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File No. 70-____
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, DC 20549
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NEW ENGLAND ELECTRIC SYSTEM
(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 of applicant)
Michael E. Jesanis Kirk L. Ramsauer
Treasurer Associate General Counsel
25 Research Drive 25 Research Drive
Westborough, MA 01582 Westborough, MA 01582
(Names and address of agents for service)
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New England Electric System ("NEES") is a registered holding
company under the Public Utility Holding Company Act of 1935 (the
"Act"). NEES owns the following retail electric companies (the
"Retail Companies"): Granite State Electric Company ("Granite
State") serving approximately 35,000 customers in New Hampshire;
Massachusetts Electric Company ("Mass. Electric") serving
approximately 940,000 customers in Massachusetts; and The
Narragansett Electric Company ("Narragansett") serving
approximately 324,000 customers in Rhode Island. NEES owns New
England Power Company ("NEP") which generates, purchases,
transmits, and sells electric energy in wholesale quantities.
Over 90% of NEP's revenue comes from the sale of electricity for
resale to the Retail Companies. NEES also owns New England Power
Service Company ("NEPSCO"), a service company; New England Energy
Incorporated, an oil and gas exploration and development company,
and New England Electric Resources, Inc. ("NEERI"), a consulting
services company. NEES also owns a number of special purpose
companies.
Neither NEES nor any subsidiary currently has an ownership
interest in an exempt wholesale generator ("EWG") as defined in
Section 32 of the Act or a foreign utility company ("FUCO") as
defined in Section 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. NEES and
NEERI have filed an Application/Declaration (File No. 70-8783)
requesting authority to make EWG and FUCO acquisitions and
financings.
Item 1. Description of Proposed Transactions:
______________________________________________
A. Introduction
________________
The Federal Energy Regulatory Commission ("FERC") has issued a
Notice of Proposed Rulemaking in Docket NO. RM95-8-000 ("NOPR")
setting forth requirements for open and comparable transmission
access. On March 13, 1996, NEES, on behalf of its proposed new
subsidiary to be formed and named NEES Transmission Services, Inc.
("NEES Trans"), and NEP submitted to FERC wholesale transmission
tariffs and related agreements in response to the NOPR. (See
Exhibit D.) By this FERC filing and the Transmission and
Distribution Support Agreement (Exhibit J hereto) which includes
the FERC jurisdictional tariff, NEP and the Retail Companies
propose to turn operational control of their transmission
facilities over to NEES Trans. The Transmission and Distribution
Support Agreement provides for a one-year notice of termination.
The tariffs as submitted are designed to ensure that both
affiliates of NEES Trans and unaffiliated customers will rely on
these tariffs for nondiscriminatory wholesale transmission
service. It is not proposed at this time to transfer ownership of
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transmission assets to NEES Trans. If the decision were made in
the future to transfer transmission assets, such transfer would be
the subject of separate filings with the Commission and other
state and federal regulatory bodies.
The unbundling of wholesale transmission and generation
services that these tariffs implement is nevertheless a critical
underpinning for Choice: New England, the NEES companies' plan to
allow all customers of electric utilities in Massachusetts, Rhode
Island, and New Hampshire to choose their power supplier beginning
in 1998. Choice: New England is subject, to approval by state and
federal regulators and the timetable for their consideration is
uncertain. NEES has filed an Application/Declaration (File No.
70-8803) requesting authority to form and finance one or more
marketing companies as a step toward implementation of Choice: New
England.
NEES believes that turning over operational control of
transmission facilities to NEES Trans and committing to take
service over these facilities under the proposed tariffs are
necessary to ensure the provision of wholesale transmission
services on comparable terms to all users of the transmission
system. The effective date of the FERC tariffs is requested as of
the first day of the calendar month following the later of (i) 60
days from the date of the FERC filing or (ii) five business days
following SEC approval of forming and financing NEES Trans.
B. Formation and Financing of NEES Trans
________________________________________
NEES proposes to form NEES Trans for the limited purpose of
providing transmission and related services. NEES proposes to
provide initial financing for NEES Trans by the purchase of one
thousand shares of common stock, par value $1.00 per share, for a
total purchase price of $1,000. NEES then proposes to make
capital contributions and/or loans to NEES Trans from time to
time, provided that such NEES financing shall not be in excess of
$10 million in the aggregate outstanding at any one time. Any such
loans will be in the form of non-interest bearing subordinated
notes payable in twenty years or less from the date of issue (see
Exhibit B hereto). NEES Trans may prepay any or all of the
outstanding notes hereunder, in whole or in part, at any time and
from time to time without premium or penalty. NEES shall only make
such loans provided: (a) there shall be in full force and effect
appropriate orders of all regulatory authorities having
jurisdiction in the premises; (b) the making of such loan shall
not contravene any provision of law or any provision of the
certificate of incorporation or by-laws of NEES Trans or any
agreement binding upon NEES Trans; and (c) the making of such loan
shall not contravene any provision of law or any provision of the
Agreement and Declaration of Trust of NEES. To the extent that
these loans require state commission approval, Rule 52 of the Act
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would apply, but, at this time, it is uncertain as to which state
jurisdictions would assert jurisdiction over any such loan. It is
proposed that the above investments be authorized through December
31, 1999.
C. Personnel of NEES Trans
___________________________
Staffing is expected to begin with a small group of employees
for NEES Trans. Technical and support staff needed for a
particular project could be assigned for the duration of that
project from NEP, NEPSCo, and the Retail Companies, and the
assigned employees would continue to be employees of NEP, NEPSCo,
and the Retail Companies, not to exceed in any one year 1% of the
total employees of NEP, NEPSCO, and the Retail Companies. All
costs associated with such staff (including compensation,
overheads, and benefits) would be fully reimbursed by NEES Trans
in accordance with Rules 90 and 91 of the Act. Reimbursements for
these costs will be on a thirty-day cycle basis.
D. Money Pool and Short-term Borrowing
___________________________________
NEES Trans seeks short-term borrowing authority through
October 31, 1997, and the authority to borrow and lend money in the
NEES Money Pool (approved by the Commission in its File No. 70-
7765). NEES Trans seeks $15,000,000 of borrowing authority.
The proceeds from the proposed borrowings are to be used (i)
to pay then outstanding notes initially issued to banks and/or
borrowings from the Money Pool, (ii) to provide new money for
capitalizable expenditures and/or to reimburse the treasury
therefor, and (iii) for other corporate purposes relating to
ordinary business operations, including working capital, and the
financing of construction and property acquisitions.
1. Borrowings from the Money Pool
NEES Trans proposes to reduce its need for outside borrowing
authority through the use of the Money Pool. Under the Money Pool,
surplus funds that may be available from day to day in the
treasuries of NEES and its participating subsidiaries (File No.
70-8679) are used to make loans to borrowing companies within the
NEES system in need of short-term funds. The rate will be 1.08
times 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." Although there are no
stated maturities, the loans made by the Money Pool are payable on
demand, and may be prepaid by the borrower without penalty.
Borrowings may, but need not be, evidenced by notes. Borrowings
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will be available first to the wholly owned subsidiaries of NEES
(the Group I Borrowers). Thereafter, if the Money Pool still has
additional funds, those will be available to the non-utility owned
subsidiaries of NEES (the Group II Borrowers) before external
investments are made. All funds borrowed by the Group II
Borrowers will be used for their own internal financing and will
not be loaned to stockholders. Each member determines each day,
on the basis of cash flow projections, the amount of surplus funds
it has available for contribution to the Money Pool. The surplus
funds are transferred to an account of NEPSCO, which administers
and maintains as agent the Money Pool for the member companies.
The proposed amended terms of the Money Pool, reflecting the
addition of NEES Trans, are shown in Exhibit K.
2. Borrowings from Banks
The proposed borrowings from banks will be evidenced by notes
maturing in less than one year from the date of issuance. NEES
Trans will negotiate with the banks the interest costs of such
borrowings. NEES Trans will pay fees to the banks in lieu of
compensating balance arrangements. The effective interest cost of
borrowings from a bank will not exceed the greater of the bank's
base or prime lending rate, or the rate published in the "Wall
Street Journal," as the high federal funds rate, plus, in either
case, one percent. Based on the current base lending rate of 8.75%
and an equivalent or lower high federal funds rate, the effective
interest costs of such a borrowing today would not exceed 9.75%
per annum.
Certain of such borrowings may be without prepayment
privileges. Payment of any short-term promissory notes prior to
maturity will be made on the basis most favorable to NEES Trans,
taking into account fixed maturities, interest rates, and any
other relevant financial considerations.
3. Filing of Certificates of Notification
Within 45 days after the end of each calendar quarter, NEES
Trans will file a Certificate of Notification covering the
transactions effected pursuant to the authority requested herein
during such quarter. Such certificate will show the dates and
amounts of all new money borrowings, the names of the lenders, the
maximum concurrent amount of notes outstanding to the banks, the
Money Pool, the aggregate total outstanding at any one time, and
the aggregate total outstanding at the end of such quarter. Each
certificate will include a statement of whether any of the funds
borrowed were paid by a subsidiary company to NEES through
dividends for the purpose of NEES acquiring an interest in an
exempt wholesale generator or foreign utility company. The amount
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of such dividend payment must be given. The final certificate of
notification will be accompanied by the required past-tense
opinion of counsel. If the same lines were maintained over the
period of the requested authority, the total of those fees would
be approximately $50,000.
Item 2. Fees, Commissions and Expenses
_______________________________________
Fees, commissions, and expenses to be incurred in connection
with the transactions contemplated by this Application/
Declaration are not expected to exceed $5,000. This amount
includes 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
________________________________________
The sections of the Act and rules or exemptions thereunder
that are believed to be applicable to the transactions are:
Sections 6(a), 7, 9(a), 10, 12, and 13, and Rules 45, 52, 90 and 91
all relating to the authority for NEES to undertake the
transactions proposed herein.
The proposed Money Pool and Short-term Borrowing
authorization is subject to the following provisions:
(1) The issuance of notes by NEES Trans to banks: Sections
6(a) and 7 of the Act.
(2) Borrowings from the Money Pool: Sections 6(a), 7, 9(a),
10, and 12 of the Act and Rules 43 and 45.
(3) Loans to the Money Pool: Section 9(a), 10, and 12 of the
Act; and exempted from Rule 45(a) by subparagraph (b)
(1) thereof.
(4) Investments by the Money Pool: Section 9(a), 10, and 12
of the Act.
(5) The payment of indebtedness is exempted from Sections
9(a) and 12 and Rule 42(a) by subparagraph (b) (2) of
the Rule.
Item 4. Regulatory Approval
____________________________
Except for the foregoing, no Federal or state commission or
regulatory body, other than the Commission, has jurisdiction over
the proposed formation of NEES Trans.
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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 May 15, 1996, or as soon thereafter as
practicable.
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
B Form of Subordinated Note
D FERC Filing Letter
*F Opinion of Counsel
*G-1 Financial Data Schedule for NEES (Parent Company
Only)
*G-2 Financial Data Schedule for NEES (Consolidated)
H Proposed Form of Notice
I Choice: New England
J Transmission and Distribution Support Agreement
K Proposed Amended terms of the NEES Money Pool
*To be filed by amendment
(b) Financial Statements
*1-A Balance Sheet of NEES at December 31, 1995,
Actual (Parent Company Only) (Pro Forma not
included since formation of new companies)
*1-B Statement of Income and Retained Earnings for
NEES for twelve months ended December 31, 1995,
Actual (Parent Company Only) (Pro Forma not
included since formation of new companies)
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*2-A Consolidated Balance Sheet of NEES at December
31, 1995, Actual (Pro Forma not included since
formation of new companies)
*2-B Statement of Consolidated Income for NEES for
twelve months ended December 31, 1995, Actual
(Pro Forma not included since formation of new
companies)
*To be filed by amendment
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.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
Application/Declaration on Form U-1 to be signed on its behalf, as
indicated by the undersigned officer thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/Michael E. Jesanis
_______________________________
Michael E. Jesanis, Treasurer
Dated: March 14, 1996
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 therefore.
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EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
B Form of Subordinated Note Filed herewith
D FERC Filing letter Filed herewith
F Opinion of Counsel To be filed by
amendment
G-1 Financial Data Schedule for To be filed by
NEES (Parent Company only) amendment
G-2 Financial Data Schedule To be filed by
for NEES (Consolidated) amendment
H Proposed Form of Notice Filed herewith
I Choice: New England Filed herewith
J Transmission and Distribution Filed herewith
Support Agreement
K Proposed Amended terms of the NEES Filed herewith
Money Pool
Financial
Statement No. Description Page
- ------------- ----------- ----
1-A Balance Sheet of NEES at December 31, To be filed by
1995, Actual (Parent Company only) amendment
(Pro Forma not included since
formation of new companies)
1-B Statement of Income and Retained To be filed by
Earnings for NEES for twelve months amendment
ended December 31, 1995, Actual
(Parent Company only) (Pro Forma not included
since formation of new companies)
2-A Consolidated Balance Sheet of NEES at To be filed by
December 31, 1995, Actual (Pro Forma amendment
not included since formation of new
companies
2-B Statement of Consolidated Income for To be filed by
NEES for twelve months ended amendment
December 31, 1995, Actual (Pro
Forma not included since formation of
new companies
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EXHIBIT B
________
FORM OF OPEN ACCOUNT ADVANCE
SUBORDINATED PROMISSORY NOTE
$_____________________ DATED:_________________
FOR VALUE RECEIVED, the undersigned NEES TRANSMISSION
SERVICES, INC. (NEES Trans), a ____________ corporation hereby
promises to pay to NEW ENGLAND ELECTRIC SYSTEM (NEES) ON DEMAND,
but in any event, no later than ____________ the principal sum of
________________________ DOLLARS ($____________) or, if less, the
aggregate unpaid principal amount of all advances made by NEES to
NEES Trans 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 NEES Trans to any lender which is not an
"affiliate" of NEES Trans, 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 NEES Trans, 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
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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 impair, as between NEES
Trans and the holder of this Subordinated Promissory Note, the
obligation of NEES Trans 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.
NEES TRANSMISSION SERVICES, INC.
By:_______________________________
Title:
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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:
DATE AMOUNT AMOUNT OF BALANCE OF NOTATION
OF LOAN PRINCIPAL PRINCIPAL MADE BY
PRE-PAID OR UNPAID
REPAID
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EXHIBIT D
March 12, 1996
Lois D. Cashell, Secretary
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, DC 20426
Re: NEES Transmission Services, Inc. -- Open
Access Transmission Tariffs, Service
Agreements, Related Contracts; New England
Power Company -- Control Area Ancillary
Transmission Services Agreement, Generation
Services Support Agreement, Amendment to FERC
Electric Tariff, Original Volume No. 1; New
England Power Company, Massachusetts Electric
Company, The Narragansett Electric Company
and Granite State Electric Company --
Transmission and Distribution Support
Agreement
Dear Secretary Cashell:
Overview of Filing
New England Electric System ("NEES"), on behalf of its
proposed new subsidiary to be formed and named NEES Transmission
Services, Inc. ("NEES Trans"), and New England Power Company
("NEP") hereby submit for filing transmission tariffs and related
agreements in response to the Commission's Notice of Proposed
Rulemaking in Docket No. RM95-8-000 (NOPR). Today's filing for
open and comparable transmission access meets, and indeed goes
beyond, the requirements set forth in the Commission's NOPR and
pro forma tariffs.
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As explained below and in the accompanying testimony, the
NEES Companies 1 propose to turn control of their transmission
facilities over to NEES Trans. NEP will take service under the
tariffs for all off-system wholesale transactions, as will
unaffiliated market participants. In addition, the NEES Companies
propose to apply NEES Trans' new tariffs to NEP's service to its
existing wholesale requirements customers. These actions will
ensure that both NEES Trans' affiliates as well as unaffiliated
customers will rely on the tariffs for unbundled transmission
service. 2
The tariffs filed today provide for wholesale transmission
services only. The unbundling of wholesale transmission and
generation services that these tariffs implement is nevertheless a
critical underpinning for Choice: New England, the NEES Companies'
plan for the introduction of retail competition. The service
agreements under the tariffs may be voluntarily modified to
provide for retail wheeling service on terms that allow recovery
of stranded costs, prevent bypass and provide for the collection
of a non-bypassable access charge, consistent with Choice: New
England. 3
__________________
1 The NEES Companies affected by this filing include New
England Power Company, Massachusetts Electric Company ("Mass.
Electric"), The Narragansett Electric Company ("Narragansett")
and Granite State Electric Company ("Granite State"). Granite
State does not own transmission facilities, however, as defined
under the Federal Power Act, 16 U.S.C. Section 824d et seq.
2 Attachment A to this filing letter shows the proposed
transition from New England Power Company's bundled generation and
transmission business to the corporate and functional separation
of generation and transmission with the establishment of NEES
Trans. The attachment also shows the migration of customers and
services from NEP's existing transmission tariffs and contracts to
the NEES Trans tariffs tendered today. Because of the tightly-
related and comprehensive nature of the package of tariffs,
service agreements and contracts affected by this filing, it is of
critical importance that the package be viewed and treated as a
whole. The NEES Companies also respectfully request that the
effective dates sought for the various elements of this package be
granted as requested. Such treatment will work to ensure that all
similarly situated customers migrate to comparable service
simultaneously and that all rate moratoria currently in effect are
honored.
<PAGE>
Although the NEES Companies are not proposing at this time to
transfer ownership of their transmission assets to NEES Trans, the
proposed NEES Trans tariffs are also designed to function with
minimal modifications in the event of such a transfer. The NEES
Companies recognize that before transfer of ownership may occur,
state and federal regulatory approvals would be required.
Rate Schedules
Pursuant to section 205 of the Federal Power Act and Part 35
of the Commission's Regulations, enclosed for filing on behalf of
NEES Transmission Services, Inc., a new subsidiary of NEES, are
six copies of each of the following:
- NEES Transmission Services, Inc.'s Network Integration
Service Transmission Tariff ("Network Tariff"), under
which NEES Trans offers wholesale network transmission
service over the integrated transmission system of the
NEES Companies to eligible customers, including the
distribution affiliates of NEES, on a comparable and
non-discriminatory basis;
- NEES Transmission Services, Inc.'s Point-to-Point
Transmission Service Tariff ("Point-to-Point Tariff"),
under which NEES Trans offers wholesale point-to-point
transmission service over the transmission system of the
NEES Companies to eligible customers, including NEP, the
generation subsidiary of NEES, on a comparable and non-
discriminatory basis;
__________________
3 The NEES Trans network service agreement with each of NEP's
current all-requirements Tariff No. 1 customers includes a
liability release and indemnification under which the customer
agrees to hold NEES Trans harmless in the event that the customer
requests transmission service not generally available but which
may give rise to stranded costs. Similar language is incorporated
into Section 25 of the Point-to-Point Tariff.
<PAGE>
- Service Agreements under NEES Transmission Services,
Inc.'s Network Tariff for (i) customers currently taking
service under NEP's wholesale requirements tariff (NEP's
FERC Electric Tariff, Original Volume No. 1), including
NEP's distribution affiliates; (ii) all customers
currently taking service under NEP's existing tariff for
wholesale network transmission service to transmission
dependent utilities (NEP's FERC Electric Tariff,
Original Volume No. 4); (iii) all customers taking
network-type service under NEP's FERC Electric Tariff,
Original Volume No. 8; and (iv) Fitchburg Gas & Electric
Co.; 4
- Service Agreements for non-firm service under NEES
Transmission Services, Inc.'s Point-to-Point Tariff for
(i) NEP, to be used for the wheeling of its wholesale
coordination sales; (ii) all customers with service
agreements under NEP's existing tariff for non-firm
point-to-point wholesale transmission service (NEP's
FERC Electric Tariff, Original Volume No. 3); and (iii)
all customers with non-firm contracts dependent on the
terms, conditions and rates of Tariff No. 3; 5
- Service Agreement for Firm Service under NEES
Transmission Services, Inc.'s Point-to-Point Tariff for
all customers with service agreements for point-to-point
firm service under NEP's Tariff No. 8;
- Support Agreements between NEES Transmission Services,
Inc. and the municipal light departments of Hingham and
Hull (Mass.) for their limited use of the Company's
transmission system. 6
__________________
4 Fitchburg Gas & Electric is a transmission-dependent
utility which has been taking non-firm point-to-point service
under NEP's Tariff No. 3.
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In addition, enclosed for filing on behalf of NEP are six
copies of each of the following:
- Control Area Ancillary Transmission Services Agreement
between New England Power Company and NEES Transmission
Services, Inc., under which NEP agrees to provide
generation-related ancillary services to enable NEES
Trans to provide generation-related ancillary services
to customers under its tariffs;
- Generation Services Support Agreement between New
England Power Company and NEES Transmission Services,
Inc., which defines the terms under which (i) NEP will
operate its generation facilities out of economic
dispatch at NEES Trans' request, in connection with
constraints on the transmission system operated by NEES
Trans, and (ii) NEP's generation will provide for
reactive power support; and
- An amendment to Schedules II-A and II-B of Tariff No. 1,
which requires NEP to provide a credit to its wholesale
requirements customers equal to their payments under
NEES Trans' Network Tariff, thereby permitting the
unbundling of NEP's wholesale requirements service
without affecting the overall level of customers' rates
under Tariff No. 1. The credit is designed to maintain
revenues from each Tariff No. 1 customer at a level
equal to the total revenues billable under the settled
W-95(S) and W-95(N) rates. Accordingly, any refunds
___________________
5 NEES Trans proposes to treat existing Tariff No. 3 service
agreements (except for Fitchburg Gas & Electric) and contracts
based on Tariff No. 3 as the equivalent of completed Transaction
Requests for non-firm service under the Point-to-Point Tariff
filed today. As of the effective date of the Point-to-Point
Tariff, however, customers will be required to complete and submit
Transaction Requests to NEES Trans for subsequent transactions.
The Company furthermore proposes to deem long-term (i.e., longer
than 30 days) transactions under NEP's Tariff No. 3 "renewed"
through the expiration of their terms. NEES Trans makes this one-
time offer in an effort to mitigate the administrative effects of
the transition from NEP's Tariff No. 3 and dependent contracts to
NEES Transmission Services, Inc.'s Point-to-Point Tariff.
6 The distinct configuration of the Hingham and Hull systems
and the rationale for their support agreements are discussed in
Mr. Turner's testimony.
<PAGE>
ordered by the Commission following its review of the
Network Tariff would be reconciled and payable to NEP
during the effective period of the W-95(S) and W-95(N)
tariff rates.
Finally, enclosed for filing on behalf of New England Power
Company, Massachusetts Electric Company, The Narragansett
Electric Company, and Granite State Electric Company are six
(6) copies of:
- Transmission and Distribution Support Agreement under
which NEES Trans assumes control over NEP's transmission
facilities and agrees to reimburse NEP for the costs of
owning, operating and maintaining those facilities, and
under which Mass. Electric, Narragansett and Granite
State agree to permit NEES Trans to offer distribution
services for third-party wholesale transactions.
Formation of NEES Transmission Services, Inc. and Corporate
Unbundling of Transmission and Generation
NEES Transmission Services, Inc. is a newly proposed
subsidiary of NEES, whose purpose is to control, operate and
maintain the transmission facilities of the NEES Companies, and to
provide transmission services over those facilities throughout the
NEES Companies' three-state service area. 7 Concurrent with this
filing, NEES will submit an application under the Public Utility
Holding Company Act of 1935 seeking authorization for the
establishment of NEES Transmission Services, Inc. 8 Because NEES
Trans requires this SEC approval, the effective date of all
contracts, tariffs and service agreements tendered today is
requested as of the first day of the calendar month following the
later of (i) 60 days from today's date or (ii) five (5) business
days following SEC approval.
By turning over control of their transmission facilities to
NEES Trans and committing to take service over those facilities
under NEES Trans' tariffs, the NEES Companies propose to implement
the Commission's comparability objectives for open access
wholesale transmission in a manner that goes beyond the
requirements of the NOPR. Although the NOPR does not require
corporate unbundling, the NEES Companies have taken this step as
part of their overall approach to ensuring the provision of
wholesale transmission service on comparable terms to all users of
the transmission system, including NEES Trans' affiliates.
As further described in Mr. Sergel's testimony in support of
this filing, NEES Trans will also play a major role in the
<PAGE>
implementation of Choice: New England, the NEES Companies'
proposal for introducing customer choice in retail markets. NEES
Trans and the tariffs which are the subject of this filing are also
critical components in ensuring nondiscriminatory open access
transmission across the NEES Companies' integrated system in New
England. Mr. Turner's enclosed testimony explains in detail how
the two tariffs will operate to serve all customers -- affiliated
and non-affiliated -- with comprehensive transmission services in
a comparable manner.
NEES Transmission Services, Inc.'s Assumption of Control Over
NEP's Transmission System and Use of the Distribution Affiliates'
Systems
Currently, NEP owns or controls all of the transmission
facilities of the NEES Companies. 9 Pursuant to the Transmission
and Distribution Support Agreement, NEP grants NEES Trans the
right to use and control its transmission facilities and NEES
Trans agrees to support the costs of those facilities. NEES Trans
in turn will make those transmission facilities available to
qualified entities -- including its NEES affiliates -- pursuant to
the proposed tariffs. Through its collection of charges for
service under the Network and Point-to-Point Tariffs, NEES Trans
will recover the support charges it is obligated to pay to NEP and
its distribution affiliates under the Transmission and
Distribution Support Agreement, the Generation Services Support
Agreement and the Control Area Ancillary Transmission Services
Agreement.
The transmission facilities to which NEP is granting rights
to NEES Trans include NEP's contractual rights to use certain
transmission facilities owned by others. 10 By providing copies
of this filing to the owners of the transmission facilities listed
in Schedule A of the Transmission Service and Support Agreement,
NEP hereby notifies those companies of its intention to grant NEES
Trans control over NEP's contractual rights to use those
facilities. NEES Trans intends to conform its use to the rights
provided under each contract; in other words, contractual
limitations on facilities now used by NEP will be observed by NEES
__________________
7 The NEES Companies serve portions of Massachusetts, Rhode
Island and New Hampshire. In addition, NEP makes de minimus sales
at retail in Vermont and Massachusetts from its hydro-electric
operations.
8 Following SEC approval of the formation of NEES Trans, the
new company will submit to the Commission a Notice of Succession
pursuant to 18 C.F.R. 35.16 and 18 C.F.R. 131.51.
<PAGE>
Trans. By copy of this filing, NEP furthermore notifies all
parties interconnected to its transmission system of its intention
to assign its interconnection rights and obligations to NEES
Trans. The Transmission and Distribution Support Agreement
furthermore grants NEES Trans use of the distribution systems of
Mass. Electric, Narragansett and Granite State as they may be
needed to support wholesale transactions. Under the terms of the
Agreement, NEES Trans agrees to reimburse each retail affiliate
for the use of its facilities at its cost of service.
NEES Transmission Services, Inc.'s Transmission Tariffs and Their
Application to Affiliates
NEES Trans' proposed tariffs adhere closely to the intent of
the pro forma tariffs and the Commission's objectives as stated in
the NOPR. All basic services identified in the pro forma tariffs
are provided. In some cases, service offerings are expanded or
tailored to serve known needs of transmission customers in New
England and to conform with New England Power Pool (NEPOOL)
requirements. Based on NEP's extensive experience in providing
transmission service under generally available tariffs over the
past fifteen years, NEES Trans' tariffs offer more detail on a
number of matters than the pro forma tariffs require. For
example, both tariffs set forth detailed forms for applications
for service and forms of service agreements, interconnection
agreements and agreements for transmission system and facilities
studies. The Network Tariff also includes a standard form of
Network Operating Agreement. By including standard forms for
these agreements in the tariffs, NEES Trans hopes to minimize
obstacles to the prompt initiation of transmission service.
The modifications 11 made by NEES Trans to the pro forma
tariffs do not diminish the basic services provided, but recast
the pro forma tariffs for the setting of a transmission-only
company. For example, NEES Trans does not have "native load'
customers, as defined in the pro forma tariffs. This factor alone
has caused a substantial number of modifications to the pro forma
tariff text. It has also caused NEES Trans to enter into
transitional contracts with NEP to obtain generation-related
ancillary services and to reimburse NEP for out-of-rate
_______________
9 Some transmission facilities are owned by NEES'
distribution affiliates, Narragansett and Mass. Electric.
However, to the extent necessary to make wholesale transactions,
these facilities are currently controlled and operated by NEP as
part of its integrated transmission system pursuant to the
integrated facilities provisions of NEP's Tariff No. 1, Schedule
III-B.
<PAGE>
generation since these cannot be provided by a transmission-only
company. NEES Trans has ensured that its tariffs, including the
modifications to the pro forma models, provide comparable service
for all wholesale transmission customers seeking service over the
NEES Companies' integrated transmission system. 12
The NEES Companies' confidence that NEES Trans' tariffs will
operate fairly is reflected in their commitment to take all
wholesale transmission service under the tariffs. The NEES
Companies have gone beyond the Commission's requirement that a
utility "take transmission service for [new] wholesale
requirements service and coordination transactions under its filed
tariff," NOPR at 97, by applying NEES Trans' Network Tariff to
existing affiliated wholesale requirements customers. This is
especially significant in the case of the NEES Companies, since
essentially all of the power through which NEES' retail
distribution subsidiaries serve their native load customers is
purchased from NEP under NEP's wholesale requirements tariff. By
applying NEES Trans' new Network Tariff to that service, as well
as applying NEES Trans' Point-to-Point Tariff to NEP's
coordination sales, this filing reflects a strong commitment by
the NEES Companies to the terms and conditions of the services
made available under those tariffs. The NEES Companies would not
and could not make that commitment unless they were convinced that
NEES Trans' tariffs are structured to operate fairly for all
market participants.
Rates for Transmission Services
Under the Transmission and Distribution Support Agreement,
NEES Trans agrees to compensate NEP for NEP's total transmission
cost of service, determined in accordance with the formula
_________________
10 NEP's rights to utilize a share of certain high voltage
direct current (HVDC) facilities that transmit power from Hydro
Quebec to the regional alternating current grid are not covered by
the Transmission and Distribution Support Agreement. Nor are
NEP's costs of supporting those facilities included in the support
charges paid by NEES Trans or in NEES Trans' rates for tariff
services. In Northeast Utilities Service Co., 62 FERC paragraph
61,294 (1993), the Commission ruled that the costs of supporting
the HVDC facilities are not included in the cost of supporting a
utility's integrated AC transmission system. As described in Mr.
Turner's testimony, because the HVDC facilities are not
integrated, neither they nor their costs are included in the
tariffs tendered today. NEP and NEES Trans respectfully request
that the Commission affirm that this is the correct and
lawful treatment of these specialized facilities.
<PAGE>
specified in Schedule B to said agreement. NEES Trans furthermore
agrees to compensate the three retail affiliates for NEES Trans'
responsibility for NEP's transmission cost of service, together
with the costs incurred by NEES Trans in operating the
transmission system, form the basis for the charges for
transmission service under the tariffs. Customers under NEES
Trans' Network Tariff (including NEES Trans' distribution
affiliates) will pay their load-ratio share of the total cost of
service. Firm and non-firm customers under NEES Trans' Point-to-
Point Tariff, including NEP, will pay rates determined by dividing
the historic calendar year transmission revenue requirement by
annual system network peak. Initially, as explained in Ms.
Schwennesen's testimony, the non-firm rate will be derived by
dividing the weekly firm rate by seven days and by dividing the
daily firm rate by 24 hours. Firm customers will pay for all
service reserved, while non-firm customers will pay only for
service scheduled unless interrupted by NEPOOL or NEES Trans.
________________
11 In Attachment B to this filing letter, NEES Trans
highlights its major modifications to the pro formas with an
explanation and rationale for each. This attachment is intended
only as a convenient guide to the reader and is not meant to modify
in any way the terms, conditions and/or rates of the tariffs or
agreements which are the subject of this filing.
12 NEES Trans recognizes that the Commission's Final Rule in
Docket No. RM95-8-000 may require modifications to the tariffs
tendered today. In the event that the Final Rule permits the
incorporation of benefits (such as headroom rights for Network
Customers), NEES Trans reserves the right to incorporate such
provisions in any compliance filing it may be required to make.
the use of their distribution facilities when used to support
wholesale transactions. The formula for reimbursements to Mass.
Electric, Narragansett and Granite State are appended to the
Agreement as Schedule F. As explained in Ms. Schwennesen's
testimony, the formulae employ a traditional cost-of-service
methodology. The testimony of Mr. Cochrane and Dr. Williamson
explain and support the cost of capital and return on equity
components of NEP's and the distribution affiliates' charges to
NEES Trans.
<PAGE>
NEES Trans' proposed tariffs contain substantially more
specificity on rate issues than is required under the pro forma
model tariffs. In keeping with customer expectations, and to more
closely align rates with costs, NEES Trans will separately charge
for uses extending beyond the rolled-in transmission services.
For example, NEES trans will separately charge for (i)
transformation stepping down to the distribution system, (ii)
meters, and (iii) wheeling over the distribution systems of the
distribution affiliates. In addition, customers requesting
studies of the need for or design of new transmission facilities
will pay NEES Trans' actual costs incurred in performing the study
itself or through the services of its affiliate, NEPSCo. In the
event direct assignment facilities are constructed for a customer,
both tariffs provide the carrying charge formula calculation that
will be employed to charge customers for these specific
facilities, in addition to their transmission rates. Charges for
out-of-rate generation and reactive power supply are treated on a
rolled-in, embedded basis in both tariffs. Rates for other
optional ancillary services are unbundled to the extent possible
and set forth in each tariff. The proposed rates are supported in
the testimony of Ms. Schwennesen and Dr. Coxe.
Control Area Ancillary Transmission Services and Generation
Services Support Agreements
As a transmission-only company, NEES Trans cannot use its own
generating resources to offer generation-related ancillary
services to transmission customers. NEP is accordingly filing a
Control Area Ancillary Transmission Services Agreement with NEES
Trans, under which NEES Trans may purchase from NEP ancillary
services such as loss compensation service, energy imbalance
service and system protection service, load following service and
installed reserve service for the benefit of its transmission
customers. Such services are completely optional for NEES Trans'
customers, and will only be requested from NEP if needed by
customers. The testimony of Dr. Coxe discusses the ancillary
services to be offered by NEES Trans and their associated costs.
For similar reasons, when demands on the transmission system
operated by NEES Trans affect the operation of generating units,
the effects will be felt not by NEES Trans -- which owns no
generation -- but by NEP and other generators. The Generation
Services Support Agreement between NEP and NEES Trans requires NEP
to operate its generating units out of economic dispatch when
called upon by NEES Trans to do so and for NEES Trans to compensate
NEP for the resulting costs. To the extent not already covered by
existing agreements with NEP, NEES Trans proposes to offer
generally similar contracts to other generators interconnected
with its system at locations that may require out-of-rate
<PAGE>
generation. The agreement also provides compensation to NEP for
its production investment in reactive power supply. NEES Trans
will roll the costs incurred under this Agreement into its rates.
Effect of This Filing on NEP's Existing Transmission Tariffs and
Related Contracts
NEP currently provides unbundled wholesale transmission
service under three tariffs, as well as numerous bilateral
transmission service contracts. NEP provides non-firm point-to-
point transmission service under its Tariff No. 3, network
transmission service to transmission dependent utilities under
its Tariff No. 4, and firm transmission service under its Tariff
No. 8. NEES Trans and NEP propose to supersede NEP's Tariff No. 3
with NEES Trans' Point-to-Point Tariff as of the effective date
of this filing. 13 The Companies similarly propose to supersede
NEP's Tariff No. 4 with NEES Transmission Services, Inc.'s Network
Tariff as of the same date. This will ensure that unaffiliated
customers currently taking transmission service under NEP's Tariff
Nos. 3 and 4 will be taking service under the new tariffs on the
same date that NEES Trans' affiliates begin to use those tariffs
for their coordination and requirements sales. 12
On October 4, 1994, the Commission approved a settlement in
Docket No. ER 93-920-000 that, among other things, established a
two-year moratorium on changes in the rates, terms, and conditions
of NEP's Tariff No. 8. In recognition of that moratorium, NEP and
NEES Trans propose to close Tariff No. 8 to new customers on the
effective date of the tariffs tendered today and to supersede
Tariff No 8 with the new tariffs effective November 1, 1996,
following the expiration of that moratorium. 15
_____________
13 A number of NEP's transmission service contracts are tied
to the terms, conditions and rates of NEP's Tariff No. 3. When
NEP's Tariff No. 3 is superseded by NEES Trans' Point-to-Point
Tariff, customers under such contracts will take service under the
new Point-to-Point Tariff. See Attachment D to this letter.
14 NEES Trans is proposing to roll into its Network Tariff
rate the costs of facilities built, operated and maintained for
the benefit of its Network Customers. Accordingly, customers now
making support payments for those facilities would be relieved of
those payments to avoid double counting. The customers whose
support agreements would be superseded or amended to reflect the
<PAGE>
rolled-in approach are listed on Attachment D to this filing
letter.
Effect of This Filing on NEP's Existing Wholesale Requirements
Tariff
As noted above, NEP's wholesale requirements customers will
begin taking service under NEES Trans' Network Tariff upon its
effective date. 16 To ensure that the initiation of network
service from NEES Trans does not result in a rate increase to
those customers (or to their retail customers), NEP is filing a
proposed amendment to Schedules II-A and II-B of its wholesale
requirements tariff. Under the amendment, NEP will credit its
requirements customers with the charges they are required to pay
NEES Trans for network integration transmission service. This
crediting mechanism permits the unbundling of NEP's requirements
service to begin, while complying with the base rate moratorium
and settlement approved by the Commission's Order in Docket Nos.
ER95-267-000, et al. This crediting mechanism will operate through
the effective period of the W-95 rates. Because NEP will be
crediting its Tariff No. 1 customers for the full amount of their
charges from NEES Trans during this period, NEP requests that the
Commission affirmatively approve a reconciliation mechanism
whereby NEP may recover from its customers any amounts refunded to
them by NEES Trans upon final disposition of NEES Trans' rates by
the Commission. Ms. Schwennesen more fully describes the
operation of the crediting mechanism and a corresponding
reconciliation measure in her attached testimony. NEP
specifically requests that the Commission affirmatively approve
the reconciliation and refund measures to ensure that NEP is held
harmless and that any reconciliation is not deemed retroactive
rate-making. If the Commission rules otherwise, then both NEP and
NEES Trans request that NEES Trans' rates become effective for
NEP's Tariff No. 1 customers, prospectively, on the date that NEES
Trans' final approved rates are allowed to go into effect.
___________________
15 Pursuant to its terms, one transmission contract tied to
NEP's Tariff No. 8 will be superseded by Firm Point-to-Point
Transmission Service as of the effective date of the Point-to-
Point Tariff. See Attachment C. NEES Trans' Network Tariff will
also supersede the terms, conditions and rates of NEP's
distribution agreement with MMWEC for delivery of NYPA Power upon
the effective date of the Network Tariff.
16 In the Transmission and Distribution Support Agreement,
NEP assigns to NEES Trans NEP's transmission obligations under
Tariff No. 1.
<PAGE>
Real-Time Information Network Participation
On February 2, 1996, the New England Power Pool Executive
Committee authorized the development of a regional Real-Time
Information Network (RIN) to fulfill the anticipated obligations
of NEPOOL Participants under the Final Rule to be issued by the
Commission in Docket No. RM95-9-000. The NEPOOL Executive
Committee furthermore voted to permit non-participants to
participate in the NEPOOL RIN. NEES Trans plans to fulfill its
obligations by posting notice of its transmission availability,
terms, conditions, and rates on this regional RIN. Like all other
customers of NEES Trans, NEES Companies' affiliates will be
required to obtain transmission information and may make inquiries
and book firm and non-firm transmission capacity via the RIN.
Until the RIN is functioning, the NEES Companies' affiliates will
employ the same procedures used by other customers to inquire
about and reserve transmission services. NEES Trans will closely
adhere to the standards of conduct and due diligence contained in
the two tariffs to prevent the appearance or occurrence of
discriminatory dealings in transmission matters.
Effective Date; Request for Waiver of Notice Requirements
Except as otherwise noted below, NEES Trans and its
affiliates affected by this filing propose an effective date for
the tariffs, service agreements, and other agreements filed
herewith which shall be the first day of the calendar month
following the later of (1) 60 days from the date of this filing or
(2) five (5) business days following SEC approval of the
establishment of NEES Transmission Services, Inc. As explained
above, NEES Trans and NEP propose to supersede NEP's Tariff No. 3
with NEES Trans' Point-to-Point Tariff (for non-firm service), and
NEP's Tariff No. 4 with NEES Trans' Network Tariff, as of the same
effective date. NEP proposes the same effective date for its
transmission-related amendments to its Tariff No. 1. NEES Trans
and NEP also propose to cease offering service under NEP's Tariff
No. 8 as of the same date but request waiver of the Commission's
notice requirements to supersede Tariff No. 8 as of November 1,
1996. The companies also request that service agreements
permitting current Tariff No. 8 customers to take Firm Point-to-
Point or Network service under the proposed tariffs be made
effective as of November 1, 1996.
Cost Support; Request for Waivers
The NEES Companies make this filing in advance of the
issuance of the Final Rule in Docket No. RM95-8-000, as encouraged
by the Commission in its "Further Guidance Order," issued March
29, 1995 in American Electric Power Service Corp., 70 FERC
<PAGE>
transmission service rates in this filing use formula rates which
rely on historical data, NEES Trans and the NEES Companies request
waiver of the requirement that Period II data be filed in support
of this filing. Furthermore, since neither Narragansett nor
Granite State would have derived any revenues from the use of
their distribution facilities by NEES Trans during Period I,
neither company is providing Period I Statements AA - BM except
for Statement BK as required under Section 35.13(a)(2).
Future Filings
Although the documents which are the subject of this filing
constitute a major step toward the development of a more
competitive electric market and the complete unbundling of the
NEES Companies' transmission and generation functions, additional
future filings will be tendered to meet the objective of fully
competitive generation and open access transmission for retail
markets. Accordingly, the NEES Companies anticipate the following
filings with the Commission at various times in the future: 17
Modified Transmission Service Agreements between NEES
Transmission Services, Inc. and Granite State, Mass.
Electric and Narragansett upon the successful resolution
of retail restructuring efforts in New Hampshire,
Massachusetts and Rhode Island, respectively;
A power sales tariff seeking permission for New England
Power Company to sell at market-based rates;
An application for Exempt Wholesale Generators status
for New England Power Company and designation of all of
NEP's units as eligible facilities, following the
receipt of necessary state approvals;
A tariff seeking permission for New England Power
Company to sell ancillary services at market-based
rates;
A Notice of Succession, following SEC approval of NEES
Transmission Services, Inc., indicating that the newly-
formed subsidiary is adopting all relevant rate
schedules of New England Power Company.
As the evolution of more competitive markets continues in New
England, the NEES Companies may make additional filings with the
Commission.
<PAGE>
Documents Enclosed and Communications
In addition to the proposed Tariffs and Agreements listed on
pages 2 through 4 of this transmittal letter, six copies of each of
the following documents are enclosed in support of this filing:
- This filing letter;
- Testimony and exhibits sponsored by seven (7) witnesses;
- Exhibits and workpapers supporting the calculation of
the proposed rates, including Statements AA - BM for NEP
and Mass. Electric, and Statement BK for Granite State
and Narragansett;
- Revenue statements showing the anticipated rate effects
on customers under the proposed tariffs compared to the
rates currently in effect under NEP's various tariffs
and contracts to be superseded by the new tariffs;
- A list identifying the parties to whom copies of this
filing have been sent; 18 and
- A form of notice suitable for publication in the Federal
Register.
Courtesy copies of this filing are also included for hand delivery
to Messrs. William Longenecker and John Conway. In addition, one
copy of this letter is enclosed to be docketed, date- and time-
stamped and returned in the self-addressed, stamped envelope
included in this package.
________________
17 The retail affiliates among the NEES Companies also
anticipate filings before their respective state commissions in
furtherance of their jurisdictional programs advancing
competition.
<PAGE>
Please address any inquiries and correspondence to the following
individuals:
Paige Graening, Esquire Kenneth G. Jaffe, Esquire
Attorney for the NEES Companies Swidler & Berlin
25 Research Drive 3000 K Street, N.W.,
Westborough, MA 01582 Suite 300
(508) 389 - 3074 Washington, DC 20007
(202) 424-7563
Respectfully submitted,
s/ Paige Graening
Enclosures
_________________
18 Pursuant to Section 35.2 of the Commission's Rules &
Regulations, 18 C.F.R. section 35.2, the volumes containing
workpapers and revenue statements are not being mailed today to
customers who will be minimally affected by this filing. The NEES
Companies will promptly send copies to any such customer who
requests them.
<PAGE>
EXHIBIT H
_________
PROPOSED FORM OF NOTICE
New England Electric System ("NEES") a registered holding
company under the Public Utility Holding Company Act of 1935 (the
"Act") has filed a Form U-1 Application/Declaration (File No. 70-
____) under Sections 6(a), 7, 9(a), 10, 12, and 13 of the Public
Utility Holding Company Act of 1935 and Rules 42, 43, and 45
thereunder. NEES owns retail electric companies (the "Retail
Companies"), New England Power Company ("NEP") which generates,
purchases, transmits, and sells electric energy in wholesale
quantities, New England Power Service Company ("NEPSCO"), a
service company, New England Energy Incorporated, an oil and gas
exploration and development company, and New England Electric
Resources, Inc. ("NEERI"), a consulting services company. NEES
also owns a number of special purpose companies.
Neither NEES nor any subsidiary currently has an ownership
interest in an exempt wholesale generator ("EWG") as defined in
Section 32 of the Act or a foreign utility company ("FUCO") as
defined in Section 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. NEES and
NEERI have filed an Application/Declaration (File No. 70-8783)
requesting authority to make EWG and FUCO acquisitions and
financings.
The Federal Energy Regulatory Commission ("FERC") has issued
a Notice of Proposed Rulemaking in Docket NO. RM95-8-000 ("NOPR")
setting forth requirements for open and comparable transmission
access. On March 13, 1996, NEES, on behalf of its proposed new
subsidiary to be formed and named NEES Transmission Services, Inc.
("NEES Trans"), and NEP submitted to FERC wholesale transmission
tariffs and related agreements in response to the NOPR. By this
FERC filing and the related Transmission and Distribution Support
Agreement NEP and the Retail Companies propose to turn operational
control of their transmission facilities over to NEES Trans. The
Transmission and Distribution Support Agreement provides for a
one-year notice of termination. NEES does not propose at this
time to transfer ownership of transmission assets to NEES Trans.
The effective date of the FERC tariffs is requested as of the first
day of the calendar month following the later of (i) 60 days from
the date of the FERC filing or (ii) five business days following
SEC approval of forming and financing NEES Trans.
<PAGE>
NEES proposes to form NEES Trans for the limited purpose of
providing transmission and related services. NEES proposes to
provide initial financing for NEES Trans by the purchase of one
thousand shares of common stock, par value $1.00 per share, for a
total purchase price of $1,000. NEES then proposes to make
capital contributions and/or loans to NEES Trans from time to
time, provided that such NEES financing shall not be in excess of
$10 million in the aggregate outstanding at any one time. Any such
loans will be in the form of non-interest bearing subordinated
notes payable in twenty years or less from the date of issue. NEES
Trans may prepay any or all of the outstanding notes hereunder, in
whole or in part, at any time and from time to time without premium
or penalty. NEES shall only make such loans provided: (a) there
shall be in full force and effect appropriate orders of all
regulatory authorities having jurisdiction in the premises; (b)
the making of such loan shall not contravene any provision of law
or any provision of the certificate of incorporation or by-laws of
NEES Trans or any agreement binding upon NEES Trans; and (c) the
making of such loan shall not contravene any provision of law or
any provision of the Agreement and Declaration of Trust of NEES.
To the extent that these loans require state commission approval,
Rule 52 of the Act would apply, but, at this time, it is uncertain
as to which state jurisdictions would assert jurisdiction over any
such loan. It is proposed that the above investments be
authorized through December 31, 1999.
Staffing is expected to begin with a small group of employees
for NEES Trans. Technical and support staff needed for a
particular project could be assigned for the duration of that
project from NEP, NEPSCo, and the Retail Companies, and the
assigned employees would continue to be employees of NEP, NEPSCo,
and the Retail Companies, not to exceed in any one year 1% of the
total employees of NEP, NEPSCO, and the Retail Companies. All
costs associated with such staff (including compensation,
overheads, and benefits) would be fully reimbursed by NEES Trans
in accordance with Rules 90 and 91 of the Act. Reimbursements for
these costs will be on a thirty-day cycle basis.
NEES Trans seeks short-term borrowing authority through
October 31, 1997, and the authority to borrow and lend money in the
NEES Money Pool (approved by the Commission in its File No. 70-
7765). NEES Trans seeks $15,000,000 of borrowing authority.
The proceeds from the proposed borrowings are to be used (i)
to pay then outstanding notes initially issued to banks and/or
borrowings from the Money Pool, (ii) to provide new money for
capitalizable expenditures and/or to reimburse the treasury
therefor, and (iii) for other corporate purposes relating to
ordinary business operations, including working capital, and the
<PAGE>
financing of construction and property acquisitions.
NEES Trans proposes to reduce its need for outside borrowing
authority through the use of the Money Pool. Under the Money Pool,
surplus funds that may be available from day to day in the
treasuries of NEES and its participating subsidiaries (File No.
70-8679) are used to make loans to borrowing companies within the
NEES system in need of short-term funds. The rate will be 1.08
times 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." Although there are no
stated maturities, the loans made by the Money Pool are payable on
demand, and may be prepaid by the borrower without penalty.
Borrowings may, but need not be, evidenced by notes.
Borrowings will be available first to the wholly owned
subsidiaries of NEES (the Group I Borrowers). Thereafter, if the
Money Pool still has additional funds, those will be available to
the non-utility owned subsidiaries of NEES (the Group II
Borrowers) before external investments are made. All funds
borrowed by the Group II Borrowers will be used for their own
internal financing and will not be loaned to stockholders. Each
member determines each day, on the basis of cash flow projections,
the amount of surplus funds it has available for contribution to
the Money Pool. The surplus funds are transferred to an account of
NEPSCO, which administers and maintains as agent the Money Pool
for the member companies.
The proposed borrowings from banks will be evidenced by notes
maturing in less than one year from the date of issuance. NEES
Trans will negotiate with the banks the interest costs of such
borrowings. NEES Trans will pay fees to the banks in lieu of
compensating balance arrangements. The effective interest cost of
borrowings from a bank will not exceed the greater of the bank's
base or prime lending rate, or the rate published in the "Wall
Street Journal," as the high federal funds rate, plus, in either
case, one percent.
Certain of such borrowings may be without prepayment
privileges. Payment of any short-term promissory notes prior to
maturity will be made on the basis most favorable to NEES Trans,
taking into account fixed maturities, interest rates, and any
other relevant financial considerations.
Within 45 days after the end of each calendar quarter, NEES
Trans will file a Certificate of Notification covering the
transactions effected pursuant to the authority requested during
such quarter.
<PAGE>
EXHIBIT I
CHOICE: NEW ENGLAND
The NEES Companies' Proposal for
Restructuring the Electric Utility Industry
February 1996
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[NEES LOGO]
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TABLE OF CONTENTS
Page
I. The Existing Structure. . . . . . . . . . . . . . . . . . .4
A. The Wholesale Transaction: NEP to the Distribution
Company. . . . . . . . . . . . . . . . . . . . . . . .5
B. The Retail Sale: The Distribution Company to the
Customer . . . . . . . . . . . . . . . . . . . . . . .8
II. Existing Structure: Unbundled Prices . . . . . . . . . . 11
A. The Wholesale Sale: Separate Prices for Transmission
and Generation Services. . . . . . . . . . . . . . . 11
B. The Retail Sale: Unbundled Prices for Transmission and
Distribution Service . . . . . . . . . . . . . . . . 13
III. Modified Structure: Functionally Unbundled Transmission
Service . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. The Transfer of Control -- the Consolidation of
Transmission Service Within NEES Transmission. . . . 17
B. Transmission Service to the Distribution Companies . 19
C. Transmission Service to Third Parties. . . . . . . . 21
IV. Revised Structure: Customer Choice (Transition Period) . 24
A. Reformed NEP Contract with Distribution Companies. . 25
B. New Contracts for Power Supply between NEP and its
Marketing and Standard Offer Affiliates. . . . . . . 26
C. Distribution Companies' Rates and Obligations to Retail
Customers. . . . . . . . . . . . . . . . . . . . . . 27
D. The Standard Offer to Retail Customers . . . . . . . 30
E. Market Priced Contracts with Retail Customers. . . . 31
F. NEPOOL Membership. . . . . . . . . . . . . . . . . . 31
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V. Revised Structure: Customer Choice (Transition Complete) 36
VI. Conditions and Timeline Associated with Plan
Implementation......................................37
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CHOICE: NEW ENGLAND
THE NEES COMPANIES' PROPOSAL FOR
RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY
Customer choice -- a simple concept that drives nearly every
economic decision in today's marketplace. The concept is about to
be extended to the electric utility industry. This is our plan to
provide our customers with a choice for their electricity
supplier.
Implementing customer choice presents a significant
structural, economic, and technical challenge to the electric
utility industry. Our business is now structured with vertically
integrated, heavily regulated firms operating within exclusive
franchise areas. It will have to be reformed to allow new
suppliers, market pricing, and customer choice. Transmission
access must be provided on fair, nondiscriminatory terms.
Obligations must be adjusted and transition costs recovered.
Statutes and regulations at both the federal and state levels must
be revised to accommodate the new industry structure.
This document describes our proposal for addressing these
challenges. It specifies the conditions and changes that are
necessary to provide customer choice in a meaningful and
nondiscriminatory way that maximizes incentives for efficiency and
maintains the reliability of the network. The plan contemplates
industry restructuring throughout New England and
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the Northeast creating an active retail market for electricity
across our region. Accordingly, it provides a blueprint for all
utilities in the Northeast. However, the details are focused on
our corporate structure and operations.
The plan is organized in five parts. First, we describe the
way our system is currently organized and regulated. Second, we
unbundle, or separately identify and price, the components of
service that are included in today's rates for electricity.
Third, we functionally unbundle transmission service from the
generation business at the wholesale level. Fourth, we extend
this separation to retail access during a transition period.
Finally, we show the restructured industry after the transition is
complete.
This plan is intended to comply with the policy
pronouncements of all of our principle regulators including the
Federal Energy Regulatory Commission under the Federal Power Act,
the Securities and Exchange Commission under the Public Utility
Holding Company Act, and the state commissions in Massachusetts,
Rhode Island, and New Hampshire acting under their respective
state utility laws. Each of those agencies have issued
significant new policy pronouncements on industry structure within
the past year. This plan is designed to comply fully with all
requirements in each jurisdiction in a way that is consistent
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with the statement of interdependent principles that have been
reached by several interested parties in both Rhode Island and
Massachusetts.
To accomplish this goal, we have built flexibility into the
plan. Specifically, the plan has been designed to allow different
policy choices among each of the states that we serve. Moreover,
the plan recognizes that several options are available to address
each of the myriad issues presented by restructuring. These
options will be discussed at length in the proceedings leading to
plan approval.
Despite this flexibility, the plan is concrete and complete.
It has sufficient detail to ensure that it will work if
implemented. The completeness of the plan has allowed us to work
through the details, develop the documentation, and identify the
changes that are essential to a successful restructuring of our
company and our industry. As such, this proposal should advance
the policy debate from principles to practice. It is a concrete
action plan for customer choice.
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I. THE EXISTING STRUCTURE
A. The Wholesale Transaction: NEP to the Distribution
Company.
B. The Retail Sale: The Distribution Company to the
Customer.
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I. The Existing Structure.
Unlike most utilities that operate as a single integrated
company, the New England Electric System Companies are already
partially disaggregated. New England Power Company (NEP) controls
and operates all the generation and transmission resources on the
system and provides wholesale, all-requirements power supplies to
three affiliated distribution companies operating in
Massachusetts, New Hampshire, and Rhode Island (together the
"Distribution Companies"). The three Distribution Companies --
Massachusetts Electric Company, Granite State Electric Company,
and The Narragansett Electric Company -- distribute and resell the
power to retail customers. A simplified corporate structure for
each state is shown on Figure I.
As Figure I illustrates, two key transactions define the
current power supply relationship: (a) the wholesale power
transaction between NEP and the Distribution Company, and (b) the
resale of the power from the Distribution Company to retail
customers. A review of each of these transactions is important to
establish the baseline from which our restructuring plan begins.
Thus, each of the transactions is summarized below. However,
despite separate wholesale and retail transactions, the NEES
companies as a whole have operated as a tightly integrated system.
Thus, from the perspective of our customers, service from Mass.
Electric, Narragansett, or Granite State Electric is equivalent to
a purchase from a single vertically integrated utility company
such as Boston Edison Company. As with Boston Edison, Mass.
Electric provides electricity to retail customers under bundled
rates that do not include separate charges for generation,
transmission, or distribution.
A. The Wholesale Transaction: NEP to the Distribution
Company.
NEP provides wholesale service to all three of its affiliated
Distribution Companies and several unaffiliated customers under a
contract that is subject to comprehensive regulation by the
Federal Energy Regulatory Commission (FERC) acting under Part II
of the Federal Power Act, 16 U.S.C. 824 et seq. The key features
of the contract include the following (NEP
Primary Service for Resale, Original Vol. No. 1, the "NEP
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Tariff"):
1. NEP is committed to providing all of the electricity
requirements of each Distribution Company and
maintaining an aggregate capacity of generation and
transmission facilities sufficient to cover the
Distribution Company's current loads and expected load
growth. (NEP Tariff, Sch. 1, p. 4)
2. The Distribution Companies are committed to providing
NEP with seven years' notice before changing supply
sources or serving the loads of additional utilities.
(Id, Sch. 1, pp. 3, 9)
3. Under a Memorandum of Understanding executed by NEP and
the Distribution Companies that amended their service
agreements, FERC Docket, ER94-1074-000,1 NEP has agreed
to submit its integrated resource plan for review by the
state commissions in Massachusetts, New Hampshire, and
Rhode Island, and to subject all significant new supply
side commitments involving contracts or commitments
longer than three years for purchases or projects having
capacity over 30 megawatts to a single state veto by any
state commission. Each of the Distribution Companies
has agreed to pay the costs that NEP has incurred to
serve it in the event the Distribution Company
terminates all or any part of its purchases under NEP's
tariff, or a law, rule, or order is promulgated which
limits the right of the Distribution Company to be the
exclusive seller of electricity at retail within its
current franchise territory.
4. NEP's wholesale prices under which the Distribution
Companies purchase their power requirements are
established using a marginal cost rate design under
which NEP's tail blocks are based on its long run
marginal costs and an initial block is used to reconcile
the overall revenues that NEP collects to its reasonable
and prudent costs of providing service. Today, NEP's
tail block prices are based on its long
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1The Memorandum of Understanding was approved by the State Commissions in
Massachusetts (Docket D.P.U. 93-138 (Nov. 3, 1993)), New Hampshire (Docket DE
93-141 (Sept. 9, 1993)), and Rhode Island (Docket No. 2116 (Sept. 28, 1993)).
The Memorandum of Understanding was approved by FERC as an amendment to the
service agreements of the respective Distribution Companies in Docket ER94-
1074-000.
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run marginal costs under its current resource plan. The
resource plan assumes that NEP continues to have the
right and responsibility to plan for and procure
adequate capacity for the Distribution Companies
electricity needs including load growth. As a result of
capacity additions that would be required under the
resource plan approved by the three state commissions,2
NEP's marginal cost tail block is significantly higher
than the short run marginal costs reflected in the
current market.3
5. The specific prices that NEP is now charging for
wholesale service are established by a settlement
agreement on the W-95 rates. Under that agreement,
prices are fixed at least through January 1, 1997.
6. NEP's prices for requirements service are bundled.
Because the Distribution Companies are required to buy
all of their power requirements from NEP, NEP has not
priced transmission service separately from the cost of
generating kilowatthours.4
The all-requirements contract, together with the requirements
of the Public Utility Holding Company Act of 1935 that mandate the
operation of registered holding companies as
integrated systems, have allowed and required the NEES Companies
to operate together as one integrated system with a single
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2 Settlements covering the 1994 edition of the integrated resource plan for the
NEES Companies were approved by each of the three state commissions in Docket
D.P.U. 94-112 (Massachusetts, Nov. 1, 1994), Docket No. 2231 (Rhode Island,
Mar. 3, 1995) and Docket No. DE 94-063 (New Hampshire, April 11, 1995).
Pursuant to those settlements, 1995 updates were filed with the Commissions.
No action was taken under the updated forecast by the Commissions or the parties
to the cases.
3 Long-run marginal costs will almost always exceed short-run marginal costs
under the current system of regulation given the need for reserve margins and
long-run plans that are designed to assure that available supplies will always
exceed demands with only a limited ability to clear demand and supply through a
market price.
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unified resource plan. Thus, NEP has had primary responsibility
for owning, operating, or purchasing supplies necessary to meet
the electricity needs of all three Distribution Companies, and
making adequate arrangements to transmit these supplies across the
regional transmission network. NEP has the assigned capability
responsibility within NEPOOL. It integrates these resources into
its own load dispatch under the NEPOOL Agreement. And it
allocates the costs of this bundled service to the Distribution
Companies under the rates established by FERC under NEP's all-
requirements tariff. The costs associated with these purchases
are then reflected in the rates that the Distribution Companies
charge to retail customers -- the second key transaction that
occurs under the existing structure.
B. The Retail Sale: The Distribution Company to the
Customer.
In contrast to the wholesale transaction which is regulated
by FERC, the Distribution Company's resale of the power to retail
customers is comprehensively regulated by state commissions. The
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4 In addition to the Distribution Companies, NEP provides all-requirements
service to seven other nonaffiliated customers under the NEP Tariff at the same
prices and on the same terms as the affiliates. These nonaffiliated customers
will be affected by future modifications to NEP's Tariff insofar as they affect
wholesale transactions, but may not be affected by changes associated with
retail access. Specific details will have to be developed with the
nonaffiliated customers that should not prevent or delay implementation of
choice for affiliated Distribution Companies.
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key features of this transaction are as follows:
1. The Distribution Companies generally have the obligation
to serve the electricity needs of all customers within a
defined franchise or service area on demand. Thus, they
have an obligation to extend distribution lines and
arrange for adequate transmission and generation
capacity to meet the peak demands of all customers
wherever located. The Distribution Companies discharge
the first obligation themselves, but, as discussed
above, have contracted with NEP to provide the
transmission and generation functions.
The regulatory obligations associated with planning and
resource procurement have intensified in recent history.
Planning has become more sophisticated, and new
suppliers, resource options and legal requirements have
increased the complexity of the planning and resource
procurement process. This complexity has been reflected
in the coordinated, three-state planning and resource
procurement reviews incorporated in the Memorandum of
Understanding discussed above.
2. Unlike NEP, the Distribution Companies have
traditionally had limited contractual relationships
with retail customers. Rather, the Distribution
Companies have relied on the exclusivity of their
franchises and on their statutory and constitutional
rights to commission determined rates that recover the
reasonable costs of providing regulated service to
support the financial commitments and investments that
have been made to supply service to customers. In
recent years, we have supplemented these statutory
rights with direct customer contracts. For example, we
have implemented Service Extension Discount Agreements,
and Service Extension Agreements with many of our
largest customers. Under these agreements, customers
have agreed to provide us with five years advance notice
before taking service from an alternative supplier.
These Agreements are addressed directly in this plan.
3. The Distribution Companies have special obligations
stemming from their role in providing an essential
service to the customers in their service territories.
For example, Distribution Companies have provided
conservation and load management services, have
obligations to provide universal service to customers
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with special rates to low income customers, and face
limitations on their ability to terminate service for
nonpayments.
4. The Distribution Companies, as with utilities in
general, must comply with laws and regulations requiring
approvals for or reviews of financing, accounting,
business transactions, and affiliate transactions not
faced by other firms in our economy. For example, under
state law, our Distribution Companies and other
utilities must receive commission approval of all long
term financings, property acquisitions and sales, loan
guarantees, affiliate transactions, and changes in
accounting. These financial, accounting, and business
restrictions are particularly stringent under the Public
Utility Holding Company Act of 1935.
5. The rates and terms of service are also comprehensively
regulated by state commissions. Historically, this
regulation has been designed to achieve two primary
objectives -- first, to establish the utility's overall
revenues at a level necessary to recover its reasonable
and prudent cost of providing service, and second to
prevent unreasonable price discrimination among
customers or customer classes. These purposes have been
achieved by requiring a filing and extensive
investigation into the reasonableness of the utility's
costs and operations prior to authorizing the utility to
change prices.
Thus, the existing structure for the industry is
characterized by tightly integrated planning and operations,
bundled service for supply and transmission, and comprehensive
regulation at both the state and the federal level to control
prices, assure adequate supplies, prevent discrimination, and
promote universal service.
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I. THE EXISTING STRUCTURE: UNBUNDLED PRICES
A. The Wholesale Sale: Separate Prices for
Transmission and Generation Services.
B. The Retail Sale: Unbundled Prices for Transmission
and Distribution Service.
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II. Existing Structure: Unbundled Prices.
The first step to reform and restructure the industry is to
unbundle the price. By separately pricing generation,
transmission, and distribution services, we improve price signals
to customers and move toward unbundled service. Thus, unbundled
prices are necessary to implement FERC's comparable service
transmission policies, and are a requirement for the upcoming
Massachusetts plan filing. As shown on figure III, unbundling
affects both the wholesale and retail transactions discussed in
the first section of this report. Each of these transactions will
be discussed in turn.
A. The Wholesale Sale: Separate Prices for Transmission
and Generation Services.
Unbundling begins by reformulating the wholesale rate design
for NEP's Tariff to the Distribution Companies. The following
changes are proposed for this transaction under our proposal:
1. Unbundle Transmission Rates from All-Requirements
Service. Under the all-requirements tariff, NEP
provides the Distribution Companies with transmission
service as well as power supply. The unbundled pricing
requires a wholesale rate redesign to break out
transmission costs from generation costs in the NEP
Tariff. The long run marginal cost of transmission
expansion is now reflected in NEP's tail block, and the
embedded cost reconciliation is included in the initial
block. Thus, NEP's rates will be redesigned to
eliminate the transmission components from both price
blocks, and recover them as a separate charge.
The plan also contemplates functional disaggregation of
transmission. This functional disaggregation is
discussed in the next section of this report, together
with the details of the rate design associated with the
redesigned rates for transmission service.
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2. Establish NEP's Marginal Cost Tail Blocks at Short Term
Market Value. As explained under Section I, NEP's tail
block rates are now established at our best projection
of NEP's long run marginal cost of supply developed on
the assumption that NEP continues to have the right and
obligation to serve the electricity requirements of all
customers in the Distribution Companies' service areas.
This approach sets NEP tail block at a higher level than
the current prices in the short term market, and
thus does not provide the Distribution Companies with a
competitive short term price signal. Moreover, the
assumption underlying the long run marginal cost
calculation -- that NEP will remain the sole supplier of
electricity to the customers served by the Distribution
Companies -- is no longer valid. Accordingly, depending
upon the restructuring proposals adopted by
policymakers, NEP may adjust its tail block for energy
down to short run market values, and reflect the
difference in the initial block charge in the wholesale
rate.
Under our proposal, NEP's wholesale rate design will reflect
a separate charge for transmission. The implementation of this
rate design change will require a filing with FERC, which NEP will
request become effective on a prospective basis. NEP is currently
under a rate moratorium that precludes NEP from implementing any
rate change that would increase revenues prior to January 1, 1997.
(W-95 Settlement, Art. 4.0, pp. 12-13). Thus, any rate design
change implemented prior to that time will be done in a revenue
neutral fashion.
B. The Retail Sale: Unbundled Prices for Transmission and
Distribution Service.
The change in the wholesale rate design allows the
Distribution Companies to develop unbundled rate designs for
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retail customers. Unbundled rates need not mean unstable rates or
radical rate redesigns. The bundled, retail prices charged by the
Distribution Companies today are fully cost based, relatively
stable, and the lowest among major utilities in New England. The
unbundled rates will be implemented initially to produce the same
revenues without significant bill impacts for customers.
Actions Required to Implement this Section of the Plan.
Implementation of this portion of the Plan requires the
following:
1. NEP must file a new rate design with FERC. The filing
can be implemented by FERC without any changes to
regulations or statutes under existing precedent that
fully authorizes marginal cost rate designs.
2. The Distribution Companies must unbundle existing retail
rates into generation, transmission, and distribution
components.
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III. MODIFIED STRUCTURE: FUNCTIONALLY
UNBUNDELED TRANSMISSION SERVICE.
A. The Transfer of Control -- The Consolidation of
Transmission Service Within NEES Transmission.
B. Transmission Service to the Distribution
Companies.
C. Transmission Service to Third Parties.
NEP
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III. Modified Structure: Functionally Unbundled Transmission
Service.
The unbundled pricing for transmission service summarized in
Section II does not fully address FERC's policies for comparable
transmission service at the wholesale level. Under FERC's
preliminary view, (Open Access NOPR, Docket Nos. RM95-8-000 and
RM94-7-001, p. 94):
functional unbundling of wholesale services is
necessary to implement nondiscriminatory open
access. Accordingly, the proposed rule requires
that a public utility's uses of its own
transmission system for the purpose of engaging
in wholesale sales and purchases of electric
energy must be separated from other activities,
and that transmission services (including
ancillary services) must be taken under the
filed transmission tariff of general
applicability. The proposed rule does not
require corporate unbundling (selling off assets
to a non-affiliate, or establishing a separate
corporate affiliate to manage a utility's
transmission assets) in any form, although some
utilities may ultimately choose such a course of
action.
Our plan chooses to implement corporate unbundling of NEP's
generation and transmission system as the quickest, fairest, and
most effective avenue toward nondiscriminatory open access
transmission tariffs. (See Figure III). Specifically, we propose
to create a new corporation -- tentatively called NEES
Transmission Services Inc. or NEES Transmission -- that will have
the responsibility for providing transmission services under
nondiscriminatory, open access transmission tariffs that fully
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comply with FERC's policy directives. (NOPR, pp. 95-96). NEES
Transmission will provide comparable transmission services to NEP
for its own power marketing services and to all of NEP's power
supply and transmission customers, including the affiliated
Distribution Companies, at the same rates and on the same terms
and conditions. It will develop and file separately stated rates
for the transmission and ancillary service components of each
transmission service it provides. NEES Transmission will support
an electronic information network for arranging transmission
services that all transmission customers will use when buying and
selling their power supplies. Finally, NEES Transmission will
provide all necessary ancillary services to all transmission
customers who do not supply their own ancillary services, or
receive them directly from NEPOOL
In short, the functional unbundling of NEES Transmission into
a separate company with the same filed transmission tariffs
available to affiliates and nonaffiliates is designed to meet
fully FERC's proposed requirement that "a public utility take
transmission service for wholesale requirements service
coordination transactions under its own filed tariff." (NOPR, p.
97). As FERC correctly concluded, this requirement "places the
correct incentives on the public utility to file a fair tariff
since it must live under those terms for wholesale purposes."
(NOPR, p. 97).
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Not only will the NEES Transmission tariffs be available for
nondiscriminatory access for wholesale transactions, these tariffs
will be used for retail transactions as well. Specifically, NEES
Transmission will provide transmission service to the Distribution
Company that the Distribution Company can use to provide retail
access or choice to its customers. This unified treatment of
wholesale and retail wheeling is also consistent with FERC's
policy guidance. In the NOPR (p. 99), FERC suggested:
One possible approach that would unify service
standards for wholesale and retail service would
be for each vertically integrated utility to
establish a distribution function that would be
responsible for obtaining transmission service
on behalf of retail customers. This
distribution function then could be treated just
as any other wholesale customer. The
distribution function of the utility would take
service under the single commission filed
tariff.
NEES Transmission's transmission tariffs implement that vision.
They will assure comparable, open access transmission service for
both wholesale and retail wheeling services. They are a
cornerstone of our plan for retail choice.
The implementation of NEES Transmission and open access
transmission tariffs requires the establishment of a new
corporation on the NEES System and creates the following three new
transactions as shown on Figure III.
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A. The Transfer of Control -- the Consolidation of
Transmission Service Within NEES Transmission.
The development of NEES Transmission begins with the transfer
of transmission rights, entitlements, and obligations from NEP to
the new transmission company. Initially, this transfer will be
implemented through an assignment under which NEES Transmission
will gain the right to control the transmission system in return
for reimbursing NEP all costs associated with the transmission
system. The approach is quite similar to NEP's present G&T credit
arrangement with Narragansett. Under that arrangement NEP
controls Narragansett's generation and transmission facilities and
reimburses Narragansett the full cost of those facilities under a
contract and terms filed with and approved by FERC.
The same approach will be used to transfer control of
transmission from NEP to NEES Transmission. This transfer
requires a careful review and allocation of costs between NEP's
generation functions and its transmission operations, and the
separation or unbundling of transmission and generation services
in several hundred historical contracts. The review and
allocation will be filed with FERC and thus be subject to a
complete investigation into its fairness.
Among the key issues faced in that review is the allocation
of the costs of generation that must be maintained on the system to
protect reliability in specific areas. On our system, the
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best example is the Salem Harbor units which must be kept in
operation to maintain reliable service in northeastern
Massachusetts. Although this reliability could also be maintained
through significant enhancements to the transmission network in
the area, our preliminary analysis indicates that keeping most of
the Salem Harbor units open even at a premium to the pure market
price of other power supplies may be the least-cost solution for
reliable service in the area. To implement that approach in
northeastern Massachusetts and other areas with local transmission
constraints will require payment from NEES Transmission to the
generating company or other potential suppliers to assure
continued availability of critical units. These payments are
appropriately included in NEES Transmission's cost of service.
Under the tariffs discussed below, NEES Transmission will be
the provider of transmission services for the NEES companies.
Thus, NEP's existing contracts and tariffs will be assigned and
reformulated as appropriate to assign transmission rights and
obligations to NEES Transmission. The objective will be to
consolidate and simplify all existing wholesale transmission
offerings into tariffs that conform to FERC's open access,
comparable service policies. Because NEP, and not NEES
Transmission, owns the transmission assets, franchise rights, and
condemnation authority, NEP will continue to permit, build, and
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operate the transmission system. However, NEP will provide new
service exclusively at the request of NEES Transmission and NEES
Transmission will respond to all requests for service from
affiliates and third parties in accordance with FERC regulations.
NEES Transmission will be the exclusive supplier of transmission
services to third parties and affiliated Distribution Companies
under the rates and contracts discussed in the following sections.
B. Transmission Service to the Distribution Companies.
NEES Transmission will bill out the costs for transmission
service to network and point to point transmission customers
pursuant to FERC filed tariffs. The primary customers for network
service will be NEES Transmission's affiliated Distribution
Companies. Under its tariff, NEES Transmission will bill the
Distribution Companies at the network tariff based on peak
demands. By functionally unbundling network transmission service
to the distribution companies at the wholesale level, we will have
achieved one of FERC's significant policy objectives. NEES
Transmission's wholesale transmission service to affiliates and
nonaffiliates will be at the same price and on the same terms. The
service will apply equally to native load customers and
transmission only customers. Both the transaction between NEES
Transmission and NEP, and the rates between NEES Transmission and
its customers will be subject to comprehensive
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and consistent FERC review. Discrimination and unfair dealing
will be prevented. FERC's comparable service, open access
policies for wholesale transmission service should be fully
achieved.
These same policies also apply for retail access. Following
the FERC model, the rates for transmission service over the NEES
Transmission system to the Distribution Company will be the same,
regardless of the power supplier to the retail customer. Thus,
the same NEES Transmission rate will be added to the access and
distribution charges developed by the Distribution Companies for
retail service. The extension of transmission service to retail
customers is discussed fully in the next section of this plan.
Under the plan, the terms and conditions for retail wheeling will
apply to all load within the service territories of the
Distribution Companies and unaffiliated customers now served under
the requirements rate. Thus, NEES Transmission will develop terms
which assure that load now served by these customers will pay
comparable rates whether access is gained through retail service
or through reclassification as a wholesale customer.5 The
objective is to assure that appropriate transmission charges
determined under the plan are not bypassable or subject to gaming,
and that unified, consistent requirements are established for all
load served within each Distribution Company's service area.
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C. Transmission Service to Third Parties.
The final element associated with unbundled transmission is
the service and rates to third parties for point to point and
network service. As explained above, these services will be
supplied exclusively by NEES Transmission for the use of the
System's transmission entitlements at rates that conform to FERC's
open access comparable service policies. Third parties taking
service under the network or point to point tariffs will be
charged at the same rates, terms, and conditions as affiliates.
Conforming tariffs will be filed with FERC.
The structure and operation of these tariffs may be affected
by the ongoing discussions in New England that may lead to the
formation of a regional transmission group ("RTG"). The formation
of an RTG, however, is not a condition to the implementation of
this element of our plan. We recognize that many of the
transmission issues presented by unbundled service can best be
addressed through a regional solution, but we do not
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5 As discussed below, the rates for distribution service to current customers
within the Distribution Companies' service territory will include an access
charge sufficient to cover all the sunk generation-related costs that have been
incurred to serve those customers. These charges should not be avoided by
nominal reclassification of load from "retail" to "wholesale," and thus
appropriate charges and crediting arrangements between NEES Transmission, the
Distribution Company and customers will be developed to assure consistent,
comparable pricing in these circumstances.
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believe that progress toward customer choice should await complete
reform of regional transmission practices or of NEPOOL
requirements in general. Reforms and improvements in these
systems will only enhance the benefits already incorporated and
realizable under our plan for broad customer choice in New
England.
In conclusion, our plan contemplates the functional
unbundling of transmission service through a separate corporation
at standard tariffs applicable to both affiliates and
nonaffiliates for both wholesale and retail wheeling services.
The plan complies fully with FERC's guidelines, and is a central
feature of fair and nondiscriminatory customer choice.
Actions Required to Implement this Section of the Plan.
Implementation of this portion of the Plan requires the
following:
1. The formation of a new corporation to provide
transmission services over the transmission facilities
and entitlements of the New England Electric System
Companies. The structure, authorities, and contracts of
this corporation should recognize the need to
consolidate transmission assets with transmission
services in the future. For various reasons, it may be
easier for NEP to retain ownership of transmission
facilities and transfer ownership of its generation
facilities to a separate corporation. Thus, the
corporate arrangements, contracts and tariffs should
accommodate further corporate restructuring through
mechanisms like assignment clauses.
Forming and financing the new corporation will require
approvals from the Securities and Exchange Commission
and state commissions. NEES Transmission will also be
subject to FERC's jurisdiction.
<PAGE>
2. The development and filing of the contracts for
transmission services. The development of the contracts
and tariffs discussed in this section is well underway,
and can be accomplished simultaneously with the price
unbundling of NEP's requirements rate discussed under
Section II above.
The formation of NEES Transmission and the implementation of
the transmission filings under this section of the plan can be
accomplished under existing statutes and regulations, and are
consistent with current FERC policies and precedent. The
corporate restructuring and provision for retail transmission
services contemplated in this section of the plan assumes
voluntary action by NEP, which NEP is willing to undertake if the
conditions set forth in Section VI of this plan are achieved.
Absent approval of the conditions in Section VI and voluntary
action by NEP, the legal authority of commissions to force
divestiture or to require unbundled transmission access to retail
customers is strictly limited.
<PAGE>
[CHART INTENTIONALLY OMITTED]
<PAGE>
IV. Revised Structure: Customer Choice (Transition Period).
The formation of NEES Transmission and the implementation of
transmission tariffs is only one element necessary for customer
choice. Significant additional steps must be taken to assure that
the transition to customer choice proceeds reasonably and that a
vibrant and efficient supply market exists for retail customers.
Specifically, NEP's requirements contract must be reformulated to:
(1) provide NEP with a reasonable opportunity to recover costs
incurred to provide service to its wholesale customers; (2) waive
the notice period in the all-requirements rate; (3) redefine NEP's
and the Distribution Companies' obligations going forward; and (4)
create a standard offer to retail customers assuring them of a
reasonably priced, reliable power supply option during the first
phase of the transition period while the market develops. In
addition, arrangements must be established so that the reliability
of the grid can be maintained, NEPOOL requirements can be met, and
a vigorous competitive retail market can develop. This section of
the report sets forth our proposal to meet these objectives.
As with the other sections of the report, this section is
organized by transactions. The diagram of transactions is
included in Figure IV. They include the following:
<PAGE>
A. Reformed NEP Contract with Distribution Companies.
The first step for direct access requires the reformation of
the all-requirements contract between NEP and the Distribution
Companies. The reformed contracts will include the following
elements:
1. A Termination Charge. The termination charge will
recover the costs that NEP has incurred to serve the
Distribution Company from that Distribution Company and
not from any other Distribution Company as required by
the Memorandum of Understanding. The termination charge
will also compensate NEP for waiving the seven year
notice provisions and provide the key inducement for
providing the standard offer of service to retail
customers discussed more fully below. The termination
payment is designed to recover NEP's strandable costs
for existing resources above the market value of those
resources. The calculation of NEP's strandable costs is
provided separately. The pattern of recovery for the
contract termination charge will be shaped so that rates
are stable for customers accepting standard offer
service. Customers seeking alternative suppliers will
then have the potential to realize savings. We expect a
defined payment stream over a period of years to be
specified for the termination charge in the final plan.
As discussed below, these payments will then be
recovered as part of an access charge by the
Distribution Companies to their retail customers.
2. A Shift in Power Supply Requirements. Following the
implementation of the plan, the Distribution Companies
will be limited to the wires business, and power sales
for all customers will be accomplished through separate
affiliates. During the transition period, NEP will
provide power supplies to the standard offer affiliate
and discontinue sales to the Distribution Company. The
standard offer affiliate will provide standard offer
service to customers until the transition is complete
when it will be dissolved. In addition, separate
marketing affiliates will be established to make sales
at market prices. These changes will allow the
Distribution Company to provide transmission and
distribution service to all suppliers in its service
territory at nondiscriminatory rates including
<PAGE>
reimbursement for the termination charge. It will
complete the implementation of the model for retail
wheeling suggested by FERC in its NOPR.
Because NEP will be shifting its units from regulated
cost of service pricing to unregulated market pricing,
it will request authority to implement market pricing
for its generation from FERC. In addition, NEP will
request certification as an exempt wholesale generator
under the Public Utility Holding Company Act and have
its generation designated as eligible facilities under
that statute. Consents by state ratemaking authorities
are required for this designation under the Holding
Company Act.
NEP's obligation to supply capacity additions to meet
load growth will also be governed by contracts and
marketing success rather than regulatory requirements.
Thus, the obligation to provide generating capacity to
meet future load growth will be deleted from the
contract with both Distribution Companies and marketing
affiliates.
B. New Contracts for Power Supply between NEP and its
Marketing and Standard Offer Affiliates.
As a replacement to the all-requirements supply obligation,
NEP will make an alternative contract with the standard offer
affiliates established in each state we serve. The standard offer
affiliate will in turn make the standard offer for service to
customers discussed below. In addition, NEP will develop market
priced contracts with its new marketing affiliates. The contracts
between NEP and the marketing affiliates will be based on market
value, not cost of service.
As part of the Plan, NEP will propose a program of continuous
environmental improvement at existing generating stations. Those
obligations are contemplated in the principles
<PAGE>
approved in Rhode Island and Massachusetts and will be included in
the Plan as well.
C. Distribution Companies' Rates and Obligations to Retail
Customers.
The reformation of the requirements contract completes the
functional unbundling of retail service. Under this plan, the
Distribution Companies obligations are limited to an obligation to
deliver at nondiscriminatory rates. The rates will include an
access charge to provide the Distribution Company reimbursement
for the NEP termination charge. All marketers and suppliers will,
under our plan, be required to provide power supplies through the
standard transmission and distribution rate. The rate for
transmission and distribution service will be nonbypassable, and
the same rate will be required for comparable service to any
customer within the Distribution Company's service area regardless
of whether the customer is classified as retail or wholesale. We
expect the contract termination provision and distribution rate to
be approved by both state commissions and FERC, so that consistent
nondiscriminatory application can be implemented for all users.
Under the Plan, electricity is supplied under the standard
offer or by the market at market prices by the Distribution
Companies' marketing affiliates and other marketers and suppliers.
Because customers may take the standard offer, many
<PAGE>
customers may perceive little or no change from today's industry
structure. If we are successful in shaping the transition charge,
the only immediate changes will be real price stability for
standard offer customers, and increased opportunities for choice
in the marketplace.
Two other features of the Distribution Companies' operations
may require adjustment. Conservation and load management programs
will continue under our Plan to be implemented by Distribution
Companies. The conservation programs will be available to all of
the Distribution Company's customers regardless of their supplier
and will be continued in accordance with a specific program that
will be agreed to as part of the Plan. The costs of the
conservation and load management programs would be recovered in
the regulated rates for the Distribution Companies subject to
state commission review and approval.6
Second, as explained above, the Distribution Companies have
executed contracts with several customers for service extension
discounts and service extension agreements. These contracts limit
customers' rights to purchase or generate electricity supplies
without providing advance notice to the Distribution Company. If
our plan is approved, however, we propose to allow customers who
have signed SED's and SEA's a window of opportunity to buy down
their notice requirements. The customers who elect to buy down
their notice requirements would be permitted to
<PAGE>
purchase power from a different supplier at the same time as other
customers pursuant to terms and conditions set forth in this Plan.
The notice provisions for self-generation would remain in place,
however. This approach will allow SED and SEA customers to gain
access to the market, and will stimulate the depth of supply and
demand that is necessary to create a meaningful market and a fair
market price. It also assures that our customers are not harmed by
their past commitments to our Company.
The rates for the Distribution Company may be based on
standard cost of service principles, or on a performance based
ratemaking ("PBR") approach. Different approaches may be taken in
the different states, or if PBR is selected, different policies
and details can be incorporated in each state's rate plan. Terms
and conditions and construction advance policies may also have to
be changed to reflect the lower revenues received from a
distribution only charge.
The rate setting process for the Distribution Companies is
critical during the transition period. The Distribution Company
must be allowed adequate revenues to maintain its financial
______________
6 A similar approach can be used to pay for the above market costs of renewable
power supplies that were reflected in the agreement on the principles in
Massachusetts and may be agreed to in the discussions leading to the approval of
this plan. Although the recovery of above market costs was rejected by the
Rhode Island Commision in its order on the Principles, we believe that the
substance of the agreement--calling for the development of renewable resources
- -- may be achievable in a manner that is consistent with the Rhode Island
Commission's concern about costs to customers.
<PAGE>
integrity during this period when the financial uncertainty
facing the Company is at its height. In addition, if a PBR design
is chosen, it can be tailored to provide concrete incentives for
efficiency or to meet public policy objectives
during this time when cooperative action by utilities is essential
to a smooth transition to a competitive future. A well designed
performance-based rate program will encourage improvements in
safety, reliability, customer satisfaction, universal service, and
efficient operation of the distribution system remaining subject
to rate regulation.
D. The Standard Offer to Retail Customers.
The last significant new interface between the NEES Companies
and retail customers is the promulgation of a Standard offer for
power supply, and the creation of a standard offer affiliate in
each state. As explained above, the Standard Offer will continue
at least through the transition period, and will provide customers
with a reasonably priced, reliable supply of electricity while the
market develops. Because different states may have different
policies, individual standard offer affiliates will be established
in each of our jurisdictions to comply fully with state
requirements. The different standard offer affiliates can then
tailor different standard offers to meet the
<PAGE>
requirements of each state commission. This approach is more
flexible and responsive than the promulgation of a single standard
offer for all jurisdictions.
E. Market Priced Contracts with Retail Customers.
In addition to the Standard Offer, new marketing affiliates
will compete in the market for retail customers within the
relevant state. Accordingly, the marketing affiliates and other
marketers, suppliers, and sellers at retail will undoubtedly be
subject to state commission regulations governing such items as
terminations, universal service, defaults, supply assurances, and
dispute resolution procedures. Regulations and statutory
requirements governing financing, accounting, corporate
organization, and general business regulation are less relevant in
the power supply market than under traditional utility service,
and should be eliminated or simplified. The marketing affiliate
in each state will then comply fully with each state's
requirements applicable to others participating in the competition
for customers.
F. NEPOOL Membership.
Finally, under the Plan, power marketers or their suppliers
must be members of NEPOOL, and thus, will be required to meet
NEPOOL rules including settlement of transactions and reliability
related obligations. Under the Plan, a marketer must either join
<PAGE>
NEPOOL or assign its load to a NEPOOL member and be reflected in
that member's requirements under the NEPOOL Agreement. An
amendment to the NEPOOL Agreement has recently been implemented to
expand NEPOOL's membership to include nontraditional suppliers and
marketers. These suppliers will be responsible for obtaining
capacity entitlements to support the loads of the customers signed
by them. In this way, the retail market can be developed within
the existing NEPOOL framework, and the reliability of the system
can be maintained.
This approach does not, however, lead to inordinately complex
metering or billing arrangements. Under the Plan, standard load
shapes will be developed for different kinds of customer classes,
and demands can be reconciled to actual usage using standard
billing protocols. The Distribution Companies will be in a
position to meter and bill customers for both transmission and
distribution service and power supply requirements (at rates
provided by the power marketer). Power marketers will also be
provided with the opportunity to bill their customers separately.
Regardless of the billing method, suppliers will be ultimately
responsible to meet the kilowatthour usage and capacity
requirements of their customers through capacity entitlements and
the settlement of energy transactions under established NEPOOL
rules.
<PAGE>
These NEPOOL rules may be modified in the future. For
example, many have suggested that NEPOOL should switch from an
economic dispatch based on lowest marginal cost to a bid system
similar to that adopted in England. These changes make sense, but
they are not a condition to the implementation of our plan.
Rather, our plan can be implemented today under the current
NEPOOL agreement with its expanded membership and enhanced
accounting and billing capabilities. The introduction of
competition will create the impetus for continued NEPOOL reform to
eliminate cross subsidies and assure fair rules for all
participants. In contrast, delaying retail choice until after
agreement on NEPOOL reforms simply creates an incentive for debate
and delay.
Actions Required to Implement this Section of the Plan.
The transactions described above are the heart of our plan
for customer choice. Implementation of these transactions require
us to complete the following tasks:
1. Reform the NEP All-Requirements Contract. The first
step in the analysis is development of the termination
charge and the specification of ongoing responsibilities
for wholesale power supply. This action will require
the consent of the three state commissions and a filing
and approval at FERC. We do not intend to move forward
with restructuring absent agreement on the restructured
wholesale contract and the appropriate termination
charge. Restructuring will either be completed by all
states within the same time frame, or steps will be
taken to protect non-participating states. This
approach is consistent with the procedures established
under the Memorandum of
<PAGE>
Understanding, FERC statement of policy on transition
arrangements as set forth in the NOPR, and the actions
of the state commissions to this point. Specifically,
our objective is to assure that all of our states are
satisfied with our implementation of the plan.
2. Develop and File Revised Rates for Retail Distribution
Service. The Distribution Companies must further
unbundle rates to eliminate power supply costs and
provide Distribution Services. The retail wheeling
rates will include transmission charges from NEES
Transmission and termination charges from NEP as well
as the ongoing costs of the Distribution Company.
These rates can be established using either traditional
cost of service analysis, or performance based
ratemaking. Different approaches may be used in
different states.
The conservation and load management charges and any
above market payments for renewable resources agreed to
in the plan will also need to be filed and approved. The
SED agreements, Service Extension Agreements, and other
terms and conditions will be reformulated per the above
discussion and filed with state commissions for
approval. Parallel filings will also be made with FERC
to assure consistent treatment between state and federal
agencies, to eliminate any jurisdictional
uncertainties, and to ensure that the access charge is
nonbypassable. FERC approval will be required to ensure
that customers cannot evade the state approved access
charge by interconnecting directly with the transmission
system.
3. Create Marketing Affiliates and Standard Offer
Affiliates in Each State. These steps will require
approvals by the affected states and the Securities and
Exchange Commission under the Holding Company Act.
4. Establish Rules for Marketers and Sellers to Retail
Customers. Regulations for retail sellers will need to
be developed before each state commission.
5. Adjust NEPOOL Capability Responsibility Formula and
Billing and Metering Regulations. The NEPOOL capability
responsibility formula and billing and metering
requirements will have to be adjusted to accommodate
load transfers for retail customers contemplated in the
Plan. Typical load shapes and
<PAGE>
billing protocols will need to be developed to integrate
loads into NEPOOL calculations for energy billing and
capability responsibility calculations.
6. Waiver of Planning, Rate and Regulatory Requirements for
Power Marketers and Suppliers. State commission, FERC,
and SEC action is required for NEP to become an EWG and
its generation to become eligible facilities. Because
power supplies will be developed in the market, rate and
planning regulations and statutes should be revised to
eliminate administrative reviews of rates
for electricity sales and supply plans. Corporate,
financing, and accounting regulation over the power
suppliers should be greatly simplified or eliminated.
As in the prior section, these tasks can be accomplished most
effectively with the consent of all interested parties. The
corporate reorganizations, modifications to contractual and
ownership arrangements, and simplification of regulatory
requirements discussed above cannot be implemented absent broad
consensus. Specifically, authority to force divestiture and
corporate reorganization of utilities, require access over
transmission and distribution facilities for retail wheeling, and
mandate early termination of the NEP all-requirements contract is
sharply limited.
<PAGE>
[CHART INTENTIONALLY OMITTED]
<PAGE>
V. Revised Structure: Customer Choice (Transition Complete).
The last step in the transition is shown on Figure V. That
figure illustrates the completed restructuring. The following
changes have occurred. First, all transmission assets have been
transferred from NEP to NEES Transmission, the contract between
those two companies has been terminated, and NEP's generation is
provided transmission service under NEES Transmission's generally
available, open access transmission tariffs. Second, the contract
termination charge between NEP and the Distribution Companies will
have been fully discharged, and the all-requirements contract will
be terminated. The Distribution Companies' collection of their
termination payments through an access charge will be complete.
Finally, the Standard Offer period will have lapsed, and the
standard offer affiliate will have gone out of business. NEP and
its marketing affiliates will be operating in the market just as
all other suppliers and marketers.
No additional contracts or new arrangements will be required
to complete this transition other than the final assignment or
sale of the transmission assets and entitlements to NEES
Transmission from NEP. The contractual arrangements leading to
the other elements of the final restructuring will have already
been established and put into place.
<PAGE>
As the figure illustrates, the final result under our plan is
choice by all retail customers of their power suppliers. The plan
contemplates continued operation of NEPOOL, a vigorous wholesale
market, and a fully developed, competitive retail market under
which all suppliers have access to all customers, and fair,
nondiscriminatory, open access transmission and distribution
tariffs.
Choice -- the simple, but powerful economic concept -- will
have been provided to all of our customers and to the customers of
other utilities in New England. The consequences of that choice
- -- better service, lower prices, and more options -- will be made
available to all electricity customers in New England. The
implementation of our plan will be complete.
VI. Conditions and Timeline Associated with Plan Implementation.
As described above, the implementation of the Plan requires a
major effort by us, other utilities, interested parties, our
commissions, and other policymakers throughout New England. We
and others have recognized that consent is the only effective and
efficient way to achieve the restructuring plan outlined above.
One of the interdependent principles agreed to by a broad range of
stakeholders in both Massachusetts and Rhode Island provides that:
<PAGE>
Consensus and settlements are more likely than
litigation to move restructuring forward, given
numerous potential interstate, state-federal,
state-utility, and inter-party substantive and
jurisdictional conflicts.
That Principle is especially applicable under our Plan, whose
implementation requires approvals from three state commissions,
FERC, and the SEC, and contemplates revising our pricing, service,
and transmission arrangements with 1.3 million retail customers,
one hundred other utilities, and NEPOOL itself. Tasks this
complex simply cannot be accomplished effectively or efficiently
without voluntary action and broad based consensus.
This consensus has already begun through the agreements on
Principles reached in Rhode Island and Massachusetts. The
Principles approved by our regulators in those two states set
forth a framework for agreement and address each of the key issues
that must be resolved to maintain a reliable, financially stable,
and environmentally sound system of electricity production and
transmission. Specifically, the Principles require our plan to
maintain reliability, benefit all customers, recognize the
enforceability of all power supply contracts, provide a reasonable
opportunity to recover stranded costs, reduce rates in the near
term below what they otherwise would have been, unbundle services,
provide retail customers with choice, streamline the
administrative process, improve environmental performance,
continue conservation and load
<PAGE>
management programs, continue to provide universal service,
consider performance based ratemaking, and maintain our financial
integrity. Our plan has been structured to meet each of these
Principles. Compliance with the Principles is a condition of Plan
implementation.
From our perspective the key element is the principle that
establishes a reasonable opportunity to recover all of our
stranded costs. This principle recognizes that we have made
significant commitments to provide reliable service to customers
in the past that have been evaluated by our regulators, found to be
reasonable and prudent, and are now reflected in rates. Recovery
of these costs during the transition period is central to the
fairness of the Plan, critical to the financial integrity of the
system, consistent with our current power supply arrangements,
authorized under the regulatory policies articulated by FERC, the
Massachusetts Department of Public Utilities, and the Rhode Island
Public Utilities Commission, and required as a matter of law and
the Constitution. Implementation of our Plan is conditioned on a
reasonable opportunity for full recovery of stranded costs.
Implementation of the Plan also requires the development of a
reasonable market for retail customers. To assure this
development, implementation of our Plan is conditioned on choice
by all retail customers for all utilities in a state. We are
<PAGE>
unwilling to open our service area to other utilities unless the
retail market in the entire state is opened to choice. Ideally,
choice will be extended to retail customers throughout New England
and the Northeast. However, direct access across the region is
not a condition for plan implementation.
Finally, the rights of the Distribution Companies should be
redefined and made clear. During the debate leading to
restructuring, various parties, including commissions, have
suggested that franchise rights are subject to some significant
doubt. These doubts should be resolved, and the rights and
obligations of all distribution utilities should be clearly
specified in Plan proceedings. Specifically, rules establishing
the obligation to deliver and the prevention of bypass or
duplicate facilities should be established. Existing laws should
be harmonized with the restructured industry, and as explained
above, consistent access charges must be adopted by federal and
state authorities. An acceptable redefinition of rights and
obligations is also a condition of Plan implementation.
These conditions, together with acceptable regulatory
approvals, are necessary to effective Plan implementation. We
cannot and will not voluntarily implement the Plan unless they are
in place. The conditions are reasonable, the Plan is fair, the
choice is clear. We should move forward with Choice: New England.
<PAGE>
EXHIBIT J
Transmission and Distribution Support Agreement
This Agreement for the support of transmission and
distribution services is entered into this ____ day of _________,
1996, by and between NEES Transmission Services, Inc. (NEES
Trans), a Massachusetts corporation, New England Power Company
(NEP), a Massachusetts corporation, Massachusetts Electric Company
(MECO), a Massachusetts corporation, The Narragansett Electric
Company (NECO), a Rhode Island corporation, and Granite State
Electric Company (GSE), a New Hampshire corporation. NEES Trans
is a newly created subsidiary of the New England Electric System.
NEP, MECO, NECO and GSE are also subsidiaries of the New England
Electric System and are affiliates of NEES Trans. MECO, NECO, and
GSE are collectively referred to as the Distribution Affiliates.
I. Basic Understandings and Purpose
To respond to the Federal Energy Regulatory Commission's
comparable transmission service policies, NEES Trans has been
created to provide transmission services over (i) facilities owned
and controlled by NEP, and (ii) facilities of others where such
facilities are integrated with NEP's transmission facilities and
NEP holds contractual rights for their use. NEES Trans, under
this Agreement, will manage the use of NEP, MECO, NECO, and GSE's
facilities and entitlements as set forth herein to provide
<PAGE>
Wholesale Transmission Service. NEES Trans will pay charges to
support the costs of those facilities and entitlements, and will
make those facilities available to its affiliated companies and to
unaffiliated wholesale transmission customers on
nondiscriminatory and comparable terms. For NEES Trans to be able
to provide these services it must have control of the transmission
capabilities currently subject to NEP's control. Additionally it
must have rights to use the Distribution Affiliates' distribution
system in order to efficiently provide complete transmission
service for certain wholesale transactions. This Agreement sets
forth the terms and conditions of the transfer of control of NEP's
transmission system and contract rights to NEES Trans, and
provides for NEES Trans to use the Distribution Affiliates'
systems for the purpose of providing Wholesale Transmission
Services.
II. Definitions
"Distribution Service" shall mean the transmission of
electric power either (i) from the point of interconnection of
facilities controlled by NEES Trans with facilities of a
Distribution Affiliate to a wholesale transmission customer of
NEES Trans interconnected with the facilities of the Distribution
Affiliate, or (ii) from generation resources transmitted across
facilities of a Distribution Affiliate to the point of
<PAGE>
interconnection with facilities controlled by NEES Trans.
"Distribution System" shall mean those facilities which are
owned or supported by a Distribution Affiliate and are not NEP
Transmission Facilities.
"FERC" is the Federal Energy Regulatory Commission or its
successor agency having regulatory jurisdiction over this
Agreement.
"NEES Trans Tariffs" shall mean the Point-to-Point
Transmission Service Tariff and the Network Integration
Transmission Service Tariff filed and maintained by NEES Trans.
"NEP Transmission Facilities" shall mean all facilities,
including ancillary facilities, owned by NEP or owned by the
Distribution Affiliates and made available to NEP pursuant to
Integrated Facilities Schedule III-B of NEP's Tariff No. 1, and
which are used for transmitting electricity between the point of
connection:
i) of the generator radial with the transmission
network, or if there is no radial, the high voltage side
of the generation stepup transformers; or
ii) with transmission facilities owned by others;
and:
i) the point of interconnection with distribution
facilities; or
<PAGE>
ii) the point of interconnection with transmission
facilities owned by others.
In addition, the Combined Use GSU/115kV/345kV transformer
associated with NEP's Brayton Point Unit 3 located in Somerset,
Massachusetts, will be included in the NEP Transmission
Facilities.
"NEP Transmission Entitlements" shall mean contractual
entitlements to electric transmission services over facilities
owned by others, supported in whole or in part by NEP,
interconnected with NEP Transmission Facilities or facilities of
others that are interconnected with NEP Transmission Facilities,
and over which NEP has:
i) general wheeling rights; or
ii) rights to integrate remote all-requirements loads
served pursuant to NEP's Tariff No. 1 with NEP's power
supply resources.
Contracts that include NEP Transmission Entitlements are set
forth in Schedule A. To the extent that contracts listed in
Schedule A also include some rights that are not within the scope
of the foregoing definition, only those rights within such
contracts that are consistent with this definition shall qualify
as NEP Transmission Entitlements.
"NEP Transmission Obligations" shall mean obligations to
others to provide transmission- related services over facilities
<PAGE>
owned by NEP. Contracts that include NEP Transmission Obligations
are set forth in Schedule C. To the extent contracts listed in
Schedule C also include some obligations that are not
transmission-related services, only those obligations within such
contracts that are transmission-related services shall qualify as
NEP Transmission Obligations. Transmission-related services shall
not include generation related services, such as provision of
reactive power.
"Prudent Utility Practice" shall mean any of the practices,
methods and acts that, in the exercise of reasonable judgment in
the light of the facts known at the time, could have been expected
to accomplish the desired result at reasonable cost consistent
with reliability, safety, environmental protection, expedition and
the requirements of governmental agencies having jurisdiction.
Prudent Utility Practices are not intended to be limited to any
particular set of optimum practices, methods or acts to the
exclusion of all others, but rather are intended to include a
range of possible practices, methods or acts consistent with the
above stated criteria.
"Retail Transmission Service" shall mean all transmission
service that is not Wholesale Transmission Service, including
transmission service delivering electricity to ultimate customers.
<PAGE>
"Tariff No. 1" shall mean NEP's FERC Electric Tariff,
Original Volume No. 1 as amended from time to time.
"Wholesale Transmission Service" shall mean transmission
service for wholesale transactions, as authorized under the
Federal Power Act and the Energy Policy Act of 1992, (16 U.S.C. 824
et seq.) as in effect on the date of this Agreement.
III. Control and Use of Integrated Transmission Facilities
A. Except as otherwise provided for in this Agreement, NEP
agrees, subject to the terms and conditions of this Agreement, to
make the full capacity of all NEP Transmission Facilities
available for exclusive use by NEES Trans for NEES Trans to
provide Wholesale Transmission Service under NEES Trans' Tariffs
and to fulfill the NEP Transmission Obligations. NEES Trans will
have full authority and control over the use, allocation, and
dispatch of said facilities for this purpose, except that such
authority and control shall be subject to the terms of the General
and Refunding Mortgage Indenture and Deed of Trust between NEP and
the New England Merchants National Bank dated January 1, 1977, as
supplemented from time to time. NECO and MECO hereby consent to
the transfer by NEP to NEES Trans of the control and use of their
facilities previously used by NEP pursuant to Integrated
Facilities Schedule III-B of NEP's Tariff No. 1.
<PAGE>
B. NEP agrees, subject to the terms and conditions of this
Agreement, and consistent with the underlying contract and the
rights of the facility owner, to make the full capacity of all NEP
Transmission Entitlements available to NEES Trans so that NEES
Trans may provide Wholesale Transmission Service under NEES Trans'
Tariffs and to fulfill the NEP Transmission Obligations. NEES
Trans will have full authority and control over the use,
allocation, and dispatch of said facilities for this purpose. If
NEP is unable for any reason to accomplish the transfer of use and
control over any NEP Transmission Entitlement to NEES Trans, NEP
will allow NEES Trans the highest level of control over the use of
said entitlement consistent with the contract creating said
entitlement.
C. NEES Trans agrees to pay the support charges determined
in accordance with Section V of this Agreement, and any stranded
costs billed by NEP under Section III.E of this Agreement.
D. NEES Trans agrees to file with FERC and maintain in
force tariffs offering access to the NEP Transmission Facilities
and NEP Transmission Entitlements on a comparable and
nondiscriminatory basis to wholesale transmission customers.
E. NEP is providing NEES Trans with the control and use of
the NEP Transmission Facilities and Entitlements, and MECO, NECO
and GSE are providing NEES Trans Distribution Service solely for
the purpose of providing Wholesale Transmission Service. NEES
<PAGE>
Trans shall not use the rights obtained under this Agreement to
provide Retail Transmission Service without the express written
consent of NEP, MECO, NECO and GSE. NEP shall bill NEES Trans and
NEES Trans shall pay NEP for any stranded costs incurred by NEP
which result from NEES Trans providing transmission service to any
customer using rights obtained by NEES Trans under this Agreement.
NEES Trans shall indemnify and hold NEP harmless from any stranded
costs incurred by NEP, or any suit, order or liability arising
from or in any way associated with NEES Trans' provision of
transmission services using rights obtained through this
Agreement.
F. NEES Trans agrees, subject to the terms and conditions
of this Agreement, to provide the services and support required to
fulfill NEP's obligations and commitments as required by the NEP
Transmission Obligations. NEP agrees to notify the other parties
to the contracts listed in Schedule C to make payments directly to
NEES Trans, to the extent consistent with the contract, and
otherwise, NEP agrees to pay or credit all monies received under
such contracts to NEES Trans promptly upon receipt.
G. NEP and NEES Trans agree that all rights and obligations
of NEP within the contracts listed in Schedule A that are not NEP
Transmission Entitlements, as defined herein, are unaffected by
this Agreement and remain with NEP. NEP and NEES
<PAGE>
Trans agree that all rights and obligations of NEP within the
contracts listed in Schedule C that are not NEP Transmission
Obligations, as defined herein, are unaffected by this Agreement
and remain with NEP.
H. The Distribution Affiliates agree to identify NEP as
their Designated Agent for 100% of their respective transmission
loads as provided for in the Service Agreements to the NEES Trans
Network Integration Transmission Services Tariff with authority as
described therein. The Distribution Affiliates agree that NEP will
remain their Designated Agent for 100% of their respective
transmission loads for as long as the Distribution Affiliates
purchase power from NEP pursuant to NEP's Tariff No. 1, unless
otherwise consented to by NEP. The authority granted to NEP as
Designated Agent will include full authority to designate Network
Resources, delete Network Resources and purchase resources other
than Network Resources, and to schedule transactions over firm
limited interface rights of the Distribution Affiliates.
Additionally the Distribution Affiliates grant to NEP all their
rights to firm limited interface allocations. NEP will also have
the authority to integrate its portion of the Distribution
Affiliates' loads and resources with loads and resources of other
transmission customers who have similarly designated rights to
NEP.
<PAGE>
I. NEP has historically provided retail electric service to
two customers in Vermont and two in Massachusetts in areas outside
the Distribution Affiliates' service areas. These customers are
identified in Schedule G to this Agreement. The contracts
underlying these services remain valid and enforceable against
NEP. Therefore NEP must continue to provide these customers
service. NEP and NEES Trans agree that the transfer of control and
capacity over the NEP Transmission Facilities and NEP Transmission
Entitlements excepts whatever rights are necessary for NEP to
continue providing service to these customers.
IV. Operation, Maintenance and Expansion of NEP Owned Facilities
A. NEES Trans will operate, schedule maintenance, maintain
and repair in accordance with Good Utility Practice all NEP
Transmission Facilities and facilities used for NEP Transmission
Entitlements to the extent that NEP has operated or maintained
authority pursuant to those entitlements. The costs of such
repairs and maintenance will be paid for by NEP.
B. Upon NEES Trans' direction, NEP and the Distribution
Affiliates, shall take measures to expand the NEP Transmission
Facilities that each of them own to accommodate NEES Trans'
customers' needs, consistent with the relevant provisions of NEES
Trans' Tariffs, as applicable. NEES Trans shall perform or have
performed a study analyzing alternatives to meet the NEES Trans
<PAGE>
customer's request. Upon selection of an alternative, NEP and the
Distribution Affiliates will exercise due diligence to license,
engineer and construct the selected alternative expansion of the
NEP Transmission Facilities that each of them own. Neither NEP
nor the Distribution Affiliates shall be liable to NEES Trans or
its customers in the event that construction or expansion is
prevented or delayed by law, regulation or an order of a court,
regulatory body or other lawful authority, or by the failure of
such an agency or authority to grant a necessary authorization,
permit or approval.
V. Support Charges
A. NEES Trans agrees to pay NEP, on a monthly basis, the
cost of service of NEP's Transmission Facilities and the actual
cost of all NEP Transmission Entitlements including both fixed and
usage based charges as determined by the formula provided in
Schedule B, attached hereto.
B. NEES Trans agrees to pay NEP and the Distribution
Affiliates the costs of facilities constructed by each of them to
serve individual customers (Direct Assignment Facilities). NEES
Trans will identify for NEP and the Distribution Affiliates which
facilities are to be treated as Direct Assignment Facilities.
Payments to NEP and the Distribution Affiliates will be calculated
in accordance with the Schedule DAF formulas under the
<PAGE>
NEES Trans' Tariffs. NEP and the Distribution Affiliates will
separately itemize in their bills to NEES Trans the customer(s)
who benefit from each Direct Assignment Facility. NEES Trans may
from time to time amend the group of facilities to be treated as
Direct Assignment Facilities.
C. NEP will make arrangements for its customers to pay NEES
Trans for NEES Trans' provision of the services required by the
NEP Transmission Obligations. If NEP continues to receive revenue
from any of the NEP Transmission Obligations, NEP agrees to credit
its Transmission Cost of Service under Schedule B, or pay NEES
Trans all such revenue.
D. NEP, the Distribution Affiliates and NEES Trans will
issue monthly bills to one another as soon as practicable after
the end of the calendar month. Payments by NEES Trans to NEP and
the Distribution Affiliates will be due 3 days after payment is
scheduled to be received by NEES Trans from its customers, on a
rolling basis. NEP, the Distribution Affiliates and NEES Trans may
adjust any bill within six (6) months after a bill was rendered,
except where such adjustment is based on data provided by NEPOOL
in which case an adjustment may be made within twenty-four (24)
months after the date the bill is rendered.
<PAGE>
VI. Interconnection of NEP's Existing Generating Units
A. NEES Trans and NEP acknowledge that the generating units
set forth in Schedule D are presently interconnected with the NEP
Transmission Facilities. NEES Trans and NEP agree that these units
are interconnected to the satisfaction of NEES Trans. Any new
interconnections shall be made in accordance with the requirements
of NEES Trans as set forth in its Network Integration Transmission
Services Tariff.
VII. Distribution Services
A. NEES Trans shall have the right to use the Distribution
Affiliates' Distribution Systems for the delivery of electric
power to wholesale transmission customers whose point of delivery
is on the Distribution Affiliates' Distribution Systems and for
the transmission of power from generation resources across the
Distribution Affiliates' distribution system to the point of
interconnection with facilities controlled by NEES Trans.
B. The Distribution Service provided to NEES Trans
hereunder shall have the same priority as the Distribution
Affiliates' firm service to their native load customers. In the
event that the loading of the Distribution System, or a portion
thereof, must be reduced for safe and reliable operation, such
reduction in loading will be proportionately allocated among NEES
<PAGE>
Trans customers and the Distribution Affiliates' native load when
such curtailments can be accommodated within acceptable operating
practices.
C. The Distribution Service provided under this Agreement
is available only for the purpose of providing Wholesale
Transmission Service under NEES Trans' Tariffs. NEES Trans agrees
that it shall not use the distribution facilities of any
Distribution Affiliates for Retail Transmission Service without
the express written consent of the affected Distribution
Affiliate.
D. NEES Trans and the Distribution Affiliates agree to
provide timely, accurate information to each other in order to
facilitate performance of their respective obligations under this
Agreement.
VIII. Additional or Modified Distribution Facilities
A. Upon NEES Trans' request, any of the Distribution
Affiliates shall take measures to expand or modify their
Distribution Systems to accommodate customer requests made to NEES
Trans for service consistent with the relevant provisions of NEES
Trans' Network Integration Service Transmission Tariff or Point-
to-Point Transmission Service Tariff, as applicable. NEES Trans
will be responsible for making arrangements with the affected
Distribution Affiliates for additions and modifications
<PAGE>
to Distribution Systems necessary to serve other Wholesale
Transmission Service customers. Any terms and conditions
governing an addition or modification to the Distribution System
beyond those included in the NEES Trans Tariffs will be filed with
the FERC pursuant to Section 205 of the Federal Power Act.
IX. Payment for Use of Distribution Facilities
A. NEES Trans agrees to pay the Distribution Affiliates
monthly for the use of their Distribution Facilities in providing
Wholesale Transmission Service. The rate for Distribution Service
for each of the Distribution Affiliates will be determined
annually using the formula provided in Schedule F.
B. NEES Trans will calculate for every month payment due to
each of the Distribution Affiliates for the use of each
Distribution Affiliate's respective Distribution System in
supplying Wholesale Transmission Service in accordance with NEES
Trans' Tariffs, as applicable, and in accordance with NEES Trans'
Tariffs, as applicable, and in accordance with Schedule F. NEES
Trans will send payment to the respective Distribution Affiliate
for the actual use made of its Distribution Facilities within 3
business days after payment is scheduled to be received from NEES
Trans' customers, on a rolling basis. NEES Trans will provide with
payment the backup information and calculations in order that the
Distribution Affiliate will be able to verify the
<PAGE>
calculation of the payment.
X. Effective Date and Term
A. This Agreement shall be effective upon the first day of
the calendar month following the later of a) the receipt of all
regulatory approvals necessary for the formation of NEES Trans;
b) the date that both this Agreement, the NEES Trans Tariffs, and
the Service Agreements under the Tariffs become effective either
as filed or in a form acceptable to NEP and NEES Trans; c) approval
by FERC that NEP's transmission Tariffs Nos. 3, 4 and 8, and the
contracts for transmission service listed in Schedule E are
superseded by the NEES Trans Tariffs; or d) the date that the
amendment of NEP's Tariff No.1 to provide for the crediting of
payments for transmission services to NEES Trans by existing
Tariff No. 1 customers becomes effective.
B. This Agreement shall remain in effect unless terminated
pursuant to the provisions of this Agreement.
C. This Agreement may be terminated by mutual agreement of
the parties, or by any party hereto, upon not less than one year
prior written notice to the other parties.
D. In the event that this Agreement, the NEES Trans
Tariffs, or other agreements between NEP and NEES Trans necessary
to implement the NEES Trans Tariffs are amended, modified, altered
or construed in any material respect different from the
<PAGE>
form or meaning at the time this Agreement is entered into, NEP or
NEES Trans shall have the right to terminate this Agreement, upon
not less than 30 days written notice to parties to this Agreement.
E. If this Agreement is terminated and not otherwise
replaced by a similar agreement, NEP agrees to continue to provide
service under all contracts and obligations undertaken by NEES
Trans during the period when this Agreement was in effect.
XI. Indemnification
NEES Trans shall indemnify and hold harmless the other
parties to this Agreement for any and all damages, losses, claims,
demands, suits, recoveries, costs and expenses, including all
court costs and attorney fees arising from or in any way
associated with Wholesale Transmission Service provided by NEES
Trans, or NEES Trans' control, use, operation, maintenance and
scheduling of the NEP Transmission Facilities or NEP Transmission
Entitlements that results in claims of third parties or in damage
or destruction of the property of NEP or the Distribution
Affiliates.
NEP and the Distribution Affiliates shall indemnify and hold
NEES Trans harmless, for any and all damages, losses, claims,
demands, suits, recoveries, costs and expenses, including all
court costs and attorney fees caused by, or resulting from NEP's
<PAGE>
or the Distribution Affiliates' gross negligence or wilful
misconduct, that result in claims by parties not entering into
this Agreement, against NEES Trans.
XII. Force Majeure
No delay or failure in performance of any obligation under
this Agreement shall be deemed to exist if it is the result of
Force Majeure, as defined herein, and that the party whose
performance is affected by Force Majeure uses reasonable efforts
to remedy its inability to perform, and that the suspension of
performance is no longer than is reasonably required. "Force
Majeure" means any cause beyond the reasonable control of the
party claiming Force Majeure, and shall include, without
limitation, any act of God, labor disturbance, act of the public
enemy, war, insurrection, riot, fire, storm or flood, explosion,
breakage, accident to, or failure of machinery or equipment, or by
any other cause or causes beyond the party's control, including
any curtailment, order, regulation or restriction imposed by
governmental military or lawfully established civilian
authorities, or by the making of necessary repairs upon the
property or equipment of either party.
No party hereunder shall be liable to the any other party for
damages for any act, omission, or circumstance occasioned by or in
consequence of Force Majeure.
<PAGE>
XIII. Assignment
No assignment, pledge or other transfer of this Agreement by
any party shall be made without the written consent of the other
parties, except an assignment to a company owned by or affiliated
with the New England Electric System.
XIV. Amendment
This Agreement may be amended by mutual agreement of the
parties in writing, and subject to all necessary regulatory
approvals. Nothing in this Agreement shall be deemed to restrict
the right of any party receiving payments under this Agreement to
unilaterally make application to the FERC for an amendment to the
terms and conditions of this Agreement under the applicable
provisions of the Federal Power Act and the rules and regulations
thereunder. Additionally, nothing contained herein shall be
construed as a waiver of any rights of any party to contest an
application to change the terms and conditions of this Agreement.
<PAGE>
XV. Notices
Any Notices communicated between the parties under this
Agreement, or relating to the rights, obligations or performance
of the parties hereunder shall be in writing and shall be
effective on delivery. Any such communication shall be delivered
in person or by registered or certified mail, postage prepaid.
Notices to NEP shall be addressed to:
New England Power Company
25 Research Drive
Westborough, MA 01582
Attention: Administrator of NEES Trans Agreements
Notices to NEES Trans shall be addressed to:
NEES Transmission Services, Inc.
25 Research Drive
Westborough, MA 01582
Attention: President
Notices to MECO shall be addressed to:
Massachusetts Electric Company
25 Research Drive
Westborough, MA 01582
Attention: President
Notices to NECO shall be addressed to:
The Narragansett Electric Company
280 Melrose Street
Providence, RI 02901
Attention: President
Notices to GSE shall be addressed to:
Granite State Electric Company
407 Miracle Mile, Suite 1
Lebanon, NH 03766
Attention: President
<PAGE>
XVI. Miscellaneous
A. This Agreement shall constitute the entire understanding
among the parties pertaining to the subject matter of this
Agreement and shall supersede any and all previous understandings
among the parties pertaining thereto.
B. This Agreement shall be interpreted and construed in
accordance with the Federal Power Act and the rules and
regulations of the FERC, as applicable, and the law of the
Commonwealth of Massachusetts.
C. The failure of any party to require strict
interpretation of any of the provisions of this Agreement or to
exercise any of its rights under this Agreement shall not be
construed as a general waiver of any such provision or
relinquishment of any such right.
D. In the event that any clause or provision of this
Agreement, or any part thereof, shall be declared invalid or
unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of the other portions of
this Agreement.
E. This Agreement may be executed in any number of
counterparts and each shall have the force and effect of the
original.
<PAGE>
IN WITNESS WHEREOF, NEP, NEES Trans, MECO, NECO and GSE, all
intending to be legally bound, have caused this Agreement to be
executed by their duly authorized representatives as of the date
first written above.
New England Power Company NEES Transmission Services, Inc.
_________________________ ___________________________________
By: _____________________ ___________________________________
By: _____________________ ___________________________________
Its: ____________________ Its: ______________________________
Massachusetts Electric Company Granite State Electric Company
______________________________ ______________________________
______________________________ ______________________________
By: __________________________ By:___________________________
Its: _________________________ Its: __________________________
The Narragansett Electric Company
________________________________
______________________________
Its: __________________________
<PAGE>
Exhibit K
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
NEES Transmission Services, Inc.
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.
(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.
<PAGE>
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.
<PAGE>
(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 banks 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;
<PAGE>
(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.
