File No. 70-9045
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
to
FORM U-1
APPLICATION/DECLARATION WITH RESPECT TO THE ORGANIZATION OF A WHOLLY OWNED
SUBSIDIARY RELATED TO AN ACCOUNTS RECEIVABLE PURCHASE AND SALE PROGRAM AND
RELATED TRANSACTIONS
under
THE PUBLIC HOLDING COMPANY ACT OF 1935
THE CONNECTICUT LIGHT AND POWER COMPANY
107 Selden Street
Berlin, CT 06037-5457
(Name of companies filing this statement and address of
principal executive office)
NORTHEAST UTILITIES
(Name of top registered holding company parent of declarant)
Robert P. Wax, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders,
notices, and communications to:
David R. McHale Jeffrey C. Miller, Esq.
Assistant Treasurer - Finance The Connecticut Light and Power Company
Assistant General Counsel Northeast Utilities Service Company
Northeast Utilities Service Company P.O. Box 270
P.O. Box 270 Hartford, CT 06141-0270
Hartford, CT 06141-0270
Thomas R. Wildman, Esq.
Day, Berry & Howard - CityPlace I
Hartford, CT 06103-3499
<PAGE>
The Application/Declaration in this proceeding is hereby amended by the
filing of the exhibit listed in the "Index to Exhibits Filed with Amendment No.
2 to Form U-1 of The Connecticut Light and Power Company" attached to this
Amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: September 12, 1997
THE CONNECTICUT LIGHT AND POWER COMPANY
By /s/David R. McHale
David R. McHale
Assistant Treasurer and Assistant General Counsel
<PAGE>
File No. 70-9045
INDEX TO EXHIBITS FILED WITH
AMENDMENT NO. 2
to
FORM U-1
of
THE CONNECTICUT LIGHT AND POWER COMPANY
(a) Exhibits
D.2 Copy of the Order of the DPUC with respect to CL&P's proposed
transactions.
<PAGE>
STATE OF CONNECTICUT
DEPARTMENT OF PUBLIC UTILITY CONTROL
TEN FRANKLIN SQUARE
NEW BRITAIN, CT 06051
DOCKET NO. 96-05-24 APPLICATION OF THE CONNECTICUT LIGHT AND POWER COMPANY
REQUESTING APPROVAL OF THE SALE OF ACCOUNTS RECEIVABLES
September 10, 1997
By the following Commissioners:
Jack R. Goldberg
Glenn Arthur
John W. Betkoski, III
DECISION
<PAGE>
DECISION
I. DECISION SUMMARY
The Connecticut Light and Power Company proposes to restructure its
accounts receivable sales program as previously approved by the Department in
its June 5, 1996 Decision in this docket. The restructured program involves
the formation of a wholly-owned, special purpose subsidiary, CRC, for the sole
purpose of purchasing Receivables from the Company. The Company has proposed
creating CRC for the purposes of effecting the sales of its Receivables (1) to
comport with the requirements of FAS 125 to obtain "true sale" financial
reporting for these sales, and (2) due to the Company's financial downgrade,
some parties to the original transaction have indicated that they will require
the restructuring of the purchase and sale program to enable the Company to
continue to receive commercial paper based financing. As a result of the
Company's financial downgrade, there has also been an increase in the annual
facility fees from $220,000 in the Existing Agreement to $500,000 in the
proposed restructured program. The proposed restructuring would provide the
Company with needed financial flexibility at a time when it is incurring costs
associated with outages at the Millstone nuclear plants. In this Supplemental
Decision, the Department authorizes the Company to restructure its Accounts
Receivable program from a one-step to a two-step process through the formation
of the special purpose subsidiary, CRC.
II. INTRODUCTION
A. Background
By Decision dated June 5, 1996, the Department of Public Utility
Control (Department) approved the sale from time to time of up to $200 million
fractional undivided ownership interests in billed and unbilled accounts
receivable of The Connecticut Light and Power Company (CL&P or Company),
pursuant to Section 16-43 of the General Statutes of Connecticut (Conn. Gen.
Stat.). In a supplemental application dated June 30, 1997 (Supplemental
Application), pursuant to Conn. Gen. Stat. Section 16-43, CL&P has requested
that the Department approve the formation of CL&P Receivables Corporation (CRC)
and the restructuring of the Receivables program from a one-step to a two-step
sales transaction. By Decision dated July 7, 1997, the Department reopened the
instant docket for the limited purpose of considering the Company's request.
B. Conduct of the Proceeding
Pursuant to a Notice of Hearing dated July 23, 1997, a public hearing
was held on August 4, 1997, in the offices of the Department, Ten Franklin
Square, New Britain, CT. The hearing was continued to August 8, 1997.
Pursuant to Minutes of Late Filed Exhibit Hearing dated August 7, 1997, and by
Notice of Rescheduled Late Filed Exhibit Hearing dated August 8, 1997, the
August 8, 1997 hearing was opened and immediately continued to August 14, 1997.
By Notice of Cancellation and Rescheduling of Late Filed Exhibit Hearing dated
August 13, 1997, the Department canceled the hearing scheduled for August 14,
1997, and the Late Filed Exhibit hearing was rescheduled and held on August 21,
1997.
In its Supplemental Application, CL&P waived the requirement under
Section 16-43 of the General Statutes of Connecticut that the Department act on
this Supplemental Application within 30 days.
III. APPLICANT'S EVIDENCE
By Decision dated June 5, 1996, in this docket (Decision), the
Department approved the sale from time to time of fractional undivided
interests (Receivable Interests) in certain categories of CL&P's billed and
unbilled accounts receivable and related assets (Receivables), pursuant to
Conn. Gen. Stat.<section> 16-43.
In accordance with the Decision, CL&P entered into a Receivables
Purchase and Sale Agreement (Existing Agreement) dated July 11, 1996, among
CL&P, Corporate Asset Funding Company, Inc. (CAFCO), Citicorp North America,
Inc. (Agent) and Citibank, N.A. (together with its assignees, Banks) providing
for sales from time to time of Receivable Interests. As of the date of this
Supplemental Application, CL&P had sales of $100 million outstanding under
the Existing Agreement. Since entering into the Existing Agreement, CL&P has
at times made sales of Receivable Interests in the full amount of $200 million
permitted by the terms of the Existing Agreement. Such sales have assisted
CL&P in meeting its short-term cash needs, including costs associated with the
current outages at the Millstone nuclear units located in Waterford,
Connecticut. Supplemental Application, p. 2.
When entering into the Existing Agreement, CL&P contemplated that sales
of Receivable Interests would be accounted for as sales under generally
accepted accounting principles, and CL&P desires such accounting treatment for
financial reporting purposes. For such transfers made after January 1, 1997 to
be so treated, they must comply with the requirements of the Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, No. 162-C (FAS
125) issued in June 1996 by the Financial Accounting Standards Board, an
organization that develops accounting standards, including industry standards
for U.S. corporations. FAS 125 establishes a standard that differentiates, for
accounting purposes, transfers of financial assets that should be considered
sales from transfers that should be considered secured borrowings. One
requirement for sale treatment under FAS 125 is that transferred assets be
isolated from the seller and its creditors, even in bankruptcy or receivership
of the seller. Moreover, as a result of recent downgrades in the credit rating
of CL&P, the Company does not meet one requirement of the Existing Agreement
(i.e., that CL&P have a long-term senior debt rating of at least BBB- by
Standard & Poor's or Baa3 by Moody's) for sales of Receivable Interests on the
most favorable terms contemplated by the Existing Agreement. Some parties to
the Existing Agreement have indicated that they will require the restructuring
of the purchase and sale program to enable CL&P to continue to have the full
benefits of the program (i.e., to receive the benefits of commercial paper
based financing). Supplemental Application, pp. 2-3.
To meet the requirements of FAS 125 and the requirements of the parties
to the Existing Agreement, CL&P proposes to form a wholly-owned, special
purpose corporation, CL&P Receivable Corporation (CRC), for the sole purpose of
purchasing Receivables from CL&P and selling Receivable Interests. A draft of
the Certificate of Incorporation of CRC is filed in this docket as Supplemental
Application Exhibit A and a draft of the bylaws of CRC is filed as Supplemental
Application Exhibit B. CL&P's authorizing resolution for the restructured
arrangements is filed as Supplemental Application Exhibit C.
According to the Company, the restructured purchase and sale
arrangements are intended to accomplish the ultimate sales of Receivable
Interests in a manner similar to sales under the Existing Agreement. The
addition of CRC to these arrangements serves merely as a vehicle to comply with
FAS 125 and provide greater protection to the parties to the Existing Agreement
by permitting the "isolation" of the Receivables in a special purpose entity
which should have no material creditors other than the parties to the
arrangements. Compared to the costs of the program under the Existing
Agreement, when viewed on an overall basis, the restructured purchase and sale
arrangements add only relatively minor costs of the formation and maintenance
of CRC as a separate entity. However, certain fees and other costs associated
with the program will also increase due to the decline in CL&P's credit rating.
Supplemental Application, p. 4.
According to the Company, the proposed restructuring of the purchase
and sale program would not have any effect on CL&P's provision of service to
the public nor would it cause an increase in the rates CL&P charges its
customers. Furthermore, CL&P does not expect its customers to experience any
change in the procedures to collect on outstanding accounts. Supplemental
Application, p. 4.
CL&P is seeking the Department's approval for the formation of CRC and
the restructuring of the program from a one-step to a two-step sales
transaction. First, the restructured accounts receivable purchase and sale
arrangements would consist of two agreements which would replace the Existing
Agreement. Under the first agreement (Company Agreement), CL&P would sell or
transfer as equity contributions from time to time Receivables to CRC. A draft
of the Company Agreement is filed as Supplemental Application Exhibit D.
The purchase price for any Receivables so sold would reflect a discount based
on assumptions concerning the estimated collection period of the Receivables,
collections costs and collection risks as well as CRC's anticipated funding
costs. Under the second agreement (CRC Agreement), CRC would sell Receivable
Interests to CAFCO, the Banks or their respective successors and assigns
(collectively, Purchaser) from time to time. A draft of the CRC Agreement is
filed as Supplemental Application Exhibit E. Such Receivable Interests may be
funded and repaid on a revolving basis. The size of Receivable Interests would
be calculated according to a formula. Such formula would include reserves
based on a multiple of historical losses, carrying costs and other costs
associated with the agreements. Supplemental Application, p. 5.
CL&P anticipates that the availability of Receivables will vary from
time to time in accordance with electric energy use by its customers. As a
result of this and other factors important to the overall structure of the
program, the funds CRC has available to make a purchase at any time{1} may not
match the cost of Receivables available. The proposed program includes
mechanisms to accommodate this mismatch. When the amount of Receivables
originated by CL&P exceeds the amount of cash CRC has available, either CRC
will make the purchase and owe the balance of the purchase price to CL&P on a
deferred basis (the unpaid portion will accrue interest or the purchase price
will involve a discount to reflect the deferral), or CL&P will make a capital
contribution to CRC in the form of the Receivables for which CRC lacks purchase
price funds at that time. Conversely, if CRC develops a substantial cash
balance (due to collections of previously transferred Receivables exceeding the
balance of newly created Receivables available for purchase), CRC will likely
credit the excess cash to CL&P. Supplemental Application, pp. 5-6.
Under the CRC Agreement, purchases may be funded by the Purchaser's
issuance of commercial paper. The minimum purchase price for a Receivable
Interest that may be sold in a single transaction would continue to be
$5,000,000 with a purchase limit of $200,000,000. Supplemental Application, p.
6.
The Agent would have the right to appoint a collection agent on behalf
of the Purchaser and CRC, to administer and collect Receivables and to notify
the obligors of the sale of their receivables, at the Agent's option. CL&P
would be appointed as the initial collection agent, and only under certain
adverse conditions can the Agent appoint a successor collection agent.
Therefore, CL&P's customers are not expected to experience any change in
current servicing and collection procedures. Supplemental Application, pp. 6-
7.
Certain obligations under the Company Agreement would create limited
recourse against CL&P. Such recourse claims include liability for (i) failure
to transfer to CRC a first priority ownership interest in the Receivables, (ii)
CL&P's breach of its representations, warranties or covenants, and (iii)
certain indemnity obligations. In order to secure these obligations, CL&P
would grant to the Agent a lien on, and security interest in, any rights which
the Company may have in respect of Receivables. The CRC Agreement would create
comparable recourse obligations against CRC, and CRC would grant a security
interest in the Receivables and certain other rights and remedies (including
its rights and remedies under the Company Agreement) to secure such recourse
obligations. Neither CRC's nor the Purchaser's recourse to CL&P would
include any rights against CL&P should customer defaults on the Receivables
result in collections attributable to the Receivable Interests sold to the
Purchaser being insufficient to reimburse the Purchaser for the purchase price
paid by it for the Receivable Interests and its anticipated yield. The
Purchaser bears the risk for any credit losses on the Receivables that
exceed the reserves for such losses included in the Receivable Interests.
Supplemental Application, p. 7.
The Company and CRC would be obligated to reimburse the Purchaser, the
Agent and the Banks for various costs and expenses associated with the Company
Agreement and the CRC Agreement. The Company and CRC would also be required to
pay to the Agent certain fees for services in connection with such agreements.
CL&P as collection agent would receive fees from CRC and/or the Purchaser.
However, CL&P does not anticipate paying any fees to CRC. Supplemental
Application Exhibit G is an itemization of fees, commissions an expenses.
While CRC may realize a profit on these transactions, such profit would inure
to the benefit of CL&P since CL&P would wholly own CRC. Supplemental
Application, pp. 7-8.
CL&P believes that, based upon pricing under the existing facility,
funding under the proposed transactions would continue to be more advantageous
than other sources of funds available to the Company. The facility fees
related to the restructured program would not exceed 0.250% of the total
available amount of $200,000,000, or $500,000 per annum compared to 0.11% or
$220,000 per annum for sales under the Existing Agreement. Funding spreads
under the restructured program would remain the same as under the Existing
Agreement (not greater than 0.145%). The increase in fees from the Existing
Agreement to the restructured program is related to the decline in CL&P's
credit rating. Supplement Application, p. 8. Minor costs would be incurred as
a result of the creation and maintenance of CRC through the restructuring.
Supplemental Application Exhibit G.
The arrangements under the Company Agreement and the CRC Agreement are
scheduled to terminate on July 11, 2001. The CRC Agreement allows the
Purchaser to assign all of its rights and obligations under the CRC Agreement
to other persons, including the providers of its bank facilities. However, any
such assignment would not change the nature of the obligations of CL&P or CRC
under the Company Agreement and the CRC Agreement. Supplemental Application,
pp. 8-9.
The Company maintains that the proposed transactions would permit it to
accelerate its receipt of cash collections from accounts receivable, and
thereby increase its ability to meet its short-term cash needs and improve its
financial flexibility. Supplemental Application, p. 9. According to the
Company, this restructured purchase and sale program is one of several
financial tools CL&P is pursuing in connection with its overall strategy to
meet its anticipated financing needs, including its capital and liquidity
requirements. See, e.g., DPUC Docket No. 97-03-23, Application to Issue First
and Refunding Mortgage Bonds, Decision dated May 14, 1997.
The transactions proposed hereunder are subject to certain approvals of
the Securities and Exchange Commission (SEC) under the Public Utility Holding
Company Act of 1935, as amended. The SEC's approval of CL&P's proposed
transactions is subject to CL&P's receipt of all necessary state regulatory
approvals, including the approval of the Department hereunder. A copy of
CL&P's application to the SEC is attached as Supplemental Application Exhibit
F. The financial statements attached as Supplemental Application Exhibits H
(CL&P) and I (Northeast Utilities), include a balance sheet, income statement,
statement of retained earnings, capital structure and explanation of pro forma
adjustments which reflect the proposed transactions.
IV. DEPARTMENT ANALYSIS
A. INTRODUCTION
CL&P proposes to restructure its accounts receivable sales program as
previously approved by the Department in the Decision. The restructured
program involves the formation of a wholly-owned, special purpose subsidiary,
CRC, for the sole purpose of purchasing Receivables from CL&P. The subsidiary
will sell Receivable Interests to the Purchaser, which will issue commercial
paper or utilize other funding arrangements available to it to fund those
transactions.
CL&P's rationale for restructuring its accounts receivable sales
program is two-fold. First, CL&P deems it necessary to create a special
purpose subsidiary for the purposes of effecting the sales of its Receivables
to comport with the requirements of FAS 125 to obtain "true sale" financial
reporting for these sales. Supplemental Application, pp. 2-3. Second,
because CL&P has received a downgrade in its financial position, some parties
to the original transaction have indicated that they will require the
restructuring of the purchase and sale program to enable CL&P to continue to
receive the benefits of commercial paper based financing. As a second
consequence of the Company's financial downgrade, there has also been an
increase in the annual facility fees from $220,000 in the Existing Agreement to
$500,000 in the proposed restructured program. Id., pp. 3,8.
The contemplated sales of accounts receivable to the subsidiary will
permit the acceleration by 30 to 60 days of anticipated income through the
conversion of accounts receivable to cash. Id., p. 12. The restructured
arrangements involving CRC will be for sales of Receivable Interests on terms
similar to those previously approved by the Department in its 1996 decision in
this docket.
B. ACCOUNTING ISSUES
The program is structured so that CL&P sells all of its billed and
unbilled Receivables to CRC that are eligible for resale to CAFCO, regardless
of whether CRC actually sells the accounts receivable to CAFCO or if the amount
sold to CRC exceeds the $200 million financing limit. All of the receivables
sold to CRC (eligible for sale, but not sold to CAFCO) are recorded as
investments in subsidiaries rather than as cash for CL&P. In this way, the
Company avoids dividing up eligible Receivables between CL&P and CRC by
recording them all as sold to CRC. On a consolidated basis, the Receivables
owned by CRC are still considered assets of CL&P. There is no additional
administrative cost in recording all eligible Receivables as investments in
CRC. Tr. 8/21/97, p. 69.
When entering into the Existing Agreement, CL&P contemplated that sales
of Receivable Interests thereunder would be accounted for as sales under
generally accepted accounting principles, and CL&P desires such accounting
treatment for financial reporting purposes. For such transfers made after
January 1, 1997, to be so treated, they must comply with FAS 125, which
establishes a standard that differentiates, for accounting purposes, transfers
of financial assets to be considered as sales vs. those considered secured
borrowings. One requirement for sale treatment under FAS 125 is that
transferred assets be isolated from the seller and its creditors, even in
bankruptcy or receivership of the seller. The other parties to the Existing
Agreement have indicated that they will require the restructuring of the
purchase and sale program for CL&P to continue to have the full benefits of the
program. Application, p. 3.
CRC serves as a vehicle to comply with FAS 125 and provide greater
protection to the parties to the Existing Agreement by permitting the
"isolation" of the Receivables in a special purpose entity that should have no
material creditors other than the parties to the arrangements. Once the assets
are transferred from CL&P to CRC, the isolation criterion will have been met
and the assets may then be transferred to an external third party in a manner
which by itself might not qualify for sales treatment. If CL&P does not meet
the requirements of FAS No.125 to achieve off-balance sheet treatment, the
Company will have to account for the sale of its accounts receivable as short-
term debt. Response to Interrogatory EL-9.
CL&P sold $200,000,000 in March 1997 to meet a $193,000,000 bond
maturity on April 1, 1997. Tr. 8/4/97, p. 11. This transaction occurred after
the effective date of FAS No. 125 and before the formation of CRC. Therefore,
the Company could not record this transaction as a sale for financial reporting
purposes. The transaction is recorded as debt on the balance sheet of
CL&P. Id, p 34. The Company stated that it might enter into additional
transactions prior to the Decision in this docket. Tr. 8/4/97, p. 36.
Accordingly, CL&P would be required to record all such transactions as debt for
financial reporting purposes. These transactions would be included as part of
the overall short-term debt limitation of $375,000,000.
The effect of allowing the Company to form CRC is that, for accounting
purposes, the Company can treat transactions in the Accounts Receivable program
as sales instead of short term financings. This treatment will allow the
Company additional liquidity by not counting it toward its $375 million short-
term debt limitation.
C. FINANCIAL ISSUES
As in the case of sales under the Existing Agreement, the proposed
restructured purchase and sale program would provide the Company with needed
financial flexibility at a time when it is incurring costs associated with
outages at the Millstone nuclear plants. CL&P would meet its short-term
funding requirements through a combination of internally generated funds,
borrowing under existing credit facilities, and external financing arrangements
such as this program. CL&P has been utilizing the program approved in the
Decision, and expects that the restructured program will continue to be an
important funding option to the Company.
As indicated by the table below, CL&P expects that the proposed program
will continue to offer attractive pricing as compared to alternative funding
sources:
**FOOTNOTES**
{1} The only funds available to CRC are those resulting from its
participation in the program and CL&P's capital contributions to it.
<PAGE>
<TABLE>
<CAPTION>
Dollar Amount
Maximum Outstanding/ After-Tax Effective
Short-Term Credit (Invested) All-in Rate Funding rate Interest
Facility rate) + Facility Fee rate (@ 42% Tax
<S> <C> <C> <C> <C>
NU Money pool $375 million ($62 million) 5.51% 3.20%
Accounts
Receivable $200 million $100 million 5.845%+0.25%*=6.095% 3.45%
Revolver dated
November 1996 $313.5 million 0 6.638%+0.50%*=7.138% 4.14%
Revolver dated
December 1992 $56.25 million 0 6.238%+0.15%*=6.388% 3.71%
</TABLE>
*These percentages are calculated as a percent of the amount borrowed, but are
paid by the Company as a percent of the maximum amount borrowable, as shown for
each facility in Column 2.
Sources: Responses to Interrogatories EL-8 and EL-12, Tr., 8/4/97, pp. 54-56.
The Company has asserted that the Accounts Receivable offers a lower
all-in rate of 6.095 percent, compared to its 1992 and 1996 Revolving Credit
Agreements, at 6.388 and 7.138 percent, respectively. Late Filed Exhibit No.
8. The Company explained that although the NU Money Pool has the lowest all-in
cost, these funds are only available to the extent that other companies in the
NU system have moneys available to borrow in the pool. Tr. 8/4/97, p. 38. In
making the interest rate comparisons shown above, the Company has represented
the fixed facility fees for each of these credit sources as a percentage over
the funding rate (column 4). These fees are actually a percent of the total
borrowing limit, rather than as a percent of the actual dollar amount borrowed.
Tr. 8/4/97, pp. 23-25; 54-56. Thus, the all-in interest rate on each of these
short-term financing facilities would be higher to the extent that the Company
borrowed an amount below its borrowing limit. Put differently, the Company
pays a premium in the form of fixed fees to secure the flexibility of several
short-term sources of borrowing and/or cash liquidity. Given the additional
fixed fees the Company incurs by adding an additional source of liquidity, it
cannot be stated unambiguously that the Company obtains a lower all-in
interest cost by using the Accounts Receivable facility than if the Company had
relied solely on its existing short-term debt facilities. As stated in the
Decision, the objective of selling the Company's accounts receivable is "part
of an overall strategy to help meet liquidity needs in light of recent nuclear
developments." Decision, p. 3. In this vein, the annual fees and other
costs associated with the accounts receivable financing vehicle -- in
conjunction with the fixed fees the Company already incurs in its existing
short-term debt facilities - can be considered an additional expense associated
with the Company's effort to restart its nuclear operations at its Millstone
plants, rather than a means to obtain the lowest cost source of short-term
liquidity.
The purchase price for any Receivables sold by CL&P to CRC would
reflect a discount (based on assumptions concerning the estimated collection
period of the receivables, collection costs and collection risks), which would
be used to determine the amount of Receivables that are eligible for the two-
step sale. The Company indicated that the discount percentage for the
Receivables is still being negotiated between the Company and parties to the
transaction. The calculation of the discount does not affect the all-in
interest rate charged to CRC, however. Response to Interrogatory EL-13; Tr.
8/21/97, pp. 73-74.
Aside from the $500,000 annual servicing fee, the Company estimates its
fees, commissions and expenses to be approximately $170,000, of which it
estimates $60,000 will be related to the set up of CRC. The Company also
estimates CRC's fees, commissions and expenses (not including the annual
servicing fee) to be approximately $25,000. Supplemental Application Exhibit
G. Although the Bylaws of the CRC Corporation allow for the compensation of
the CRC Board of Directors, no compensation is contemplated for the CL&P
and NU employees who are expected to serve on the Board of Directors. However,
an annual fee of $10,000 is anticipated for an individual to serve as an
independent director of CRC. Response to Interrogatories EL-16 and EL-17. All
the initial fees associated with this two-step restructuring program will be
expensed. The Company has also expensed all the up-front fees associated with
the initial one-step program.
Although the Receivables Agreement does not expire until the year 2001,
the Company has the flexibility to terminate the program at any time before
that date if the Company finds that the Receivables Facility, taking into
consideration the higher facility fees, is not competitively priced. Response
to Interrogatory EL-5.
CL&P does not anticipate that its customers will experience any change
in the procedures to service or collect on outstanding accounts since CL&P will
continue to serve as the collection agent for any accounts receivable sold
under the program and can be removed as such collection agent only in certain
unlikely circumstances. Response to Interrogatory EL-2. The Department
believes that the restructured program will continue to provide CL&P with
additional financial flexibility with no change in the rates charged or CL&P's
provision of service to the public.
V. FINDINGS OF FACT
1. FAS 125 requires the creation of a special purpose subsidiary to obtain
"true sale" financial reporting for sales of accounts receivable.
2. Because CL&P has received a financial downgrade, some parties to the
original transaction require the restructuring of the financing program
to enable CL&P to continue to receive commercial paper based financing.
3. The Company has a short-term borrowing limit of $375 million.
4. CL&P will be appointed as the initial collection agent in the
restructured accounts receivable program.
5. Under the Existing Agreement, the annual facility fee paid by CL&P is
$220,000.
6. Under the proposed restructured Receivables program, the annual
facility fee paid by CL&P would be $500,000.
7. Excluding the annual facility fees, the transaction costs associated
with restructuring the Receivables program are $170,000.
VI. CONCLUSION AND ORDERS
A. CONCLUSION
Although the stated purpose for CRC is to comply with FAS 125, the
overall objective of the proposed restructured Receivable program is to provide
the Company with greater financial flexibility and liquidity to meet its cash
demands and additional costs associated with its nuclear outages. The
additional annual fees of the Receivables program, increasing from $220,000 to
$500,000 per year are due to the Company's lower financial rating associated
with the Millstone outages. The outages are the driving force behind the
Receivables program and its increased annual fees; therefore, it cannot be
concluded that ratepayers "benefit" from the restructured accounts receivable
program. The Company has asserted that in using the Accounts Receivable
facility, it has minimized its cost of short-term debt. Given the additional
fees associated with maintaining this facility, it is more correct to conclude
that it enables the Company to maximize its financing flexibility rather than
minimize its cost of obtaining short-term debt. Accordingly, the Company
should be prepared to assume all risks and costs associated with this
transaction.
With the above considerations, the Department hereby authorizes the
Company's requests to effect the Accounts Receivable program from a one-step to
a two-step process through the formation of the special purpose subsidiary,
CRC, subject to the Orders below.
B. ORDERS
For the following Orders, please submit an original and fifteen (15)
copies of the requested material to the Executive Secretary, identified by
Docket Number, Title and Order Number.
1. The terms and conditions under which the Receivables are to be sold
under the restructured program shall be substantially as stated in this
proceeding, and no further written material or oral supplements to or
material modification of those terms and conditions shall be executed
without prior approval of this Department.
2. No later than October 15, 1997, the Company shall submit the final
terms of the Receivables discount and any other terms of the
restructured Accounts Receivable program that have been finalized after
the date of this Supplemental Decision.
3. The proceeds from the sale of the restructured Receivables program
shall be used by the Company for the purposes specified in this
proceeding.
4. No later than October 15, 1997, the Company shall submit a monthly
report documenting the sale of the Receivables. Such report shall
include the dollar value of all transactions between the Company, CRC,
CAFCO and the Banks. The report shall also include a calculation of
the all-in interest rate and the Receivables discount applicable to
each transaction.
5. Within 60 days from the restructuring of the Receivables program, the
Company shall submit to the Department an itemization of all expenses
actually incurred in the transaction.
6. Commencing September 30, 1997, the Company shall submit a quarterly
report itemizing all expenses actually incurred to CL&P and CRC in the
sale of the Receivables. Such report shall include but not be limited
to all costs of maintaining CRC, and compensation, if any, of any CL&P
and/or NU employees for their services to CRC.
<PAGE>
DOCKET NO. 96-05-24 APPLICATION OF THE CONNECTICUT LIGHT AND POWER COMPANY
REQUESTING APPROVAL OF THE SALE OF ACCOUNTS RECEIVABLES
This Decision is adopted by the following Commissioners:
Jack R. Goldberg
Glenn Arthur
John W. Betkoski, III
CERTIFICATE OF SERVICE
The foregoing is a true and correct copy of the Decision issued by the
Department of Public Utility Control, State of Connecticut, and was forwarded
by Certified Mail to all parties of record in this proceeding on the date
indicated.
Robert J. Murphy Date
Executive Secretary
Department of Public Utility Control
