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File No. 70-8675
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
NEW ENGLAND POWER COMPANY
MASSACHUSETTS ELECTRIC COMPANY
25 Research Drive
Westborough, Massachusetts 01582
(Name of company filing this statement and
address of principal executive office)
NEW ENGLAND ELECTRIC SYSTEM
(Name of top registered holding company parent of applicant)
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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Form U-1 Application/Declaration under the Public Utility
Holding Company Act of the 1935, File No. 70-8675 is hereby
amended by this Amendment No. 1.
A. Under Item 1. Description of Proposed Transaction, A.
Proposed Acquisition of NEC, the second paragraph is deleted and
replaced with the following new paragraph:
On May 26, 1995, the Attorney General, NEC and the Company
filed an Offer of Settlement (Settlement) for approval with the
Massachusetts Department of Public Utilities (DPU) that
incorporates approval of the Agreement, other approvals required
of the DPU to effectuate the merger and a rate plan for the
period following the merger (See Exhibit D-1 hereto). The DPU
issued an order dated October 10, 1995, approving unconditionally
the merger and rate plan filed in the Settlement and resolving
all issues associated with the merger and acquisition (the DPU
Order, Exhibit D-1a hereto). The Company has filed with the
Federal Energy Regulatory Commission (FERC) seeking either a
declaratory order disclaiming jurisdiction over the merger or in
the event FERC asserts jurisdiction, authorization of the merger
under Section 203 of the Federal Power Act.
B. Under Item 1. Description of Proposed Transaction, A
Proposed Acquisition of NEC, 2. Acquisition of NEC, subpart 4 of
the first paragraph is deleted and replaced with the following:
"4. NEC stockholders will be receiving the Company's
shares equivalent to $125 per NEC common share
outstanding plus interest at a rate equivalent to the
Bank of Boston prime rate on this amount from March
22, 1995 (the date the Agreement was signed) to the
closing which shall occur on or before the last
business day of the eighteenth month ending after the
date of the Agreement (see Section 8.3 of the
Agreement). The prime rate at Bank of Boston on
October 30, 1995, was 8.75% and since March 22, 1995
has not exceeded 9%."
C. Under Item. 1. Description of Proposed Transaction, A.
Proposed Acquisition of NEC, 3. Common Shares Issued by the
Company, the first paragraph is deleted and replaced with the
following:
"As stated, the NEC certificate holders will receive the
Company's shares equivalent to $125 per NEC common share
outstanding, plus an interest equivalent amount as described
above. The exact number of Company shares exchanged will be
determined based on the average high and low prices for the
common shares reported for the New York Stock Exchange Corporate
Transactions for the ten consecutive trading days immediately
preceding twenty days prior to the closing. No fractional shares
will be issued and a cash payment will be made in lieu thereof.
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The amount of interest as described above will be reduced on a
dollar for dollar basis for anticipated dividends at the rate
declared for the previous quarter or then declared for the
current quarter pro-rated to cover the period from the end of the
most recent record date to the closing. The calculation of this
purchase price is set forth in Schedule 1 to the Agreement. As
one example, if the closing were November 1, the price for the
Company's shares would be $ 3,500,000.00, interest would be
$ 193,000.00, and anticipated dividends would be $ 31,365.00.
Under this example, the Company would issue approximately 97,850
shares, assuming a price per share of $37.425.
D. Under Item 1. Description of Proposed Transaction, A.
Proposed Acquisition of NEC, 4. Benefits to NEC of Becoming a
Part of the Company's System, 5. Proposed Cable Project and
Financing and 6. Effects on the Company's System are deleted and
replaced with the following:
4. Benefits to NEC of Becoming a Part of the Company's
System
In view of the current circumstances of NEC and its electric
system as described above, the Company believes that, in the
event the merger is consummated, significant steps will be
required to assure continued reliable electric service to NEC's
customers over the long term. As previously indicated, because
of its limited resources, NEC is in a disadvantaged position to
take these necessary steps, and as a result, faces the prospect
of deterioration in its system and its ability to serve its
customers.
The Company's system, serving well over one million
customers in three states, has financial, operating, management,
and other resources more than adequate to provide for NEC's needs
both immediate and over the longer term. Among the ways in which
these resources will be made available (at cost through NEPSCO)
are the following:
Full and complete responsibility for management at NEC and
its system will be taken over by management of the Company's
system;
Responsibility for operation and maintenance of the NEC
system, including storm restoration, necessary improvements,
and replacement of equipment, will be taken over by the
Company's system;
Provision for adequate financing of NEC's needs,
operational, regulatory, and other, will be provided by the
Company's system;
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Updating of meter reading, billing, accounting, and similar
activities, including computer support and other
technological improvements will be provided by the Company's
system;
Personnel with the necessary skills in operations,
maintenance, financing, accounting, rates, legal, and other
matters will be available through the Company's system; and
Conservation and load management services will be made
available through the Company's system.
The merger is expected to reduce administrative and general
costs as a result of reductions in outside vendor costs for legal
and other consultants, the economies of scale from the Company's
buying power in the area of fuel and other materials, automation
and/or consolidation of support functions and administrative
requirements such as rate case development, reporting
requirements, and other similar areas. The Company has
guaranteed three years of employment to all non-bargaining unit
personnel who worked for NEC as of June 30, 1994, and bargaining
unit personnel who worked for NEC as of July 31, 1994, thus
immediate savings will not be generated from staff reductions.
Finally, there should be savings in financing costs due to the
improved credit quality of Surviving Corporation as a subsidiary
of the Company. Savings in operating costs are estimated at $500
thousand to $1 million annually.
Furthermore, as a condition to the merger, NEC customers
will receive a five percent reduction in their base rates upon
consummation of the merger. On the in-service date of the Cable
Project (as hereinafter described), NEC's customers' rates will
be set at that point and going forward at MEC's then-current rate
schedules plus a Cable Project surcharge with a commitment that
during the first year these new rates will be no greater than the
rates before the in-service date. This rate plan will provide
NEC customers with lower, more stable rates and has been approved
by the DPU.
In short, it is the objective of the Company to make NEC a
productive addition to the Company's system, capable of providing
reliable electric service over the long term on an economical
basis. The positive effect on NEC's electric bills will be
immediate. Furthermore, by being part of the Company's system
with access to services from NEPSCO, and other affiliates, NEC
would be able to provide more dependable electric service to its
customers. Today, because of NEC's limitations, NEC finds it
difficult to provide this kind of reliable service at reasonable
cost. The benefits to NEC and its ratepayers from the proposed
merger are significant as evidenced by NEC's decision to sign and
jointly sponsor with the Massachusetts Attorney General and the
Company the Offer of Settlement (See Exhibit D-1) to the DPU and
the unconditional approval thereof by the DPU (See Exhibit D-1a).
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5. Proposed Cable Project and Financing
Before possibility of a merger was even discussed, and as
result of a bidding process and approval from the DPU, NEC
entered into a long term power contract with NEP to supply
electricity to NEC over a 46kV undersea cable to be embedded
under Nantucket Sound for a length of about 26 miles with
associated facilities at either end (the Cable Facilities). This
interconnection is required for NEP to supply electricity to NEC.
The current estimated cost of the Cable Facilities is about $34
million. NEC has received a DPU Order dated June 24, 1994,
approving the Cable Project as a key part of its Long-Range
Forecast and Resource Plan, based on it being the least-cost,
most reliable and most environmentally sound means to supply
electricity to the Island of Nantucket. This approval was
granted after seven days of evidentiary hearings including 197
exhibits and 92 responses to record requests (See Exhibit D-1b).
Now that the Agreement has been signed and provided that the
merger is approved and NEC is acquired by the Company, the Cable
Facilities will be built, owned, and operated by the Surviving
Corporation. The Surviving Corporation will become an all
requirements wholesale electric customer of NEP pursuant to an
affiliate tariff as approved by FERC and the power contract
referred to above will be terminated. Were the merger not to be
effectuated for any reason, the Company would have to make a
filing with the Commission for approvals covering the formation
of the special purpose company and financing for the Cable
Project.
The Surviving Corporation will finance the Cable Facilities
through a combination of tax-exempt debt and equity funds. The
Company has already received an allocation of up to $28 million
for 1995 of tax-exempt private activity bond (PAB) volume cap
from Massachusetts for this purpose and is seeking to extend this
allocation until 1996 since current expectations are to close
this tax-exempt financing during early 1996. The Surviving
Corporation has received DPU approval to enter into a loan
agreement with the Massachusetts Industrial Finance Agency (MIFA)
for up to $28 million. MIFA would be authorized to directly
issue PABs on behalf of the Surviving Corporation, which would be
expressly payable from revenues of the Surviving Corporation.
MIFA contemplates selling the PABs through competitive bidding,
negotiation with underwriters, or direct negotiations with
investors. MIFA would lend the proceeds from the PAB's to the
Surviving Corporation in exchange for the Surviving Corporation's
promise of repayment. In order to reimburse MIFA, the Surviving
Corporation would issue to MIFA its own indebtedness (New Bonds)
with the form and provisions to be fixed at the time the terms of
the PABs are established and in an amount not to exceed the
amount of the PAB's. The New Bonds would mature in not more than
40 years and may be non-callable for all or a portion of their
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life. To allow for market conditions, the New Bonds would have
an interest rate ceiling of 10 percent.
In connection with the issuance of the New Bonds and the
borrowing of debt funds, MEC has agreed to enter into a Credit
and Operating Support Agreement (see Exhibit B-2) with Surviving
Corporation in order to provide additional revenues to Surviving
Corporation to cover its cost of service, including a return on
common equity. This Support Agreement will provide assurance
that Surviving Corporation will be able to maintain sufficient
coverages, and this Support Agreement may be assigned to MIFA as
collateral as part of debt financing by Surviving Corporation.
In addition, MEC may be required to provide guarantees to MIFA of
principal, interest, and other costs (see Exhibit B-3) in
connection with the New Bonds. The DPU Order approved the
Support Agreement and the guarantees of indebtedness. From a
functional standpoint and in accordance with the DPU approved
rate plan, Surviving Corporation will be operated as though it
were a part of MEC, but in order to qualify for tax-exempt
financing, it is to be a separate corporate entity that is a
subsidiary of the Company and not a subsidiary or division of
MEC.
As a result of the merger, Surviving Corporation will likely
assume some or all of the existing indebtedness of NEC, including
a $3,500,000 long term note agreement issued by the Massachusetts
Industrial Finance Administration and a revolving credit and term
loan agreement in the amount of approximately $3,000,000 with
Bank of Boston. The DPU Order approved the assumption by
Surviving Corporation of NEC's liabilities, including
specifically assumption of this indebtedness.
Neither NEC nor the Company nor any subsidiary of the
Company has 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 the Company
nor any subsidiary is a party to, or has any rights under, a
service, sales, or construction agreement with an EWG or FUCO.
6. Effects on the Company's System
It is not anticipated that the acquisition of NEC by the
Company will have any material effect on the consolidated
earnings per share of the Company. As shown in the financial
statements, the proposed acquisition of NEC will have a de
minimus impact on the Company's system. The acquisition of NEC
makes sense to the Company at this time because NEP will be the
wholesale supplier of electricity to NEC for the foreseeable
future.
The Company will receive a benefit from the acquisition
since the DPU Order has approved an acquisition price of $125 per
share or $3.5 million plus interest accrued since March 22, 1995.
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Acquisition at this price represents a discount to current book
value of NEC, which at June 30, 1995, is approximately $4.5
million. NEC's income totalled $400,000 for 1994 and $500,000
for the nine months ended September 30, 1995. These results
would have added slightly less than one cent per share to the
Company's results.
E. Under Item 1. Description of Proposed Transaction, B.
Proposed Acquisition of NEC Generation by NEP, please add the
following sentences to the end thereof: The DPU Order approved
NEP's purchase of certain of the Surviving Corporation's diesel
generators or assumption of existing leases for these facilities.
Such purchase by NEP is not expected to occur until after the
Cable Project goes in-service.
F. Under Item 1. Description of Proposed Transaction, C. Money
Pool and Short-term Borrowing, 1. Borrowing from Money Pool,
please add the following sentence to the end thereof: "The
Surviving Corporation will participate in the Money Pool in
accordance with these amended terms."
G. Under Item 3. Applicable Statutory Provisions, in the
second paragraph, please delete (5) and replace it with the
following:
"5. The payment of indebtedness is exempted from Sections
9(a) and 12 and Rule 42 by said Rule."
H. By supplying the following exhibits under Item 6. Exhibits
and Financial Statements
(a) Exhibits
D-1(a) Certified copy of order of Massachusetts Department
of Public Utilities dated October 10, 1995
D-1(b) Certified copy of order of Massachusetts Department
of Public Utilities dated June 24, 1994
D-2 Filing with the Federal Energy Regulatory Commission
(FERC)
G-1 Proposed Amended Terms of the NEES Money Pool
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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 Form U-1 Application/Declaration
(Commission's File No. 70-8675) to be signed on its behalf by the
undersigned officer thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
MASSACHUSETTS ELECTRIC COMPANY
s/Michael E. Jesanis
By: ________________________
Michael E. Jesanis
Treasurer of each company
NEW ENGLAND POWER COMPANY
s/John G. Cochrane
By: ________________________
John G. Cochrane
Assistant Treasurer
Date: November 9, 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 of Massachusetts. 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 assumes
or shall be held to any liability therefor.
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EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
D-1(a) Certified copy of order of Massachusetts Filed under cover
Department of Public Utilities dated of Form SE
October 10, 1995
D-1(b) Certified copy of order of Massachusetts Filed under cover
Department of Public Utilities dated of Form SE
June 24, 1994
D-2 Filing with the Federal Energy Filed under cover
Regulatory Commission (FERC) of Form SE
G-1 Proposed Amended Terms of the NEES Filed herewith
Money Pool
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Exhibit G-1
NANTUCKET ELECTRIC MERGER
MDPU TESTIMONY: JOHN G. COCHRANE
EXHIBIT JGC-4
[Marked to show changes
to the currently approved
terms]
PROPOSED AMENDED
TERMS OF THE NEES MONEY POOL
1. (a) The following Members of the Money Pool (the Pool)
participate both as contributors and borrowers to the
Pool and are divided into two groups based on the order
each Group's borrowing needs will be met as provided
hereinafter:
Group I: Granite State Electric Company
Massachusetts Electric Company
The Narragansett Electric Company
New England Electric Transmission Corporation
New England Power Company
New England Power Service Company
Nantucket Electric Company
Group II: New England Hydro-Transmission Electric Company,
Inc.
New England Hydro-Transmission Corporation
(b) The following Members of the Pool participate as
contributors only:
New England Electric System
New England Energy Incorporated
New England Hydro Finance Company, Inc.
Narragansett Energy Resources Corporation
2. The Pool will be administered by New England Power
Service Company as Agent.
3. Each Member will determine each day on the basis of
cash flow projections the amount of surplus funds it
has available for contribution to the Pool (Surplus
Funds.)
4. (a) Each Member will contribute its Surplus Funds to the
Pool each day.
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(b) New England Electric System will not contribute funds
to the Pool in excess of the amount authorized, from
time to time, by its Board of Directors for loans to
subsidiaries.
5. Each Member will receive as interest that fraction of
the total interest received by the Pool equal to the
ratio of the Surplus Funds the Member has contributed
to the total Surplus Funds in the Pool. Such interest
will be computed on a monthly basis.
6. Each Member may withdraw for operational purposes any
of its Surplus Funds at any time without notice.
7. All short-term borrowing needs of Members permitted to
borrow from the Pool will be met by Surplus Funds in
the Pool to the extent such funds are available.
8. (a) On any one day, loans will be made first to satisfy the
borrowing needs of Group I borrowers who have made a
borrowing request that day and borrowing needs of Group
II borrowers will be met only after all the Group I
borrowers' needs for that day have been met.
(b) Among borrowers of the same Group:
(1) Loans will be made first to the borrower paying
the highest rate.
(2) Among borrowers paying the same rate:
(i) loan requirements of $1,000,000 or less will
be met first;
(ii) loans to borrowers with loan requirements of
greater than $1,000,000 will be made equally
to each borrower until the needs of each is
met.
9. (a) A borrowing Member who is eligible to issue commercial
paper will pay interest at a rate equal to the weighted
monthly average of the rates on its outstanding
commercial paper.
(b) During any month when a borrowing member with the
ability to issue commercial paper has no such
commercial paper outstanding, the rate will be the
monthly average of the rate for high grade 30-day
commercial paper sold through dealers by major
corporations as published in the Wall Street Journal.
The rate to be used for weekends and holidays will be
the next preceding published rate.
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(c) Borrowing Members who are not eligible to issue
commercial paper will pay interest at a rate of 1.08
times the rate described in paragraph (b). In no event
will the rate be greater than the monthly average of
the Base Lending Rate of the First National Bank of
Boston.
10. Loans made by the Pool will be open account advances
for periods of less than 12 months, although the Agent
may receive upon demand a promissory note evidencing
the transaction.
11. All loans made by the Pool are payable on demand by the
Agent.
12. All loans made by the Pool may be prepaid by the
borrower without penalty.
13. If there are more Surplus Funds in the Pool than are
necessary to meet the borrowing needs of the Members,
the Agent will invest the excess on behalf of the Pool
in:
(i) obligations issued or guaranteed by the
United States of America;
(ii) obligations issued or guaranteed by any
person controlled or supervised by and acting
as an instrumentality of the United States of
America pursuant to authority granted by the
Congress of the United States;
(iii) obligations issued or guaranteed by any state
or political subdivision thereof, provided
that such obligations are rated for
investment purposes at not less than "A" by
Moody's Investors Service, Inc. or by
Standard & Poor's Corporation;
(iv) commercial paper rated not less than "P-2" by
Moody's Investors Service, Inc., or not less
than "A-2" by Standard & Poor's Corporation;
(v) certificates of deposit issued or banker's
acceptances drawn on and accepted by
commercial bands which are members of the
Federal Deposit Insurance Corporation and
which have a combined capital, surplus and
undistributed profits of at least
$25,000,000;
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(vi) repurchase agreements with any such
commercial bank secured by obligations issued
or guaranteed by the United States of America
or an instrumentality thereof; and
(vii) such other instruments as are permitted by
Massachusetts General Laws Chapter 164,
section 17A, and regulations promulgated
thereunder.
14. Any Member may terminate its participation in the Pool
at any time without notice.
