File No. 70-8959
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
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 UTILITY HOLDING COMPANY ACT OF 1935
WESTERN MASSACHUSETTS ELECTRIC COMPANY
174 Brush Hill Avenue
West Springfield, Massachusetts 01089
(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, Esq. Jeffrey C. Miller, Esq.
Assistant Treasurer - Finance Assistant General Counsel
Northeast Utilities Service Northeast Utilities Service
Company 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
Hartford, CT 06103-3499
<PAGE>
The Application/Declaration in this proceeding is hereby amended by the
filing of the exhibits and financial statements listed in the "Index to
Exhibits and Financial Statements Filed with Amendment No. 3 to Form U-1" which
appears on the following 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: April 24, 1997
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By_________________________/s/Thomas R. Wildman
Thomas R. Wildman
A Partner
Day, Berry & Howard
City Place I
Hartford CT 06103-3499
Its Attorney
<PAGE>
INDEX TO EXHIBITS AND FINANCIAL STATEMENTS FILED WITH
AMENDMENT NO. 3
to
Form U-1
of
WESTERN MASSACHUSETTS ELECTRIC COMPANY
(a) Exhibits
A.1 Articles of incorporation of WRC.
A.2 Bylaws of WRC.
D.2 Copy of DPU order with respect to WMECO's proposed transactions.
F. Opinion of Counsel.
G.1 WMECO Financial Data Schedule. (As corrected.)
G.2 NU Financial Data Schedule. (As corrected.)
(b) Financial Statements (As corrected.)
1. Western Massachusetts Electric Company
1.1 Balance Sheet, per books and pro forma, as of September
30, 1996.
1.2 Income Statement, per books and pro forma, twelve months
ended September 30, 1996.
1.3 Statement of Retained Earnings, per books and pro forma,
twelve months ended September 30, 1996 and Statement of
Capital Structure, per books and pro forma, as of
September 30, 1996.
1.4 Explanation of Pro Forma Adjustments.
2. Northeast Utilities and Subsidiaries
2.1 Consolidated Balance Sheet, per books and pro forma, as
of September 30, 1996.
2.2 Consolidated Income Statement, per books and pro forma,
twelve months ended September 30, 1996.
2.3 Consolidated Statement of Retained Earnings, per books
and pro forma, twelve months ended September 30, 1996,
and Consolidated Statement of Capital Structure, per
books and pro forma, as of September 30, 1996.
2.4 Explanation of Pro Forma Adjustments.
<PAGE>
EXHIBIT A.1
ARTICLES OF INCORPORATION
OF
WMECO RECEIVABLES CORPORATION
The undersigned incorporator hereby forms a corporation under the
Business Corporation Act of the State of Connecticut.
FIRST: The name of the corporation is WMECO RECEIVABLES CORPORATION.
SECOND: The address of the Corporation's initial registered office in
the State of Connecticut and the name of its initial registered agent at such
address is:
Theresa H. Allsop
107 Selden Street
Berlin, CT 06037-5227
The residence address of the initial registered agent is:
1008 Mott Hill Road
South Glastonbury, CT 06073
The initial registered agent hereby accepts appointment:
--------------------------------------------------
Theresa H. Allsop
THIRD: The nature of the business to be transacted, and the purpose to
be promoted or carried out by the Corporation, is to engage exclusively in the
following business and activities:
1. To purchase or otherwise acquire accounts, chattel paper,
instruments, general intangibles and certain related rights and property
(collectively, the "Assets") from its parent or other of its affiliates and to
sell such Assets, or an interest therein, to a commercial paper conduit or
other financial institution or institutions.
2. To service and collect, or retain a servicer to service and
collect, such Assets; and
3. To engage in any lawful act or activity and to exercise any powers
permitted to corporations organized under the Business Corporation Act of the
State of Connecticut, as the same may be amended from time to time, that are
incidental to and necessary, suitable or convenient for the accomplishment of
the purposes specified in clauses (1) and (2) above.
FOURTH: The amount of capital stock of the Corporation hereby
authorized is twenty thousand (20,000) shares, without par value, which stock
shall all be common stock (the "Common Stock").
1. Common Stock
(a) Except as otherwise expressly provided by law, all
voting rights shall be vested in the holders of the
Common Stock, and at each meeting of shareholders of the
Corporation, each holder of Common Stock shall be
entitled to one vote for each share on each matter to
come before the meeting.
(b) Dividends may be declared upon and paid to the holders
of the Common Stock as the Board of Directors shall
determine.
(c) In the event of voluntary or involuntary liquidation or
dissolution of the Corporation, the holders of the
Common Stock shall be entitled to share ratably in all
assets of the Corporation.
2. Vote Required in Certain Events
Without (i) the affirmative vote of 100% of the members of the
Board of Directors of the Corporation (including the Independent
Directors described in Article SEVENTH), and (ii) the
affirmative vote of the holders of 100% of the number of shares
of the Common Stock outstanding, voting (A) in person or by
proxy at a special meeting called for the purpose or (B) by
unanimous written consent of the holders of the Common Stock
acting without such a meeting, as the case may be, the
Corporation shall not amend Article THIRD, this Article
FOURTH(2), Article SIXTH or Article SEVENTH of these Articles of
Incorporation, or Article IV Section 4, Article VIII Section 2
or Article IX of the Bylaws of the Corporation.
FIFTH: The minimum amount of stated capital with which the Corporation
shall commence business is One Thousand Dollars ($1,000).
SIXTH: The Corporation shall not, without the affirmative vote of 100%
of the members of the Board of Directors of the Corporation (including the
Independent Directors described in Article SEVENTH), (i) make an assignment for
the benefit of creditors, file a petition in bankruptcy, petition or apply to
any tribunal for the appointment of a custodian, receiver or any trustee for it
or for a substantial part of its property, commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereinafter in
effect, consent or acquiesce in the filing of any such petition, application,
proceeding or appointment of or taking possession by the custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Corporation or any substantial part of its property, or admit its inability to
pay its debts generally as they become due or authorize any of the foregoing to
be done or taken on behalf of the Corporation or (ii) merge or consolidate with
any other entity, or dissolve, liquidate or otherwise terminate its existence;
provided that if at any time the Independent Directors are not then in office
and acting, the Board of Directors shall not vote upon any of the matters set
forth in this Article SIXTH unless and until such Independent Directors shall
have been duly elected.
SEVENTH: The Corporation shall at all times (except in the event of
death, incapacity, resignation or removal) have at least two directors (the
"Independent Directors"), each of which is not (i) a director, officer,
employee or shareholder of Western Massachusetts Electric Company ("WMECO") or
any of its affiliates (other than a director of the Corporation or other
similar special purpose corporations), (ii) a director, officer or shareholder
of a Significant Customer or Significant Supplier, or (iii) a spouse, parent,
sibling or child of any individual described in clauses (i) or (ii)
hereinabove. The Independent Directors shall be elected in the same manner as
other directors. In the event of the death, incapacity, resignation or removal
of any Independent Director, the Board of Directors shall promptly appoint a
replacement Independent Director. The Independent Directors shall not, in
connection with any act or failure to act in connection with any matter
described in Article SIXTH, have a duty or other obligation to the
Corporation's shareholders (except as may be required specifically by the
statutory law of any applicable jurisdiction); instead, the Independent
Directors' fiduciary duty or other obligations with respect to such act or
failure to act in connection with any matter described in Article SIXTH shall
be owed to the Corporation, including the Corporation's creditors. Every
shareholder of the Corporation shall be deemed to have consented to the
foregoing by virtue of such shareholder's purchase of shares of capital stock
of the Corporation, and no further act or deed of any shareholder shall
be required to evidence such consent. For purposes of this Article SEVENTH, a
"Significant Customer" shall mean a customer from which WMECO and its
affiliates collectively received during WMECO's last fiscal year payments in
consideration for the products and services of WMECO and its affiliates which
exceed 3% of the consolidated gross revenues of WMECO and its subsidiaries
during such fiscal year, and a "Significant Supplier" shall mean a supplier
to which WMECO and its affiliates collectively made during WMECO's last fiscal
year payments in consideration for the supplier's products and services in
excess of 3% of the consolidated gross revenues of WMECO and its subsidiaries
during such fiscal year.
EIGHTH: The personal liability of any Director to the Corporation or
its shareholders for monetary damages for breach of duty as a Director is
hereby limited to the amount of the compensation received by the Director for
serving the Corporation during the year of the violation if such breach did not
(a) involve a knowing and culpable violation of law by the Director, (b) enable
the Director or an associate, as defined in Section 33-840 of the Connecticut
General Statutes, to receive an improper personal economic gain, (c) show a
lack of good faith and a conscious disregard for the duty of the Director to
the Corporation under circumstances in which the Director was aware that his or
her conduct or omission created an unjustifiable risk of serious injury to the
Corporation, (d) constitute a sustained and unexcused pattern of inattention
that amounted to an abdication of the Director's duty to the Corporation,
or (e) create liability under Section 33-757 of the Connecticut General
Statutes. Any lawful repeal or modification of this provision by the
shareholders and the Board of Directors of the Corporation shall not adversely
affect any right or protection of a Director existing at or prior to the time
of such repeal or modification.
NINTH: The Corporation shall indemnify and advance expenses to an
individual made a party to a proceeding because he/she is or was a Director of
the Corporation under Section 33-771 of the Connecticut General Statutes,
Revision of 1958, as amended. The Corporation shall also indemnify and advance
expenses under Sections 33-770 to 33-778, inclusive, of the Connecticut General
Statutes, to any officer, employee or agent of the Corporation who is not
a director to the same extent as provided to a director.
Dated at Hartford, Connecticut, this day of April, 1997.
I hereby declare, under the penalties of false statement, that the
statements in the foregoing certificate are true.
________________________________
Sandra Bourgasser-Ketterling
Incorporator
Day, Berry & Howard
CityPlace I
Hartford, CT 06103-3499
<PAGE>
EXHIBIT A.2
BYLAWS
of
WMECO RECEIVABLES CORPORATION
ARTICLE I.
GENERAL
These Bylaws are intended to supplement and implement applicable
provisions of law and of the Articles of Incorporation of this Corporation with
respect to the regulation of the affairs of this Corporation.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meeting: Shareholders' meetings shall be held at
the principal offices of this Corporation or at such other place, either within
or without the State of Connecticut, as shall be designated in the notice of
meeting. Elections of directors need not be by ballot. The books of the
Corporation may be kept (subject to any provision contained in any applicable
statute) outside the State of Connecticut at such place or places as may be
designated from time to time by the Board of Directors or in these Bylaws.
SECTION 2. Annual Meeting: The Annual Meeting of Shareholders for the
election of Directors and the transaction of such other business as may
properly be brought before the meeting shall be held in March, April, May, June
or July in each year on the day and at the hour designated by the Board of
Directors.
SECTION 3. Special Meetings: Special meetings may be called at any
time by the President or Board of Directors and shall be called by the
President upon written request of the holders of not less than one-tenth of the
voting power of all shares entitled to vote at the meeting.
SECTION 4. Notice of Meetings: Written notice of the date, time and
place of each Annual and Special Meeting (a notice of a Special Meeting shall
also contain the general purpose or purposes for such meeting) shall be mailed
or delivered, at least ten (10) days but not more than sixty (60) days prior to
the date of such meeting, to each shareholder entitled to vote at such meeting
at his residence or usual place of business as shown on the records of this
Corporation, provided that any one or more of such shareholders, as to himself
or themselves, may waive such notice in writing or by attendance without
protest at such meeting.
SECTION 5. Quorum: The holders of a majority of the shares of the
issued and outstanding stock entitled to vote at a meeting, present either in
person or by proxy, shall constitute a quorum for the transaction of business
at such meeting of the shareholders. Except as otherwise provided by law or
these Bylaws, all questions shall be decided by a vote of the holders of a
majority of the shares present at any meeting of shareholders at which a quorum
is present. If a quorum be not present at such meeting, the shareholders
present in person or by proxy may adjourn to such future time as shall be
agreed upon by them and notice of such adjournment shall be given to the
shareholders not present or represented at the meeting.
SECTION 6. Shareholders' Action Without Meeting: Any action which,
under any provision of the Connecticut Business Corporation Act, may be taken
at a meeting of shareholders, may be taken without such a meeting if consent in
writing, setting forth the action so taken or to be taken, is signed severally
or collectively by all of the persons who would be entitled to vote upon such
action at a meeting, or by their duly authorized attorneys. The Secretary of
the Corporation shall file such consent or consents with the minutes of the
meetings of the shareholders.
ARTICLE III.
SHARES
SECTION 1. Share Certificates: Share certificates shall be in a form
adopted by the Board of Directors and shall be signed by the President or by
the Secretary. Such certificates shall bear the seal of the Corporation, the
name of the person to whom issued, and the number of such shares which such
certificate represents. The consideration for which the shares were
issued and the date of issue shall be entered on the Corporation's books.
SECTION 2. Transfer of Shares: Shares shall be transferred only on
the books of the Corporation by the holder thereof in person or by his
attorney.
ARTICLE IV.
DIRECTORS
SECTION 1. Number, Election and Term of Office: A Board of not less
than five (5) nor more than seven (7) Directors, including the Independent
Directors described in Article SEVENTH of the Articles of Incorporation of the
Corporation, shall be elected at the organization meeting of the Corporation
and thereafter shall be elected by the shareholders entitled to vote at Annual
or Special Meetings of Shareholders. The number of positions on the Board of
Directors for purposes of incorporation shall be the number fixed by resolution
of the incorporator(s). Thereafter, the number of positions on the Board of
Directors shall be the number fixed by resolution of the shareholders or Board
of Directors, or, in the absence of such resolution, shall be the number of
Directors elected at the preceding Annual Meeting of Shareholders. The number
of positions on the Board of Directors for any year, as fixed in accordance
with the foregoing (hereinafter referred to as the "number of directorships")
may be increased or decreased at any time as provided by law, except that the
number of Independent Directors as described in Article SEVENTH of the Articles
of Incorporation of the Corporation shall never be decreased to less than two.
SECTION 2. Removal of Directors: Any Director may be removed from
office at any time, with or without cause, by concurrent vote of the holders of
not less than a majority of the issued and outstanding shares entitled to vote,
at any meeting of shareholders called for that purpose.
SECTION 3. Vacancies: Vacancies created by an increase in the number
of directorships shall be filled for the unexpired term by action of
shareholders. Vacancies occurring by reason other than by increase in the
number of directorships shall be filled for the unexpired term by the
concurring vote of a majority of the Directors remaining in office, even
though such remaining Directors may be less than a majority of the number of
directorships (as fixed for the current year in accordance with Article IV,
Section 1). If such remaining Directors fail to fill a vacancy, then such
vacancy shall be filled by action of shareholders. The vacancy of a position
of Independent Director shall be filled only with another person meeting the
requirements of an Independent Director as set forth in Article SEVENTH of the
Articles of Incorporation of the Corporation.
SECTION 4. Powers: The property, business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all power and do all the things which may be
exercised or done by the Corporation subject to provisions of law, the statutes
of the State of Connecticut, the Articles of Incorporation, these Bylaws, and
any vote of the shareholders. The Board of Directors is expressly authorized
to determine the use and disposition of any surplus and net profits of the
Corporation, including the determination of the amount of working capital
required, to set apart out of any of the funds of the Corporation, whether or
not available for dividends, a reserve or reserves for any proper purpose and
to abolish any such reserve in the manner in which it was created. In addition
to the foregoing, the Corporation shall conduct its affairs in the following
manner: (i) to the extent specifically required by the Receivables Purchase
Agreement to be entered into among the Corporation and Monte Rosa Capital
Corporation, among others (as the same may be amended, supplemented, amended
and restated or otherwise modified in accordance with its terms), the
Corporation's funds and other assets will be identifiable, and the Corporation
will use commercially reasonable efforts to prevent the deposit into a
designated account of any funds other than payments in respect of receivables
and related security sold; (ii) the Corporation will maintain separate bank
accounts, corporate records and books of account from those of any direct or
ultimate parent of the Corporation or any subsidiary or affiliate of
any such parent; (iii) the Corporation will pay from its funds and assets all
obligations and indebtedness incurred by it; (iv) the Corporation will act
solely in its corporate name and through its own authorized officers and
agents; and (v) the Corporation will not guaranty the liabilities of its parent
or any subsidiary or affiliate of its parent.
SECTION 5. Compensation: The Board of Directors shall have the power
to fix from time to time the compensation of the Directors and the method of
payment thereof.
ARTICLE V.
MEETINGS OF DIRECTORS
SECTION 1. Annual Meetings: A regular meeting of the Board of
Directors shall be held without notice immediately after the Annual Meeting of
Shareholders, or as soon thereafter as convenient. At such meeting the Board
of Directors shall choose and appoint the officers of the Corporation who shall
hold their offices, subject to prior removal by the Board of Directors, until
the next annual meeting or until their successors are chosen and qualify.
SECTION 2. Regular Meetings: All other regular meetings of the Board
of Directors may be held without notice at such date, time and place as the
Board of Directors may determine and fix by resolution.
SECTION 3. Special Meetings: Special meetings of the Board of
Directors may be held upon call of the Chairman (if there be one) or the
President, or, in the event of the absence or inability of either to act, of a
Vice President, or upon call of any one or more Directors.
SECTION 4. Notice: Written or oral notice of the date, time and place
of all special meetings of the Board of Directors shall be given to each
Director personally or mailed to his residence or usual place of business at
least 24 hours prior to the date of the meeting, provided that any one or more
Directors, as to himself or themselves, may waive such notice in writing
or by attendance without protest at such meeting.
SECTION 5. Quorum: Directors holding one-third of the number of
directorships shall constitute a quorum. Except as otherwise provided by law
or these Bylaws, all questions shall be decided by a vote of a majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present.
SECTION 6. Director Participation in Meetings by Telephone: A
director may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment enabling all Directors
participating in the meeting to hear one another, and participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
SECTION 7. Directors' Action Without Meeting: If all the Directors
severally or collectively consent in writing to any action taken or to be taken
by the Corporation, such action shall be as valid as though it had been
authorized at a meeting of the Board of Directors. The Secretary of the
Corporation shall file such consent or consents with the minutes of the
meetings of the Board of Directors.
ARTICLE VI.
OFFICERS
SECTION 1. Titles, Election and Duties: At its annual meeting the
Board of Directors shall elect a President, a Secretary, a Treasurer and, if
the Board shall so determine, a Chairman. Each officer shall, subject to the
removal provision below, hold office until the next annual election of officers
and until his successor shall have been elected and qualified. Any two or more
offices may be held by the same person except that the offices of the
President and Secretary may not be simultaneously held by the same person. The
Board shall also elect at such annual meeting, and may elect at any regular or
special meeting, such other officers as may be required for the prompt and
orderly transaction of the business of the Corporation, and each officer shall
have such authority and shall perform such duties as may be assigned to him
from time to time by the Board of Directors. Any officer may be removed,
with or without cause, at any time by the Board in its discretion. Vacancies
among the officers by reason of death, resignation, removal (with or without
cause) or other reason shall be filled by the Board of Directors. Any vacancy
occurring in any office may be filled at any regular meeting of the Board or at
any special meeting of the Board held for that purpose. In addition to such
powers and duties as these Bylaws and the Board of Directors may prescribe,
and except as may be otherwise provided by the Board, each officer shall have
the powers and perform the duties which by law and general usage appertain to
his particular office.
SECTION 2. Chairman: The Chairman, if such office shall be filled by
the Directors, shall, when present, preside at all meetings of said Board and
of the shareholders. He shall have such other authority and shall perform such
additional duties as may be assigned to him from time to time by the Board of
Directors.
SECTION 3. President: The President shall be the chief executive
officer of the Corporation and shall be responsible for the general
supervision, direction and control of the business and affairs of the
Corporation. If the Chairman shall be absent or unable to perform the duties
of his office, or if the office of the Chairman shall not have been filled by
the Directors, the President shall preside at meetings of the Board of
Directors and of the shareholders. He shall have such other authority and
shall perform such additional duties as may be assigned to him from time to
time by the Board of Directors.
SECTION 4. Secretary: The Secretary shall keep the minutes of all
meetings of the shareholders and of the Board of Directors. He shall give
notice of all meetings of the shareholders and of said Board. He shall record
all votes taken at such meetings. He shall be custodian of all contracts,
leases, assignments, deeds and other instruments in writing and documents not
properly belonging to the office of the Treasurer, and shall perform such
additional duties as may be assigned to him from time to time by the Board of
Directors, the Chairman, the President or by law. The Secretary shall have the
custody of the Corporate Seal of the Corporation and shall affix the same to
all instruments requiring a seal except as otherwise provided in these Bylaws.
SECTION 5. Assistant Secretaries: One or more Assistant Secretaries
shall perform the duties of the Secretary if the Secretary shall be absent or
unable to perform the duties of his office. The Assistant Secretaries shall
perform such additional duties as may be assigned to them from time to time by
the Board of Directors, the Chairman, the President or the Secretary.
. SECTION 6. Treasurer: The Treasurer shall have charge of all receipts
and disbursements of the Corporation, and shall be the custodian of the
Corporation's funds. He shall have full authority to receive and give receipts
for all moneys due and payable to the Corporation from any source whatever, and
give full discharge for the same, and to endorse checks, drafts and warrants in
its name and on its behalf. He shall sign all checks, notes, drafts and
similar instruments, except as otherwise provided for the Board of Directors.
The Treasurer shall perform such additional duties as may be assigned to him
from time to time by the Board of Directors, the Chairman, the President or by
law.
SECTION 7. Assistant Treasurer: One or more Assistant Treasurers
shall perform the duties of the Treasurer if the Treasurer shall be absent or
unable to perform the duties of his office. The Assistant Treasurers shall
perform such additional duties as may assigned to them from time to time by the
Board of Directors, the Chairman, the President or the Treasurer.
ARTICLE VII.
SEAL
The corporate seal shall consist of a circular disc with the name of
the Corporation and the words "Connecticut" and "Seal" thereon.
ARTICLE VIII.
COMMITTEES
SECTION 1. The Board of Directors may designate two or more Directors
to constitute an executive committee or other committees, which committees
shall have and may exercise all such authority of the Board of Directors as
shall be provided in such resolution except as limited by Section 2. At the
time of such appointment, the Board of Directors may also appoint, in respect
to each member of any such committee, another Director to serve as his
alternate at any meeting of such committee which such member is unable to
attend. Each alternate shall have, during his attendance at a meeting, of such
committee, all the rights and obligations of a regular member thereof. Any
vacancy on such committee or among alternate members thereof may be filled by
the Board of Directors.
SECTION 2. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation with the exception of any authority the delegation
of which is prohibited by Section 33-753(f) of the Connecticut Business
Corporation Act, the Articles of Incorporation or Bylaws of the Corporation. No
Committee shall have the power or authority in reference to amending the
Articles of Incorporation, to authorize or take any action described in Article
FOURTH (2), Article SEVENTH, or Article EIGHTH, adopting an agreement of merger
or consolidation, recommending to the shareholders the sale, lease, or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or the
revocation of a dissolution, or amending the Bylaws of the Corporation;
and, unless the resolution expressly so provides, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 3. A majority of any committee shall have the power to act.
Committees shall keep full records of their proceedings and shall report the
same to the Board of Directors.
ARTICLE IX.
AMENDMENTS
These Bylaws may be altered, amended, added to, or repealed by the
affirmative vote of the holders of a majority of the voting power of shares
entitled to vote thereon or by an affirmative vote of Directors holding a
majority of the number of directorships, except that these Bylaws or any
alteration, amendment or repeal thereof shall not in any manner impair,
nor impair the intent of Article IV Section 4, Article VIII Section 2 or
Article IX of these Bylaws. Any notice of a meeting of shareholders or of the
Board of Directors at which these Bylaws are proposed to be altered, amended,
added to, or repealed shall include notice of such proposed action.
<PAGE>
EXHIBIT D.2
The Commonwealth of Massachusetts
DEPARTMENT OF PUBLIC UTILITIES
D.P.U. 97-13
Petition of Western Massachusetts Electric Company for approval by the
Department of Public Utilities, pursuant to G.L. c. 164, <section> 17A,
with respect to the organization of a wholly-owned subsidiary in
conjunction with an accounts receivable purchase and sale program and
related transactions.
-----------------------------------------------------------------------
APPEARANCES: Stephen Klionsky, Esq.
Northeast Utilities Service Company
260 Franklin Street, 21st Floor
Boston, Massachusetts 02110-3179
-and-
Thomas R. Wildman
Day, Berry & Howard
CityPlace
Hartford, Connecticut 06103-3499
FOR: WESTERN MASSACHUSETTS
ELECTRIC COMPANY
Petitioner
<PAGE>
EXHIBIT D.2
D.P.U. 97-13
I. INTRODUCTION
On January 9, 1997, Western Massachusetts Electric Company ("WMECo" or
"Company") filed with the Department of Public Utilities ("Department"),
pursuant to G.L., c. 164, <section> 17A, a request for approval of an
investment by the Company in connection with an accounts receivable purchase
and sale program. The petition was docketed as D.P.U. 97-13. Pursuant to
notice duly issued, the Department conducted a public and evidentiary hearing
on the Company's application on March 19, 1997 at the Department's offices in
Boston. There were no motions to intervene. In support of its filing, the
Company presented the testimony of David R. McHale, Assistant Treasurer-Finance
of WMECo. The evidentiary record consists of two Company exhibits and 13
Department exhibits. In addition, the record contains 10 responses from WMECo
to Department record requests.
II. THE COMPANY'S PROPOSAL
A. Introduction
WMECo has requested approval to invest initially approximately $60,000
in a wholly-owned special purpose corporation to be known as WMECo Receivables
Corporation ("WRC"). WRC has been organized for the sole purpose of purchasing
certain of the Company's accounts receivable and related assets (Exhs. WM-1, at
2; WM-2 at 8).{1} The Company states that the $60,000 investment will be used
to cover the organization expenses of WRC and costs associated with
implementing its accounts receivables sales program herein described (Exh. WM-
2, at 8). WMECo is also seeking authority to make future equity contributions
to WRC under the structure of the accounts receivables sales program (Exh. WM-1,
at 14; Tr. at 35-36; RR-DPU-10).
According to the Company, the formation of WRC was necessary to satisfy
the requirements of the Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities, No. 162-C (June 1996) ("FAS 125"), as applicable to WMECo's
present receivable sales program described below.
B. Existing Receivable Sales Program
The Company currently has in effect a Receivables Purchase and Sale
Agreement ("Existing Agreement") with Monte Rosa Capital Corporation ("Monte
Rosa") and Union Bank of Switzerland, New York Branch ("UBS") (Exh. WM-1, at
3). Under the Existing Agreement, WMBCo may sell, from time to time, at its
discretion; fractional, undivided ownership interests ("Undivided Interests")
in certain billed and unbilled indebtedness of customers and certain related
assets to Monte Rosa through its agent UBS (id.). According to the Company, no
Department approval was necessary to enter into the Existing Agreement
because it does not involve the issue of securities, sale of utility assets, or
payment of compensation by WMECo to WRC (Exh. WM-2, at 10; Tr. at 8-9).
At the time the Existing Program was being negotiated, the Company
contemplated that any transfers of receivables would be accounted for as sales
under generally accepted accounting principles (Exhs. WM-1, at 4, DPU-8). In
order to receive off-balance sheet treatment under FAS 125, however, the
transferred assets must be isolated from WMECo and its creditors, even in the
event of bankruptcy or receivership of the Company (Exhs. WM-1,
at 4; DPU-6, <section><section> 9(c), 54-56; RR-DPU-1). Because sales of
receivables under the Existing Agreement include significant reserves which
revert to WMECo to the extent that they are not needed to cover actual losses,
the resulting uncertainty of how these sales would be viewed under FAS 125
requires the Company to account for them as a financing, versus a sale (Exh.
WM-2, at 6-7; Tr. at 34).
Although WMECo states that transactions under the Existing Agreement
would be deemed a financing under FAS 125, the Company determined that the
Existing Agreement would still provide WMECo with liquidity and an additional
source of funds (Tr. at 32). Because of outstanding questions as to how the
accounting profession would interpret FAS 125, attendant delays in setting up
an alternative structure, and the desire by the Company to receive the benefits
afforded through the sale of its receivables, WMECo determined that it
would be appropriate to finalize the Existing Agreement as an interim measure
(id. at 32-33).{2} The Company anticipates that the Existing Agreement could
expire as early as April 30, 1997 (id. at 9).
C. Proposed "Two-Step" Arrangement
In order to treat its sale of receivables as an off-balance sheet sale
under FAS 125, WMECo intends to replace the Existing Agreement with a "two-
step" process (Exh. WM-1, at 5; Tr. at 10). The "two-step" process is designed
to remove control of the transferred assets from the Company to WRC, through
the use of separate agreements (Exh. WM-1, at 5; Tr. at 11; RR-DPU-9). To
implement the "two-step" process, WMECo has entered into two agreements, one
with WRC ("Company Agreement"), and a second one with WRC, Monte Rosa, and UBS
("WRC Agreement") (RR-DPU-9, Bulk Attachs. A and B).
1. Company Agreement
Under the Company Agreement, the Company shall sell or transfer as
equity contributions from time to time virtually all of its rights, title and
interests in its receivables and related assets to WRC (Exh. WM-1, at 5; RR-
DPU-9, Bulk Attach. A at 2). The receivables to be sold would consist of both
billed and unbilled receivables attributed solely to eclectic consumption,
versus ancillary charges such as service calls (Tr. at 17-18). The Company's
receivables would be transferred to WRC on a daily basis (Exh. WM-2, at 95).
The purchase price to be paid by WRC for WMECo's receivables and
related assets shall be equal to the outstanding receivables balance multiplied
by a Discount Percentage intended to recognize historic losses arising from
uncollectible accounts and a borrowing rate based on the London International
Bank Overseas Rate ("LIBOR") (RR-DPU-9, Bulk Attach. A at 6; Tr. at 27-28).{3}
The Company anticipates that the Discount Percentage will be approximately 98
percent (Tr. at 26). Consequently, WMECo will sell the rights and interests
in its account receivables to WRC at approximately 98 percent of face value.
While the Company states that its initial investment in WRC will be
$60,000, the structure of the Company Agreement makes it possible for WRC to
receive additional investments in the form of contributions of receivables
varying from time to time (Exh. WM-2, at 8). Because the availability of
receivables and related assets from WMECo will vary from time to time with
electric consumption, WRC may not have sufficient funds available to
purchase the Company's receivables at any particular time (Exh. WM-1, at 5-6).
If WRC has insufficient cash to cover the receivables and related assets
originated by WMECo, WRC will either make the purchase and owe the balance to
the Company, or will accept a capital contribution from WMECo in the form of
receivables and related assets (Exh. WM-1, exh. F,4; WM-2, at 8-9). The actual
treatment will depend on WRC's need for capital; given the nature of the
special-purpose corporation and its limited needs, the Company stated
that it does not anticipate making significant capital contributions to WRC
(Tr. at 72).
Conversely, if historical losses are less in a particular period than
had been factored into the Company's calculations, WRC may generate a small
profit (Tr. at 60). If WRC develops a substantial cash balance arising from
the timing of purchases and sales of receivables, the Company states that WRC
will likely dividend the excess cash to WMECo, in what the Company represents
may be defined as a return of previous capital contributions from WMECo (Exhs.
WM-1, exh. F.4; WM-2, at 9). The Company states that any profits arising from
WRC's operations would accrue to WMECo (Tr. at 62). The Company anticipates
that any small cash balances would remain in WRC, while larger balances would
be paid to WMECo in the form of dividends, as deemed necessary (id.).
2. WRC Agreement
Under the WRC Agreement, from time to time WRC will sell Undivided
Interests in the receivables purchased from the Company to Monte Rosa, through
its agent UBS (Exh. WM-1, at 5; RR-DPU-9, Bulk Attach. B). The purchase price
paid by Monte Rosa for these receivables will be based on a formula that takes
into account historic loss statistics, as a means to further assure the quality
of the receivables being purchased (Tr. at 57-59). Purchases by Monte Rosa
will be funded through either its own commercial paper or by drawing on its own
banking facilities (Exh. WM-1, at 6). The aggregate purchase price paid by
Monte Rosa is not intended to exceed $40,000,000, and the minimum purchase price
for an Undivided Interest will be $1,000,000 (RR-DPU-9, Bulk Attach. B, at 15,
24; Tr. at 73). Any Company receivables that remain unsold by WRC will be
treated on WMECo's books as investments in securities, in accordance with FAS
125 (Exh. DPU-1; Tr. at 29).
The purchase price to be paid by Monte Rosa for the receivables sold by
WRC is based on an algorithm (Exh. DPU-13; Tr. at 82). The purchase price will
not include the Company's delinquent or defaulted receivables, or any
receivables associated with hardship accounts as defined by statute (Tr. at 19-
20). Additionally, the WRC Agreement places a concentration limit on both
government accounts and receivables associated with WMECo's largest ten
customers (id. at 19-21). The elimination of these receivables from the
Company's total receivables produces a Net Receivables Pool, which after being
adjusted to provide for a coverage ratio of 102 percent, results in a Utilized
Amount (id. at 22).
Based on an algorithm, the Utilized Amount is, in turn, reduced by a
Loss Reserve Factor ("LRF") of 10.68 percent intended to provide for greater-
than-anticipate delinquencies (Exh. DPU-13; Tr. at 82-84). The Utilized Amount
is further reduced by a Dilution Reserve of 1.92 percent intended to cover
billing disputes, as well as a 2.38 percent Yield Reserve and 0.29 percent
Servicing Fee Reserve covering the costs associated with the program, thus
producing a total reserve percentage ("TRP") of 15.27 percent (Exh. DPU-13; Tr.
at 84-85). The TRP is then multiplied by 84.73 percent (1.00-.1527) of the sum
of the Net Receivables Pool and Yield Reserve, then divided by one minus the
LRF, to develop the receivables that will be sold by WRC (Exh. DPU-13; Tr. at
86). WMECo states that the intent of the formula is to ensure that Monte Rosa
has acquired the highest quality receivables possible from WRC (Tr. at 86-87).
The WRC Agreement may be terminated by either the Company or UBS if an
event of termination occurs (Exh. WM-1, at 7; RR-DPU-9, Bulk Attach. A. at 51).
An event of termination is defined in the WRC Agreement, and includes, inter
alia, the Company's senior secured credit ratings falling below BB, WMECo's
insolvency, and bankruptcy (RR-DPU-9, Bulk Attach. B at 58-60; RR-DPU-5). An
event of termination would not automatically require the Agent to terminate the
program, unless an insolvency or bankruptcy occurred (RR-DPU-5).
Under the terms of the WRC Agreement, UBS is entitled to appoint a
servicer on behalf of Monte Rosa and WRC to administer and collect receivables
(Exh. WM-1, at 7). While the WRC Agreement designates WMECo as the servicer,
UBS may appoint another servicer if a servicer default or event of termination
occurs (id.; RR-DPU-9, Bulk Attach. A at 51; Tr. at 36-37). A servicer default
is defined as occurring if UBS determines that an event has occurred which
materially and adversely affects (1) the Company's ability to service its
receivables or (2) the credit quality, collectability or enforceability of
those receivables (RR-DPU-9, Bulk Attach. B at 18; RR-DPU-5). If UBS appoints
a new servicer, the Company stated that the new servicer would be obligated to
abide by all applicable laws, rules, and regulations, and to act in accordance
with WMECo's credit and collection policies (RR-DPU-4). WMECo stated that,
notwithstanding these provisions, if a new servicer failed to perform
in a manner acceptable to the Company, WMECo would in all likelihood act to
terminate the WRC Agreement (id.; Tr. at 40).
D. Company Arguments In Support of its Proposal
According to WMECo, Department approval of the proposed transactions
will permit the Company to accelerate its receipt of cash collections from
accounts receivable and thereby meet its short-term cash needs (Exh. WM-1, at
8; Tr. at 9). The Company maintained that due to the accounting treatment
required for sale of receivables under the Existing Agreement, Monte Rosa may
be less willing to continue buying ownership interests in the Company's
receivables (Exh. WM-2, at 7).
According to WMECo, its receivables program produces significant
benefits to customers at a favorable interest rate. In addition to a reduction
in short-term debt costs, the Company estimated that the sale of receivables
would produce a significantly lower working capital requirement for rate making
purposes (RR-DPU-8). Using the cash working capital lead-lag study provided in
its previous rate case, D.P.U. 91-290, the Company estimated that at
a 100 percent utilization of the program, its net working capital lag would
decrease from 8.05 days to a negative 35.76 days (id.).{4} The Company
compared these benefits to the overall costs of the program. WMECo estimated
that the initial fees associated with the program would be $235,000, and that
the cost of the initial sale of its receivables to WRC would be $265,000 (Exh.
WM-1, exhs. D, F,4; Tr. at 92).{5} Therefore, the Company concluded that its
proposal would produce savings to ratepayers (RR-DPU-8).
WMECo compared its proposed accounts receivable sales program with
alternative financing methods. The Company explained that while it had access
to the Northeast Utilities ("NU") system money pool, which offered the most
attractive funding alternative, its availability is limited to when other NU
system companies have excess cash available (Exh. DPU-12). Therefore, the
Company ruled out the use of the NU system money pool as a source of additional
capital. WMECo stated that it is unable to issue commercial paper because both
major rating agencies, Standard and Poor's and Moody's, have downgraded the
Company's commercial paper to below-investment grade ratings, thus rendering
commercial paper an unattractive option (id.). Finally, the Company determined
that, based on a comparison between an accounts receivable program and the NU
system revolving credit facility, an accounts receivable program was less
costly (id.; Tr. at 79-81).
Additionally, WMECo stated that when it originally developed the
Existing Agreement, it conducted a comparative analysis of proposals sent by
five lending institutions, including UBS (Exh. DPU-8). These lending agencies
had been initially selected based on their familiarity with the Company,
experience in the asset-backed market, and their access to high quality
commercial paper (id., Tr. at 46-47). WMECo determined that, based on UBS's
experience in the asset-based market, its AAA rating from security rating
agencies, the structure and flexibility of its receivables securitization
program, and price competition, as well as the Company's desire to diversify
its financing sources, UBS provided on balance the greatest overall benefits at
the lowest possible costs (Exh. DPU-8; Tr. at 44-50, 64).
According to the Company, the sales of receivables under both the
Company Agreement and WRC Agreement do not constitute the issuance of
securities, sale of utility assets, or payment of compensation by WMECo to WRC
(Exh. WM-1, at 11).
Therefore, the Company contended that neither agreement falls within the
Department's jurisdiction, and that no prior approval is necessary for the sale
of receivables and related assets to WRC (id.). In the alternative, WMECo
requested that, if the transactions are found to be subject to the Department's
jurisdiction, the Company be authorized to engage in such transactions (id. at
11, 14).
The Company stated that although WMECo and WRC are separate
corporations, it is requesting that the Department treat the Company and WRC on
a consolidated basis for rate making purposes, including the determination of
the loss allowance for uncollected receivables (id. at 10, 14). According to
WMECo, any sale of receivables to a third party in the absence of FAS 125 would
be accounted for as either the sale of an asset or a receivable (Tr. at 42).
The Company contended that the accounting transactions required under FAS 125
should not be allowed to dictate the rate making treatment accorded to its
receivables program (id.).
The Company stated that a final legal opinion as to whether its
proposed "two-step" receivables sales program constitutes a true sale under the
requirements of FAS 125 will not be available until the condition precedent
documents are completed (RR-DPU-2 (Supp.)). However, WMECo's outside counsel
anticipated that the account receivables sales program would be treated as a
sale instead of a financing (id.). WMECo stated that the sales of its
receivables would not effect the operations of the Company or the performance
of its duty to the public, and contended that the transaction was consistent
with the public interest (Tr. at 9).
III. STANDARD OF REVIEW
Pursuant to G.L. c 164, <section> 17A, a gas or electric company must
obtain written Department approval in order to "loan its funds to, guarantee or
endorse the indebtedness of, or invest its funds in the stock, bonds,
certificates of participation or other securities of, any corporation,
association or trust . . . ." The Department has indicated that such proposals
must be "consistent with the public interest," that is, a Section 17A proposal
will be approved if the public interest is at least as well served by approval
of the proposal as by its denial, Bay State Gas Company, D.P.U. 91-165, at 7
(1992); see Boston Edison Company, D.P.U. 850 (1983).
The Department has stated that it will interpret the facts of each
Section 17A case on its own merits to make a determination that the proposal is
consistent with the public interest. D.P.U. 91-165, at 7. The Department will
base its determination on the totality of what can be achieved rather than a
determination of any single gain that could be derived from the proposed
transactions. Id.; see D.P.U. 850, at 7. Thus, the Department's analysis must
consider the overall anticipated effect on ratepayers of the potential harms
and benefits of the proposal. D.P.U. 91-165, at 8. The effect on ratepayers
may include consideration of a number of factors, including, but not limited
to: the nature and complexity of the proposal; the relationship of the parties
involved in the underlying transaction; the use of funds associated with the
proposal; the risks and uncertainties associated with the proposal; the extent
of regulatory oversight on the parties involved in the underlying transaction;
and the existence of safeguards to ensure the financial stability of the
utility. Id.
IV. ANALYSIS AND FINDINGS
The record in this proceeding demonstrates that the Company's accounts
receivable sales program permits WMECo to enhance its access to short-term cash
by accelerating its conversion of accounts receivable to cash. The record also
demonstrates that the Company has accessed $15 million through the operation of
the Existing Agreement. Moreover, the record supports the Company's position
that the change in accounting treatment of account receivable sales arising
from FAS 125 increases the risk that Monte Rosa would be less willing
to continue purchasing WMECo's receivables under the Existing Agreement.
The record demonstrates that the Company used appropriate decision
making criteria in evaluating the funding alternatives available to WMECo, and
structured an accounts receivable sales program intended to meet both the
Company's needs and the requirements of generally accepted accounting
principles. The increased liquidity, lower short-term debt expenses, and lower
working capital requirements afforded under the Company Agreement and WRC
Agreements will improve WMECo's financial stability with no change in the rates
charged or the Company's provision of service to the public.
Under the WRC Agreement, the Company shall continue to administer and
collect its accounts receivables. Although the record suggests that the
possibility is remote that UBS will designate another entity to act as a
servicer,{6} or that a new servicer could impose policies in contravention of
220 C.M.R. <section> 25 et seq., the Department remains concerned that existing
consumer protections be continued by whatever entity is acting in the role of
servicer. Accordingly, the Company is hereby directed to notify the
Department's Consumer Division in the event that WMECo is removed from its
present role as servicer. If the Department determines that the replacement
servicer is operating in contravention of 220 C.M.R. <section> 25 et seq., the
Department will take appropriate measures, which may include directing the
Company to terminate the WRC Agreement.
With respect to the Company's request that the Department find that
sales of receivables to WRC are not subject to our jurisdiction under G.L. c.
165, <section> 17A, the Department notes that the predominant investment in WRC
would be account receivables made to allow the Company to take advantage of an
accounts receivable program designed to comply with generally accepted
accounting principles. As such, the Department finds that the majority of
transactions to be made under the Company Agreement would not constitute the
type of investment contemplated under G.L. c. 164, <section> 17A. However,
under certain conditions, the record demonstrates that if WRC has insufficient
cash to cover the receivables and related assets originated by the Company, it
is possible that WRC will meet these obligations by accepting the receivables
and related assets as additional capital contributions. These capital
contributions would constitute investments and therefore fall under the purview
of Section 17A.
While a strict application of G.L. c. 164, <section> 17A would appear
to require the Company to receive prior approval of any investment made in WRC,
the Department has considered the purpose of WRC and the use of the funds that
would be involved in the potential investments. Because of the timing
difference between the Company's daily transfers of its rights and interests in
its account receivables to WRC, and Monte Rosa's purchase of those interests,
the Department finds that requiring regulatory approvals in each instance prior
to a transfer of receivables to WRC would impair the Company's ability to sell
its receivables in a timely manner, and frustrate the purpose of the accounts
receivables program. Moreover, because the record evidence demonstrates that
WRC should require minimal capital contributions, the Department finds that
additional capital contributions likely to be required by the Company in WRC
should not adversely impact the availability of capital to support WMECo's own
operations.
Based on the above considerations, the Department finds that the
Company, may from time to time, make capital contributions to WRC pursuant to
the terms of the Company Agreement without prior Department approval. We
emphasize that the Company must use prudent managerial decision making and
reasoned, documented and supportable judgment in its disposition of any cash
accumulations, i.e., capital contributions, in WRC arising from the transfer of
receivables under the Company Agreement. The Department will review any such
capital contributions in the Company's next rate proceeding.
With respect to the Company's request that WMECo and WRC be treated on
a consolidated basis for ratemaking purposes, the Department's policy is to
exclude equity investments in subsidiaries from utility capital structures.
NYNEX, D.P.U. 94-50, at 440 (1995); Colonial Gas Company, D.P.U. 84-94, at 51
(1984); Boston Edison Company, D.P.U. 18515, at 56-58 (1976). Thus, the
initial $60,000 investment proposed for WRC would be excluded from the
Company's capital structure for ratemaking purposes. As to those receivables
sold to WRC that remain unpurchased by Monte Rosa, the Department notes that
in the absence of an accounts receivable, which are not included in capital
structure in any event.
While it may be reasonable not to consider these receivables as
investments in WRC for ratemaking purposes, the record does not provide
sufficient evidence on what, if any, other differences in accounting treatment
may be required under the Company's proposal. Accordingly, the Department
declines to consider the Company and WRC as a consolidated entity for
ratemaking purposes at this time. WMECo may propose such treatment in a future
proceeding. Any such proposal should include a full description of what
adjustments would be required on the Company's books to reflect the
consolidation of WMECo and WRC.{7}
Based on the foregoing, the Department finds that the Company's
proposal will not have any effect on WMECo's provision of service to the public
nor will it cause an increase in the rates charged to customers. Accordingly,
after weighing the overall potential benefits and risks of the proposed equity
investment, the Department finds that the transactions under the Company
Agreement and the WRC Agreement, taken as a whole, are consistent with the
public interest.
V. ORDER
Accordingly, after due notice, public hearing, and consideration, it is
ORDERED:That the proposal of Western Massachusetts Electric Company to
form a wholly-owned special-purpose accounts receivable subsidiary, WMECo
Receivables Company, be and hereby is approved; and it is
FURTHER ORDERED:That the proposal of Western Massachusetts Electric
Company to invest $60,000 in the equity of WMECo Receivables Company be and
hereby is approved; and it is
FURTHER ORDERED:That the proposal of Western Massachusetts Electric
Company to invest, from time to time without prior Department approval,
additional equity contributions in WMECo Receivables Company in the form of
accounts receivables and related assets as defined in this Order, be and hereby
is approved; and it is
FURTHER ORDERED:That the proposal of Western Massachusetts Electric
Company to enter into an accounts receivable agreement with WMECo Receivables
Company be and hereby is approved; and it is
FURTHER ORDERED:That the proposal of Western Massachusetts Electric
Company to be permitted to take such other actions incident to ro reasonably
necessary for the consummation of the foregoing be and hereby is approved.
By Order of the Department,
/s/ John B. Howe
John B. Howe, Chairman
/s/ Janet Gail Besser
Janet Gail Besser, Commissioner
A true copy
Attest:
/s/ Mary L. Cottrell
Mary C. Cottrell
Secretary
**FOOTNOTES**
{1} The related assets pertain to the systems by which the receivables
are accounted for, including computer tapes and general ledger entries (Tr. at
99-100).
{2} On February 13, 1997, WMECo sold $15 million of its receivables to
Monte Rosa under the current agreement (Tr. at 34; 57).
{3} Under the formula contained in the WRC Agreement, the Discount
Percentage is equal to 100 percent, minus the sum of the discount rate
equivalent of an annual interest rate and a historic rolling ratio of writeoffs
to collections (RR-DPU-9, Bulk Attach. A at 7). Therefore, the Discount
Percentage represents a net factor.
{4} The Department notes that, based on the revenue requirement
proposed by WMECo in D.P.U. 91-290, the reduction in the cash working capital
allowance factor would have produced a decrease in the revenue requirement of
slightly over $4 million.
{5} The initial fees would be booked against the Company's investment
in securities account, while the selling costs associated with its receivables
program would be written off against the Company's accounts receivable and other
net income accounts (Exh. WM-1, exh. F2; Tr. at 92).
{6} Under the WRC Agreement, an event of termination includes,
interalia, the Company's senior secured credit ratings falling below BB, WMECo's
insolvency, and bankruptcy (RR-DPU-9, Bulk Attach. B at 58- 60; RR-DPU-5). The
Agent is required to terminate the accounts receivables sales program in the
event of WMECo's insolvency or bankruptcy (RR-DPU-5).
{7} Because well-established Department policy requires the exclusion
of the $60,000 initial investment in WRC from the Company's capital structure,
any proposal by WMECo which seeks to include the $60,000 initial investment
should demonstrate persuasively the rationale for departing from longstanding
precedent.
EXHIBIT F
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
(860) 665-3532
April 24, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re:File No. 70-8959
Application/Declaration with Respect to the Organization of a Wholly Owned
Subsidiary Related to an Accounts Receivable Purchase and Sale Program
Ladies and Gentlemen:
I am Assistant General Counsel of Northeast Utilities Service Company
("NUSCO"), the service company subsidiary of Northeast Utilities ("NU"), and I
am furnishing this opinion as Exhibit F to the Application/Declaration, as
amended, on Form U-1 (the "Declaration") of Western Massachusetts Electric
Company ("WMECO"), a subsidiary of NU, to the Commission with respect to the
organization by WMECO of a wholly owned subsidiary (WMECO Receivables
Corporation or "WRC") related to an accounts receivable purchase and sale
program and related transactions, as more fully set forth in the Declaration.
In connection with this opinion, I have examined or caused to be
examined by counsel associated with or engaged by me, including counsel who are
employed by NUSCO, such papers, documents, and records, and have made such
examination of law and have satisfied myself as to such other matters as I have
deemed relevant or necessary for the purpose of this opinion. I have assumed
the authenticity of all documents submitted to me as originals, the genuineness
of all signatures, the legal capacity of natural persons, and the conformity to
originals of all documents submitted to me as copies.
The opinions set forth herein are limited to the laws of the State of
Connecticut and the Commonwealth of Massachusetts and the federal laws of the
United States. I am a member of the bar of the State of New York. I am not a
member of the bar of the State of Connecticut or the bar of the Commonwealth of
Massachusetts, and do not hold myself out as an expert in the laws of such
jurisdictions, although I have made a study of relevant laws of such
jurisdictions. In expressing opinions about matters governed by the
laws of the State of Connecticut and the Commonwealth of Massachusetts, I have
consulted with counsel who are employed by NUSCO and are members of the bars of
such jurisdictions.
The opinions set forth in paragraph (b) below are subject to the effect
of bankruptcy, insolvency, moratorium and other similar laws affecting
creditors rights generally and general principles of equity.
Based upon and subject to the foregoing, and if the proposed
transactions contemplated by the Declaration are carried out in accordance
therewith, I am of the opinion that:
(a) all Massachusetts laws applicable to the proposed
transactions will have been complied with;
(b) (i) WRC will be validly organized and duly existing
under the laws of the State of Connecticut, (ii) the common stock of WRC issued
to WMECO will be validly issued, fully paid and nonassessable, and WMECO will
be entitled to all of the rights and privileges appertaining to the ownership
of 100% of the issued and outstanding common stock of WRC, and (iii) insofar as
any interests in receivables sold by WRC as part of such transactions are
regulated as the issuance of securities, such securities will be valid and
binding obligations of WRC in accordance with their terms;
(c) WMECO will legally acquire the common stock of WRC to be
acquired by it as part of the proposed transactions; and
(d) the consummation of the proposed transactions by WMECO
and WRC will not violate the legal rights of the holders of any securities
issued by WMECO or WRC or any associate company thereof.
Very truly yours,
/s/ Jeffrey C. Miller
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELE Exhibit G.1
FINANCIAL DATA SCHEDULE (As corrected)
AS OF SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
ITEM TO PROPOSED
# DESCRIPTION PER BOOK TRANSACTION
<S> <C> <C> <C>
1 Total Net Utility Plant 807,855 807,855
2 Other Property and Investments 94,522 94,522
3 Total Current Assets 74,038 73,629
4 Total Deferred Charges 138,176 138,176
5 Balancing amount for Total Assets 0 0
6 Total Assets 1,114,591 1,114,182
7 Common Stock 26,812 26,812
8 Capital Surplus, Paid In 150,395 150,395
9 Retained Earnings 110,329 110,080
10 Total Common Stockholders Equity 287,536 287,287
11 Preferred Stock Subject to Mandatory Rede 21,000 21,000
12 Preferred Stock Not Subject to Mandatory 53,500 53,500
13 Long Term Debt, Net 334,238 334,238
14 Short Term Notes 0 0
15 Notes Payable 8,000 8,000
16 Commercial Paper 0 0
17 Long Term Debt-Current Portion 14,700 14,700
18 Preferred Stock-Current Portion 1,500 1,500
19 Obligations Under Capital Leases 29,108 29,108
20 Obligations Under Capital Leases-Current 2,971 2,971
21 Balancing amount of Capitalization and Li 362,038 361,877
22 Total Capitalization and Liabilities 1,114,591 1,114,182
23 Gross Operating Revenue 422,461 422,461
24 Federal and State Income Taxes Expense 12,897 12,736
25 Other Operating Expenses 365,965 365,965
26 Total Operating Expenses 378,862 378,701
27 Operating Income (Loss) 43,599 43,760
28 Other Income (Loss), Net 2,448 2,240
29 Income Before Interest Charges 46,047 46,000
30 Total Interest Charges 24,692 24,894
31 Net Income 21,355 21,106
32 Preferred Stock Dividends 5,212 5,212
33 Earnings Available For Common Stock 16,143 15,894
34 Common Stock Dividends 20,226 20,226
35 Total Annual Interest Charges on All Bond 24,154 24,154
36 Cash Flow From Operations 0 0
37 Earnings Per Share-Primary 0.00 0.00
38 Earnings Per Share-Fully Diluted 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND S Exhibit G.2
FINANCIAL DATA SCHEDULE (As corrected)
AS OF SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
ITEM TO PROPOSED
# DESCRIPTION PER BOOK TRANSACTION
<S> <C> <C> <C>
1 Total Net Utility Plant 6,788,878 6,788,878
2 Other Property and Investments 557,288 557,288
3 Total Current Assets 1,019,885 1,019,476
4 Total Deferred Charges 2,028,428 2,028,428
5 Balancing amount for Total Assets 0 0
6 Total Assets 10,394,479 10,394,070
7 Common Stock 680,260 680,260
8 Capital Surplus, Paid In 941,205 941,205
9 Retained Earnings 941,341 941,095
10 Total Common Stockholders Equity 2,381,084 2,380,838
11 Preferred Stock Subject to Mandatory Rede 276,000 276,000
12 Preferred Stock Not Subject to Mandatory 169,700 169,700
13 Long Term Debt, Net 3,688,530 3,688,530
14 Short Term Notes 0 0
15 Notes Payable 15,000 15,000
16 Commercial Paper 0 0
17 Long Term Debt-Current Portion 279,513 279,513
18 Preferred Stock-Current Portion 1,500 1,500
19 Obligations Under Capital Leases 187,095 187,095
20 Obligations Under Capital Leases-Current 19,189 19,189
21 Balancing amount of Capitalization and Li 3,376,868 3,376,704
22 Total Capitalization and Liabilities 10,394,479 10,394,070
23 Gross Operating Revenue 3,836,054 3,836,054
24 Federal and State Income Taxes Expense 156,853 156,689
25 Other Operating Expenses 3,252,035 3,252,035
26 Total Operating Expenses 3,408,888 3,408,724
27 Operating Income (Loss) 427,166 427,330
28 Other Income (Loss), Net 30,549 30,341
29 Income Before Interest Charges 457,715 457,671
30 Total Interest Charges 281,604 281,806
31 Net Income 176,111 175,865
32 Preferred Stock Dividends 33,683 33,683
33 Earnings Available For Common Stock 142,428 142,182
34 Common Stock Dividends 200,027 200,027
35 Total Annual Interest Charges on All Bond 290,820 290,820
36 Cash Flow From Operations 0 0
37 Earnings Per Share-Primary 1.12 1.11
38 Earnings Per Share-Fully Diluted 1.12 1.11
</TABLE>
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELECTRIC COMPANY Exhibit 1.1
CONSOLIDATED BALANCE SHEET Page 1 of 2
AS OF SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
<S> >C? <C> <C>
ASSETS
UTILITY PLANT, AT ORIGINAL COST:
ELECTRIC $1,250,137 $1,250,137
LESS: ACCUMULATED PROVISION FOR
DEPRECIATION 489,134 489,134
----------- ----------- ------------
761,003 0 761,003
CONSTRUCTION WORK IN PROGRESS 16,721 16,721
NUCLEAR FUEL, NET 30,131 30,131
----------- ----------- ------------
TOTAL NET UTILITY PLANT 807,855 0 807,855
----------- ----------- ------------
OTHER PROPERTY AND INVESTMENTS:
NUCLEAR DECOMMISSIONING TRUST, AT MARKET 74,962 74,962
INVESTMENTS IN REGIONAL NUCLEAR
GENERATING COMPANIES, AT EQUITY 15,315 15,315
OTHER, AT COST 4,245 4,245
----------- ----------- ------------
94,522 0 94,522
----------- ----------- ------------
CURRENT ASSETS:
CASH AND SPECIAL DEPOSITS 38 36,234 (a) 35,863
(235)(b)
(265)(c)
91 (d)
RECEIVABLES, NET 39,553 (37,534)(a) 2,019
RECEIVABLES FROM AFFILIATED COMPANIES 786 786
ACCRUED UTILITY REVENUES 10,023 (10,023)(a) 0
FUEL, MATERIAL AND SUPPLIES, AT
AVERAGE COST 4,880 4,880
RECOVERABLE ENERGY COSTS, NET -- CURRENT 8,274 8,274
PREPAYMENTS AND OTHER 10,484 10,484
INVESTMENT IN SECURITIES 11,121 (a) 11,323
202 (c)
----------- ----------- ------------
TOTAL CURRENT ASSETS 74,038 (409) 73,629
----------- ----------- ------------
DEFERRED CHARGES:
UNAMORTIZED DEBT EXPENSE 1,379 1,379
INCOME TAXES, NET 79,608 79,608
NET RECOVERABLE ENERGY COSTS 5,437 5,437
UNRECOVERED CONTRACT OBLIGATION 13,151 13,151
OTHER 38,601 38,601
----------- ----------- ------------
TOTAL DEFERRED CHARGES 138,176 0 138,176
----------- ----------- ------------
TOTAL ASSETS $1,114,591 ($409) $1,114,182
=========== =========== ============
* EXPLANATION ON EXHIBIT 1.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELECTRIC COMPANY Exhibit 1.1
CONSOLIDATED BALANCE SHEET Page 2 of 2
AS OF SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
COMMON SHARES $26,812 $26,812
CAPITAL SURPLUS, PAID IN 150,395 150,395
RETAINED EARNINGS 110,329 (249) 110,080
----------- ------------- -----------
TOTAL COMMON STOCKHOLDER'S EQUITY 287,536 (249) 287,287
PREFERRED STOCK NOT SUBJECT TO
MANDATORY REDEMPTION 53,500 53,500
PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION 21,000 21,000
LONG-TERM DEBT, NET 334,238 334,238
----------- ------------- -----------
TOTAL CAPITALIZATION 696,274 (249) 696,025
OBLIGATIONS UNDER CAPITAL LEASES 29,108 29,108
NOTES PAYABLE TO AFFILIATED COMPANIES 8,000 8,000
LONG-TERM DEBT AND PREFERRED STOCK -
CURRENT PORTION 16,200 16,200
OBLIGATIONS UNDER CAPITAL LEASES -
CURRENT PORTION 2,971 2,971
ACCOUNTS PAYABLE 14,762 14,762
ACCOUNTS PAYABLE TO AFFILIATED
COMPANIES 9,294 9,294
ACCRUED TAXES 10,119 (161)(e) 9,958
ACCRUED INTEREST 4,268 4,268
OTHER 16,363 16,363
----------- ------------- -----------
TOTAL CURRENT LIABILITIES 81,977 (161) 81,816
DEFERRED CREDITS:
ACCUMULATED DEFERRED INCOME TAXES 248,202 248,202
ACCUMULATED DEFERRED INVESTMENT
TAX CREDITS 25,200 25,200
DEFERRED CONTRACT OBLIGATION 13,151 13,151
OTHER 20,679 20,679
----------- ------------- -----------
TOTAL DEFERRED CREDITS 307,232 0 307,232
----------- ------------- -----------
TOTAL CAPITALIZATION AND
LIABILITIES $1,114,591 ($409) $1,114,182
=========== ============= ===========
* EXPLANATION ON EXHIBIT 1.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELECTRIC COMPANY Exhibit 1.2
CONSOLIDATED INCOME STATEMENT Page 1 of 1
FOR 12 MONTHS ENDED SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
<S> <C> <C> <C>
OPERATING REVENUE $422,461 $0 $422,461
---------- ------------- ----------
OPERATING EXPENSES:
OPERATION -
FUEL PURCHASED AND INTERCHANGE
POWER 101,202 101,202
OTHER 146,847 146,847
MAINTENANCE 48,406 48,406
DEPRECIATION 39,219 39,219
AMORTIZATION/DEFERRALS OF REGULATORY
ASSETS, NET 10,633 10,633
FEDERAL AND STATE INCOME TAXES 12,897 (161)(e) 12,736
TAXES OTHER THAN INCOME TAXES 19,658 19,658
---------- ------------- ----------
TOTAL OPERATING EXPENSES 378,862 (161) 378,701
---------- ------------- ----------
OPERATING INCOME: 43,599 161 43,760
---------- ------------- ----------
OTHER INCOME:
EQUITY IN EARNINGS OF REGIONAL NUCLEAR
GENERATING COMPANIES 1,953 1,953
OTHER, NET 131 (235)(b) (77)
(63)(c)
91 (d)
INCOME TAXES - CREDIT 364 364
---------- ------------- ----------
OTHER INCOME, NET 2,448 (208) 2,240
---------- ------------- ----------
INCOME BEFORE INTEREST CHARGES 46,047 (47) 46,000
---------- ------------- ----------
INTEREST CHARGES:
INTEREST ON LONG-TERM DEBT 24,154 24,154
OTHER INTEREST 538 538
LOSS ON SALE OF ACCOUNTS RECEIVABLE 202 (a) 202
---------- ------------- ----------
TOTAL INTEREST CHARGES 24,692 202 24,894
---------- ------------- ----------
NET INCOME $21,355 ($249) $21,106
* EXPLANATION ON EXHIBIT 1.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELECTRIC COMPANY Exhibit 1.3
CONSOLIDATED STATEMENT OF RETAINED EARNINGS Page 1 of 1
FOR 12 MONTHS ENDED SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PER BOOK
ADJUSTED TO
PRO FORMA REFLECT
PER BOOK ADJUSTMENTS* PRO FORMA
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $114,412 $114,412
NET INCOME 21,355 (249) 21,106
CASH DIVIDENDS ON PREFERRED STOCK (5,212) (5,212)
CASH DIVIDEND ON COMMON STOCK (20,226) (20,226)
---------- ------------- ----------
BALANCE AT END OF PERIOD $110,329 ($249) $110,080
========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CAPITAL STRUCTURE
AS OF SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS)
PER BOOK
ADJUSTED TO
PRO FORMA REFLECT
% PER BOOK ADJUSTMENTS* PRO FORMA %
<S> <C> <C> <C> <C> <C>
DEBT:
LONG-TERM DEBT, NET 49.0% $348,938 0 $348,938 49.0%
PREFERRED STOCK:
NOT SUBJECT TO REDEMPTION 53,500 53,500
SUBJECT TO REDEMPTION 22,500 22,500
---------- ---------- -----------
TOTAL PREFERRED STOCK 10.7% 76,000 0 76,000 10.7%
COMMON EQUITY:
COMMON SHARES 26,812 26,812
CAPITAL SURPLUS, PAID IN 150,395 150,395
RETAINED EARNINGS 110,329 (249) 110,080
---------- ---------- -----------
TOTAL COMMON STOCKHOLDER'S EQUITY 40.3% 287,536 (249) 287,287 40.3%
---------- ---------- -----------
TOTAL CAPITAL 100.0% $712,474 (249) $712,225 100.0%
========== ========== ===========
* EXPLANATION ON EXHIBIT 1.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
PAGE>
<TABLE>
<CAPTION>
WESTERN MASSACHUSETTS ELECTRIC COMPANY Exhibit 1.4
EXPLANATION OF ADJUSTMENTS Page 1 of 1
(THOUSANDS OF DOLLARS) (As corrected)
DEBIT CREDIT
<S> <C> <C>
(a) CASH $36,234
INVESTMENT IN SECURITIES 11,121
LOSS ON SALE OF ACCOUNTS RECEIVABLE 202
RECEIVABLES, NET $37,534
ACCRUED UTILITY REVENUES 10,023
To record a sale of 9/30/96 accounts receivable for proceeds of $36,234.
</TABLE>
<TABLE>
<CAPTION>
Fair Value % of Total Fair Allocated Book
Assets Value of Asse Value Loss
========== ============== =========== =========
<S> <C> <C> <C> <C>
Cash Proceeds from sale less funding costs
($36,234 - $265 (see (c) below)) $35,969 76.06% $36,171 $202
Estimated value of portion retained
((37,534+10,023) - $36,234) 11,323 23.94% 11,386
========== ============== ===========
$47,292 100% $47,557
========== ============== ===========
(b) LOSS ON INVESTMENT IN SECURITIES - OTHER, NET $235
CASH $235
To record upfront fees associated with establishing the program.
(c) LOSS ON INVESTMENT IN SECURITIES - OTHER, NET $63
INVESTMENT IN SECURITIES 202
CASH $265
To reflect the costs and market valuation associated with the transaction. The costs are based on LIBOR as of 2/28/97
of [5.38%] plus a spread of .48%. The Loss on Sale of Accounts Receivable and Loss on Investments in Securities, will,
over the life of the program reflect the funding and administrative costs of the program plus actual bad debt.
Proceeds from in $36,234
Funding Rate * 5.86%
/ (45/360)
----------
Costs associated $265
==========
(d) CASH $91
SERVICING FEE INCOME $91
To record fees related to servicing the accounts receivable.
(e) ACCRUED TAXES $161
FEDERAL AND STATE INCOME TAX EXPENSE $161
To record the reduction in Federal and State income taxes:
$409 x 39.23% = 161
</TABLE>
NOTE: WMECO anticipates that the availability of accounts receivable will vary
from time to time in accordance with electric energy usage. As a result, the
funds that WRC has available to make the purchase may not exactly match the
purchase requirement. The proposed program includes certain mechanisms to
accommodate this mismatch. When the amount of receivable originated by WMECO
exceed the amount of cash WRC has available, either WRC will make the purchase
and owe the balance of the purchase price to WMECO on a deferred basis, or WMECO
will make a capital contribution to WRC in the form of the receivables for which
WRC lacks purchase price funds at that time. Conversely, if WRC develops a
substantial cash balance WRC will likely dividend the excess cash to WMECO.
Such dividends may represent a return of previous capital contributions by WMECO
to WRC. As a reminder, the only funds available to WRC will be those resulting
from its participation in the program and WMECO's capital contributions to it.
WRC will have not source of funds or obligations outside of the receivables
purchase and sale program.
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND SUBSIDIARIES Exhibit 2.1
CONSOLIDATED BALANCE SHEET Page 1 of 2
AS OF SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
<S> <C> <C> <C>
ASSETS
UTILITY PLANT, AT ORIGINAL COST:
ELECTRIC & OTHER $9,767,433 $9,767,433
LESS: ACCUMULATED PROVISION FOR
DEPRECIATION 3,874,639 3,874,639
----------- ----------- ------------
5,892,794 0 5,892,794
UNAMORTIZED ACQUISITION COSTS - PSNH 514,065 514,065
CONSTRUCTION WORK IN PROGRESS 196,059 196,059
NUCLEAR FUEL, NET 185,960 185,960
----------- ----------- ------------
TOTAL NET UTILITY PLANT 6,788,878 0 6,788,878
----------- ----------- ------------
OTHER PROPERTY AND INVESTMENTS:
NUCLEAR DECOMMISSIONING TRUST, AT MARKET 358,980 358,980
INVESTMENTS IN REGIONAL NUCLEAR
GENERATING COMPANIES, AT EQUITY 84,620 84,620
INVESTMENTS IN TRANSMISSION COMPANIES,
AT EQUITY 22,702 22,702
INVESTMENTS IN CHARTER OAK ENERGY 44,703 44,703
OTHER, AT COST 46,283 46,283
----------- ----------- ------------
557,288 0 557,288
----------- ----------- ------------
CURRENT ASSETS:
CASH AND SPECIAL DEPOSITS 238,943 36,234 (a) 275,033
(235)(b)
(265)(c)
91 (d)
RECEIVABLES, NET 419,501 (37,534)(a) 381,967
ACCRUED UTILITY REVENUES 103,456 (10,023)(a) 93,433
FUEL, MATERIAL AND SUPPLIES, AT
AVERAGE COST 203,041 203,041
PREPAYMENTS AND OTHER 54,944 54,944
INVESTMENT IN SECURITIES 11,121 (a) 11,323
202 (c)
----------- ----------- ------------
TOTAL CURRENT ASSETS 1,019,885 (409) 1,019,476
----------- ----------- ------------
DEFERRED CHARGES:
REGULATORY ASSET-INCOME TAXES, NET 1,066,579 1,066,579
UNAMORTIZED DEBT EXPENSE 37,197 37,197
RECOVERABLE ENERGY COSTS, NET 324,608 324,608
DEFERRED CONSERVATION AND LOAD-
MANAGEMENT COSTS 83,225 83,225
COGENERATION COSTS - CLP 76,679 76,679
DEFERRED COSTS - NUCLEAR PLANTS 180,374 180,374
AMORTIZABLE PROPERTY INVESTMENT 0 0
UNRECOVERED CONTRACT OBLIGATION 69,832 69,832
OTHER 189,934 189,934
----------- ----------- ------------
TOTAL DEFERRED CHARGES 2,028,428 0 2,028,428
----------- ----------- ------------
TOTAL ASSETS $10,394,479 ($409) $10,394,070
=========== =========== ============
* EXPLANATION ON EXHIBIT 2.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND SUBSIDIARIES Exhibit 2.1
CONSOLIDATED BALANCE SHEET Page 2 of 2
AS OF SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
COMMON SHARES $680,260 $680,260
CAPITAL SURPLUS, PAID IN 941,205 941,205
DEFERRED BENEFIT PLAN-EMPLOYEE STOCK
OWNERSHIP PLAN (181,722) (181,722)
RETAINED EARNINGS 941,341 (246) 941,095
----------- ------------- -----------
TOTAL COMMON STOCKHOLDER'S EQUITY 2,381,084 (246) 2,380,838
PREFERRED STOCK NOT SUBJECT TO
MANDATORY REDEMPTION 169,700 169,700
PREFERRED STOCK SUBJECT TO MANDATORY
REDEMPTION 276,000 276,000
LONG-TERM DEBT, NET 3,688,530 3,688,530
----------- ------------- -----------
TOTAL CAPITALIZATION 6,515,314 (246) 6,515,068
OBLIGATIONS UNDER CAPITAL LEASES 187,095 187,095
MINORITY INTEREST IN CONSOLIDATED SUBS 99,895 99,895
CURRENT LIABILITIES:
NOTES PAYABLE 15,000 15,000
LONG-TERM DEBT AND PREFERRED STOCK -
CURRENT PORTION 281,013 281,013
OBLIGATIONS UNDER CAPITAL LEASES -
CURRENT PORTION 19,189 19,189
ACCOUNTS PAYABLE 289,656 289,656
ACCRUED TAXES 66,750 (164)(e) 66,586
ACCRUED INTEREST 71,853 71,853
ACCRUED PENSION BENEFITS 91,603 91,603
OTHER 128,037 128,037
----------- ------------- -----------
TOTAL CURRENT LIABILITIES 963,101 (164) 962,937
DEFERRED CREDITS:
ACCUMULATED DEFERRED INCOME TAXES 2,083,974 2,083,974
ACCUMULATED DEFERRED INVESTMENT
TAX CREDITS 170,847 170,847
DEFERRED CONTRACT OBLIGATION 72,332 72,332
OTHER 301,921 301,921
----------- ------------- -----------
TOTAL DEFERRED CREDITS 2,629,074 0 2,629,074
----------- ------------- -----------
TOTAL CAPITALIZATION AND
LIABILITIES $10,394,479 ($409) $10,394,070
=========== ============= ===========
* EXPLANATION ON EXHIBIT 2.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND SUBSIDIARIES Exhibit 2.2
CONSOLIDATED INCOME STATEMENT Page 1 of 1
FOR 12 MONTHS ENDED SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
<S> <C> <C> <C>
OPERATING REVENUE $3,836,054 $0 $3,836,054
---------- ------------- ----------
OPERATING EXPENSES:
OPERATION -
FUEL PURCHASED AND INTERCHANGE
POWER 1,047,954 1,047,954
OTHER 1,098,352 1,098,352
MAINTENANCE 374,018 374,018
DEPRECIATION 359,982 359,982
AMORTIZATION/DEFERRALS OF REGULATORY
ASSETS, NET 112,985 112,985
FEDERAL AND STATE INCOME TAXES 156,853 (164)(e) 156,689
TAXES OTHER THAN INCOME TAXES 258,744 258,744
---------- ------------- ----------
TOTAL OPERATING EXPENSES 3,408,888 (164) 3,408,724
---------- ------------- ----------
OPERATING INCOME: 427,166 164 427,330
---------- ------------- ----------
OTHER INCOME:
DEFERRED NUCLEAR PLANTS RETURN-OTHER
FUNDS 10,801 10,801
EQUITY IN EARNINGS OF REGIONAL NUCLEAR
GENERATING COMPANIES 13,992 13,992
OTHER, NET 16,505 (235)(b) 16,297
(63)(c)
91 (d)
INCOME TAXES - CREDIT (10,749) (10,749)
---------- ------------- ----------
OTHER INCOME, NET 30,549 (208) 30,341
---------- ------------- ----------
INCOME BEFORE INTEREST CHARGES 457,715 (44) 457,671
---------- ------------- ----------
INTEREST CHARGES:
INTEREST ON LONG-TERM DEBT 290,820 290,820
OTHER INTEREST 8,594 8,594
DEFERRED NUCLEAR PLANTS RETURN -
BORROWED FUNDS, NET OF INCOME TAX (17,810) (17,810)
LOSS ON SALE OF ACCOUNTS RECEIVABLE 202 (a)
---------- ------------- ----------
TOTAL INTEREST CHARGES 281,604 202 281,806
---------- ------------- ----------
INCOME BEFORE PREFERRED DIVIDENDS 176,111 (246) 175,865
PREFERRED DIVIDENDS OF SUBSIDIARIES 33,683 33,683
---------- ------------- ----------
NET INCOME 142,428 (246) 142,182
EARNINGS FOR COMMON SHARE 142,428 (246) 142,182
EARNINGS PER COMMON SHARE 1.12 1.11
COMMON SHARES OUTSTANDING (AVERAGE) 127,631,061 127,631,061
* EXPLANATION ON EXHIBIT 2.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND SUBSIDIARIES Exhibit 2.3
STATEMENT OF RETAINED EARNINGS Page 1 of 1
FOR 12 MONTHS ENDED SEPTEMBER 30, 1996 (As corrected)
(THOUSANDS OF DOLLARS)
PER BOOK
ADJUSTED TO
PRO FORMA REFLECT
PER BOOK ADJUSTMENTS* PRO FORMA
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $999,065 $999,065
NET INCOME 176,111 (246) 175,865
CASH DIVIDENDS ON PREFERRED STOCK (33,683) (33,683)
CASH DIVIDEND ON COMMON STOCK (200,027) (200,027)
LOSS ON RETIREMENT OF PREFERRED STOCK (125) (125)
---------- ------------- ----------
BALANCE AT END OF PERIOD $941,341 ($246) $941,095
========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND SUBSIDIARIES
CAPITAL STRUCTURE AS OF SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS)
FINANCIAL STATEMENT 7.2 PAGE 2 OF 3
PER BOOK
ADJUSTED TO
PRO FORMA REFLECT
% PER BOOK ADJUSTMENTS* PRO FORMA %
<S> <C> <C> <C> <C> <C>
DEBT:
LONG-TERM DEBT, NET 58.4% $3,968,043 $0 $3,968,043 58.4%
PREFERRED STOCK:
NOT SUBJECT TO REDEMPTION 169,700 169,700
SUBJECT TO REDEMPTION 277,500 277,500
---------- ---------- -----------
TOTAL PREFERRED STOCK 6.6% 447,200 0 447,200 6.6%
COMMON EQUITY:
COMMON SHARES 680,260 680,260
CAPITAL SURPLUS, PAID IN 941,205 941,205
DEFERRED BENEFIT PLAN-EMPLOYEE STOCK
OWNERSHIP PLAN (181,722) (181,722)
RETAINED EARNINGS 941,341 (246) 941,095
---------- ---------- -----------
TOTAL COMMON STOCKHOLDER'S EQUITY 35.0% 2,381,084 (246) 2,380,838 35.0%
---------- ---------- -----------
TOTAL CAPITAL 100.0% $6,796,327 ($246) $6,796,081 100.0%
========== ========== ===========
* EXPLANATION ON EXHIBIT 2.4 PAGE 1 OF 1 (AS CORRECTED)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NORTHEAST UTILITIES AND SUBSIDIARIES Exhibit 2.4
EXPLANATION OF ADJUSTMENTS Page 1 of 1
(THOUSANDS OF DOLLARS) (As corrected)
DEBIT CREDIT
<S> <C> <C>
(a) CASH $36,234
INVESTMENT IN SECURITIES 11,121
LOSS ON SALE OF ACCOUNTS RECEIVABLE 202
RECEIVABLES, NET $37,534
ACCRUED UTILITY REVENUES 10,023
To record a sale of 9/30/96 WMECO accounts receivable for proceeds of $36,234.
</TABLE>
<TABLE>
<CAPTION>
Fair Value of % of Total Fair Allocated Book
Assets Value of Ass Value Loss
========== ============= =========== =========
<S> <C> <C> <C> <C>
Cash Proceeds from sale less funding costs
($36,234 - $265 (see (c) below)) $35,969 76.06% $36,171 $202
Estimated value of portion retained
((37,534+10,023) - $36,234) 11,323 23.94% 1,363
========== ============= ===========
$47,292 100% $37,534
========== ============= ===========
(b) LOSS ON INVESTMENT IN SECURITIES - OTHER, NET $235
CASH $235
To record upfront fees associated with establishing WMECO Accounts Recivable Purchase and Sale program.
(c) LOSS ON INVESTMENT IN SECURITIES - OTHER, NET $63
INVESTMENT IN SECURITIES 202
CASH $265
To reflect the costs and market valuation associated with the transaction. The costs are based on LIBOR as of 2/28/97
of [5.38%] plus a spread of .48%. The Loss on Sale of Accounts Receivable and Loss on Investments in Securities, will,
over the life of the program reflect the funding and administrative costs of the program plus actual bad debt.
Proceeds from ini $36,234
Funding Rate * 5.86%
/ (45/360)
---------
Costs associated $265
=========
(d) CASH $91
SERVICING FEE INCOME $91
To record fees related to servicing the accounts receivable.
(e) ACCRUED TAXES $164
FEDERAL AND STATE INCOME TAX EXPENSE $164
To record the reduction in Federal and State income taxes due to the higher interest and fee expenses:
$409 x 40.00% = $164
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<SUBSIDIARY>
<NAME> WESTERN MASSACHUSETTS ELECTRIC COMPANY
<NUMBER> 2
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 807,855 807,855
<OTHER-PROPERTY-AND-INVEST> 94,522 94,522
<TOTAL-CURRENT-ASSETS> 74,038 73,629
<TOTAL-DEFERRED-CHARGES> 138,176 138,176
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 1,114,591 1,114,182
<COMMON> 26,812 26,812
<CAPITAL-SURPLUS-PAID-IN> 150,395 150,395
<RETAINED-EARNINGS> 110,329 110,080
<TOTAL-COMMON-STOCKHOLDERS-EQ> 287,536 287,287
21,000 21,000
53,500 53,500
<LONG-TERM-DEBT-NET> 334,238 334,238
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 8,000 8,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 14,700 14,700
1,500 1,500
<CAPITAL-LEASE-OBLIGATIONS> 29,108 29,108
<LEASES-CURRENT> 2,971 2,971
<OTHER-ITEMS-CAPITAL-AND-LIAB> 362,038 361,877
<TOT-CAPITALIZATION-AND-LIAB> 1,114,591 1,114,182
<GROSS-OPERATING-REVENUE> 422,461 422,461
<INCOME-TAX-EXPENSE> 12,897 12,736
<OTHER-OPERATING-EXPENSES> 365,965 365,965
<TOTAL-OPERATING-EXPENSES> 378,862 378,701
<OPERATING-INCOME-LOSS> 43,599 43,760
<OTHER-INCOME-NET> 2,448 2,240
<INCOME-BEFORE-INTEREST-EXPEN> 46,047 46,000
<TOTAL-INTEREST-EXPENSE> 24,692 24,894
<NET-INCOME> 21,355 21,106
5,212 5,212
<EARNINGS-AVAILABLE-FOR-COMM> 16,143 15,894
<COMMON-STOCK-DIVIDENDS> 20,226 20,226
<TOTAL-INTEREST-ON-BONDS> 24,154 24,154
<CASH-FLOW-OPERATIONS> 0 0
<EPS-PRIMARY> 0.00 0.00
<EPS-DILUTED> 0.00 0.00
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<SUBSIDIARY>
<NUMBER> 10
<NAME> NORTHEAST UTILITIES AND SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 6,788,878 6,788,878
<OTHER-PROPERTY-AND-INVEST> 557,288 557,288
<TOTAL-CURRENT-ASSETS> 1,019,885 1,019,476
<TOTAL-DEFERRED-CHARGES> 2,028,428 2,028,428
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 10,394,479 10,394,070
<COMMON> 680,260 680,260
<CAPITAL-SURPLUS-PAID-IN> 941,205 941,205
<RETAINED-EARNINGS> 941,341 941,095
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,381,084 2,380,838
276,000 276,000
169,700 169,700
<LONG-TERM-DEBT-NET> 3,688,530 3,688,530
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 15,000 15,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 279,513 279,513
1,500 1,500
<CAPITAL-LEASE-OBLIGATIONS> 187,095 187,095
<LEASES-CURRENT> 19,189 19,189
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,376,868 3,376,704
<TOT-CAPITALIZATION-AND-LIAB> 10,394,479 10,394,070
<GROSS-OPERATING-REVENUE> 3,836,054 3,836,054
<INCOME-TAX-EXPENSE> 156,853 156,689
<OTHER-OPERATING-EXPENSES> 3,252,035 3,252,035
<TOTAL-OPERATING-EXPENSES> 3,408,888 3,408,724
<OPERATING-INCOME-LOSS> 427,166 427,330
<OTHER-INCOME-NET> 30,549 30,341
<INCOME-BEFORE-INTEREST-EXPEN> 457,715 457,671
<TOTAL-INTEREST-EXPENSE> 281,604 281,806
<NET-INCOME> 176,111 175,865
33,683 33,683
<EARNINGS-AVAILABLE-FOR-COMM> 142,428 142,182
<COMMON-STOCK-DIVIDENDS> 200,027 200,027
<TOTAL-INTEREST-ON-BONDS> 290,820 290,820
<CASH-FLOW-OPERATIONS> 0 0
<EPS-PRIMARY> 1.12 1.11
<EPS-DILUTED> 1.12 1.11
</TABLE>
