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File No. 70-9673
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NATIONAL GRID USA SERVICE COMPANY, INC.,
FORMERLY, 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)
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Form U-1 Application/Declaration filed under the Public Utility Holding
Company Act of 1935, File No. 70-9673, is hereby amended as follows:
(1) Item 1, Description of Proposed Transactions, is amended to read, in its
entirety, as follows:
"National Grid USA Service Company, Inc., (formerly, New England Power Service
Company, hereafter referred to as 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 Narragansett Electric Company return on equity is
specified because the Service Company's other retail public utility affiliates
do not have specified rates of return approved in their rates. The
Narragansett Electric Company is the second largest retail public utility
affiliate of the Service Company; the 10.5% rate of return on equity requested
by this filing is consistent with returns on equity of other electric
utilities. 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:
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.
The recapitalization proposed in this filing will be completed on or
before the thirtieth (30th) day following receipt of the Commission Orders
granting the authority requested in this file and in File No. 70-9089."
Item 6, Exhibits and Financial Statements, is amended by adding the
following:
(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.
Since the date of the Balance Sheets, there have been no material changes
which were not in the ordinary course of business.
<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.
NATIONAL GRID USA SERVICE COMPANY, INC.
s/ Cheryl A. LaFleur
By
Cheryl A. LaFleur, Vice President
DATE: June 22, 2000
