File No. 70-7883
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment No. 1 to
FORM U-1
APPLICATION/DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Northeast Utilities
174 Brush Hill Avenue
West Springfield, Massachusetts 01090-0010
(Name of company filing this statement
and address of principal executive offices)
Northeast Utilities
(Name of top registered holding company parent
of each applicant or declarant)
Robert P. Wax, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities
P.O. Box 270
Hartford, CT 06141-0270
(Names and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to:
Jeffrey C. Miller, Esq.
Assistant General Counsel
Northeast Utilities Service Company
P. O. Box 270
Hartford, CT 06141-0270
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
1. Northeast Utilities ("NU"), a registered holding company, hereby
submits to the Commission a post-effective amendment to its
application/declaration (the "Application") on Form U-1 (File No. 70-7883)
pursuant to Sections 6(a), 7, 9(a), and 10 of the Public Utility Holding
Company Act of 1935 (the "Act"), concerning a modification to the voting of
unallocated shares held in an ESOP trust.
2. In its November 18, 1991 Order (HCAR No. 35-25411) in File No.
70-7883 (the "Order"), the Commission approved the issuance and sale of up to 11
million NU common shares, $5.00 par value to an employee stock ownership plan
(ESOP) trust to be added to a Northeast Utilities system 401(k) plan (the
"Plan"). The Order provided the following with respect to the voting of ESOP
shares:
For purposes of determining the voting rights associated with the
NU common stock acquired by the ESOP, such shares would be treated as
follows. Whenever NU shareholders are entitled to vote on a matter
properly before the shareholders, the Trustee will prepare a voting
instruction form and will distribute it to each employee to whom
shares held by the ESOP have been allocated. The form will advise the
participating employees that, in making their votes on the instruction
form, they are making determinations with respect to the allocated
shares in their account and a proportionate number of unallocated
shares. In addition to the instruction form, participants will
receive the same proxy material as all other shareholders at
approximately the same time. Completed forms will be returned to
the Trustee to tabulate for voting purposes at shareholder meet-
ings. The Trustee will vote the common shares that have been
allocated to participants' individual accounts in accordance with
the instructions received from the participants. Unallocated
shares will be voted in the same proportion as directed by
participants for allocated shares. The failure of a participant
to return a voting instruction card will be deemed a direction by
the participant that such shares are not to be voted for
or against any proposal. Such shares will not be voted other than as
required by law.
For tender offers or any other option to buy or exchange NU common
shares, participants may direct the Trustee to tender or exchange
shares allocated to their individual accounts. The failure to give
the Trustee instructions is deemed a direction to leave the shares in-
vested in NU common shares. Unallocated shares will be tendered in
the same proportion as directed by participants for allocated shares.
Voting and tender instructions received by the Trustee from each
participant will be held in strict confidence and will not be re-
vealed to any officer, director or employee of NU or its subsid-
iaries, and to insure the confidentiality, an independent record
keeper would be retained to provide all necessary services related
to these instructions.
3. In accordance with the terms of the Order, the Plan, and the ESOP
trust agreement, the ESOP trustee votes ALLOCATED ESOP shares as directed by
the employee participants who beneficially own the allocated shares, and
abstains from voting allocated ESOP shares for which no direction from the
beneficial owner is received. No change in the voting of ALLOCATED ESOP
shares is contemplated.
4. Currently, the ESOP trustee votes the UNALLOCATED shares in the
same proportion of yes and no votes and abstentions as it votes the allocated
shares. This results in a large number of abstentions of unallocated ESOP
shares. For instance, at the time of NU's annual meeting of shareholders
held on May 23, 1995, there were 134,210,441 shares issued and outstanding,
of which 14,230,710 were held in the ESOP (4,424,165 allocated and 9,806,545
unallocated). The ESOP trustee received directions with respect to only
2,721,582 of the allocated shares. This resulted in the trustee abstaining
with respect to over 1.7 million, or about 39 percent, of the allocated
shares, and under the current voting provisions, resulted in the trustee
abstaining with respect to about 39 percent, or approximately 3.8 million, of
the unallocated ESOP shares as well. The non-voted unallocated shares
represented almost 3 percent of NU's shares outstanding at the time.
5. NU now proposes to amend the Plan and the ESOP trust agreement to
modify the manner in which the ESOP trustee votes the unallocated shares held
in the ESOP trust. Under the proposed change, ALLOCATED ESOP shares would
still be voted in accordance with participant instructions (including
abstaining from voting allocated ESOP shares for which no instructions are
received). However, UNALLOCATED ESOP shares would be voted (yes or no) in
the same proportions as allocated ESOP shares FOR WHICH VOTING INSTRUCTIONS
ARE RECEIVED.
6. The purpose of the proposed change is to increase the level of
voter participation at NU's shareholder meetings, by making sure that all
unallocated ESOP shares are voted. With this modification, the trustee would
vote all unallocated shares, rather than leaving a portion of them unvoted.
The vote of all shares would still be determined by how participants direct
the vote of their allocated shares.
7. In a "no-action" letter dated March 25, 1992, (copy attached as
Exhibit A.1) the Commission staff analyzed the trust holdings of NU common
shares under the Plan, including the voting requirements for the ESOP shares
set forth above, and concluded that it would not recommend any enforcement
action under the Act that would result in the Plan or the bank trustees under
the Plan being deemed to be a "holding company", as defined in Section
2(a)(7)(A) of the Act, or an "affiliate", as defined in Section 2(a)(11)(A)
of the Act, on account of the trustees' holding and voting the NU common
shares under the Plan in the manner described in the no-action letter. NU
believes that following the change in the voting of unallocated shares
described above, the ESOP trustee should still not be deemed to "own,
control, or hold with power to vote" the shares held in the ESOP trust, and
that such shares should still not be counted in determining whether the Plan
or the ESOP trustee is a "holding company" or "affiliate" of NU under the
Act, because the ESOP trustee will still have no discretion as to how ESOP
shares are voted (except with respect to the ERISA Voting Override discussed
at page 4 of Exhibit A.1). See, e.g., DQE, Inc., No-Action Letter dated
August 2, 1991, from Division of Investment Management to J. Anthony Terrell,
Ref. No. 91-6-OPUR (copy attached as Exhibit A.2).
8. NU seeks an Order of the Commission acknowledging and approving
the proposed change in voting procedures for the unallocated ESOP shares, and
concurring in the position stated in paragraph 6 above.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
No fees, commissions or expenses have been paid or will be paid or
incurred in connection with the proposed transactions, other than (i) the
Commission's $2,000 filing fee, (ii) expenses for legal and other services
billed to NU at cost by NUSCO, estimated at $2,000, and (iii) legal fees of
outside counsel engaged by NUSCO to provide related services, estimated at
$1,000.
ITEM 4. REGULATORY APPROVAL
No federal or state regulatory authority, other than the Commission
under the Act, has any jurisdiction over the proposed transactions.
ITEM 5. PROCEDURE
It is respectfully requested that the Commission enter not later than
December 31, 1995 an appropriate order granting and permitting this post-
effective amendment to become effective, so appropriate changes may be made
to the Plan, the ESOP trust agreement, and the trustee's voting procedures,
participant communications and proxy materials in advance of NU's 1996 annual
meeting of shareholders.
No recommended decision by a hearing officer or other responsible
officer of the Commission is necessary or required in this matter. The
Office of Public Utility Regulation within the Division of Investment
Management of the Commission may assist in the preparation of the
Commission's decision in this matter. There should be no 30 day waiting
period between the issuance and the effective date of any order issued by the
Commission in this matter, and it is respectively requested that any such
order be made effective immediately upon the entry thereof.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
Exhibit A.1 - Northeast Utilities, No-Action Letter dated March
25, 1992
Exhibit A.2 - DQE, Inc., No-Action Letter dated August 2, 1991.
Exhibit B - Proposed notice of the filing of this post-effective
amendment with the Securities and Exchange Commission.
Exhibit C - Opinion of Counsel for the Company (to be filed by
amendment).
(b) Financial Statements. The financial statements have not been
included because these transactions are not expected to have pro
forma effects on the financial statements of NU or NU system
consolidated.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
This application/declaration relates to a modification in the way
shares are voted by an ESOP trustee, and as such, it is believed that the
granting and permitting to become effective of this application/declaration
will not constitute a major federal action significantly affecting the
quality of the human environment. No other federal agency has prepared or is
preparing an environmental impact statement with respect to the proposed
transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned has duly caused this amendment to be signed on its
behalf by the undersigned thereunto duly authorized.
NORTHEAST UTILITIES
By /s/Richard M. Early
its Attorney
Dated: November 9, 1995
Exhibit A.1
March 25, 1992
RESPONSE OF THE OFFICE OF PUBLIC UTILITY REGULATION
DIVISION OF INVESTMENT MANAGEMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Our Ref. No. 92-2-OPUR
Northeast Utilities
File No. 132-3
Based on the facts and representations in your letter of March 12, 1992,
we would not recommend any enforcement action to the Commission under the
Public Utility Holding Company Act of 1935 ("Act") in the event that the
Connecticut National Bank, as trustee of a TRAESOP/PAYSOP trust, Mellon Bank,
N.A., as trustee of an employee stock ownership plan trust, and Fleet Bank,
N.A., as trustee of the 401(k) Common Shares Trust ("Trustees" and "Trusts,"
respectively), all of which will exist under the Northeast Utilities Service
Company Supplemental Retirement and Savings Plan ("401(k) Plan"), and the
401(k)Plan, proceed with the transactions in the manner described.
Specifically, we will not recommend any action by the Commission which
would result in the Trustees or the Trusts being deemed to be a "holding
company," asthat term is defined in Section 2(a)(7)(A) of the Act, or an
"affiliate," as that term is defined in Section 2(a)(11)(A) of the Act, on
account of the transactions described.
Because this position is based on the facts and representations in your
letter, you should note that any different facts or conditions might rehire a
different conclusion. Further, this response expresses only the Division of
Investment Management's position on enforcement action. It does not purport
to express any legal conclusion on the questions presented.
/s/Walter G. Van Dorn, Jr.
Staff Attorney
NORTHEAST UTILITIES
General Offices
Selden Street, Berlin, Connecticut
P.O. BOX 270
HARTFORD, CONNECTICUT 06141-0270
(203) 665-5000
March 12, 1992
Mr. William C. Weeden
Assistant Director
Securities and Exchange Commission
Office of Public Utility Regulation
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Weeden:
On behalf of Northeast Utilities ("NU") and each of the Trusts, Trustees,
and the 401(k) Plan (each as defined below), I hereby request that the Staff
of the Securities and Exchange Commission ("Commission") concur in my opinion
that following consummation of the transactions described below, none of the
Trustees, the Trusts or the 401(k) Plan will constitute holding companies as
defined in Section 2(a)(7)(A) of the Public Utility Holding Company Act of
1935, as amended (the "Act"), or affiliates as defined in Section 2(a)(11)(A)
of the Act, on account of their respective ownership of common shares, $ 5.00
par value, of NU ("Common Shares") in trust under the terms of the 401(k)
Plan, even if their individual or aggregate ownership of Common Shares
exceeds ten percent or five percent, respectively.
NU is a holding company as defined by the Act. NU is the parent company of
the Northeast Utilities system (the "System"). It is not itself an operating
company. Through three wholly-owned subsidiaries, the System furnishes
electric service in most of Connecticut and western Massachusetts.
As of December 31, 1991, NU had 119,254,125 Common Shares issued and
outstanding. NU's shares are listed for trading on the New York Stock
Exchange. As of December 31, 1991, NU had approximately 147,000
shareholders.
The Northeast Utilities Service Company Supplemental Retirement and
Savings Plan (the "401(k) Plan") is a defined contribution benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for the benefit of System employees. 401(k) Plan participants may
defer receipt of a portion of their income (up to thirteen percent) on a
before-tax basis, and may also make after-tax contributions. The System
encourages such deferrals by providing an employer matching contribution that
is credited to participants'accounts under the 401(k) Plan.
Following the consummation of certain transactions expected to be
completed in March, 1992, which are the subject of an application/declaration
on Form U-1 under the Act (File No. 70-7954), several trusts will exist under
the 401(k) Plan which will hold Common Shares for the benefit of 401(k) Plan
participants. These trusts (the "Trusts") and their respective trustees (the
"Trustees") are as follows:
(a) a "TRAESOP/PAYSOP Trust", with The Connecticut National Bank as
trustee (the "TRAESOP/PAYSOP Trustee"). The TRAESOP and PAYSOP are two
defined contribution pension plans sponsored by Northeast Utilities Service
Company, a subsidiary of NU. Contributions to these plans have been frozen
for several years as the result of changes in the federal tax laws. The
TRAESOP/PAYSOP Trust holds Common Shares that were credited to the accounts
of TRAESOP and PAYSOP participants before the plans were frozen, together
with additional Common Shares purchased by the TRAESOP/PAYSOP Trustee with
cash dividends paid by NU on the Common Shares held in the TRAESOP/PAYSOP
Trust. As of December 31, 1991 the TRAESOP/PAYSOP Trust held in the aggregate
approximately 3.1 million Common Shares, or 2.6 percent of the Common Shares
outstanding at that date. These shares are not generally distributable to
TRAESOP/PAYSOP participants until termination of employment or the conditions
of certain specified in-service distributions are met. As part of the
consummation of the transactions described in File No. 70-7954, the TRAESOP
and the PAYSOP will be merged into the 401(k) Plan and the TRAESOP/PAYSOP
Trust will become a trust under the 401(k) Plan. All shares in the
TRAESOP/PAYSOP Trust are allocated to participants' accounts.
(b) an employee stock ownership plan ("ESOP") trust (the "ESOP Trust"),
with Mellon Bank, N.A. as trustee (the "ESOP Trustee"). The ESOP Trust
currently holds approximately 7.6 million Common Shares, which were issued
and sold to the ESOP Trustee by NU in December,1991 pursuant to the
Commission's order (HCA Rel. No. 35-25411, November 18, 1991). Upon
consummation of the transactions that are the subject of NU's
application/declaration in File No. 70-7954, the ESOP Trustee will acquire up
to approximately 3.4 million additional Common Shares for the ESOP Trust, and
the ESOP Trust will then hold a total of up to 11 million Common Shares (the
"ESOP Shares"), or 9.3 percent of the Common Shares outstanding at December
31, 1991. The ESOP Shares will be used to fund two benefits under the 401(k)
Plan. Until ESOP Shares are allocated to participants' accounts, they are
held by the ESOP Trustee in an "unallocated stock account".
(c) a "401(k) Common Shares Trust", with Fleet Bank, N.A., as trustee (the
"401(k) Trustee"). A 401(k) Plan participant may direct the plan
administrators as to the investment of his or her contributions to the 401(k)
Plan and the corresponding employer matching contribution (except for the
portion of the employer match that will be used to make payments on the ESOP
loan as described in paragraph (b) above). One of the investment options
under the 401(k) Plan is the NU Common Shares Fund, as to which the 401(k)
Trustee invests participants' contributions in Common Shares which are
purchased on the open market and placed in the 401(k) Common Shares Trust. As
of December 31, 1991,there were approximately 727,000 Common Shares in the
401(k) Common Shares Trust, representing 0.6 percent of the Common Shares
outstanding at that time. All shares in the 401(k) Common Shares Trust are
allocated to participants'accounts.
Following the consummation of these transactions, the TRAESOP/PAYSOP
Trustee would have record ownership of approximately 3.1 million Common
Shares held in the TRAESOP/PAYSOP Trust, constituting approximately 2.6
percent of the shares outstanding at December 31, 1991, the ESOP Trustee
would have record ownership of approximately 11 million Common Shares held in
the ESOP Trust, constituting approximately 9.2 percent of the shares
outstanding, and the 401(k) Trustee would have record ownership of
approximately 0.7 million Common Shares held in the 401(k) Common Shares
Trust, constituting approximately 0.6 percent of the Common Shares
outstanding. The aggregate estimated number of Common Shares held in trusts
under the 401(k) Plan would be 14.8 million, or 12.4 percent of the shares
outstanding at December 31, 1991.
Section 2(a)(7)(A) of the Act states that "any company which directly or
indirectly owns, controls, or holds with power to vote, 10 per centum or more
of the outstanding voting securities of a public-utility company" is a
"holding company" under the Act. Under Section 2(a)(11)(A) of the Act, "any
person that directly or indirectly owns, controls, or holds with power to
vote, 5 per centum or more of the outstanding voting securities" of a company
is an "affiliate" of such company under the Act. It is my opinion that none
of the 401(k) Plan, the Trustees or the Trusts should be deemed to be
"holding companies" or "affiliates" of NU or any of NU's subsidiaries, as the
terms "holding company" and "affiliate" are defined in Sections 2(a)(7)(A)
and 2(a)(11)(A) of the Act, respectively, since as described below, the
Trustees will not possess, directly or indirectly, individually or in the
aggregate, the incidents of ownership, voting power or controlling influence
over the management or policies of a public utility company to a degree that
would trigger the applicability of these statutory provisions.
Each person whose account includes Common Shares held in the
TRAESOP/PAYSOP Trust will have the right to direct the TRAESOP/PAYSOP Trustee
as to the manner to vote, and may direct the TRAESOP/PAYSOP Trustee to tender
or exchange, such shares. The TRAESOP/PAYSOP Trustee may not vote, tender or
exchange shares for which it has not received direction from such persons.
However, under ERISA, the TRAESOP/PAYSOP Trustee may be required, in certain
limited circumstances, to substitute its judgment for that of the plan
participants in voting, tendering or exchanging the Common Shares in the
TRAESOP/PAYSOP Trust (the "ERISA Voting override"). For example, the
TRAESOP/PAYSOP Trustee might be required under ERISA to substitute its
judgment for that of the plan participants if the trustee were to conclude
that NU had provided false, misleading or incomplete information to the
participants or had subjected the participants to undue or otherwise improper
influence.
Each person whose account includes allocated Common Shares held in the
ESOP Trust will have the right to direct the ESOP Trustee as to the manner to
vote,and may direct the ESOP Trustee to tender or exchange, such shares. The
ESOP Trustee may not vote, tender or exchange shares for which it has not
received direction from such persons. The ESOP Trustee is required to vote,
tender or exchange, as the case may be, shares held in the unallocated stock
account under the ESOP Trust in the same proportion as the allocated shares.
Except as may be required by the ERISA Voting Override, therefore, the ESOP
Trustee has no discretion as to the voting of the shares in the ESOP Trust.
Under the terms of the 401(k) Common Shares Trust as currently in effect,
the 401(k) Trustee has the right to vote the Common Shares held in the 401(k)
Common Shares Trust. However, NU undertakes to amend the 401(k) Common
Shares Trust to provide that each person whose account includes Common Shares
held in the 401(k) Common Shares Trust will have the right to direct the
401(k) Trustee as to the manner to vote, and to direct the 401(k) Trustee to
tender or exchange, such Common Shares, and that the 401(k) Trustee will not
have the ability to vote, tender or exchange shares for which it has not
received direction from such persons. Accordingly, following this amendment
to the 401(k) Common Shares Trust, the 401(k) Trustee will have no discretion
as to the vote, tender or exchange of the Common Shares held in the 401(k)
Common Shares Trust independent of the wishes of the 401(k) Plan
participants, except as may be required by the ERISA Override.
My opinion concerning the application of Sections 2(a)(7)(A) and
2(a)(11)(A)of the Act to the 401(k) Plan, the 401(k) common Shares Trust, and
the 401(k) Trustee assumes that the 401(k) Common Shares Trust has been
amended to remove the 401(k) Trustee's right to vote, tender, or exchange the
Common Shares held in the 401(k) Common Shares Trust (except as may be
required by the ERISA Voting Override), as set forth above, and I am seeking
the Staff's concurrence in this opinion only on the assumption that the
401(k) Common Shares Trust has been so amended. The discussion that follows
assumes that such amendment has occurred.
As set forth above, the incidents of ownership or control that the
Trustees may possess under the terms of the 401(k) Plan are purely
administrative in nature. These Trustees hold the Common Shares in their
respective Trusts for the benefit of the 401(k) Plan participants and their
beneficiaries. Except as maybe required by the ERISA Voting Override, these
Trustees do not exercise independent judgment with respect to the voting,
tender or exchange of those shares and do not have the power to control how
and when shares are allocated to participants' accounts. Even in the case of
a Trustee exercising its obligation to vote an ERISA Voting Override, the
Trustee so acting must do so in a way that it believes serves the best
interests of the 401(k) Plan participants and their beneficiaries, and not in
a way that serves its own pecuniary interests. The Trustees also lack any
beneficial interest in the capital value of the shares and any appreciation
that may result from an increase in their market value.
A similar question was considered by the Staff in Manufacturers Hanover
Trust Company, SEC No-Action Letter (publicly available August 1, 1974). In
Manufacturers Hanover, the Staff concluded that the trustee of the Employee
Thrift Plan of Columbia Gas System Trust ("Columbia Plan") was not an
affiliate under Section 2(a)(11)(A) since it did not own or control (for
purposes of the Act) the shares it held in the Columbia Plan.
The Staff's decisions in Florida Power and Light Company, SEC No-Action
Letter (publicly available December 5, 1990), Minnesota Power and Light
Company, SEC No-Action Letter (publicly available November 29, 1990) and
Employee Thrift Plan of Columbia Gas System Trust, SEC No-Action Letter
(publicly available February 28, 1990) also lend direct support to the
positions taken herein. All three letters involved trustees of employee
plans holding or projected to hold in excess of ten percent of the
outstanding voting stock of the companies named in those letters. In each of
the no-action letters, the Staff indicated that it would not recommend any
enforcement action that would result in the respective plan trustees being
deemed either a holding company or an affiliate under Sections 2(a)(7)(A) and
2(a)(11)(A) of the Act, based on the facts and representations contained in
the no-action requests. These facts and representations made it clear that
plan trustees did not possess the indicia of ownership, control or voting
power contemplated by Sections 2(a)(7)(A) and 2(a)(11)(A) with respect to the
stock held by such trustees.
Accordingly, it is my opinion that as described above, neither the 401(k)
Plan, nor any of the Trusts thereunder, nor any of the Trustees, will
constitute an affiliate or a holding company, as such terms are defined in
the Act. For the above reasons, I request that the Staff indicate that it
concurs in this opinion and will not recommend any enforcement action to the
contrary.
If you have any questions regarding this matter or require further
information, please contact me at (203) 665-3541. In my absence, please speak
with Richard M. Early, Senior Counsel, at (203) 665-3031.
Very truly yours,
/s/John B. Keane
Associate General Counsel
Exhibit A.2
August 2, 1991
RESPONSE OF THE OFFICE OF
PUBLIC UTILITY REGULATION
DIVISION OF INVESTMENT MANAGEMENT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Our Ref. No. 91-6-OPUR
DQE, Inc.
File No. 132-3
Based on the facts and representations in your letter of July 26, 1991, we
would not recommend any enforcement action to the Commission under the Public
Utility Holding Company Act of 1935 (the "Act") in the event that Mellon
Bank, N.A., as trustee (the "Trustee") of the trust (the "Trust") for the
Duquense Light Company Employee Stock Ownership Plan, proceeds with the
transactions in the manner described. Specifically, we will not recommend
any action by the Commission which would result in the Trustee or the Trust
being deemed to be an "affiliate," as that term is defines in Section
2(a)(11)(A) of the Act, on account of the transactions described.
Because this position is based on the facts and representations in your
letter, you should note that any different facts or conditions might require
a different conclusion. Further, this response expresses only the Division of
Investment Management's position on enforcement action. It does not purport
to express any legal conclusion on the questions presented.
/s/Walter G. Van Dorn, Jr.
Staff Attorney
REID & PRIEST
40 WEST 57TH STREET
NEW YORK, N. Y. 10019-4097
212 603-2000
New York, New York
July 26, 1991
BY HAND
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Mr. William C. Weeden
Assistant Director
Division of Investment Management
Dear Mr. Weeden:
On behalf of DQE, Inc. ("DQE") and Duquesne Light Company ("Duquesne"),
and on behalf of Mellon Bank, N.A., the entity to be designated trustee
("Trustee") of the trust ("Trust") for the Duquesne Light Company Employee
Stock Ownership Plan ("ESOP") to be created pursuant to an Agreement of Trust
between Duquesne and the Trustee ("Trust Agreement"), we request that the
Staff of the Securities and Exchange Commission ("Commission") concur in our
opinion that neither the Trustee nor the Trust will, solely by virtue of the
transactions contemplated herein, constitute an "affiliate" (as that term is
defined in Section 2(a)(11)(A) of the Public Utility Holding Company Act of
1935, as amended ("Act")).
DQE is a holding company exempt pursuant to Section 3(a)(1) of the Act
from substantially all of the provisions of the Act. DQE, incorporated under
the laws of Pennsylvania in 1989, is principally engaged, through its
subsidiary Duquesne, in utility operations. Duquesne was incorporated in 1912
under the laws of Pennsylvania and is engaged in the business of supplying
electric service in the City of Pittsburgh and municipalities in Allegheny,
Beaver and, to a limited extent, Westmoreland Counties, Pennsylvania.
The ESOP is designed to provide benefits to eligible employees in the form
of employer matching contributions which will match certain employee
contributions under the Duquesne Light Company 401(k) Retirement Savings Plan
for Management Employees ("Plan"). Duquesne intends to amend the Plan to
create the ESOP. Pursuant to the ESOP, the Trustee plans to issue a
promissory note ("Note") for approximately $ 100 million to Duquesne as
consideration for the issuance by Duquesne to the ESOP in one or more
tranches of approximately 3,500,000 shares of Duquesne Preference Stock, Plan
Series A ("Series A Preference Stock") for the benefit of the ESOP
participants. Such shares of Series A Preference Stock will be held in a
suspense account and allocated to the accounts of ESOP participants in a
manner which reflects periodic repayments made on the Note. Such periodic
repayments will be made with the dividends paid on the Series A Preference
Stock held under the ESOP and with employer contributions to the ESOP.
The Trustee will be entitled to cause the shares of Series A Preference
Stock held in the ESOP to be exchanged for shares of DQE Common Stock at any
time prior to redemption, initially at an exchange ratio equal to one share
of DQE Common Stock for each share of Series A Preference Stock. All stock
distributions made to participants under the ESOP will be in the form of DQE
Common Stock since the Series A Preference Stock is automatically exchanged
for DQE Common Stock upon transfer to any person other than the Trustee or
Duquesne. Except under limited circumstances as set forth in the Restated
Articles of Incorporation of Duquesne, including the right to elect two
directors whenever dividends payable on the Series A Preference Stock are in
default in an amount equal to one and one-half times the annual dividend rate
or more per share, a merger or consolidation of Duquesne with or into any
other corporation, an amendment or repeal of any of the rights, preferences
or powers of the Series A Preference Stock or the creation or authorization
of shares of any class of stock ranking prior to the Series A Preference
Stock as to dividends or assets, the Series A Preference Stock will not be
entitled to vote. Upon exchange of the Series A Preference Stock for DQE
Common Stock, the holders of DQE Common Stock will be entitled to vote on all
matters submitted to a vote of DQE common shareholders.
Based upon the initial exchange ratio of one to one, the shares of Series
A Preference Stock issued to the Trustee will represent approximately
3,500,000 shares, or 6.6% of DQE's outstanding voting securities. We enclose
for your information a draft copy of the Trust Agreement. Section
2(a)(11)(A) of the Act states that "any person that directly or indirectly
owns, controls, or holds with power to vote, 5 per centum or more of the
outstanding voting securities of such specified company" is an "affiliate"
under the Act. It is our opinion that neither the Trustee nor the Trust
should be deemed to be an "affiliate" solely by virtue of the transactions
contemplated herein, since the Trustee will not possess, directly or
indirectly, the incidents of ownership, voting power or controlling influence
over the management or policies of a public utility company contemplated by
that provision. n1
n1 This letter does not address any questions which could arise under the
Act by virtue of the owning or holding by Mellon Bank, N.A. of any securities
of DQE or Duquesne other than in its capacity as Trustee.
The Trustee's incidents of ownership of or control over the Series A
Preference Stock and DQE Common Stock under the terms of the ESOP will be
purely administrative in nature, except to the extent that the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), otherwise may
require in order for the Trustee to properly discharge its fiduciary duties
thereunder. The Trustee will hold the shares of the Series A Preference
Stock and DQE Common Stock in the ESOP for the exclusive benefit of the ESOP
participants and their beneficiaries. The Trustee will not have the power to
control how and when shares are allocated to participants' accounts. The
Trustee will not have any beneficial interest in the book or market value of
the shares or any increase or decrease therein.
Similar incidents of ownership and control were considered by the Staff in
Manufacturers Hanover Trust Company, SEC No-Action Letter (publicly available
August 1, 1974). In Manufacturers Hanover, the Staff concluded that the
trustee of the Employee Thrift Plan of Columbia Gas System Trust ("Columbia
Plan") was not an affiliate under Section 2(a)(11)(A) since it did not own or
control the shares it held in the Columbia Plan. See also, Minnesota Power &
Light Company, SEC No-Action Letter (November 29, 1990) and Florida Power &
Light Company, SEC No-Action Letter (December 5, 1990).
The Trustee will not exercise independent judgment in voting, tendering or
exchanging the shares of stock held in the ESOP, except to the extent that
ERISA otherwise may require in order for the Trustee to properly discharge
its fiduciary duties thereunder. Section 5.07 of the Trust Agreement contains
the relevant provisions with respect to the voting, tendering and exchanging
of shares held under the ESOP. Under Section 5.07 of the Trust Agreement (1)
the Trustee must vote shares allocated to the accounts of participants as
directed by such participants, (2) to the extent that participants fail to
direct the voting of allocated shares, the Trustee is not to vote such
shares, (3) the Trustee is required to vote a participant's proportionate
number of unallocated shares held in the suspense account as the participant
directs, (4) to the extent that a participant fails to direct the voting of
his or her proportionate number of unallocated shares, the Trustee is
required to vote such unallocated shares proportionately in accordance with
the voting directions actually received by the Trustee for all allocated
shares, (5) the Trustee must tender or exchange shares allocated to the
accounts of participants, as well as a participant's proportionate number of
unallocated shares, as directed by such participant and (6) to the extent
that participants fail to direct the tendering or exchanging of shares for
which they are entitled to so provide direction, the Trustee is not to tender
or exchange such shares. In addition Duquesne may grant to the Trustee a
proxy to vote shares of DQE Common Stock owned by Duquesne in anticipation of
the exchange requirement of the Series A Preference Stock. The Trustee will
vote those shares covered by the proxy in accordance with the provisions of
Section 5.07 of the Trust Agreement as if such shares were unallocated shares
held by the Trustee.
In the event the Trustee in its sole discretion determines that it is
required by law to vote shares for which instructions from participants have
not been received, the Trustee will inform the Commission Staff responsible
for administering the Act, in writing, with respect to the following matters:
(1) the legal requirement of the vote, (2) the matter on which votes were
cast and (3) the number of shares voted. This writing will be provided to
said Staff no later than 10 days after the shareholder meeting in which said
shares are voted by the Trustee.
Employee Thrift Plan of Columbia Gas System Trust, SEC No-Action Letter
(publicly available February 28, 1990), Minnesota Power & Light Company, SEC
No-Action Letter (November 29, 1990) and Florida Power & Light Company, SEC
No-Action Letter (December 5, 1990) lend direct support to the position taken
herein. All three letters involved trustees of employee plans holding in
excess of five percent of the outstanding voting stock of companies named in
those letters. In each of the no-action letters, the Staff indicated that it
would not recommend any enforcement action which would result in the
respective plan trustees being deemed an "affiliate" under Section
2(a)(11)(A) of the Act based on the facts and representations contained in
the no-action requests. These facts and representations made it clear that
the plan trustees did not possess the indicia of ownership, control or voting
power contemplated by Section 2(a)(11)(A) of the Act with respect to the
stock held by such trustees.
For the above reasons, we request that the Staff indicate that it concurs
in our view that neither the Trustee nor the Trust will, solely by virtue of
the transactions contemplated herein, constitute an "affiliate".
Any questions regarding this matter can be referred to me or Douglas
Francomano of my office.
Very truly yours,
/s/J. Anthony Terrell
Exhibit B - Proposed Form of Notice
Northeast Utilities (70-7883)
Northeast Utilities ("NU"), West Springfield, Massachusetts, a registered
holding company, has filed a post-effective amendment to its
application/declaration on Form U-1, File 70-7883, pursuant to Sections 6(a),
7, 9(a), and 10 of the Public Utility Holding Company Act of 1935 (the "Act")
and Rule 50 thereunder.
NU seeks approval of a change in the voting requirements for unallocated
shares held in a trust under an employee stock ownership plan ("ESOP") under
a 401(k) plan. NU's original application/declaration in File 70-7883, and
the Commission's order dated November 18, 1991 (HCAR No. 35-25411) permitting
the application/declaration to become effective, provided that in any
shareholder vote the trustee would vote unallocated shares in the same manner
plan participants directed the vote of allocated shares, and would refrain
from voting a percentage of the unallocated ESOP shares equal to the
percentage of allocated ESOP shares for which participant directions were not
received. NU proposes to change the voting requirements for unallocated
shares to provide that all unallocated shares will be voted by the ESOP
trustee in the same proportion as it votes allocated shares for which
directions have been received. NU further asks that the Commission rule that
the ESOP trustee will not, by virtue of the modified voting procedures, be
considered to "own, control, or hold with the power to vote" the unallocated
ESOP shares for purposes of Sections 2(a)(7)(A) or 2(a)(11)(A) of the Act.
