<PAGE>
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 POWER COMPANY
(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)
<PAGE>
Item 1 Description of Proposed Transactions
------ ------------------------------------
New England Power Company ("the Power Company") is a wholly owned
subsidiary of New England Electric System, a registered holding company under
the Public Utility Holding Company Act of 1935. The Power Company is a
wholesale power generating and transmitting company; 50% of its generating
capacity is in company owned conventional power plants fired by coal, gas, and
oil. The cost of these conventional fuels was approximately $305 million in
1996. In addition, the Company sold approximately $41 million of natural gas in
1996. The prices of these fuels are subject to fluctuations in response to,
among other things, weather, domestic labor issues, and events in foreign
countries, particularly the Middle East. For some years, the Power Company has
taken steps to minimize the impact of these price fluctuations by using:
1. Contracts for physical delivery of oil, gas, and coal at a future
date at a fixed price.
2. Contracts for physical delivery of oil, gas, and coal at a future
date at a market price (determined by an agreed upon index).
In order to further limit pressures on its financial position and the
cost of meeting its contractual obligations, the Power Company proposes to
engage in further risk management activities which may employ:
1. Exchange based futures contracts for crude oil, natural gas, coal,
and electricity
2. Exchange based or over-the-counter options for crude oil, residual
oil, natural gas, coal, and electricity
3. Swap contracts for natural gas, residual oil, crude oil, coal, and
electricity
Such hedging activities, when properly conducted, will decrease
uncertainty around the cost of meeting the Power Company's obligations. Media
reports state that at least one rating agency has lowered its rating on the
power revenue bonds of an electric power authority because the authority was
dependent upon a single fuel for generation and had no hedging protection in
place.
The Power Company will not deal in derivative products for the purpose of
speculative trading and has established internal procedures to limit risk and
to ensure adequate controls. The Power Company will endeavor to further reduce
its exposure by contractual provisions prohibiting consequential damages or
otherwise limiting damages and by using contracts of relatively short duration.
The Power Company will use these hedging techniques solely to control its risk
and will limit such activity to the total amount of the energy commodities in
which it deals subject to market price fluctuation. These transactions will be
undertaken solely in connection with its own power generation and sales of gas
and electricity and will not be offered as part of power merchandising or other
ventures. The Power Company anticipates that it will ultimately have a
portfolio of energy contracts involving purchases, sales, and trades of oil,
gas, coal, and electric power. It will hedge the risks associated with these
contracts through a combination of physical assets, physical purchases, and
derivative risk management tools.
<PAGE>
Item 2. Fees, Commissions and Expenses
- --------------------------------------
Because this is a new activity for the Company, the dollar volume of
transactions and the related fees cannot be predicted with certainty at this
time. Fees, commissions, and expenses to be incurred during the first year of
the program in connection with the transactions contemplated by this
Application/Declaration are not expected to exceed $100,000. 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:
To the extent the above-described risk management activities are deemed to be
securities, Sections 6(a), 7, 9(a), and 10 relate to the authority requested
herein.
Item 4. Regulatory Approval
- ----------------------------
No Federal or state commission or regulatory body, other than the
Commission, has jurisdiction over the proposed transactions.
Item 5. Procedure
- ------------------
The Applicants request that the Commission take action with respect to
this Application/Declaration without a hearing being held, on or before
March 25, 1997.
The Applicants (i) do not request a recommended decision by a hearing
officer, (ii) do not request a recommended decision by any other responsible
officer of the Commission, (iii) hereby specify that the Division of Investment
Management may assist in the preparation of the Commission's decision, and (iv)
hereby request that there be no 30-day waiting period between the date of
issuance of the Commission's Order and the date on which it is to become
effective.
Item 6. Exhibits:
- ------------------
(a) Exhibits
* F Opinion of Counsel
(b) Financial Statements
1-A Balance Sheet of NEES at September 30, 1996, Actual (Parent Company
Only)
1-B Statement of Income and Retained Earnings for NEES for twelve
months ended September 30, 1996, Actual (Parent Company Only)
<PAGE>
2-A Consolidated Balance Sheet of NEES at September 30, 1996, Actual
2-B Statement of Consolidated Income for NEES for twelve months ended
September 30, 1996, Actual
3-A Balance Sheet of the Power Company at September 30, 1996, Actual
3-B Statement of Income and Retained Earnings for the Power Company for
twelve months ended September 30, 1996, Actual
Because the time of the proposed transactions to be carried out are
unknown and because the transactions are not expected to impact the
balance sheets and income statements of the Power Company or NEES, no pro
forma analyses of the proposed transactions have been prepared.
* To be supplied 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.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, New England Power 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 POWER COMPANY
s/John G. Cochrane
____________________________
John G. Cochrane
Assistant Treasurer
Dated: March 10, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------- ----------
F Opinion of Counsel To be filed
by amendment
1-A Balance Sheet of NEES at Filed herewith
September 30, 1996, Actual
(Parent Company Only)
1-B Statement of Income and Filed herewith
Retained Earnings for NEES
for twelve months ended
September 30, 1996,
Actual (Parent Company Only)
2-A Consolidated Balance Sheet of Filed herewith
NEES at September 30, 1996,
Actual
2-B Statement of Consolidated Filed herewith
Income for NEES for twelve
months ended September 30,
1996, Actual
3-A Balance Sheet of the Power Filed herewith
Company at September 30, 1996,
Actual
3-B Statement of Income and Filed herewith
Retained Earnings for the
Power Company for twelve months
ended September 30, 1996, Actual
<PAGE>
<TABLE>
Exhibit 1-A
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Balance Sheet
At September 30, 1996
(Unaudited)
<CAPTION>
ASSETS
------
(In Thousands)
<S> <C>
Investments:
Common stocks of subsidiaries, at equity $1,637,505
Notes of subsidiaries 28,453
Other investments 3,758
----------
Total investments 1,669,716
----------
Current assets:
Cash 43
Temporary cash investments - subsidiary companies 5,650
Interest and dividends receivable of subsidiaries 44,989
Other current assets 82
----------
Total current assets 50,764
----------
Deferred federal income taxes 2,886
----------
$1,723,366
==========
CAPITALIZATION AND LIABILITIES
------------------------------
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Issued - 64,969,652 shares
Outstanding - 64,893,481 $ 64,970
Paid-in capital 736,566
Retained earnings (including $629,533,000 of
undistributed subsidiary earnings) 877,515
----------
Total common share equity 1,679,051
----------
Current liabilities:
Accounts payable 1,027
Other accrued expenses 1,771
Dividends payable 34,339
----------
Total current liabilities 37,137
----------
Deferred credits 7,178
----------
$1,723,366
==========
</TABLE>
<PAGE>
<TABLE>
Exhibit 1-B
NEW ENGLAND ELECTRIC SYSTEM
(Parent Company Only)
Statement of Income
Twelve Months Ended September 30, 1996
(Unaudited)
<CAPTION>
(In Thousands)
<S> <C>
Equity in earnings of subsidiaries $ 214,639
Interest income - subsidiaries 557
---------
Total income from subsidiaries 215,196
Other income 108
---------
Total income 215,304
Corporate and fiscal expenses (includes $1,142,000 for
cost of services billed by an affiliated company) 4,892
Federal income taxes (664)
---------
Income before interest 211,076
Interest 324
---------
Net income $ 210,752
=========
Statement of Retained Earnings
Retained earnings at beginning of period $ 820,091
Net income 210,752
Dividends declared on common shares (153,328)
---------
Retained earnings at end of period $ 877,515
=========
</TABLE>
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<TABLE>
Exhibit 2-A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheet
At September 30, 1996
(Unaudited)
<CAPTION>
ASSETS
------ (In Thousands)
<S> <C>
Utility plant, at original cost $5,628,819
Less accumulated provisions for depreciation and amortization 1,816,833
----------
3,811,986
Net investment in Seabrook 1 under rate settlement 3,803
Construction work in progress 85,051
----------
Net utility plant 3,900,840
----------
Oil and gas properties, at full cost 1,279,057
Less accumulated provision for amortization 1,077,540
----------
Net oil and gas properties 201,517
----------
Investments:
Nuclear power companies, at equity 48,147
Other subsidiaries, at equity 37,866
Other investments 91,020
----------
Total investments 177,033
----------
Current assets:
Cash 5,186
Accounts receivable, less reserves of $20,176,000 253,249
Unbilled revenues 58,003
Fuel, materials and supplies, at average cost 83,732
Prepaid and other current assets 91,835
----------
Total current assets 492,005
----------
Deferred charges and other assets 371,556
----------
$5,142,951
==========
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 - 64,893,481 shares $ 64,970
Paid-in capital 738,591
Retained earnings 877,065
Treasury stock - 76,171 shares (2,585)
----------
Total common share equity 1,678,041
Minority interests in consolidated subsidiaries 48,005
Cumulative preferred stock of subsidiaries 126,166
Long-term debt 1,608,386
----------
Total capitalization 3,460,598
----------
Current liabilities:
Long-term debt due within one year 76,885
Short-term debt 152,875
Accounts payable 135,691
Accrued taxes 34,197
Accrued interest 22,662
Dividends payable 35,679
Other current liabilities 114,325
----------
Total current liabilities 572,314
----------
Deferred federal and state income taxes 750,136
Unamortized investment tax credits 92,048
Other reserves and deferred credits 267,855
----------
$5,142,951
==========
</TABLE>
<PAGE>
<TABLE>
Exhibit 2-B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statement of Consolidated Income
Twelve Months Ended September 30, 1996
(Unaudited)
<CAPTION>
(In Thousands)
<S> <C>
Operating revenue $2,334,910
----------
Operating expenses:
Fuel for generation 305,398
Purchased electric energy 505,711
Other operation 507,609
Maintenance 132,348
Depreciation and amortization 255,614
Taxes, other than income taxes 143,895
Income taxes 135,022
----------
Total operating expenses 1,985,597
----------
Operating income 349,313
Other income:
Allowance for equity funds used during construction 110
Equity in income of generating companies 10,709
Other income (expense), net (6,669)
----------
Operating and other income 353,463
----------
Interest:
Interest on long-term debt 110,311
Other interest 21,510
Allowance for borrowed funds used during construction (4,540)
----------
Total interest 127,281
----------
Income after interest 226,182
Preferred dividends of subsidiaries 8,171
Minority interests 7,396
----------
Net income $ 210,615
==========
Average common shares 64,898,858
Net income per average common share $3.25
Dividends declared per share $2.36
Statement of Consolidated Retained Earnings
Retained earnings at beginning of period $ 820,090
Net income 210,615
Dividends declared on common shares (153,190)
Other (450)
---------
Retained earnings at end of period $ 877,065
=========
</TABLE>
<PAGE>
<TABLE>
Exhibit 3-A
NEW ENGLAND POWER COMPANY
Balance Sheet
At September 30, 1996
(Unaudited)
<CAPTION>
ASSETS
------
(In Thousands)
<S> <C>)
Utility plant, at original cost $2,973,759
Less accumulated provisions for depreciation and amortization 1,098,734
----------
1,875,025
Net investment in Seabrook 1 under rate settlement 3,803
Construction work in progress 47,284
----------
Net utility plant 1,926,112
----------
Investments:
Nuclear power companies, at equity 48,147
Non-utility property and other investments 26,773
----------
Total investments 74,920
----------
Current assets:
Cash 1,392
Accounts receivable:
Affiliated companies 252,345
Accrued NEEI revenues 25,875
Others 20,707
Fuel, materials and supplies, at average cost 67,186
Prepaid and other current assets 25,027
----------
Total current assets 392,532
----------
Deferred charges and other assets 234,417
----------
$2,627,981
==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock, par value $20 per share,
authorized and outstanding 6,449,896 shares $ 128,998
Premiums on capital stocks 86,779
Other paid-in capital 289,818
Retained earnings 396,358
----------
Total common equity 901,953
Cumulative preferred stock, par value $100 per share 39,666
Long-term debt 735,953
----------
Total capitalization 1,677,572
----------
Current liabilities:
Short-term debt (including $7,275,000 to affiliates) 124,375
Accounts payable (including $40,170,000 to affiliates) 152,717
Accrued liabilities:
Taxes 15,553
Interest 10,055
Other accrued expenses 12,029
Dividends payable 41,924
----------
Total current liabilities 356,653
----------
Deferred federal and state income taxes 386,380
Unamortized investment tax credits 55,992
Other reserves and deferred credits 151,384
----------
$2,627,981
==========
</TABLE>
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<TABLE>
Exhibit 3-B
NEW ENGLAND POWER COMPANY
Statement of Income
Twelve Months Ended September 30, 1996
(Unaudited)
<CAPTION>
(In Thousands)
<S> <C>
Operating revenue, principally from affiliates $1,586,190
----------
Operating expenses:
Fuel for generation 324,405
Purchased electric energy 505,209
Other operation 208,939
Maintenance 85,264
Depreciation and amortization 102,501
Taxes, other than income taxes 65,606
Income taxes 93,378
----------
Total operating expenses 1,385,302
----------
Operating income 200,888
Other income:
Allowance for equity funds used during construction 258
Equity in income of nuclear power companies 5,616
Other income (expense), net (546)
----------
Operating and other income 206,216
----------
Interest:
Interest on long-term debt 45,791
Other interest 11,702
Allowance for borrowed funds used during
construction (2,649)
----------
Total interest 54,844
----------
Net income $ 151,372
==========
Statement of Retained Earnings
Retained earnings at beginning of period $ 387,345
Net income 151,372
Dividends declared on cumulative preferred stock (2,913)
Dividends declared on common stock (138,996)
Premium on redemption of preferred stock (450)
----------
Retained earnings at end of period $ 396,358
==========
Per share data is not relevant because the Company's common stock is wholly
owned by New England Electric System.
</TABLE>
