<PAGE>
File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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)
John G. Cochrane Kirk L. Ramsauer
Treasurer Associate General Counsel
25 Research Drive 25 Research Drive
Westborough, Massachusetts 01582 Westborough, Massachusetts 01582
(Names and addresses of agents for service)
<PAGE>
Item 1. Description of Proposed Transactions
- ---------------------------------------------
Introduction
- ------------
New England Electric System (NEES) is a holding company created under
the laws of The Commonwealth of Massachusetts by an Agreement and Declaration
of Trust dated January 1, 1926, as amended, and is registered under the Public
Utility Holding Company Act of 1935.
Two of NEES' subsidiaries currently occupy office complexes under long-
term leases with John Hancock Life Insurance Company (John Hancock). John
Hancock has indicated its willingness to sell its interest in the properties
to NEES or a subsidiary thereof. As those NEES subsidiaries engaged in
businesses other than the distribution and transmission of electric energy
expand their operations, they may require new or additional office space. It
may be desirable to own and occupy such space, as opposed to renting.
Therefore, NEES believes it may be most efficient to concentrate such property
ownership interests in a new subsidiary (Property Company). Property Company
will be organized as a Massachusetts business trust with transferable shares,
a Massachusetts corporation, or a limited liability company, with an initial
capitalization of not exceeding $50 million. NEES proposes to make an initial
equity investment in Property Company of at least $1 million and not more than
$50 million. The ultimate debt-equity ratio of Property Company, and whether
NEES' further equity interest will be represented by stock purchases, capital
contributions, or open account advances, will depend on the nature of capital
markets at the time of closing.
The initial properties being considered for acquisition are:
1. North Andover Service Building, Salem Turnpike (Route 114), North
Andover, Massachusetts. The service building consists of approximately
105,500 square feet of gross building area, including a three-story office
building and one-story warehouse building, and approximately 31 acres of land.
The service building complex and related facilities are currently leased
to Massachusetts Electric Company for a term of thirty-five years, commencing
on January 1, 1967 and terminating on December 31, 2001. The lease contains
the option for three additional five year renewal terms.
2. NEES Companies Headquarters Complex, 25 Research Drive,
Westborough, Massachusetts. The headquarters complex consists of a three-
building complex operating as a single unit containing a gross building area
of approximately 317,877 square feet, including a six-story office building, a
two-story office building, and connecting common areas. The complex and
related facilities are located upon approximately 25 acres of land. The
headquarters complex and related facilities are currently leased to New
England Power Service Company (the Service Company) under a long-term lease
which expires on August 31, 1999. The lease contains the option for three
additional five year renewal terms. New England Power Service Company has
exercised the right to extend the lease for the first five-year renewal term.
It is currently contemplated that after the acquisitions, the current
leasing arrangements will remain in place, with Property Company merely
replacing John Hancock as landlord under the terms and conditions remaining as
previously negotiated in arms-length bargaining between the unaffiliated
parties.
<PAGE>
Item 2. Fees, Commissions and Expenses
- ---------------------------------------
The title examination, title insurance, surveys, and recording fees in
connection with the transfers of the service building and the headquarters
complex are estimated to be approximately $40,000.
Incidental services in connection herewith will be performed by the
Service Company at the actual cost thereof. The Service Company is an
affiliated service company operating pursuant to Section 13 of the Act and the
Commission's rules thereunder. The cost of such services is estimated not to
exceed $2,000.
Item 3. Applicable Statutory Provisions
- ----------------------------------------
The proposed investment by NEES in the equity securities of the Property
Company by NEES are subject to Sections 9(a) and 10 of the Act.
Any capital contributions or open account advances by NEES are subject
to Section 12(b) of the Act but exempted by Rule 45(b)4.
To the extent the acquisition of the commercial real estate is an
acquisition of an interest in another business, Sections 9(a) and 10 of the
Act apply.
The proposed issue and sale of the securities of Property Company is
subject to Sections 6(a) and 7 of the Act.
The continuation of lease of the service building and the headquarters
complex to affiliates of the Property Company is subject to Section 12(f).
EWG OR FUCO OWNERSHIP
---------------------
Neither NEES nor any of its subsidiaries has an ownership interest in an
exempt wholesale generator (EWG) or a foreign utility company (FUCO) as
defined in Sections 32 and 33 of the 1935 Act. Additionally, neither NEES nor
any subsidiary thereof is a party to, or has any rights under, a service,
sales, or construction agreement with an EWG or FUCO. NEES and the
subsidiaries thereof shall comply with the requirements of Rule 53 of the Act
in connection with EWG and FUCO acquisitions and financings. Further, any
capital contribution to Property Company will not be used for the acquisition
of an interest in an EWG or a FUCO.
Item 4. Regulatory Approval
- ----------------------------
No action by any state commission or Federal commission (other than the
Securities and Exchange Commission) is necessary to carry out the proposed
transactions.
<PAGE>
Item 5. Procedure
- ------------------
It is requested that the Commission take action with respect to this
Application/Declaration without a hearing being held and that this statement
become effective and be granted on or before December 28, 1998, or as soon
thereafter as possible.
The Companies (1) do not request a recommended decision by a hearing
officer, (2) do not request a recommended decision by any other responsible
officer of the Commission, (3) hereby specify that the Division of Corporate
Regulation may assist in the preparation of the Commission's decision, and (4)
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 and Financial Statements
- ------------------------------------------
(a) Exhibits
* A Constituent instruments of Property Company
* F Opinion of Counsel
H Proposed Form of Notice
* to be filed by amendment
(b) Financial Statements
1-A Balance Sheet of NEES (Parent Company only) at June 30,
1998, Actual
** 1-B Statement of Income and Retained Earnings for NEES (Parent
Company only) for twelve months ended June 30, 1998,
Actual
2-A Consolidated Balance Sheet of NEES at June 30, 1998,
Actual
** 2-B Statement of Consolidated Income for NEES for twelve months
ended June 30, 1998, Actual
27 Financial Data Schedule for NEES
** The proposed transactions will have no material, instant effect on
the statements of income and retained earnings. Pro forma
statements, therefore, are omitted.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
- -------------------------------------------------
The proposed transactions do not involve a major Federal action
significantly affecting the quality of the human environment.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned 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/John G. Cochrane
By
John G. Cochrane
Treasurer
Date: November 4, 1998
The name "New England Electric System" means the trustee or trustees for the
time being (as trustee or trustees but not personally) under an agreement and
declaration of trust dated January 2, 1926, as amended, which is hereby
referred to, and a copy of which as amended has been filed with the Secretary
of The Commonwealth of Massachusetts. Any agreement, obligation or liability
made, entered into or incurred by or on behalf of New England Electric System
binds only its trust estate, and no shareholder, director, trustee, officer or
agent thereof assumes or shall be held to any liability therefor.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
A Constituent instruments of To be filed by
Property Company amendment
F Opinion of Counsel To be filed by
amendment
H Proposed Form of Notice Filed herewith
Financial Statements
1-A Balance Sheet of NEES (Parent Filed herewith
Company only) at June 30,
1998, Actual
1-B Statement of Income and Retained Filed herewith
Earnings for NEES (Parent Company
only) for twelve months ended
June 30, 1998, Actual
2-A Consolidated Balance Sheet of Filed herewith
NEES at June 30, 1998,
Actual
2-B Statement of Consolidated Income Filed herewith
for NEES for twelve months ended
June 30, 1998, Actual
27 Financial Data Schedule for NEES Filed herewith
<PAGE>
EXHIBIT H - Proposed Form of Notice
Notice of Proposal to organize Property Subsidiary
New England Electric System (NEES), a registered holding company, has filed
an Application/Declaration under Sections 6(a), 7, 9(a), 10, and 12 of the
1935 Act and Rules thereunder. NEES proposes to organize a Property Company
to purchase office space to be used by certain NEES subsidiaries, including
the existing service buildings leased by Massachusetts Electric Company and
the headquarters complex leased by New England Power Service Company. NEES
proposes to make an initial equity investment in the Property Company of at
least $1 million and not more than $50 million.
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Balance Sheet
At June 30, 1998
(Unaudited)
<CAPTION>
ASSETS
------
(In Thousands)
<S> <C>
Investments:
Common stocks of subsidiaries, at equity $1,803,017
Preferred stock of subsidiary 29,282
Notes of subsidiaries 88,877
Other investments 4,817
----------
Total investments 1,925,993
----------
Current assets:
Cash 508
Temporary cash investments - subsidiary companies 178,150
Interest and dividends receivable of subsidiaries 20,912
Other current assets 4,034
----------
Total current assets 203,604
----------
Deferred federal income taxes 3,595
----------
$2,133,192
==========
CAPITALIZATION AND LIABILITIES
------------------------------
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Issued - 64,969,652 shares $ 64,970
Other paid-in capital 736,661
Retained earnings (including $711,160,000 of
undistributed subsidiary earnings) 970,833
Treasury stock - 1,950,005 shares (82,587)
Unrealized gain on securities, net 574
----------
Total common share equity 1,690,451
----------
Current liabilities:
Accounts payable 552
Dividends payable 33,337
Short-term debt 398,375
----------
Total current liabilities 432,264
----------
Other reserves and deferred credits 10,477
----------
$2,133,192
==========
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Statement of Income
Twelve Months Ended June 30, 1998
(Unaudited)
<CAPTION>
(In Thousands)
<S> <C>
Equity in earnings of subsidiaries $225,942
Interest income - subsidiaries 1,687
--------
Total income from subsidiaries 227,629
Other income 169
---------
Total income 227,798
Corporate and fiscal expenses (includes $1,550,000 for cost
of services billed by an affiliated company) 5,925
Federal income taxes (1,844)
---------
Income before interest 223,717
Interest 6,083
---------
Net income $ 217,634
=========
Statement of Retained Earnings
Retained earnings at beginning of period $ 904,827
Net income 217,634
Dividends declared on common shares (151,628)
---------
Retained earnings at end of period $ 970,833
=========
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheet
at June 30, 1998
(Unaudited)
<CAPTION>
ASSETS
------
(In Thousands)
<S> <C>
Utility plant, at original cost $5,926,625
Less accumulated provisions for depreciation and amortization 2,068,995
----------
3,857,630
Construction work in progress 50,194
----------
Net utility plant 3,907,824
----------
Oil and gas properties, at full cost -
Less accumulated provision for amortization -
----------
Net oil and gas properties -
----------
Investments:
Nuclear power companies, at equity 47,443
Other subsidiaries, at equity 36,725
Other investments 132,769
----------
Total investments 216,937
----------
Current assets:
Cash 23,040
Accounts receivable, less reserves of $19,877,000 255,522
Unbilled revenues 76,138
Fuel, materials, and supplies, at average cost 81,810
Prepaid and other current assets 104,224
----------
Total current assets 540,734
----------
Accrued Yankee nuclear plant costs 272,939
Deferred charges and other assets 560,932
----------
$5,499,366
==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Issued - 64,969,652 shares
Outstanding - 62,847,197 shares $ 64,970
Paid-in capital 736,699
Retained earnings 970,833
Treasury stock - 2,122,455 shares (89,045)
Unrealized gain on securities, net 7,688
----------
Total common share equity 1,691,145
Minority interests in consolidated subsidiaries 42,637
Cumulative preferred stock of subsidiaries 39,087
Long-term debt 1,365,848
----------
Total capitalization 3,138,717
----------
Current liabilities:
Long-term debt due within one year 27,920
Short-term debt 656,950
Accounts payable 161,567
Accrued taxes 19,065
Accrued interest 21,980
Dividends payable 35,457
Other current liabilities 121,869
----------
Total current liabilities 1,044,808
----------
Deferred federal and state income taxes 713,527
Unamortized investment tax credits 88,994
Accrued Yankee nuclear plant costs 272,939
Other reserves and deferred credits 240,381
----------
$5,499,366
==========
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statement of Consolidated Income
Twelve Months Ended June 30, 1998
(Unaudited)
<CAPTION>
(In Thousands)
<S> <C>
Operating revenue $2,478,391
----------
Operating expenses:
Fuel for generation 350,612
Purchased electric energy 501,584
Other operation 594,731
Maintenance 149,855
Depreciation and amortization 223,205
Taxes, other than income taxes 147,900
Income taxes 150,892
----------
Total operating expenses 2,118,779
----------
Operating income 359,612
Other income:
Equity in income of generating companies 10,153
Other income (expense), net (11,003)
----------
Operating and other income 358,762
----------
Interest:
Interest on long-term debt 102,493
Other interest 24,502
Allowance for borrowed funds used during construction (1,783)
----------
Total interest 125,212
----------
Income after interest 233,550
Preferred dividends and net gain on reacquisition
of preferred stock 9,794
Minority interests 6,483
----------
Net income $ 217,273
==========
Average common shares - Basic 64,431,253
Average common shares - Diluted 64,499,067
Per share data:
Net income - Basic and Diluted $3.37
Dividends declared $2.36
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $ 904,825
Net income 217,273
Dividends declared on common shares (151,265)
Premium on redemption of preferred stock -
---------
Retained earnings at end of period $ 970,833
=========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED
STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW
ENGLAND ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,907,824
<OTHER-PROPERTY-AND-INVEST> 216,937
<TOTAL-CURRENT-ASSETS> 540,734
<TOTAL-DEFERRED-CHARGES> 833,871 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,499,366
<COMMON> 64,970
<CAPITAL-SURPLUS-PAID-IN> 736,699
<RETAINED-EARNINGS> 970,833
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,691,145 <F3>
0
39,087 <F2>
<LONG-TERM-DEBT-NET> 1,365,848
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 656,950
<LONG-TERM-DEBT-CURRENT-PORT> 27,920
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,718,416
<TOT-CAPITALIZATION-AND-LIAB> 5,499,366
<GROSS-OPERATING-REVENUE> 2,478,391
<INCOME-TAX-EXPENSE> 150,892
<OTHER-OPERATING-EXPENSES> 1,967,887
<TOTAL-OPERATING-EXPENSES> 2,118,779
<OPERATING-INCOME-LOSS> 359,612
<OTHER-INCOME-NET> (850)
<INCOME-BEFORE-INTEREST-EXPEN> 358,762
<TOTAL-INTEREST-EXPENSE> 125,212
<NET-INCOME> 217,273
4,327 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 217,273
<COMMON-STOCK-DIVIDENDS> 151,265
<TOTAL-INTEREST-ON-BONDS> 102,493
<CASH-FLOW-OPERATIONS> 239,340
<EPS-PRIMARY> $3.37
<EPS-DILUTED> $2.37
<FN>
<F1> Total deferred charges includes other assets.
<F2> Preferred stock reflects preferred stock of subsidiaries. Preferred
stock dividends reflect preferred stock dividends of subsidiaries.
<F3> Total common stockholders equity includes treasury stock at cost and
unrealized gain on securities.
</FN>
