<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 POWER SERVICE COMPANY
(Names of company filing this statement)
25 Research Drive
Westborough, Massachusetts 01582
(Address of principal executive offices)
THE NATIONAL GRID GROUP PLC
(Name of top registered holding company parent of applicant)
John G. Cochrane Kirk L. Ramsauer
Vice President and Treasurer Deputy General Counsel
National Grid USA National Grid USA
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
New England Power Service Company (the Service Company) is a direct
wholly-owned subsidiary of National Grid USA (Grid) and an indirect wholly-
owned subsidiary of The National Grid Group plc (NGG), a registered public
utility holding company. It has contracted with the Grid companies to
provide, at cost, such administrative, engineering, construction, legal, and
financial services as the companies request.
In accordance with the Commission's Order dated December 21, 1979,
(Release No. 35-21354) in File No. 70-6353, the Service Company includes in
its service charges to customers a rate of return on equity capital (excluding
retained earnings and accumulated other comprehensive income) equal to the
authorized rate of return on common equity for its affiliate, the New England
Power Company. Under this formula, the Service Company currently uses an
equity rate of return of 11.25.
The Service Company now proposes (a) to restructure its capitalization to
reduce its equity capital and (b) to change the formula for its return on
equity. The Service Company is also filing in File No. 70-9089 an amendment
to that Application/Declaration relating to existing short-term borrowing
authority to reflect, in part, the effects of this equity restructuring.
As of December 31, 1999, the capitalization of the Service Company
consisted of $75 common stock, $16.3 million of miscellaneous paid-in capital,
$1.8 million of retained earnings, and $10.9 million of accumulated other
comprehensive income, net. (The Service Company also had $5.3 million in
short-term debt at the close of the year.) The Service Company does not
calculate an equity return allowance on the accumulated other comprehensive
income, which represents unrealized appreciation on its supplemental
retirement/deferred compensation plan trust fund recorded in accordance with
Statement of Financial Accounting Standards No. 130. It is the Service
Company's practice to pay its retained earnings out in dividends to its parent
shortly after year end. The Service Company proposes to reduce its common
stock and paid-in capital from a total of $16.3 million as stated above to $5
million by means of a distributive dividend to the Grid from paid-in capital.
The results of this recapitalization (assuming no increase in total
capitalization) would be as follows:
Before After
Miscellaneous paid-in capital $16.3 million $5.0 million
Retained Earnings $1.8 million $1.8 million
Accumulated Other Comprehensive Income $10.9 million $10.9 million
New Debt $11.3 million
The Service Company further proposes that it continue to be allowed to
include in its service charges to customers (1) the actual interest on funds
borrowed and (2) as reasonable compensation for its equity capitalization, a
return on the book value of its equity (excluding retained earnings and
accumulated other comprehensive income, net). However, the Service Company
proposes that following the reduction in capital, its rate of return on equity
capital will be fixed at 10.5%, the allowed rate of return stipulated in the
most recent negotiated rate settlement for its affiliate, The Narragansett
Electric Company. The authorization being sought here for both the level of
equity to be included in the Service Company and the return on equity to be
charged on such equity will remain in effect through December 31, 2004.
As a result of this recapitalization, assuming debt is carried at the end
of month prime rate at FleetBoston minus one percentage point, there will be a
reduction in the Service Company's charges. That reduction is calculated as
follows, assuming the same total level of capital and debt outstanding:
<PAGE> Current Proposed
Return on Equity
$16.3 million @ 11.25% $1.8m
$ 5.0 million @ 10.50% $ .5m
Gross up for taxes 1.3m .4m
Interest on new debt
$11.3 million @ 8.00% .9m
Total $3.1m $1.8m
Reduction in charges $1.3m
On May 1, 2000, EUA Service Corporation will merge into the Service
Company. The merger will not affect the proposed new capital structure of the
Service Company.
Item 2. Fees, Commissions and Expenses
There are no fees or commissions to be paid in connection with the
proposed transaction. Services will be performed by the Service Company at
the actual cost thereof. The cost is not expected to exceed $1,000.
Item 3. Applicable Statutory Provisions
(1)Distributive dividend: Section 46 of the Act.
(2) Return on capital: Section 13 of the Act and Rules 90 and 91.
Item 4. Regulatory Approval
No other state or Federal commission has jurisdiction over the proposed
transactions.
Item 5. Procedure
It is requested that the Commission take action with respect to this
Application/Declaration without a hearing being held and that an order
allowing this Application/Declaration to become effective on July 1, 2000, or
as soon as practicable.
The Service Company (i) does not request a recommended decision by a
hearing officer, (ii) does not request a recommended decision by any other
responsible officer of the Commission, (iii) hereby specifies that the
Division of Corporate Regulation may assist in the preparation of the
Commission's decision, and (iv) hereby requests 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
*FOpinion of Counsel.
HProposed Form of Notice
*To be supplied by amendment.
<PAGE>(b) Financial Statements
*1aBalance Sheet of the Service Company as of December 31, 1999, actual.
*1bStatement of Income and Retained Earnings of the Service Company for
the twelve months ended December 31, 1999, actual.
*2aBalance Sheet of NGG and Subsidiaries Consolidated as of March 31,
2000.
The proposed transaction will have no material effect on the Balance Sheets of
NGG and Subsidiaries Consolidated; pro forma statements are therefore omitted.
*2bStatement of Income and Retained Earnings of NGG and Subsidiaries
Consolidated for the twelve months ended March 31, 2000.
The proposed transaction will have no material effect on the Income and
Retained Earnings of NGG and Subsidiaries Consolidated; pro forma statements
are therefore omitted.
*To be supplied by amendment.
Since the date of the Balance Sheets, there have been no material changes
which were not in the ordinary course of business.
Financial Data Schedules and pro forma Balance Sheets and Statement of Income
and Retained Earnings of the Service Company will be filed by amendment.
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 statement to be signed on
its behalf, as indicated, by the undersigned officer thereunto duly authorized
by such company.
NEW ENGLAND POWER SERVICE COMPANY
s/ John G. Cochrane
By
John G. Cochrane, Treasurer
DATE: April 28, 2000
<PAGE>EXHIBIT INDEX
Exhibit No. Description Page
- ----------- --------------------------- --------------
F Opinion of Counsel To be filed
by amendment
H Proposed Form of Notice Filed herewith
Financial
Statement No. Description Page
- ------------- --------------------------------- ---------------
1aBalance Sheet of the Service Company To be filed
as of December 31, 1999, actual by amendment
1bStatement of Income and Retained To be filed
Earnings of the Service Company for by amendment
the twelve months ended December 31,
1999, actual
2aBalance Sheet of NGG and Subsidiaries To be filed
Consolidated as of March 31, 2000 by amendment
2b Statement of Income and Retained To be filed
Earnings of NGG and Subsidiaries by amendment
Consolidated for the twelve months
ended March 31, 2000
<PAGE> Exhibit H
PROPOSED FORM OF NOTICE
New England Power Service Company (the Service Company), a direct wholly-
owned subsidiary of National Grid USA (Grid), and an indirect wholly-owned
subsidiary of The National Grid Group plc, a registered holding company, 25
Research Drive, Westborough, Massachusetts 01582, have filed an
application/declaration with this Commission pursuant to Sections 13 and 46 of
the Public Utility Holding Company Act of 1935 ("Act") and Rules 90 and 91
thereunder.
In accordance with the Commission's order dated December 21, 1979
(Release No. 35-21354), the Service Company includes in its service charges to
customers a rate of return on equity capital (excluding retained earnings and
accumulated other comprehensive income) tied to the authorized rate of return
for its affiliate, New England Power Company. The Service Company now
proposes (a) to restructure its capitalization to reduce its equity capital
and (b) to change the formula for its return on equity. The reduction in
common equity will be made by means of a distributive dividend from paid-in
capital of $11.3 million by the Service Company to the Grid.
Following the reduction in capital, the Service Company rate of return on
equity capital will be fixed at 10.5%, the allowed rate of return stipulated
in the most recent negotiated rate settlement for its affiliate, The
Narragansett Electric Company.
As a result of this recapitalization and reduction in equity rate of
return, there will be a reduction in charges by the Service Company, assuming
the same total level of capital and debt outstanding, of approximately $1.3
million per year.
The authorization being sought for both the level of equity to be
included in the Service Company and the return on equity to be charged on such
equity will remain in effect through December 31, 2004.
