
Other current assets 95 95
---------- -------- ----------
Total current assets 46,643 $(10,000) 36,643
---------- -------- ----------
Deferred federal income taxes 2,218 2,218
---------- -------- ----------
$1,624,105 $1,624,105
========== ======== ==========
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 $578,122,000 of
undistributed subsidiary earnings) 778,685 778,685
---------- -------- ----------
Total common share equity 1,580,222 1,580,222
---------- -------- ----------
Current liabilities:
Accounts payable (including $220,000 to subsidiaries) 3,146 3,146
Other accrued expenses 787 787
Dividends payable 33,858 33,858
---------- -------- ----------
Total current liabilities 37,791 37,791
---------- -------- ----------
Deferred credits 6,092 6,092
---------- -------- ----------
$1,624,105 $1,624,105
========== ======== ==========
</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 September 30,
1994 are as follows:
Debit - Notes of subsidiaries $10,000,000
Credit - Temporary cash investments - subsidiary company $ 1,400,000
Interest and dividends receivable of subsidiaries $ 8,600,000
To reflect (1) a subordinated interest-free note from New England
Electric System in the amount of $10 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 and
dividends receivable.
<PAGE>
Financial Statement 1-B
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Statement of Income
Twelve Months Ended September 30, 1994
(Unaudited)
(In Thousands)
Equity in earnings of subsidiaries $ 212,776
Interest income - subsidiaries 297
---------
Total income from subsidiaries 213,073
Other income 110
---------
Total income 213,183
Corporate and fiscal expenses (includes $1,848,000 for
cost of services billed by an affiliated company) (17,596)
Federal income taxes 7,076
---------
Income before interest 223,703
Interest 35
---------
Net income $ 223,668
=========
Statement of Retained Earnings
Retained earnings at beginning of period $ 703,314
Net income 223,668
Dividends declared on common shares (147,481)
Premium on redemption of preferred stock of subsidiaries (816)
---------
Retained earnings at end of period $ 778,685
=========
<PAGE>
<TABLE>
Financial Statement 2-A
Page 1 of 2
NEW ENGLAND ELECTRIC RESOURCES, INC.
Balance Sheet
At September 30, 1994
(Actual and Pro Forma)
(Unaudited)
ASSETS
------
<CAPTION>
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash $ 32,807 $10,000,000 $10,032,807
Accounts receivable 341,446 341,446
Accounts receivable from associated companies 5,793 5,793
Tax benefit receivable 23,035 23,035
---------- ----------- -----------
Total current assets 403,081 10,000,000 10,403,081
---------- ----------- -----------
Investments 250,000 250,000
Deferred charges and other assets 526,470 526,470
---------- ----------- -----------
$1,179,551 $10,000,000 $11,179,551
========== =========== ===========
LIABILITIES AND PARENT COMPANY'S INVESTMENT
--------------------------------------------
Current liabilities:
Accounts payable to associated companies $ 151,134 $ 151,134
Accounts payable 20,703 20,703
Accrued taxes 3,157 3,157
---------- ----------- -----------
Total current liabilities 174,994 174,994
---------- ----------- -----------
Parent company's investment:
Common stock, par value $1 per share 1,000 1,000
Subordinated notes payable to parent 1,249,000 $10,000,000 11,249,000
Retained deficit (245,443) (245,443)
---------- ----------- -----------
Total parent company's investment 1,004,557 10,000,000 11,004,557
---------- ----------- -----------
Total current liabilities and parent
company's investment $1,179,551 $10,000,000 $11,179,551
========== =========== ===========
</TABLE>
<PAGE>
Financial Statement 2-A
Page 2 of 2
NEW ENGLAND ELECTRIC RESOURCES, INC.
The pro forma adjustments to show the estimated effect of the
proposed transactions on the foregoing Balance Sheet at September 30,
1994 are as follows:
Debit - Cash $10,000,000
Credit - Subordinated notes payable to parent $10,000,000
To reflect subordinated interest-free notes from New England
Electric System in the amount of $10 million to New England Electric
Resources, Inc.
<PAGE>
Financial Statement 2-B
NEW ENGLAND ELECTRIC RESOURCES, INC.
Statement of Income (Loss) and Retained Deficit
For the Twelve Months Ended September 30, 1994
(Unaudited)
Services rendered to nonassociated companies $1,111,256
----------
Total income 1,111,256
----------
Outside services employed 1,244,523
Income taxes (51,710)
----------
Total expense 1,192,813
----------
Net loss $ (81,557)
==========
Retained earnings/(deficit) at beginning of period $ (163,886)
----------
Retained earnings/(deficit) at end of period $ (245,443)
==========
