FILE NO. 70-8875
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
(AMENDMENT NO. 6)
TO
FORM U-1
APPLICATION/DECLARATION WITH RESPECT TO (1) PROPOSED REVOLVING CREDIT
FACILITY FOR NORTHEAST UTILITIES ("NU"), THE CONNECTICUT LIGHT AND POWER
COMPANY ("CL&P") AND WESTERN MASSACHUSETTS ELECTRIC COMPANY ("WMECO") AND
(2) INCREASES AND EXTENSIONS OF SHORT-TERM BORROWING LIMITS OF NU, CL&P,
WMECO, PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE,
HOLYOKE WATER POWER COMPANY AND NORTH ATLANTIC
ENERGY CORPORATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Northeast Utilities The Connecticut Light
Western Massachusetts Electric Company and Power Company
174 Brush Hill Avenue 107 Selden Street
West Springfield, MA 01090-0010 Berlin, CT 06037
Holyoke Water Power Company Public Service Company of New Hampshire
Canal Street North Atlantic Energy Corporation
Holyoke, MA 01040 1000 Elm Street
Manchester, NH 03015
(Name of companies filing this statement and addresses of
principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Robert P. Wax, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to
Jeffrey C. Miller, Esq. David R. McHale Richard C. MacKenzie, Esq.
Assistant General Assistant Treasurer - Day, Berry & Howard
Counsel Finance CityPlace I
Northeast Utilities Northeast Utilities Hartford, CT 06103-3499
Service Company Service Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
<PAGE>
1. The Applicants amend the application/declaration in this proceeding to
substitute NAEC's March 31, 1997 financial statements, which are now available,
for its December 31, 1996 financial statements and to add as exhibits the final
versions of the First Amendment and Waiver and the Collateral Agency Agreement,
which sets forth the duties and powers of the collateral agent for the Lenders
under the Facility. In addition, the following exhibits and financial
statements are filed herewith:
(a) Exhibits
*B.4(a) First Amendment and Waiver - Execution Copy
*B.8 Collateral Agency Agreement - Execution Copy
D.8 Certified copy of the Decision of the Connecticut
Department of Public Utility Control approving the
collateralization of the Facility.
*D.10 Certified copy of the Order of the Massachusetts
Department of Public Utilities approving the
collateralization of the Facility.
F.2 Opinion of Counsel.
G.1 Financial Data Schedule for NAEC as of March 31, 1997.
K.2 Schedule of Fees, Commissions and Expenses related to
the matters covered by Post-Effective Amendment No. 2.
* To be filed by amendment.
(b) Financial Statements
1. North Atlantic Energy Corporation
1.1 Balance Sheet, per books and pro forma as of
March 31, 1997.
1.2 Statement of Income, per books and pro forma,
for 3 months ended March 31, 1997 and capital
structure, per books and pro forma, as of March
31, 1997.
2. The Applicants believe that they now have filed all exhibits and
financial statements necessary to enable the Commission to issue an order with
respect to the transactions (the "Transactions") described in Post-Effective
Amendment No. 2 (Amendment No. 4) except for Exhibits B.4(a) and B.8, the final
versions of the First Amendment and Waiver and the Collateral Agency Agreement,
respectively, and Exhibit D.10, the Order of the Massachusetts Department of
Public Utilities approving the collateralization of WMECO's obligations under
the Facility. The Applicants expect to file Exhibits B.4(a), B.8 and D.10 in
the next few days. Accordingly, the Applicants respectively request that, upon
receipt of Exhibits B.4(a), B.8 and D.10, the Commission promptly issue an
order approving the Transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned have duly caused this Amendment to be
signed on behalf of each of them by the undersigned thereunto duly authorized.
Date: May 27, 1997
NORTHEAST UTILITIES
THE CONNECTICUT LIGHT AND POWER COMPANY
WESTERN MASSACHUSETTS ELECTRIC COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
HOLYOKE WATER POWER COMPANY
NORTH ATLANTIC ENERGY CORPORATION
By: Day, Berry & Howard
CityPlace I
Hartford, Connecticut 06103-3499
By: /s/ Richard C. MacKenzie
A Partner
<PAGE>
Exhibit D.8
STATE OF CONNECTICUT
DEPARTMENT OF PUBLIC UTILITY CONTROL
TEN FRANKLIN SQUARE
NEW BRITAIN, CT 06051
DOCKET NO. 97-03-23 APPLICATION OF THE CONNECTICUT LIGHT AND POWER COMPANY
TO ISSUE FIRST AND REFUNDING MORTGAGE BONDS
May 14, 1997
By the following Commissioners:
Thomas M. Benedict
Reginald J. Smith
Glenn Arthur
DECISION
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.1
A. SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.1
B. CONDUCT OF THE PROCEEDING . . . . . . . . . . . . . . . . . . .
.1
C. PARTIES TO THE PROCEEDING . . . . . . . . . . . . . . . . . . .
.1
D. APPLICANT'S PROPOSAL. . . . . . . . . . . . . . . . . . . . . .
.2
1. New Money Bonds . . . . . . . . . . . . . . . . . . . .
.2
2. Collateral Bonds. . . . . . . . . . . . . . . . . . . .
.3
3. Securities and Exchange Commission Jurisdiction . . . .
.4
4. Financial and Credit Rating Issues. . . . . . . . . . .
.5
III. DEPARTMENT ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . .
12
IV. FINDINGS OF FACT . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
V. CONCLUSION AND ORDERS. . . . . . . . . . . . . . . . . . . . . . . . .
16
A. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . .
16
B. ORDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
<PAGE>
DECISION
I. INTRODUCTION
A. SUMMARY
By this Decision, the Department of Public Utility Control approves The
Connecticut Light and Power Company's request to issue and sell first and
refunding mortgage bonds in a total outstanding amount not to exceed $430
million. The Company may proceed with the issuance of the Collateral Bonds at
this time. Final approval of the New Money Bonds will come when the terms are
finalized. This will be done though a reopened hearing. The Department's
review considered the special circumstances of the Company and the best rate
and terms that could be obtained under those circumstances.
B. CONDUCT OF THE PROCEEDING
Pursuant to <section> 16-43 of the General Statutes of Connecticut
(Conn. Gen. Stat.) and by initial application filed on March 21, 1997
(Application), The Connecticut Light and Power Company (CL&P) requested
approval from the Department of Public Utility Control (Department) to issue
first and refunding mortgage bonds. After preliminary review of the
Application, the Department found the Application to be incomplete, lacking key
information (i.e., specific information such as the rates, terms and conditions
of the proposed bond issuance) for the Department to proceed in a timely
manner. By letter dated April 3, 1997, the Department acknowledged receipt of
CL&P's initial Application and requested additional data and information in
order to review the initial Application in a timely fashion. In the same
letter, the Company was notified that for purposes of Conn. Gen. Stat <section>
16-43, the date of the application would be the date of receipt by the
Department of the requested information. The requested information was
received by the Department on April 14, 1997. By Notice of Hearing dated
April 17, 1997, the Department initiated the proceeding and subsequently issued
interrogatories and conducted a public hearing on April 29, 1997, at its
offices, Ten Franklin Square, New Britain, Connecticut. The public hearing
was continued to May 5, 1997, at which time it was closed. A draft Decision
was issued on May 7, 1997, and all parties were given an opportunity
to provide written exceptions to and oral arguments on the draft Decision.
C. PARTIES TO THE PROCEEDING
The Department recognized The Connecticut Light and Power Company, P.O.
Box 270, Hartford, Connecticut 06141-0270 and the Office of Consumer Counsel
(OCC), Ten Franklin Square, New Britain, Connecticut 06051 as parties to the
proceeding.
D. APPLICANT'S PROPOSAL
The Company requests approval to issue and sell first and refunding
mortgage bonds (Bonds) during the period beginning April 21, 1997, through June
30, 1997, in amounts as follows: (i) up to $200 million in principal amount to
be used for new money purposes (New Money Bonds) generally for the repayment of
Short-Term borrowings; (ii) up to $313.75 million in principal amount to secure
and repay borrowings under a revolving credit agreement (Collateral Bonds),
plus (iii) the aggregate principal amount of the Bonds (i.e., New Money
Bonds and Collateral Bonds) in total would not exceed $430 million issued and
outstanding, at any one time. Application, p. 1.
The Bonds issued would be first mortgage bonds providing the holder
with the benefit of a first mortgage lien on substantially all of the Company's
physical property and franchises including the generating substations (but not
the four Yankee nuclear plants), its transmission and distribution facilities
pari passu (i.e., side by side) with other outstanding first mortgage
bonds. In the case of the Collateral Bonds, this first mortgage lien will be
held by the Company's banks. Application, Exhibit A, p. 4. Responses to Data
Requests EL-DR-I and EL-DR-2 provide, respectively, a summary of the terms and
conditions of the Bonds (i.e., New Money Bonds and Collateral Bonds) and a
schematic depicting the relationship between the proposed issuances of bonds.
1. New Money Bonds
The intended use of the $200 million proceeds from the New Money Bonds
is for general working capital purposes and to repay previous Short-Term
borrowings such as bank loans, commercial paper and NU system money pool
borrowings (Short-Term Borrowings). These Short-Term Borrowings were incurred
to finance the Company's maturing debt, sinking fund requirements, working
capital purposes, and costs associated with the Millstone nuclear outages.
Exhibit B.6 of the Application presents an estimate of CL&P's forecasted
requirements for the New Money Bonds and shows that CL&P will require $132
million to meet its external financing requirements over the period January 1,
1997, through June 30, 1997. These funds will be used to finance CL&P's
construction expenditures ($73 M); Nuclear Fuel Trust ($2 M); Maturities and
Sinking Funds ($199 M), and Short-Term Debt/Cash ($109 M). Application,
Exhibit A, pp. 2-3; Exhibit B.6; Response to Data Request EL-DR-1, p. 2.
Exhibit B.1 of the Application sets out the terms of each series of the Bonds
to be issued.
The New Money Bonds would be sold either in a public offering, through
direct negotiations with underwriters, or through private placement, depending
on which option is available at the time of the sale. At this time, CL&P is
eligible to use the SEC's Form S-3 registration and prefers this method.
Should this option not be available at the time of the sale, it would proceed
with a private placement. Under this scenario, the Company would negotiate the
terms and conditions (i.e., price and interest rate) with institutional
investors through an investment banking firm. Regardless of which placement
scenario is selected, CL&P indicates that negotiation for the terms is more
favorable than a sale under a competitive bid scenario because of adverse
publicity regarding the Company's operation of its nuclear plants. Application,
Exhibit A, p. 6.
The New Money Bonds will be identified as First and Refunding Mortgage
Bonds and will have a term of not more than five years. The terms and
conditions of the New Money Bonds will be determined through negotiation.
Application, Exhibit A, pp. 7-8. The effective interest rate CL&P expects to
pay on the New Money Bonds is 8.09% as a 3-year issue and 8.22% as a 5-year
issue. Late Filed Exhibit No. 2. If the Company remains investment grade,
the New Money Bonds will be issued in a public offering utilizing SEC Form S-3.
Should the Company be downgraded, it will consider issuing these bonds under
SEC Form S-I. If this option is too costly, it would issue the New Money Bonds
through private placement. At the time of the issuance of the New Money Bonds,
the Company would request a reopening of this Docket and special meeting to
approve the specific price and terms of these bonds. Application, Exhibit A,
pp. 10-12.
2. Collateral Bonds
On November 21, 1996, the Company entered into a $313.75 million
dollar, three-year revolving credit agreement (Revolving Credit Agreement) with
its banks. At the time of these negotiations, the Revolving Credit Agreement
was unsecured and according to the Agreement, CL&P could borrow up to the
entire $313.75 million at variable interest rates based upon numerous factors.
Application, Exhibit A, p. 3. The original purpose of the Revolving Credit
Agreement was to use the borrowings for general corporate purposes and to
provide funds to restore the Millstone plants to operation and pay for
replacement power. Response to Data Request EL-DR-1, p. 1. Additionally,
since the terms and conditions of the Revolving Credit Agreement have maturity
of less than one year, Department approval of this agreement was not
required. Response to Data Request EL-DR-6.
At this time, CL&P finds it will not be able to meet several financial
covenants, mainly its Interest Coverage Ratio, required by the Revolving Credit
Agreement previously negotiated, primarily as a result of the increased costs
related to the Millstone nuclear outages. Response to Interrogatory EL-1.
CL&P has worked with its banks{1} in an effort to address their concerns
regarding the Revolving Credit Agreement in order to continue access to it, as
it is a crucial element to maintaining its financial flexibility and meet its
working capital needs at this difficult time. To continue the Revolving Credit
Agreement, the Banks require that they be issued first mortgage bonds as
security. As a result of what transpired with the Banks, CL&P seeks to issue
$313.75 million dollars in first mortgage bonds (i.e., Collateral Bonds) to
"cover" the Banks request for additional security on the Revolving Credit
Agreement. Additionally, because of the Company's current financial condition,
the Banks are only willing to amend the Revolving Credit Agreement on the
condition that they receive first mortgage bonds as security. Application,
Exhibit A, pp. 4-5.
The Collateral Bonds will be issued directly to the Banks through
Citibank, N.A., as collateral agent. The terms and conditions of the
Collateral Bonds will be negotiated between the Company and the Banks prior to
issue. Application, Exhibit A, p. 7. The Collateral Bonds will be identified
as First and Refunding Mortgage Collateral Bonds and will have a term of not
more than three years. The anticipated terms will reflect the terms and
conditions of the underlying credit obligation. These bonds will bear interest
sufficient to pay all interest on the Revolving Credit Agreement and associated
fees. Application, Exhibit A, pp. 7-8. The Collateral Bonds will never bear
interest in excess of 11.5%. Supplemental Testimony, p. 1. CL&P expects to
pay an effective interest rate (i.e., all-in costs) of 7.313%, with its split
rating, using the Federal Funds rate as benchmark on the Collateral Bonds.
Late Filed Exhibit No.2, and CL&P Written Exceptions, p. 3. Since the
Collateral Bonds are issued as a security for the repayment of credit
borrowings to the Banks, these issuances will not require a registration
statement or a private placement memorandum. Application, Exhibit A, p. 12.
The Company requested the opportunity to issue the Collateral Bonds to
its banks without further reopening of this docket and a special meeting to
approve the price and terms thereof as these bonds will be issued as security
on the Company's Revolving Credit Agreement. Since the terms of the Collateral
Bonds will coincide with the indebtedness incurred as a result of the Revolving
Credit Agreement, the Company believes the information provided in this
Application is sufficient. Application, Exhibit A, pp. 13-15.
3. Securities and Exchange Commission Jurisdiction
According to the Company, the Securities and Exchange Commission (SEC)
has jurisdiction over the issuance and sale of the Bonds. Under Rule 52 of the
Public Utility Holding Company Act of 1935 (1935 Act) no SEC approval is
required as long as CL&P gains the Department's approval to issue and sell the
Bonds. As long as the Company remains investment grade, it is eligible to use
SEC Form S-3 under Rule 415 of The Securities Act of 1935. CL&P will use a
basic prospectus as filed in Exhibit B.4 of the Application, in the
solicitation of the New Money Bonds. Should the Company be downgraded below
investment grade, it will proceed by registering the New Money Bonds under SEC
Form S-1. This form is much more complex and more costly to process than Form
S-3. In such circumstance, the Company would reconsider the advisability of
the issue. The Company could consider a private placement of the New Money
Bonds utilizing an offering memorandum. Application, Exhibit A, pp. 11-12.
4. Financial and Credit Rating Issues
In its initial preparation its financial analyses regarding the
issuance of these Bonds, the Company assumed: (1) the New Money Bonds (i.e., up
to $200 M) would be issued at an assumed interest rate of 7.75%, Response to
Interrogatory EL-7; (2) the Collateral Bonds would bear interest rates
sufficient to cover the Revolving Credit Agreement to a maximum of 11.5%,
and (3) the issuance of the Bonds would not result in its credit rating being
downgraded below investment grade.{2} At the hearing, CL&P notified the
Department that its credit rating had been downgraded by Moody's Investor's
Service (Moody's) to Bal, which is below investment grade. At that time, CL&P
stated it knew of no similar action pending by Standard and Poor's Investors
Service (S&P), thus it now was in the position of having a split credit rating
- -- one of investment grade by S&P and one below investment grade by Moody's.
Application, Exhibit A, p. 13; Responses to Interrogatories EL-13 and EL-22;
Responses to Data Requests EL-DR-3 and EL-DRA; Late Filed Exhibit No.2; Tr.
4/29/97, p.11-12.
In response to the Department's request for additional data, the
Company provided an analysis of the effect of issuing the New Money Bonds, the
Collateral Bonds and the Bonds (i.e., both types in combination) to its capital
structure valued as of December 31, 1996, and based upon the Company's latest
information. The results utilizing actual Company ROE are presented below:
NEW MONEY BONDS (Split Rating):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Actual Pro Forma after
12/31/96 Issuance
Component Weight Cost Weighted Weight Cost Weighted
(%) (%) Cost (%) (%) Cost
Short-Term Debt - - - - - -
Long-Term Debt 53.11% 6.97% 3.70% 55.65% 7.10% 3.95%
Preferred Stock 7.58% 6.44% 0.49% 7.71% 6.44% 0.46%
Minority Interest 2.77% 10.17% 0.28% 2.62% 10.17% 0.27%
Common Equity 36.54 % -7.77% - 2.84% 34.57% -7.77% -2.69%
Weighted Average Cost of 1.634% 100.00% 1.99%
Capital (WACC)
</TABLE>
COLLATERAL BONDS (Split Rating):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Actual Pro Forma after
12/31/96 Issuance
Component Weight Cost Weighted Weight Cost Weighted
(%) (%) Cost (%) (%) Cost
Short-Term Debt -- -- -- 8.31% 6.95% 0.58%
Long-Term Debt 53.11% 6.97% 3.70% 48.69% 6.97% 3.39%
Preferred Stock 7.58% 6.44% 0.49% 6.95% 6.44% 0.45%
Minority Interest 2.77% 10.17% 0.28% 2.54% 10.17% 0.26%
Common Equity 36.54% -7.77% -2.84% 33.51% -7.77% -2.60%
Weighted Average 1.63% 100.00% 2.07%
Cost of Capital (WACC)
</TABLE>
COMBINED BONDS (Split Rating):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Actual Pro Forma after
12/31/96 Issuance
Component Weight Cost Weighted Weight Cost Weighted
(%) (%) Cost (%) (%) Cost
Short-Term Debt - - - 5.91% 6.96% 0.41%
Long-Term Debt 53.11% 6.97% 3.70% 52.36% 7.10% 3.72%
Preferred Stock 7.58% 6.44% 0.49% 6.75% 6.44% 0.43%
Minority Interest 2.77% 10.17% 0.28% 2.46% 10.17% 0.25%
Common Equity 36.54% -7.77% -2.84% 32.53% -7.77% -2.53%
Weighted Average Cost of 1.63% 100.00% 2.24%
Capital (WACC)
</TABLE>
Response to Data Request EL-DR-3; Late Filed Exhibit No. 2; Tr. 4/29/97,
p. 31-35.
The above tables show the impact of the proposed financings given the
negative actual return on equity (ROE) for 1996 operating results. CL&P also
provided additional data showing the impact of the financings on the capital
structure utilizing the Department authorized ROE. Response to Data Request
EL-DR-3; Response to Interrogatory EL-20. The results utilizing the
allowed ROE of 11.7% are presented below:
NEW MONEY BONDS (Split Rating):
<TABLE>
<CAPTION>
Actual with Allowed ROE Pro Forma after
12/31/96 Issuance
<S> <C> <C> <C> <C> <C> <C>
Component Weight Cost Weighted Weight Cost Weighted
(%) (%) Cost (%) (%) Cost
Short-Term Debt - - - - - -
Long-Term Debt 53.11% 6.97% 3.70% 55.65% 7.09% 3.95%
Preferred Stock 7.58% 6.44% 0.49% 7.17% 6.44% 0.46%
Minority Interest 2.77% 10.17% 0.28% 2.62% 10.17% 0.27%
Common Equity 36.54% 11.70% 4.28% 34.56% 11.70% 4.04%
Weighted Average Cost 8.75% 100.00% 8.72%
of Capital (WACC)
</TABLE>
COLLATERAL BONDS (Split Rating):
<TABLE>
<CAPTION>
Actual with Allowed ROE Pro Forma after
12/31/96 Issuance
<S> <C> <C> <C> <C> <C> <C>
Component Weight Cost Weighted Weight Cost Weighted
(%) (%) Cost (%) (%) Cost
Short-Term Debt - - - 8.31% 6.95% 0.58%
Long-Term Debt 53.11% 6.97% 3.70% 48.69% 6.97% 3.39%
Preferred Stock 7.58% 6.44% 0.49% 6.95% 6.44% 0.45%
Minority Interest 2.77% 10.17% 0.28% 2.54% 10.17% 0.26%
Common Equity 36.54% 11.70% 4.28% 33.51% 11.70% 3.92%
Weighted Average Cost of 8.75% 100.00% 8.60%
Capital (WACC)
</TABLE>
COMBINED BONDS: (Split Rating):
<TABLE>
<CAPTION>
Actual with Allowed ROE Pro Forma after
12/31/96 Issuance
<S> <C> <C> <C> <C> <C> <C>
Component Weight Cost Weighted Weight Cost Weighted
(%) (%) Cost (%) (%) Cost
Short-Term Debt - - - 5.91% 6.96% 0.41%
Long-Term Debt 53.11% 6.97% 3.70% 52.36% 7.10% 3.72%
Preferred Stock 7.58% 6.44% 0.49% 6.75% 6.44% 0.43%
Minority Interest 2.77% 10.17% 0.28% 2.46% 10.17% 0.25%
Common Equity 36.54% 11.70% 4.28% 32.52% 11.70% 3.81%
Weighted Average Cost of 8.75% 100.00% 8.62%
Capital (WACC)
</TABLE>
Response to Data Request EL-DR-3; Late Filed Exhibit No. 2; Tr. 4/29/97,
pp. 31-35.
The response to EL-DR-4 is an exhibit depicting the all-in spread{3}
over current comparable maturity Treasury yields for the proposed bond issues.
In this initial estimate of the New Money Bonds, the all-in spread over
Treasuries range between 1.363% for 3-year issues and 1.554% for 5-year issues
assuming no change in credit rating.
The Company stated its investment bankers notified them that the effect
of the Moody's downgrading would result in a 10 basis point (bp) penalty for
its estimated spread over Treasuries and an additional 50 bp penalty to its
underwriting commission fees for a 3-year issue. A worse case scenario, being
additionally downgraded by S&P, would result in a 25 bp penalty for spread over
Treasuries and an additional 75 bp penalty to its underwriting commission fee
for a 3-year issue. For the New Money Bonds, the all-in spread over Treasuries
ranges between 1.629% for 3-year issues and 1.578% for 5-year issues with its
split credit rating and between 2.129% for 3-year issues and 1.878% for 5-year
issues assuming it is also downgraded by S&P. The Company stated that the
effect of the issuance under a private placement scenario would raise the all-
in spread over Treasuries even more as the Investment Banker would require a
higher (200 bp) underwriting fee. The Company stated it was indifferent to the
issuance term, and it would gauge the maturity term to investors preferences.
Additionally, it was considering "sweeteners" such as call protection and
additional dividend restrictions when it structures these bonds such that they
are attractive to Short-Term investors. Given the Company's limited knowledge
as to how investors would react to these bonds, specifics regarding the
premiums these "sweetners" could command were not readily available.
Responses to Interrogatories EL-7 and EL-8; Response to Data Request EL-DR-4;
Late Filed Exhibit No. 2; Tr. 4/29/97, pp. 37-40. The Company also stated that
any surplus funds issued through the New Money Bonds would be invested in the
NU System pool to be lent to other NU subsidiaries. Response to Interrogatory
EL-11; Tr. 4/29/97, pp. 40-41; pp.76-81.
For the Collateral Bonds, the all-in spread over the Federal Funds rate
was initially estimated at 0.763% and increased to 1.813% with the Moody's
downgrade. Assuming CL&P is downgraded by both agencies, it would still incur
a 1.813% all-in spread over the Federal Funds rate. The rate paid will not be
a fixed coupon rate, but would be matched to the variable rate borrowed under
the Revolving Credit Agreement, and vary with CL&P's actual needs. Response
to Data Request EL-DR-4; Late Filed Exhibit No.2; Tr. 4/29/97, pp. 37-40.
The Company also provided an analysis showing the proposed financings
effect on its long-term debt and solvency ratios. These ratios are key
determinants used by credit rating agencies in setting a company's rating on
its outstanding debt. Although the Company expects no change to its rating as
a result of this financing, the financial ratios developed show mixed
results. The table below presents a summary of the key financial ratios and
the pro-forma impact of the Bonds, valued at December 31,1996.
<TABLE>
<CAPTION>
Financial Ratio: Actual Pro-Forma Impact
(Split Rating)
<S> <C> <C> <C>
(valued 12/31/96)
pre-tax interest coverage; 0.92x 0.91x decrease
net cash flow/total debt 13.68% 11.26% decrease
cash flow interest coverage 3.34x 2.86x decrease
times interest earned. 0.34x 0.44x increase
debt/equity 1.30x 1.56x increase
long-term debt/total capital 54.75% 53.96% decrease
total fixed charge coverage 0.94x 0.93x decrease
cash flow/total debt 13.68% 11.26% decrease
</TABLE>
Response to Data Request EL-DR-5; Late Filed Exhibit No. 2.
Lastly, given the recent developments regarding Moody's downgrading to
below investment grade and the need to satisfy the Bank's requirements for
additional security in order to keep the Revolving Credit Agreement in place,
the Company expressed the gravity of its situation in its remarks. These
clearly indicate that its future ability to function and maintain financial
flexibility rests on the Department's approval of this financing to secure the
Revolving Credit Agreement and issue new money for working capital purposes:
A rejection of these proceedings and a narrowing of the credit
available to the [C]ompany could cause a much more rapid and
unsatisfactory resolution. . . . If this [Application] were rejected,
we would have to go back and figure it out, but I don't think it is a
signal that would be taken very well.
Tr. 4/29/97, pp. 9 and 90, and pp. 93-94.
The Company also stated that at this time it was merely seeking
approval to proceed with the issuance of the Bonds, and it would seek recovery
of all prudently incurred costs at the time of its next rate proceeding.
Response to Interrogatory EL-17. Additionally, the Company stated that its
accounting procedures allowed it to identify separately financing costs
associated with the current nuclear outages. Response to Interrogatory EL-1 4;
Tr. 4/29/97, p. 47.
III. DEPARTMENT ANALYSIS
Overall, the goal of the Company's financing proposal is to maintain
its financial flexibility in light of the continued nuclear outages at its
Millstone plants and additional request for security made by the Banks. The
Application describes two uses for the proceeds of the Bonds. The first is to
issue Collateral Bonds to the Banks to provide security and maintain
access to the funds provided under the Revolving Credit Agreement to meet the
additional expenses incurred by the nuclear outages. The second is to issue
New Money Bonds to raise funds for its continued working capital needs during
this difficult financial situation. Overall, the Department believes that the
need to issue both New Money Bonds and, especially, the Collateral Bonds is
primarily a result of the Company's increased risk profile and cash
requirements resulting from the continued outages at its nuclear plants.
Additionally, the Department finds that as a result of CL& P's recent
(April 29, 1997) Moody's credit rating downgrade, the cost of the Bonds
issuance has increased by at least a 10 bp penalty in the yield spread over
comparable Treasuries as a result of the increased credit rating riskiness of
the Company. Should the Company be further downgraded by S&P, it expects to
incur a 25 bp penalty for a double downgrading. In addition to the Treasury
spread penalty, the result of Moody's downgrading is to increase the commission
fee required by the investment banking firm in the placement of the New Money
Bonds. Tr. 4/29/97, pp. 37-40.
In evaluating the appropriateness of a bond issue, the Department
generally reviews several qualitative and quantitative issues. The key
financial ones are: (1) the cost of the issue (i.e., all-in spread over
Treasuries); (2) the effect on the capital structure and WACC, and (3) the
effect on the Company's credit rating and future creditworthiness. The
Department's analysis of these issues reveals that under more normal
circumstances, the issue of the Bonds, both New Money and Collateral, would
probably not be approved without further modification of some of the aspects of
the Company's proposal.
For example, the cost of the issue reveals that all-in spread over
Treasuries rose dramatically in total (from 1.363% to 1.629% for a 3-year
issue) as a result of the Moody's downgrading. At minimum, the additional cost
of the Moody's downgrading is an initial 60 bp (combination of 10 bp penalty in
spread over Treasuries and a 50 bp additional underwriting fees) penalty in the
public placement of the New Money Bonds. These costs could rise even
more (a total 200 bp or a 150 bp increase over the initial estimate for
underwriting commission fee) and if the Company is forced to do a private
placement /or receives an additional downgrading by S&P (i.e., an additional
125 bp over the initial estimate for all-in spread over Treasuries). Relating
the minimum 60 bp penalty to the funds the Company will receive from
the initial issuance, the Company could incur the loss of $1.2 million in funds
as a result of the downgrading alone.{4}
The Bonds issuance should have a negative impact on the Company's
capital structure. Utilizing actual data (i.e., with negative ROE and split
rating) valued at December 31, 1996, and evaluating the issuance of the Bonds,
both individually and combined, the Department finds that effect of the
(independent) issue of the New Money Bonds could raise the embedded cost of
Long-Term debt slightly, from 6.97% to 7.10% pro forma, and the weighted
percentage of Long-Term debt in the capital structure from 53.11% to 55.64% pro
forma. The combined effect of the increased weight and cost of the Long-Term
debt is to increase the weighted average cost of capital (WACC) from 1.63% to
1.99% pro forma. Evaluating the (independent) issue of the Collateral Bonds,
reveals a similar pattern. The effect is to increase the Short-Term
debt weight and cost, respectively, from 0% and 0% to 8.31% and 6.95% pro
forma. The effect of the Collateral Bond's issue is to raise the WACC from
1.63% to 2.07% pro forma. Evaluating the combined effect of the New Money
Bonds and the Collateral Bonds reveals that Short-Term debt weight and cost
rise, respectively, from 0% and 0% to 5.91 % and 6.96%, while the Long-
Term debt weight slightly decreases from 53.11% to 52.35% pro forma and the
Long-Term debt cost rises from 6.97% to 7.10% pro forma. The combined impact
of the issuance to the WACC is to increase it from 1.63% to 2.29% pro forma.
In evaluating these results, based upon actual data (i.e., negative ROE
and split rating), the Department finds that the combined issuance increases
the WACC more than either of the independent issuances. Additionally, it
appears that the combined issuance's higher increase in the WACC is driven by
the issuance of the Short-Term debt--the Collateral Bonds. While Department
approval is not required regarding the Company's management of its Short-Term
debt, the spill over effect of the Company's Revolving Credit Agreement
negotiations have now entered the realm of the Department's review as the
Company is requesting authority to issue the Collateral Bonds to provide
additional security for the Revolving Credit Agreement. Late Filed Exhibit No.
2.
The overall impact of the bond's issuance, using actual data, is to
increase the WACC. In general, a pro forma increase to WACC is considered a
worsening of the capital structure, while a pro forma decrease to WACC is an
improvement.
The Department has considered the Company's position that using actual
negative ROE results, due to Millstone outages, shows a distorted view of the
proposed financings and the situation is an anomaly that will turn around
eventually and return the ROE to its positive level. Indeed, imputing the
allowed ROE of 11.7% to actual and pro forma results after the issuance of
the bonds shows WACC would decrease from 8.75% to 8.62% pro forma with the
split rating. Although these results reveal a slightly positive effect on the
WACC and the firm's capital structure, the Department is reluctant to consider
these results in lieu of the results using actual figures. Late Filed Exhibit
No. 2
The improved results are based on the Company's assumption that its
allowed ROE, which was set by the Department in CL&P's last general rate case,
is a better indicator of profitability than its actual ROE. Although the
Company's allowed ROE assumption provides comfort that these proposed issuances
under more normal circumstances would not have a negative influence on the
capital structure, at this time, the Department finds that utilizing the
Company's actual ROE assumption appropriately reflects the reality of the
situation. If the financial situation were more normal, this proposed issuance
would not be necessary. It is important to review the issuance using the most
up-to-date and accurate data. Also, under normal circumstances the Department
would probably not authorize, without some modification, an issuance that would
have a negative impact on the Company's capital structure.
In its initial presentation the Company stated the proposed financing
would not result in a change to its credit rating. In the course of the
proceeding, the Company's Moody's credit rating was downgraded. The Department
finds that the proposed issuances should have a slightly negative impact on the
financial ratios rating agencies typically review. On a stand alone basis,
this result would imply that the Company could be downgraded further. In
actuality, credit rating agencies review both quantitative (i.e., financial
ratios) and qualitative factors to determine a firm's credit rating. For
example, S&P's analysis reveals that CL&P's financial flexibility is an issue
S&P has relied upon to continue to rate the Company an investment grade
BBB-. At this time the Department finds the credit rating issue yields mixed
results.
Overall, the Department's analysis of the financial concerns typically
reviewed reveals unfavorable results. The overriding piece of evidence
presented is the Company stated position that it needs authority to proceed
with the Bonds issuance to maintain its financial needs and meet its working
capital needs. At this juncture, the Department does not want to impede the
Company's continued efforts to maintain its financial flexibility.
Consequently, the Department authorizes the Company to proceed with both
financing proposals as presented in written and oral testimony. The Department
notifies the Company that it is being provided merely with approval to proceed
with the financings based upon testimony which emphasized CL&P's urgency at
this time. This approval to proceed should not be interpreted as approval with
respect to the prudence of costs involved with the issuances.
IV. FINDINGS OF FACT
1. To maintain its Revolving Credit Agreement, the Company is required to
provide security, in the form of Collateral Bonds, to its Banks.
2. The proposed financing transaction will result in a bond issuance in
aggregate amount up to $430 million to be issued and outstanding at any
one time (the Bonds).
3. The Bonds comprise Collateral Bonds (up to $313.71 million) and New
Money Bonds (up to $200 million).
4. The New Money Bonds will be used primarily to repay Short-Term
borrowings.
5. The Collateral Bonds will be used to provide security for the Company's
Banks in order to maintain the Revolving Credit Agreement in place.
6. The Revolving Credit Agreement is a key element to maintain CL&P's
financial flexibility.
7. The proposed financing transaction will include the issuance of First
Mortgage Bonds using substantially all of CL&P's physical property and
franchises as collateral.
8. Under the Revolving Credit Agreement, the Company currently pays about
6% interest on these funds.
9. The Company was downgraded to Ba1 by Moody's Investors Service on April
28, 1997.
10. The result of the Moody's downgrade is that the Company incurs an
initial minimum of a 60 bp penalty (i.e., comprised of 10 bp penalty in
estimated spread over treasuries and 50 bp penalty for underwriting
commission) to the All-in Spread Over Treasuries it anticipates paying
for the New Money Bonds.
11. The effective interest rate CL&P expects to pay, with its split rating,
on the New Money Bonds is 8.09% on a 3 year issue and 8.22% as a 5 year
issue.
12. CL&P expects to pay an effective interest rate (i.e., all-in costs) of
7.313% on the Collateral Bonds, with its split rating, using the
Federal Funds rate as benchmark.
13. The All-in Spread over the Federal Funds rate is 1.813% with the split
rating.
14. The financing transaction using actual data (i.e., actual earned ROE
and split credit rating) increases the Company's WACC by 66 bps from
1.63% to 2.29%.
15. The financing transaction using the Company's allowed ROE of 11.7%
decreases the WACC by 13 bps from 8.75% to 8.62%.
16. The Bonds issuance appears to have a negative effect on the financial
ratios used by credit rating agencies.
17. The Company will invest any surplus funds from the Bonds issuance to
the NU System Money Pool.
V. CONCLUSION AND ORDERS
A. CONCLUSION
The Department grants approval for CL&P to proceed with the proposed
financing transaction (i.e., issuing First and Refunding Mortgage Bonds
consisting of a combination of up to $200 million in New Money Bonds and up to
$313.75 million in Collateral Bonds, the total of the combination being no more
than $430 million to be issued and outstanding at any one time). In light of
the current nuclear outages and its financial condition, the Department finds
the financing transaction necessary to maintain the Company's financial
flexibility by retaining its Revolving Credit Agreement with its Banks and to
meet its working capital needs. The instant approval does not extend to
affirming the merits of the actual financing transaction, which the Department
specifically considers to be a business decision by CL&P made at its own risk.
The Department reserves consideration of recovery of the related expenses to
such time as recovery is requested. The Department's approval is contingent
upon and subject to the Orders set forth below.
B. ORDERS
For the following Orders, please submit to the Executive Secretary an
original and six (6) copies of the requested material, identified by Docket
Number, Title (specify reopening) and Order Number.
1. At such a time as the Company elects to request rate recovery of the
costs associated with this Application, the Company shall notify the
Department as to the method of recovery and with which Application the
recovery is requested. The Company shall provide details of the
related expenses for which the Company requests recovery in its
notification.
2. The financing transaction shall be as specified by the Company in its
Application and no further material written or oral supplements to or
material modifications to the transaction shall be executed without
prior written approval of the Department.
3. The proceeds from the Bonds shall be used by the Company for the
purposes specified in its Application and not for non-utility purposes,
other than pursuant to short-term investments in the Northeast
Utilities' System money pool. The Company shall furnish to the
Department within 90 days from issuance of the Bonds, a statement
showing the actual amount of dollars taken and a statement reflecting
how the proceeds are used.
4. Within 90 days from the issuance of the New Money Bonds, the Company
shall provide the Department with an itemization of all expenses
actually incurred in the transaction costs and expenses.
5. At such time as the terms and conditions of the Collateral Bonds
change, the Company shall, within 30 days of the change, provide the
Department with the new terms and conditions, including but not limited
to: (1) the All-in Spread over Federal Funds, and (2) the All-in Costs
(i.e., interest rate actually paid).
6. At such time as the terms and conditions of the New Money Bonds are
established and/or subsequently changed, the Company shall provide the
Department with terms and conditions during a reopening of this
proceeding, including but not limited to: (1) Treasury yield; (2)
Estimated Spread Over Treasuries; (3) Coupon; (4) Underwriters
commission; (5) the All-in Costs (i.e., interest rate actually paid),
and (6) the All-in Spread over Treasuries.
7. The Company will submit, within 60 days of completion of the financing
transaction, an exhibit showing the actual all-in spread over current,
comparable maturity treasury yield for the Bond's issue (i.e., New
Money Bonds and Collateral Bonds), such as that provided in Response to
Interrogatories EL-DR-4.
8. The Company will submit, within 60 days of completion of the financing
transaction, an exhibit showing the effect the proposed financing has
on its capital structure and its financial ratios used by credit rating
agencies, such as those provided in Responses to Interrogatories EL-DR-
3 and EL-DR-5.
9. In future financing applications (i.e., bond issuances and bond
refinancing, et al), the Company is instructed to provide, at minimum,
exhibits similar to those requested by the Department in EL-DR-1; EL-
DR-2; EL-DR-3; EL-DR-4, and EL-DR-6. In addition, the Company should
provide any and all information the Company deems necessary for the
Department to conduct a full and accurate review.
**FOOTNOTES**
{1} These banks are: Citibank, N.A.; Toronto Dominion (New York), Inc.;
Fleet National Bank; CIBC Inc.; The First National Bank of Boston;
Barclays Bank PC; Mellon Bank, N.A.; Union Bank of Switzerland, New
York Branch; Swiss Bank Corporation; The Yasuda Trust and Banking
Co.; LTD New York Branch, and Union Bank of California, N.A. These
banks will be collectively referred to as the Banks.
{2} Currently, Northeast Utilities Systems is rated BB- and CL&P is rated
BBB- by S&P, while Moody's CL&P rating is Bal. A rating below BBB-
would result in a non-investment grade credit rating under S&P's
rating criteria, while Bal is the highest non-investment grade rating
available under Moody's criteria. Response to Interrogatory EL-22;
Late Filed Exhibit No.1; Tr 4/29/97, pp. 11-12.
{3} The all-in cost refers to the cost measured in basis points that the
Company will pay over comparable treasury securities. These costs
include: the additional costs associated with the Company's riskiness
over comparable treasuries (i.e., treasury securities are considered
riskless) and the underwriting commission fees.
<PAGE>
DOCKET NO. 97-03-23 APPLICATION OF THE CONNECTICUT LIGHT AND POWER COMPANY
TO ISSUE FIRST AND REFUNDING MORTGAGE BONDS
This Decision is adopted by the following Commissioners:
Thomas M. Benedict
Reginald J. Smith
Glenn Arthur
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.
/s/ Robert J. Murphy 5/22/97
Robert J. Murphy Date
Executive Secretary
Department of Public Utility Control
<PAGE>
Exhibit F.2
May 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Northeast Utilities
The Connecticut Light and Power Company
Western Massachusetts Electric Company
Holyoke Water Power Company
Public Service Company of New Hampshire
North Atlantic Energy Corporation
File No. 70-8875
Ladies and Gentlemen:
I am Assistant General Counsel of Northeast Utilities Service Company
("NUSCO"), a service company affiliate of Northeast Utilities ("NU"). I have
acted as counsel to NU, The Connecticut Light and Power Company, Western
Massachusetts Electric Company ("WMECO") and North Atlantic Energy Corporation
("NAEC") (collectively, the "Applicants") in connection with the transactions
contemplated by Post-Effective Amendment No. 2 to the Application/Declaration
in the above referenced file (as amended, the "Application"). This opinion is
given to you with respect to such transactions pursuant to your Instructions as
to Exhibits to applications and declarations filed on Form U-1. Except as
otherwise defined herein, terms used herein shall have the meanings given them
in the Application.
In connection with this opinion, I have reviewed or caused to be
reviewed the Application and the exhibits thereto, the Applicants' charter
documents, as amended to the date of this opinion, the proceedings of their
shareholders and boards of directors to date and such other papers, documents
and records, and have made or caused to be made such examination of law, as I
deemed relevant and necessary in order to give this opinion. I have assumed
that in respect of the Application an appropriate order of the Commission under
the Public Utility Holding Company Act of 1935 will be issued and all actions
of the Applicants will be in conformity therewith.
The opinions set forth herein are qualified in their entirety as
follows: (a) every opinion rendered herein is expressly subject to the
consummation of such transactions in accordance with the Application using
documents substantially similar to those filed with the Application; (b) no
opinion is expressed as to any laws other than the federal laws of the United
States and the laws of the States of Connecticut and New Hampshire and the
Commonwealth of Massachusetts; (c) insofar as any opinion relates to the
Declaration of Trust of NU or the Certificate of Incorporation or Bylaws of any
other Applicant, I have assumed that the Declaration of Trust and that
Certificate and those Bylaws will not be amended between now and the time the
transactions contemplated by the Application are consummated; and (d) no
opinion is expressed as to the securities laws of any state.
Based on and subject to the foregoing, I am of the opinion that:
1. All state laws applicable to each of the transactions for which
the Commission's approval is sought will have been complied with at the time
each transaction is consummated.
2. NAEC is validly organized and duly existing under the laws of
the State of New Hampshire.
3. The obligations to be issued on behalf of NAEC through the
Northeast Utilities System Money Pool pursuant to the terms of such Money Pool,
when issued, sold or renewed, will be the valid and binding obligations of NAEC
in accordance with their respective terms.
4. NAEC will legally acquire the appropriate interest in any
obligation to be acquired by it from any other member of the Money Pool
pursuant to the terms of such Money Pool.
5. The consummation of the transactions for which the Commission's
approval is sought will not violate the legal rights of the holders of any
securities issued by any of the Applicants or any associate company of such
Applicants.
I note that the Massachusetts Department of Public Utilities has not
approved loans from WMECO to NAEC, and thus, until such approval has been
given, NAEC may not borrow through the Money Pool from funds contributed to the
Money Pool by WMECO.
I hereby consent to the use of this opinion in connection with the
filing of the Application.
I am a member of the Bar of the State of New York. As to matters
involving the laws of other jurisdictions, I have made a study of such laws and
consulted with lawyers employed by NUSCO who are admitted to the Bars of such
other jurisdictions.
Very truly yours,
/s/ Jeffrey C. Miller
Jeffrey C. Miller
Assistant General Counsel
Northeast Utilities Service Company
<PAGE>
EXHIBIT K.2
SCHEDULE OF FEES, COMMISSIONS AND EXPENSES
Legal Fees
Counsel to the Applicants
Legal Fees $ 45,000
Disbursements $ 2,000 $ 47,000
Counsel to the Lenders
Legal Fees $110,000
Disbursements $ 10,000 $120,000
Northeast Utilities Service Company
(Legal, Financial, Accounting and Other Services) $ 25,000
Total Estimate of Fees, Commissions and Expenses $192,000
<PAGE>
NORTH ATLANTIC ENERGY COR Exhibit G.1
FINANCIAL DATA SCHEDULE
AS OF MARCH 31, 1997
(THOUSANDS OF DOLLARS)
PRO FORMA
GIVING EFFECT
ITEM TO PROPOSED
# DESCRIPTION PER BOOK TRANSACTION
1 Total Net Utility Plant 689,153 689,153
2 Other Property and Investments 20,826 20,826
3 Total Current Assets 34,969 74,219
4 Total Deferred Charges 267,674 267,674
5 Balancing amount for Total Assets 0 0
6 Total Assets 1,012,622 1,051,872
7 Common Stock 1 1
8 Capital Surplus, Paid In 160,999 160,999
9 Retained Earnings 35,989 34,684
10 Total Common Stockholders Equity 196,989 195,684
11 Preferred Stock Subject to Mandatory Rede 0 0
12 Preferred Stock Not Subject to Mandatory 0 0
13 Long Term Debt, Net 495,000 495,000
14 Short Term Notes 20,750 60,000
15 Notes Payable 0 0
16 Commercial Paper 0 0
17 Long Term Debt-Current Portion 20,000 20,000
18 Preferred Stock-Current Portion 0 0
19 Obligations Under Capital Leases 0 0
20 Obligations Under Capital Leases-Current 0 0
21 Balancing amount of Capitalization and Li 279,883 281,188
22 Total Capitalization and Liabilities 1,012,622 1,051,872
23 Gross Operating Revenue 167,466 167,466
24 Federal and State Income Taxes Expense 12,923 12,069
25 Other Operating Expenses 97,324 97,324
26 Total Operating Expenses 110,247 109,393
27 Operating Income (Loss) 57,219 58,073
28 Other Income (Loss), Net 12,529 12,529
29 Income Before Interest Charges 69,748 70,602
30 Total Interest Charges 37,627 39,786
31 Net Income 32,121 30,816
32 Preferred Stock Dividends 0 0
33 Earnings Available For Common Stock 32,121 30,816
34 Common Stock Dividends 0 0
35 Total Annual Interest Charges on All Bond 51,534 51,534
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
<PAGE>
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEET
AS OF MARCH 31, 1997
(THOUSANDS OF DOLLARS)
FINANCIAL STATEMENT 1.1 PAGE 1 OF 2
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
ASSETS
UTILITY PLANT, AT ORIGINAL COST:
ELECTRIC $775,280 $775,280
LESS: ACCUMULATED PROVISION FOR
DEPRECIATION 129,297 129,297
------------------------------------------
645,983 0 645,983
CONSTRUCTION WORK IN PROGRESS 9,965 9,965
NUCLEAR FUEL, NET 33,205 33,205
------------------------------------------
TOTAL NET UTILITY PLANT 689,153 0 689,153
OTHER PROPERTY AND INVESTMENTS:
NUCLEAR DECOMMISSIONING TRUST,
AT MARKET 20,826 20,826
------------------------------------------
TOTAL OTHER PROP. & INVEST. 20,826 0 20,826
CURRENT ASSETS:
CASH AND SPECIAL DEPOSITS 4,834 39,250 (a) 44,084
RECEIVABLES FROM AFFILIATED COMPANIES 14,370 14,370
NOTES RECEIVABLE FROM AFFILIATES 0
TAXES RECEIVABLE 0
FUEL, MATERIALS, AND SUPPLIES, AT
AVERAGE COST 13,679 13,679
PREPAYMENTS AND OTHER 2,086 2,086
------------------------------------------
TOTAL CURRENT ASSETS 34,969 39,250 74,219
DEFERRED CHARGES:
UNAMORTIZED DEBT EXPENSE 4,421 4,421
DEFERRED COST - SEABROOK 190,094 190,094
REGULATORY ASSET - INCOME TAXES 47,185 47,185
DEFERRED DOE ASSESSMENT 23,808 23,808
OTHER DEFERRED DEBITS 2,166 2,166
------------------------------------------
TOTAL DEFERRED CHARGES 267,674 0 267,674
------------------------------------------
TOTAL ASSETS $1,012,622 $39,250 $1,051,872
*EXPLANATION AT FINANCIAL STATEMENT 1.2 PAGE 3 OF 3
<PAGE>
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEET
AS OF MARCH 31, 1997
(THOUSANDS OF DOLLARS)
FINANCIAL STATEMENT 1.1 PAGE 2 OF 2
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
COMMON SHARES $1 $1
CAPITAL SURPLUS, PAID IN 160,999 160,999
RETAINED EARNINGS 35,989 (1,305) 34,684
------------------------------------------
TOTAL COMMON STOCKHOLDER EQUITY 196,989 (1,305) 195,684
LONG-TERM DEBT 495,000 495,000
------------------------------------------
TOTAL CAPITALIZATION 691,989 (1,305) 690,684
CURRENT LIABILITIES:
NOTES PAYABLE TO AFFILIATED COMPANY 20,750 39,250 (a) 60,000
ACCOUNTS PAYABLE 9,548 9,548
LONG TERM DEBT CURRENT PORTION 20,000 20,000
ACCRUED TAXES 1,365 (854)(c) 511
OTHER 344 344
ACCRUED INTEREST 10,015 2,159 (b) 12,174
------------------------------------------
TOTAL CURRENT LIABILITIES 62,022 40,555 102,577
DEFERRED CREDITS:
DEFERRED CONTRACT OBLIGATIONS TO
ASSOCIATED COMPANY 33,284 33,284
ACCUMULATED DEFERRED INCOME TAXES 202,538 202,538
DEFERRED SEABROOK TAX SETTLEMENT 0 0
OTHER 22,789 22,789
------------------------------------------
TOTAL DEFERRED CREDITS 258,611 0 258,611
------------------------------------------
TOTAL CAPITALIZATION AND
LIABILITIES $1,012,622 $39,250 $1,051,872
*EXPLANATION AT FINANCIAL STATEMENT 1.2 PAGE 3 OF 3
<PAGE>
NORTH ATLANTIC ENERGY CORPORATION
INCOME STATEMENT
FOR 12 MONTHS ENDED MARCH 31, 1997
(THOUSANDS OF DOLLARS)
FINANCIAL STATEMENT 1.2 PAGE 1 OF 3
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTMENTS* TRANSACTION
OPERATING REVENUE $167,466 $0 $167,466
------------------------------------------
OPERATING EXPENSES:
OPERATIONS -
FUEL 15,515 15,515
OTHER 35,310 35,310
MAINTENANCE 10,438 10,438
DEPRECIATION 24,342 24,342
AMORTIZATION OF REGULATORY ASSETS (912) (912)
FEDERAL AND STATE INCOME TAXES 12,923 (854)(c) 12,069
TAXES OTHER THAN INCOME TAXES 12,631 12,631
------------------------------------------
TOTAL OPERATING EXPENSES 110,247 (854) 109,393
------------------------------------------
OPERATING INCOME: 57,219 854 58,073
------------------------------------------
OTHER INCOME:
DEFERRED SEABROOK RETURN 6,864 6,864
AFUDC-OTHER FUNDS 340 340
OTHER, NET 874 874
INCOME TAXES - CREDIT 4,451 4,451
------------------------------------------
OTHER INCOME, NET 12,529 0 12,529
INCOME BEFORE INTEREST CHARGES 69,748 854 70,602
------------------------------------------
INTEREST CHARGES:
INTEREST ON LONG-TERM DEBT 51,534 51,534
OTHER INTEREST (685) 2,159 (b) 1,474
DEFERRED SEABROOK RETURN - BORROWED
FUNDS (13,222) (13,222)
------------------------------------------
TOTAL INTEREST CHARGES, NET 37,627 2,159 39,786
NET INCOME 32,121 (1,305) 30,816
* EXPLANATION AT FINANCIAL STATEMENT 1.2 PAGE 3 OF 3
<PAGE>
NORTH ATLANTIC ENERGY CORPORATION
CAPITAL STRUCTURE ON MARCH 31, 1997
(THOUSANDS OF DOLLARS)
FINANCIAL STATEMENT 1.2 PAGE 2 OF 3
PER BOOK
ADJUSTED TO
PRO FORMA REFLECT
% PER BOOK ADJUSTMENTS PRO FORMA %
LONG-TERM DEBT 72.3% $515,000 $515,000 72.5%
COMMON SHARES 1 1
CAPITAL SURPLUS, PAID IN 160,999 160,999
RETAINED EARNINGS 35,989 (1,305) 34,684
----------------------------------------------------
TOTAL COMMON
STOCKHOLDER EQUITY 27.7% 196,989 (1,305) 195,684 27.5%
----------------------------------------------------
100.0% $711,989 (1,305) $710,684 100.0%
<PAGE>
NORTH ATLANTIC ENERGY CORPORATION
EXPLANATION OF ADJUSTMENTS
(THOUSANDS OF DOLLARS)
FINANCIAL STATEMENT 1.2 PAGE 3 OF 3
DEBIT CREDIT
(a) CASH $39,250
NOTES PAYABLE $39,250
To record the additional proposed borrowing up to the entire $60 million
available to the company.
(b) OTHER INTEREST EXPENSE 2,159
ACCRUED INTEREST 2,159
To record the interest expense on the additional proposed borrowing at 5.5%
$39,250 x 5.50% = 2,159
(c) ACCRUED TAXES 854
FEDERAL AND STATE INCOME TAX EXPENSE 854
To record the reduction in Federal and State income taxes due to the higher
interest and fee expenses:
$854 x 39.55% = 854
NOTE 1 : Proforma financials reflect company borrowings at the proposed SEC
limit and the associated interest expense without reflecting equity or interest
earnings of such borrowings.
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