FILE NO. 70-09543
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES NORTHEAST GENERATION SERVICES
174 Brush Hill Avenue COMPANY
West Springfield, MA 01090-0010 107 Selden Street
Berlin, CT 06037
(Name of companies filing this statement and
addresses of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Cheryl W. Grise, Esq.
Senior Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to
David R. McHale Jeffrey C. Miller, Esq.
Vice President and Treasurer Assistant General Counsel
Northeast Utilities Northeast Utilities
Service Company Service Company
P.O. Box 270 P.O. Box 270
Hartford, Connecticut Hartford, Connecticut
06141-0270 06141-0270
Table of Contents
Item 1. Description of the Proposed Transaction
Introduction - Paragraph 1
Background - Paragraphs 2-6
Prior Orders - Paragraph 7
Description of the Transaction - Paragraphs 8-13
Item 2. Fees, Commissions and Expenses - Paragraphs 14-15
Item 3. Applicable Statutory Provisions - Paragraph 16
EWG Investment - Paragraphs 17-47
Service Agreement - Paragraphs 48-50
Item 4. Regulatory Approvals - Paragraph 51
Item 5. Procedures - Paragraph 52
Item 6 Exhibits and Financial Statements
a. Exhibits
b.1 Form of Service Agreement
b.3 Assumption Agreement
d.1 Connecticut Department of Public Utility Control Order
d.2 Massachusetts Department of Telecommunications and Energy Order
d.3 New Hampshire Public Utility Commission Order
f.1 Legal Opinion
g Financial Data Schedule
h.1 Form of Notice
b. Financial Statements
Item 7. Information as to Environmental Effects - Paragraph 53
The Application/Declaration in this File is hereby amended by
removing Select Energy, Inc. as an applicant thereto and amending and
restating the entire filing as follows:
Paragraphs 1 through 59 are deleted and replaced in their entirety
as follows:
ITEM 1 DESCRIPTION OF PROPOSED TRANSACTION
Introduction
1. The Applicants are seeking authority under the Public Utility
Holding Company Act of 1935 (the "1935 Act" or "Act") in connection with the
acquisition by Northeast Generation Company ("NGC") of certain generating
assets that are currently owned by The Connecticut Light and Power Company
("CL&P) and Western Massachusetts Electric Company ("WMECO"). Specifically,
Northeast Utilities ("NU") requests authority to enter into two assumption
agreements (collectively, the "Assumption Agreement") in connection with the
acquisition by NGC, its indirect subsidiary (the "Transaction"). In
addition, NU requests an order modifying the percentage limitation on
investments in Exempt Wholesale Generator ("EWG") which may be made.
Specifically, NU requests authority to invest in and guarantee the
obligations of NGC to the extent necessary for NGC to consummate the
Transaction, but which, when aggregated with NU's "aggregate investment" in
EWGs would not exceed 100% of its consolidated retained earnings. Finally,
to the extent such transaction is not authorized by rule or otherwise, the
Applicants seek authority for Northeast Generation Services Company ("NGS")
to provide certain services to NGC at other than cost.
Background
2. NU is a registered holding company under the Act that is engaged
through its utility subsidiaries in the generation, transmission,
distribution, and sale of electric energy to customers in portions of the
states of Connecticut, Massachusetts and New Hampshire. The utility
operating companies of NU, each of which is wholly-owned, are CL&P, WMECO,
Public Service Company of New Hampshire ("PSNH") and North Atlantic Energy
Corporation ("NAEC") (each individually an "NU Operating Company" and
collectively, the "NU Operating Companies"). NU also furnishes retail
electric service to a limited number of customers through a wholly-owned
subsidiary, Holyoke Water Power Company.
3. NU also has a number of direct and indirect non-utility
subsidiaries. NU Enterprises, Inc. ("NUEI") is a wholly-owned direct
subsidiary of NU and acts as the holding company for the NU system's
unregulated companies. Among the subsidiaries of NUEI are Select Energy,
Inc., a marketing and brokering Rule 58 subsidiary ("Select"), NGC, intended
to be NU's competitive generating company, and NGS, a Rule 58 generation
operation and services company.
4. As a Connecticut utility, CL&P is subject to the jurisdiction of
the Connecticut Department of Public Utility Control (the "DPUC"). In April
1998, the State of Connecticut enacted comprehensive electric utility
restructuring legislation. CL&P is subject to this legislation. In
particular, the law provides, among other things, that CL&P divest its non-
nuclear generating assets (the "CL&P Assets") by January 2000 and its nuclear
generating assets by January 2004 in order to recover stranded costs. Under
the law, affiliates of CL&P were allowed to bid in both auctions. The
auction for the CL&P Assets took place in the spring and summer of 1999. In
addition the law allows for the issuance of rate reduction bonds ("RRBs") to
finance portions of a utility's stranded costs through securitization
transactions. WMECO is subject to similar legislation in Massachusetts and
sold its fossil fueled and a small portion of its hydroelectric generating
plants in the summer of 1999.(1) The Massachusetts law also allows RRBs to be
issued. The remaining non-nuclear generating plants of WMECO; a
hydroelectric pumped storage generating plant jointly owned with CL&P, and
two adjacent hydroelectric plants (the "WMECO Assets"), were included in the
auction with the CL&P Assets.
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(1) PSNH and NAEC are subject to similar restructuring laws in New Hampshire.
Under New Hampshire law, generation assets must be divested and RRBs may also
be issued.
5. On October 1, 1998, CL&P filed a plan with the DPUC to auction the
CL&P Assets and functionally unbundle its operations. On July 6, 1999, CL&P
and WMECO announced that NGC, which is presently seeking EWG status, was the
winning bidder for 1,329 megawatts ("MW") of hydroelectric and pumped storage
generating assets in Connecticut and Massachusetts , which comprised all of
the WMECO Assets and the hydroelectric portion of the CL&P Assets
(collectively with the WMECO Assets, the "Utility Assets"). NRG Energy,
Inc., a subsidiary of Northern States Power Company, won the bidding for the
remainder of the CL&P Assets.
6. The NU Operating Companies plan to use a portion of the proceeds
from asset sales and from the RRBs to retire outstanding debt and preferred
stock and to buy down existing power purchase contracts with independent
power producers. To reduce their respective common equity capitalizations,
the NU Operating Companies also plan to use a portion of their restructuring
proceeds either (i) to pay dividends to NU, (ii) to buy back a portion of
their outstanding common stock owned by NU and/or (iii) to effect capital
reductions through a combination of dividends and stock repurchases. NU and
the NU Operating Companies currently expect that the aggregate amount of
funds channeled to NU through these methods will be approximately $915
million. These transactions are the subject of a related filing with the
Commission. See Northeast Utilities, File No. 70-09541 (August 26, 1999).
Prior Orders
7. By Order dated November 12, 1998 (HCAR No. 35-26939), in File No.
70-09343, the Commission, among other things, authorized (i) the formation
and financing by NU of a nonutility subsidiary company (which is referred to
therein as "Newco" but which is now known as NUEI) to engage, through
multiple subsidiaries, in a variety of energy related and other activities
and (ii) the acquisition by NUEI of, among other things, the securities of
GENCO (now known as NGC) and NGS. The Commission also authorized NU and NUEI
to issue guarantees or provide other forms of credit support or enhancements
(collectively, "Guarantees") to or for the benefit of NUEI, NGS, NGC, NU's
other unregulated subsidiaries and NU's other direct or indirect Rule 58
subsidiaries to be formed by NU, in an aggregate amount not to exceed $75
million. The amount of the guarantee authority was increased to $250 million
pursuant to a supplemental Order of the Commission dated May 19,1999 (HCAR
No. 35-27029) in File No. 70-09343 (the "Supplemental Order"). NU and NUEI
filed an amendment to the Application in File No. 70-9343 seeking increased
guaranty authority to $500 million on August 23, 1999.
Description of the Transaction
8. As indicated above, in July 1999, CL&P and WMECO contracted to sell
the Utility Assets to NGC as the result of an auction conducted by J.P.
Morgan Securities, Inc. ("J.P. Morgan"), an independent consultant retained
by the DPUC to sell the Utility Assets for the benefit of CL&P and WMECO.
NGC's bid of $865.5 million was for 10 hydroelectric facilities owned by CL&P
in Connecticut; the Northfield Mountain pumped storage station (owned 81% by
CL&P and 19% by WMECO) in Massachusetts and the Cabot and Turners Falls No. 1
hydroelectric stations located in Massachusetts and owned by WMECO.
Subsequent to the auction, NGC executed a purchase and sale agreement with
CL&P for the assets owned by CL&P (the "CL&P PSA") and a purchase and sale
agreement with WMECO for the assets owned by WMECO (the "WMECO PSA", and
collectively with the CL&P PSA, the "PSA").
9. In connection with the Transaction, NGC intends to file for EWG
status with FERC under Section 32(a) of the Act. Section 32(c)(B) of the
Act provides that Commission approval is not required for the transfer of
generating assets to an EWG where the affected state regulators have found
that the transfer (i) will benefit consumers, (ii) is in the public interest,
and (iii) does not violate state law. The required filings have been made
with the relevant State commissions. Copies of the state orders will be
attached by amendment as Exhibits d.1, d.2 and d.3. Accordingly, CL&P and
WMECO are not required to seek Commission approval of the sale of the Utility
Assets to NGC.
10. NGS will operate the Utility Assets pursuant to a service agreement
with NGC (the "Service Agreement"), a form of which will be filed by
amendment as Exhibit b.1, under Rules 87(b)(1) and 90(d)(1). While the
Applicants believe that this transaction is duly authorized under the
Commission's rules, they nonetheless request such additional authority as the
Commission believes may be required. Further, NGC currently intends to
contract with its affiliate, Select, to market the power generated by the
Utility Assets pursuant to a power marketing agreement with NGC. This
agreement will be filed for approval with the Federal Energy Regulatory
Commission ("FERC") and is not subject to 1935 Act jurisdiction.
11. Because NGC is a newly formed company with no financial resources
(see Northeast Utilities, HCAR 35-26939), NU was required to execute the
Assumption Agreement in connection with the Transaction, the form of which is
attached as Exhibit b.3. Pursuant to the Assumption Agreement, NU agreed,
subject to regulatory approvals, to perform the obligations set out in the
PSA as if it were the purchaser if NGC does not perform such obligations.
Under the terms of the PSA, the purchaser is not required to perform its
obligations thereunder if it does not receive all the required regulatory
approvals (including the approval of the Commission). Accordingly, NU would
only be required to perform under the PSA pursuant to the terms of the
Assumption Agreement if all regulatory approvals (including that of the
Commission) were obtained. Once all regulatory approvals are received, NU
would be obligated to perform all obligations of NGC under the PSA if NGC did
not perform. NU estimates its obligations under the Assumption Agreement at
$13 million. NU hereby seeks approval of its obligations under the
Assumption Agreement pursuant to Section 12(b) of the Act and Rule 45
thereunder.
12. To finance the acquisition of the Utility Assets, NGC negotiated a
financing transaction with several financial institutions ("Banks"), whereby
Banks would provide financing to NGC in two separate tranches. Tranche A
would consist of a credit facility of up to $415 million. This amount would
be repaid concurrently with the funding of the credit facility, using funds
provided to NGC by NU, through NUEI, pursuant to Section 12(b) and Rule
45(b)(4) thereunder.(2) Tranche B would consist of a senior secured 364-day
loan facility in an amount up to $500 million from Banks. Both Tranche A and
Tranche B will be secured by various means, including by a mortgage on the
Utility Assets. NGC presently plans to repay the funds provided under
tranche B from the proceeds of a capital markets transaction pursuant to
authority available under Rule 52.
___________________________________
(2) NU would obtain the necessary funds to make such contribution to NUEI out
of a combination of (i) dividends paid to NU by CL&P and WMECO, (ii) the
repurchase from NU of a portion of the stock of CL&P and WMECO by the
respective companies and (iii) to the extent necessary, funds available to it
from other sources. CL&P and WMECO would use approximately $400 million of
the proceeds from the sale of the Utility Assets to make such payments. CL&P
and WMECO are filing a separate application/declaration on Form U-1 for
authorization to upstream the Returned Capital to NU in this fashion. See,
Northeast Utilities, File No 70-09541 (August 26, 1999).
13. NU will contribute up to $500 million to NUEI, which will, in turn,
contribute it to NGC (the "Equity Investment"). NGC will concurrently apply
these funds to repay tranche A to Banks, pay additional transaction costs and
retain the balance for working capital purposes.
ITEM 2 FEES, COMMISSIONS AND EXPENSES
14. The fees, commissions and expenses paid or incurred, or to be paid
or incurred, directly or indirectly, in connection with the proposed
transaction by the Applicants are as follows:
Legal fees $*
Accounting fees $*
Miscellaneous costs $*
NUSCO Fees $*
* to be filed by Amendment
15. None of such fees, commission or expenses will be paid to any
associate company or affiliate of the Applicants except for payments by the
Applicants for financial and other services, to be performed at cost by
Northeast Utilities Service Company ("NUSCO"), an affiliated service company.
ITEM 3 APPLICABLE STATUTORY PROVISIONS
16. The following sections of the Act and the Commission's rules
thereunder are or may be applicable to the authorization being sought
hereunder by the Applicants: Sections 6(a), 7, 12(b), 13 and 32 of the Act
and Rules 45, 53, 54, 87 and 90 promulgated thereunder. To the extent that
other sections of the Act or the Commission's rules thereunder are deemed
applicable to the proposed transactions for which Commission authorization is
sought, such sections and rules should be considered to be set forth in this
Item 3.
EWG Investment
17. Rule 53 provides that, if each of the conditions of paragraph (a)
thereof is met, and none of the conditions of paragraph (b) thereof is
applicable, then the Commission may not make a finding that the guarantee of
a security of an EWG by a registered holding company is not reasonably
adapted to the earning power of such company or to the security structure of
the companies in the holding company system, or that the circumstances are
such as to constitute the making of such guarantee an improper risk for the
company.
18. Giving effect to the proposals contained herein and assuming the
amount of the Assumption Agreement and the Equity Investment are all included
in the calculation of EWG investment, NU will satisfy all of the conditions
of Rule 53(a) except for clause (1) thereof, which requires that the
aggregate at risk investment of the registered holding company in EWGs and
FUCOs not exceed 50% of the holding company system's Consolidated Retained
Earnings ("CREs"). None of the conditions specified in Rule 53(b) is or will
be applicable.
19. As of June 30, 1999, NU's aggregate investment in EWGs and FUCOs
was approximately $6 million, or 1% of its average CREs of approximately $579
million. The Equity Investment, when aggregated with NU's outstanding
EWG/FUCO investment at that date and the value of the Assumption Agreement,
is equal to approximately 85% of NU's CREs as of June 30, 1999 ($494 million
divided by $579 million). NU seeks authority to invest an amount up to 100%
of its CREs to enable NGC to consummate the Transaction. The rationale for
this proposal is as follows:
(a) The Rule 53(a)(1) issue is largely accounting-driven. The
divestiture required in the three states, combined with the
authorization to issue the RRBs, leave the NU Operating Companies in a
unique financial position in that they will experience a significant
decrease in the amount of tangible assets that they own and receive a
substantial influx of cash almost simultaneously. However, neither the
proceeds from the divestiture of the NU Operating Companies' generation
assets nor the proceeds from the RRBs will have any effect on the net
incomes of the NU Operating Companies. Accordingly, while the NU
Operating Companies will experience a substantial influx of cash from
these transactions, none of that cash will be treated as "earnings" on
their respective financial statements. In addition, the proposed EWG
investment is in generating assets that have been owned and operated by
affiliates for many years in the historic service territories of the NU
system. These circumstances significantly mitigate the risk associated
with many other EWG and FUCO investments outside the traditional service
territories of other utilities.
(b) Approximately $400 million of capital from the proceeds of the
sale of the Utility Assets is expected to be returned to NU by CL&P and
WMECO through the combination of stock purchases and dividend payments
(the "Returned Capital"). Although the Returned Capital will not, for
accounting reasons, count as retained earnings of NU available for EWG
and FUCO investment under Rule 53, it will nonetheless represent cash
available to NU to be expended on other investments just as if it were
retained earnings dividended up to NU by NU's subsidiaries. The Equity
Investment being made by NU in NGC is mostly the intrasystem
reallocation of equity from two companies within the NU system (CL&P and
WMECO) to another system company (NGC).
20. Rule 53(c) states that, in connection with a proposal to issue and
sell securities to finance an investment in an EWG, or to guarantee the
securities of an EWG, a registered holding company that is unable to satisfy,
among other provisions, the provision that such investments may not exceed
50% of CREs, must "affirmatively demonstrate" that such proposal:
(i) will not have a substantial adverse impact upon
the financial integrity of the registered holding
company system; and
(ii) will not have an adverse impact on any utility
subsidiary of the registered holding company, or its
customers, or on the ability of State commissions to
protect such subsidiary or customers.
21. The Commission has performed an analysis of the requirements of
Rule 53(c) with respect to applications/declarations filed by a number of the
registered holding companies. See The Southern Company ("Southern"), Holding
Co. Act Release No. 26501 (April 1, 1996); Central and South West Corporation
("CSW"), Holding Co. Act Release No. 26653 (Jan. 24, 1997); GPU, Inc.
("GPU"), Holding Co. Act Release No. 26779 (Nov. 17, 1997); Cinergy, Inc.
("Cinergy"), Holding Co. Act Release No.26848 (March 23, 1998); American
Electric Power Company, Inc. ("AEP"), Holding Co. Act Release No. 26864
(April 27, 1998); and New Century Energies, Inc. ("New Century"), Holding Co.
Act Release No. 26982 (February 26, 1999) (collectively, the "100% Orders").
22. Unlike the 100% Orders, which were intended largely to facilitate
foreign investment, the authority sought in this matter is related to an
investment in one specific EWG, not EWGs generally, which is being acquired
in the wake of the state-ordered divestiture of two of NU Operating
Companies' generating assets.
23. NU addresses the requirement of Rule 53(c)(i), the impact upon the
financial integrity of the registered holding company system, as follows:
The proposed investment in NGC by NU, in an amount up to 100% of NU's
consolidated retained earnings will not have a "substantial adverse impact"
on the financial integrity of the NU System. The lack of any "substantial
adverse impact" on NU's financial integrity as a result of the investment in
NGC can be demonstrated in several ways, including by analyses of the
circumstances surrounding the acquisition of utility assets by NGC which
precipitates NU's investment, specifically the fact that the Utility Assets
have been owned and operated by the NU system for many years and will
continue to be maintained and operated by the same NU organization after the
sale; thus, "country," construction and operating risks are non-factors here.
In addition, the power generated by the Utility Assets will be competitively
marketed in the Northeast region, where NU has long been a leading energy
marketer, first through certain of the NU Operating Companies and in the
future through Select, its competitive energy marketing affiliate. Further
the Utility Assets consist mainly of the Northfield Mountain pumped storage
facility, which NU considers the premier generating property in New England
due to its unique operating characteristics and history of reliable service.
Consideration of these and other relevant factors supports the conclusion
that the proposed investment by NU in NGC in an amount exceeding the 50%
consolidated retained earnings limitation in Rule 53(a)(1) will not have a
"substantial adverse impact" on the financial integrity of the NU System.
24. The following paragraphs provide data analyzing the impact of the
proposed investment on the NU system in light of the tests developed by the
staff in the course of adopting the 100% Orders. These tests involve
analysis of:
i. Ratios of EWG/FUCO investment (at 100% of CREs) to
* Consolidated Capitalization
* Consolidated Net Utility Plant
* Total Consolidated Assets
* Market Value of Outstanding Stock
ii. The Applicant's CRE Growth
iii. The Applicant's Stock Price to Earnings Ratio
iv. The Applicant's Market to Book Ratio
v. The Applicant's Dividend Payout Ratio
vi. The Applicant's Capitalization Ratios
25. Capitalization Ratios. NU's aggregate investments in EWGs equal to
100% of CREs would represent a relatively small commitment of NU capital for
a company the size of NU, based on various financial ratios at June 30, 1999.
For example, investments of this amount would be equal to only approximately
10.5% of NU's total consolidated capitalization ($5.5 billion), 9.5% of
consolidated net utility plant ($6.1 billion), 5.6% of total consolidated
assets ($10.3 billion), and 24.1% of the market value of NU's outstanding
common stock ($2.4 billion) as of August 20, 1999. The table below
illustrates that NU's exposure to EWG/FUCO investments will be measurably
smaller than the companies who received the 100% orders.
Investments in EWGs and FUCOs*
as a percentage of:
Company Consolidated Consolidated Total Market Value of
Capitalization Net Utility Consoli- Outstanding Common
Plant dated Assets Stock
Southern 16.3% 15.4% 11.0% 20.4%
CSW 23.0% 23.0% 14.0% 31.0%
GPU 24.9% 34.2% 19.4% 49.8%
Cinergy 16.0% 16.0% 11.0% 19.0%
AEP 16.0% 13.8% 9.8% 18.5%
New Century 15.5 12.9 9.8 13.5
Average of
above 18.6% 19.2% 12.5% 25.4%
NU 10.5.% 9.5% 5.6% 24.1%
* Assuming the investment equals 100% of CREs
26. This comparison verifies that an aggregate investment of $579
million by NU would involve a relatively small commitment of capital for a
company of NU's size. Moreover, in every category the NU percentage is
lower than or substantially equal to the applicable percentage for the other
registered systems that have 100% Orders except for the comparison of the
investment to the market value of outstanding stock.
27. Consolidated Retained Earnings Growth. NU's CREs have declined for
each of the past three years. This decrease is primarily attributable to
the years of losses incurred while the NU system was solving its problems at
the Millstone Point Nuclear Power plants. As the Commission is aware, all
three nuclear units at Millstone ("Millstone 1", "Millstone 2" and "Millstone
3"), in which CL&P owns 81%, 81% and 53% interests, respectively, and in
which WMECO owns 19%, 19% and 13% interests, respectively, were shut down in
1996. In 1998, NU determined that it would not be economical to restart
Millstone 1 and instead chose to prepare for decommissioning the unit. These
shutdowns had an adverse effect on the NU system as a whole. Millstone 3 was
returned to service in July 1998. Millstone 2 returned to service and was
restored to rate base in 1999. The resolution of the various operational
and regulatory issues and the enhanced competitive position of NU in the
Northeast after its restructuring are expected to have a positive effect on
earnings and CREs.
28. Share Price to Earnings Ratio. Due to recent poor earnings
performance, and the market's perception that NU is on the upswing, NU's
share price to earnings ratio is not comparable to industry peers because
NU's earnings were negative for the 12 month period ending June 30, 1999.
29. Market to Book Ratio. NU's market to book ratio is currently 1.1
based on book value of $16.81 as of June 30, 1999 and a market price of
$18.4375 as of October 6,1999. This ratio is below the industry average,
which was 1.72 as of June 30, 1999, again primarily because of the
operational issues referred to above which have caused NU's stock price to
remain low.
30. Dividend Payout Ratio. NU's current payout ratio is in excess of
100% of current earnings due to historic low earnings due to the operational
issues referred to above. NU is scheduled to pay a $.10/share dividend in
December, its first in 2 years. Going forward, assuming earnings from
continuing operations continue to improve, NU expects to bring its dividend
payout ratio up to an amount in line with current industry trends of
instituting payout ratios lower than historic industry norms.
31. Capitalization Ratios. NU's corporate credit rating is currently
BB+ from S&P and Ba3 from Moody's. Its consolidated capitalization and
interest coverage ratios for 1998 were below industry averages. These ratios
are as follows:
Actual 1998 Capitalization and Interest Coverage Ratios
(Excluding Non-Recourse Project Debt):
Total Debt/Capital 62.2%
EBIT/Cash Interest (times) .6
Funds from Operations/Interest (times) 2.6
Industry Ratios for BB+ Rated Utilities*
Average High Low
Total Debt/Capital 50.2% 90.7% 34.4%
EBIT/Cash Interest (times) 2.7 4.9 -0.1
Funds from Operations/Interest (times) 4.4 8.2 1.5
*(Source: Moody's Investors Service Electric Utility
Sourcebook, October 1998)
32. Rule 53(B) Factors. With respect to the relevant financial
benchmarks specifically contemplated by Rule 53(b), none is applicable: (1)
there has been no bankruptcy of an NU associate company (Rule 53(b)(1)); (2)
although NU's average CREs for the four most recent quarterly periods have
decreased by more than 10% from the average for the preceding four quarterly
periods (Rule 53(b)(2)), NU's aggregate investment in EWGs and FUCOs at June
30, 1999, did not exceed 2% of NU's consolidated capital invested in utility
operations; and (3) in the previous fiscal year, NU did not report operating
losses attributable to its direct or indirect investments in EWGs and FUCOs
that exceeded an amount equal to 5% of CREs (Rule 53(b)(3)).
33. NU undertakes to notify the Commission by filing a post-effective
amendment in this proceeding in the event that any of the circumstances
described in Rule 53(b) arise during the authorization period.
34. NU addresses the requirement of Rule 53(c)(ii), the impact of the
proposed investment on the NU Operating Companies, as follows:
NU's request in this Application/Declaration to raise NU's investment
limits in EWGs and FUCOs to an amount in excess of 50% of its CREs will not
have an "adverse impact" on any of NU's Operating Companies, their respective
customers, or on the ability of the three State commissions having
jurisdiction over the NU Operating Companies to protect such NU Operating
Companies or such customers.
35. This conclusion is supported by (i) the insulation of the NU
Operating Companies and their customers from potential direct adverse effects
of NU's investments in EWGs and FUCOs; (ii) the NU Operating Companies'
current financial health and (iii) the proven effectiveness of state
commission oversight together with the affirmation by the state commissions
of Connecticut, Massachusetts and New Hampshire that they have authority and
jurisdiction, and will exercise such authority, to protect customers in their
respective states from any adverse impact.
36. Insulation from Risk. All of NU's investments in EWGs and FUCOs
are, and in the future will remain, segregated from the NU Operating
Companies. Any losses that may be incurred by such EWGs and FUCOs would have
no effect on the rates of any NU Operating Company. NU represents that it
will not seek recovery through higher rates from the NU Operating Companies'
utility customers in order to compensate NU for any possible losses that it
or NGC may sustain on the investment in NGC or for any inadequate returns on
such investments.
37. Moreover, to the extent that there may be indirect impacts on the
NU Operating Companies from NU's EWG and FUCO investments through effects on
NU's capital costs, the state commissions regulating the NU Operating
Companies have broad discretion to set the cost of capital for them by a
variety of accepted means and are free to exclude any adverse impacts due to
EWGs and FUCOs. Therefore, the state commissions have the authority and the
mechanism to prevent any adverse effects on the cost of capital due to
investments in EWGs and FUCOs from being passed on to customers.
38. NU has complied and will continue to comply with the requirements
of Rule 53(a)(3) regarding the limitation on the use of NU Operating Company
employees in connection with providing services to EWGs and FUCOs. The
purchase by NGC of the Utility Assets is not anticipated to have any impact
on utilization of NU Operating Company employees. As part of the
acquisition, NGC committed to offer employment to certain employees of CL&P
and WMECO. Accordingly, NGC will have sufficient employees to operate the
Utility Assets, if required beyond the services to be provided by NGC. The
NU Operating Companies have not and will not increase staffing levels to
support the operations of NGC. NU and NGC expect that certain operations
services for NGC will largely be performed by NGS and some by outside
consultants engaged by NGC. It is expected that NUSCO will also be called
upon to provide some services. Accordingly, NGC's need for the support of
personnel provided by the NU Operating Companies is expected to be modest.
39. Finally, NU has complied and will continue to comply with the other
conditions of Rule 53(a) providing specific protections to customers of the
NU Operating Companies and their state commissions, in particular, the
requirements of Rule 53(a)(1) regarding the preparation and making available
of books and records and financial reports regarding EWGs and FUCOs, and the
requirements of Rule 53(a)(4) regarding filing of copies of applications and
reports with other regulatory commissions.
40. NU Operating Company Financial Health. As indicated earlier in
this Application/Declaration, the reduced CREs of NU are mainly the result of
the problems at and shut-down of the Millstone nuclear power units. The
shutdown of the Millstone units created a substantial drain on the financial
resources of the NU Operating Companies, as CL&P and WMECO were forced to
purchase power from third parties and incurred significant operations and
maintenance costs for the Millstone units. The return of Millstone 2 and 3 is
expected to continue to enhance the NU Operating Companies' financial health.
41. The improved financial health outlook of the NU Operating Companies
is evidenced by the recent increase in ratings and positive outlook assigned
by the credit ratings agencies. Standard &Poor's raised CL&P and WMECO's
senior secured ratings from BB+ to BBB- in May 1999, and Moody's raised
CL&P's and WMECO's senior secured ratings from Ba2 to Baa3 at the same time.
Fitch IBCA also upgraded CL&P and WMECO's senior secured ratings and placed
NU on "alert" for a possible upgrade.
42. The NU Operating Companies' senior secured ratings as of June 30,
1999 are as follows:
S&P Moody's Fitch
CL&P BBB- Baa3 BB+
WMECO BBB- Baa3 BB+
PSNH BBB- Ba3 BB+
NAEC BB- B1 BB-
43. The Debt (including short-term debt) ratios of CL&P, WMECO, PSNH
and NAEC are 63.9%, 64.3%, 40.7% and 70%, respectively. These ratios are
within the industry range for like-rated electric utilities but, with the
exception of PSNH, are high compared to their peers. However, the debt
ratios of each of these companies are expected to improve as the respective
companies apply restructuring proceeds to pay down debt.
44. The proposed investment in NGC will also not have any negative
impact on the NU Operating Companies' ability to fund operations and growth.
Current projections indicate that the NU Operating Companies will continue to
fund operations and construction expenditures primarily from internal sources
of cash, credit facilities, asset sales and securitization proceeds.
Moreover, there is ongoing evidence that the NU Operating Companies can
access capital markets as needed, although the Operating Companies' ability
to issue debt and preferred equity securities in the future depends upon
earnings coverages at the time such securities are issued.
45. Adequacy Of State Commission Oversight. The three state
commissions having jurisdiction over the NU Operating Companies, namely
Connecticut, Massachusetts and New Hampshire (collectively, "State
Commissions") are able to protect utility customers within their respective
states. The State Commissions are actively encouraging competition in the
industry and have promulgated regulations concerning competition. In
addition, the State Commissions have approved the sale of the Utility Assets
to third parties. The acquisition of the Utility Assets by NGC must be
specifically approved by the State Commissions which must make determinations
that the ownership of the Utility Assets by NGC will (i) benefit consumers,
(ii) is in the public interest and (iii) does not violate state law.
46. For these reasons, the State Commissions will have adequate
authority to protect NU Operating Company customers from any adverse effect
associated with NU and NU Company investments in NGC.
47. Accordingly, NU asks the Commission to grant it an exception to the
requirements of Rule 53(a)(1) in connection with the proposed Transaction.
The Service Agreement
48. As described above, it is proposed that under the Service
Agreement, NGS will provide NGC with a variety of administrative, operation,
management and support services. These services are expected to include,
without limitation, services relating to information systems, meters,
transportation, electric system maintenance, marketing and customer
relations, engineering and construction services, materials management,
facilities, power planning, environmental affairs and fuels. The Service
Agreement as proposed would allow these services to be provided at other than
cost.
49. Section 13(b) of the Act allows the Commission to exempt
transactions, by rule, regulation or order, from the provisions of Section
13(b) and the "at cost" rules promulgated thereunder if such transactions:
(a) are with any associate company which does not derive, directly
or indirectly, any material part of its income from sources within the
United States and which is not a public utility company operating within
the United States, or
(b) involve special or unusual circumstances or are not in the
ordinary course of business.
50. The Applicants hereby request on behalf of NGS an exemption under
Section 13 of the Act and Rule 90(d)(1) thereunder from the at-cost
requirements in connection with the provision of services by NGS to NGC at
other than "cost". Neither NGC nor NGS is (i) a public utility or holding
company, (ii) an investment company or investment trust, (iii) a company
engaged in the business of selling goods to associate companies or performing
services or construction or (iv) a company controlling such a company. The
Applicants believe that the Service Agreement is structured so as to comply
with Section 13 of the Act and the Commission's rules and regulations
thereunder. To the extent Commission approval is required, NGS hereby
requests authorization and approval of the Service Agreement .
Item 4. REGULATORY APPROVALS
51. No regulatory approvals, other than those of the Commission
requested herein are required for the proposed activities for which
Commission authorization is sought herein.
Item 5. PROCEDURE
52. The Applicants hereby request that the Commission publish a notice
under Rule 23 with respect to the filing of this Application/Declaration as
soon as practicable and that the Commission's order be issued as soon as
possible. A form of notice suitable for publication in the Federal Register
is attached hereto as Exhibit h.1. The Applicants respectfully request the
Commission's approval, pursuant to this Application/Declaration, of all
proposed transactions described herein, whether under the sections of the Act
and Rules thereunder enumerated in Item 3 or otherwise. It is further
requested that the Commission issue an order authorizing such proposed
transactions at the earliest practicable date but in any event not later than
November 1, 1999. Additionally, the Applicants (i) request that there not be
any recommended decision by a hearing officer or by any responsible officer
of the Commission, (ii) consent to the Office of Public Utility Regulation
within the Division of Investment Management assisting in the preparation of
the Commission's decision, and (iii) waive the 30-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective, since it is desired that the Commission's order, when issued,
become effective immediately.
Item 6. EXHIBITS AND FINANCIAL STATEMENT
(a) Exhibits
b.1 Form of Service Agreement*
b.3 Assumption Agreement**
d.1 Connecticut Department of Public Utility Control Order*
d.2 Massachusetts Department of Telecommunications and Energy Order*
d.3 New Hampshire Public Utility Commission*
f.1 Legal Opinion**
g Financial Data Schedule**
h.2 Form of Notice (Revised)
(b) Financial Statements
* To be filed by amendment
** Previously filed
Item 7. Information as to Environmental Effects
53. The proposed transactions neither involve a "major federal action"
nor "significantly affect the quality of the human environment" as those
terms are used in Section 102(2)(C) of the National Environmental Policy Act,
42 U.S.C. Sec. 4321 et seq. Consummation of the proposed transactions will
not result in changes in the operations of NU or any of its respective
subsidiaries that would have any impact on the environment. No federal
agency is preparing an environmental impact statement with respect to this
matter.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned companies have duly caused this
Amendment to be signed on their behalf by the undersigned thereunto duly
authorized.
Date: October 13, 1999
NORTHEAST UTILITIES
NORTHEAST GENERATION SERVICES COMPANY
By: /S/ David R. McHale
Name: David R. McHale
Title: Vice President and Treasurer
EXHIBIT h.2
FORM OF NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- ; 70- )
Filings Under the Public Utility Holding Company Act of 1935 ("Act").
Northeast Utilities ("NU"), et al.
August , 1999
Notice is hereby given that the following filings has/have been made
with the Securities and Exchange Commission (the "Commission") pursuant to
provisions of the Act and rules promulgated thereunder. All interested
persons are referred to the application(s) and/or declaration(s) for complete
statements of the proposed transaction(s) summarized below. The
application(s) and/or declaration(s) and any amendments thereto is/are
available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
, 1999 to the Secretary, Securities and Exchange Commission,- Washington,
D.C. 20549, and serve a copy on the applicant(s) and/or declarant(s) at the
address(es) specified below. Proof of service (by affidavit or, in case of an
attorney at law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law
that are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in the
matter. After said date, the application(s) and/or declaration(s), as filed
or as amended, may be granted and/or permitted to become effective.
* * * * *
NU, 174 Brush Hill Avenue, West Springfield, MA 01090-0010, a registered
holding company under the Act, and Northeast Generation Service Company
("NGS"), have filed an application/declaration ("Application") under Sections
6(a), 7, 12(b) 13 and 32 of the Act and Rules 45, 53, 54, 87 and 90
promulgated thereunder. The Applicants are seeking authority under the Act
in connection with the acquisition by Northeast Generation Company ("NGC") of
certain generating assets that are currently owned by The Connecticut Light
and Power Company ("CL&P) and Western Massachusetts Electric Company
("WMECO"). Specifically, Northeast Utilities ("NU") requests authority to
enter into two assumption agreements (collectively, the "Assumption
Agreement") in connection with the acquisition (the "Transaction"). In
addition, NU asks the Commission to find that the consummation of the
Transaction-related financing will not have a substantial adverse impact upon
the financial integrity of the registered holding company system and will not
have an adverse impact on any utility subsidiary of the registered holding
company, or its customers, or on the ability of State commissions to protect
such subsidiary or customers, as required by Rule 52(c). Finally, to the
extent such transactions are not authorized by rule or otherwise, the
Applicants seek authority for Northeast Generation Services Company ("NGS")
to provide certain services to NGC at other than cost.
NU is a registered electric utility holding company, engaged through its
utility subsidiaries in the generation, transmission, distribution, and sale
of electric energy to customers in portions of the states of Connecticut,
Massachusetts and New Hampshire. The utility operating companies of NU, each
of which are wholly-owned, are CL&P, WMECO, North Atlantic Energy Corporation
and Public Service Company of New Hampshire (each individually an "NU
Operating Company" and collectively, the "NU Operating Companies"). NU also
furnishes retail electric service to certain customers through Holyoke Water
Company, a wholly-owned subsidiary.
NU also has a number of direct and indirect non-utility subsidiaries.
NU Enterprises, Inc. ("NUEI") is a wholly-owned direct subsidiary of NU and
acts as the holding company for the NU system's unregulated companies. Among
the subsidiaries of NUEI are NGC, which will become NU's competitive
generating company, NGS, a Rule 58 generation operation and services company
and Select Energy, Inc. ("Select"), a Rule 58 marketing and brokering
subsidiary.
As a Connecticut utility, CL&P is subject to the jurisdiction of the
Connecticut Department of Public Utility Control (the "DPUC"). In April
1998, the State of Connecticut enacted comprehensive electric utility
restructuring legislation. In particular, the law provides, among other
things, that CL&P divest its non-nuclear generating assets (the "CL&P
Assets") by January 2000 and its nuclear generating assets by January 2004 in
order to recover stranded costs. Under the law, affiliates of CL&P are
allowed to bid at both auctions. The auction for the CL&P Assets took place
in the spring and summer of 1999. WMECO is subject to similar legislation in
Massachusetts and sold its fossil fuel and a small portion of its hydro
electric generating plants in the summer of 1999. The remaining non-nuclear
generating plants of WMECO (the "WMECO Assets"), a hydro electric pumped
storage generating plant jointly owned with CL&P, and two adjacent
hydroelectric plants, were included in the auction of the CL&P Assets.
On July 6, 1999, CL&P and WMECO announced that NGC was the winning
bidder for 1,329 megawatts ("MW") of hydroelectric and pumped storage
generating assets in Connecticut and Massachusetts (the "Transaction"), which
comprised all of the WMECO Assets and the hydroelectric portion of the CL&P
Assets (the "Hydro Assets" and together with the WMECO Assets, the "Utility
Assets"). NGS will operate the Utility Assets pursuant to a service
agreement with NGC. Select intends to market the power generated by the
Utility Assets pursuant to a power marketing agreement with NGC. Pursuant to
the auction, NGC executed a Purchase and Sale Agreement with CL&P concerning
the CL&P Hydro Assets (the "CL&P PSA") and a Purchase and Sale Agreement with
WMECO for the WMECO Assets (the "WMECO PSA", and collectively with the CL&P
PSA, the "PSA"). In connection with the transaction, NGC currently is
seeking EWG status from the Federal Energy Regulatory Commission ("FERC")
under Section 32(a) of the Act and accordingly does not intend to seek
authorization of the PSA, the Service Agreement or the Power Marketing
Agreement.
In connection with the Transaction, NU executed the Assumption
Agreement, pursuant to which NU agreed, subject to regulatory approvals, to
perform the activities set out in the PSA if NGC did not perform such
obligations. Under the terms of the PSA, NGC is not required to perform its
obligations thereunder if it does not receive the required regulatory
approvals (including the approval of the Commission). Accordingly, NU would
only be required to perform under the PSA pursuant to the terms of the
Assumption Agreement if all regulatory approvals (including that of the
Commission) were obtained and NGC failed to perform.
To finance the acquisition of the Utility Assets, NGC negotiated a
financing transaction with several financial institutions ("Bank"), whereby
Bank would provide financing to NGC in two separate tranches. Tranche A
would consist of a credit facility of up to $365.5 million. This amount
would be repaid concurrently with the funding of the credit facility, using
funds provided by NU to NUEI by purchase of stock, capital contributions,
advance or loan, and then, in turn, provided by NUEI to NGC by similar means.
NU would obtain the necessary funds to make such contribution to NUEI out of
a combination of (i) dividends paid to NU by CL&P and WMECO, (ii) the
repurchase from NU of the stock of CL&P and WMECO by the respective companies
and (iii) to the extent necessary, funds available from other sources. As a
result of this flow of funds, NU would have an equity investment in NGC of
approximately $435 million (the "Equity Investment"). Tranche B would
consist of a senior secured 364-day loan facility in an amount up to $500
million from Bank. NGC presently intends to repay the funds provided under
tranche B from the proceeds of a capital markets transaction pursuant to Rule
52.
As of June 30, 1999, NU's aggregate investment in EWGs and FUCOs was
approximately $6 million, and its average consolidated retained earnings
("CREs") were approximately $ 579 million. NU's aggregate investment in EWGs
and FUCOs, as of June 30, 1999 (1%), is significantly lower than the safe
harbor limit of the 50% in Rule 53(a)(1). However, as of June 30, 1999, NU's
aggregate investment in EWGs and FUCOs, on a pro forma basis to include the
amount of its proposed NGC investment, would exceed 50% of NU's CREs. To
address this situation, NU requests that the Commission grant NU an exception
from the 50% limit in respect of the instant Transaction.
* * * * *
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
Jonathan G. Katz
Secretary
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1999 JUN-30-1999
<PERIOD-TYPE> YEAR YEAR
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 2,217,178 2,292,178
<TOTAL-CURRENT-ASSETS> 27,070 19,945
<TOTAL-DEFERRED-CHARGES> 8,768 8,768
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,253,016 2,320,891
<COMMON> 686,188 686,188
<CAPITAL-SURPLUS-PAID-IN> 940,448 940,448
<RETAINED-EARNINGS> 579,449 574,818
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,073,662 2,069,031
0 0
0 0
<LONG-TERM-DEBT-NET> 152,000 152,000
<SHORT-TERM-NOTES> 0 75,000
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 19,000 19,000
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> (124,069) 5,499
<TOT-CAPITALIZATION-AND-LIAB> 2,253,016 2,320,891
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> (8,387) (10,881)
<OTHER-OPERATING-EXPENSES> 6,563 6,563
<TOTAL-OPERATING-EXPENSES> (1,823) (4,317)
<OPERATING-INCOME-LOSS> 1,823 4,317
<OTHER-INCOME-NET> (50,952) (50,952)
<INCOME-BEFORE-INTEREST-EXPEN> (52,775) (55,269)
<TOTAL-INTEREST-EXPENSE> 15,831 22,956
<NET-INCOME> 36,944 32,313
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 36,944 32,313
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> 0 0
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
Exhibit 6.b
NORTHEAST UTILITIES PARENT
PRO FORMA BALANCE SHEET - AMENDED
AS OF JUNE 30, 1999
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUST.* TRANSACTION
<S> <C> <C> <C>
ASSETS
UTILITY PLANT, AT COST:
ELECTRIC $ 0 $ $ 0
OTHER 0 0
--------- --------- ---------
0 0 0
LESS: ACC. DEPREC. 0 0
--------- --------- ---------
0 0 0
CONSTRUCTION WORK IN PROGRESS 0 0
--------- --------- ---------
TOTAL NET UTILITY PLANT 0 0 0
--------- --------- ---------
OTHER PROP. AND INVEST.:
INVEST. IN SUBSIDIARY COS. 2,199,224 75,000 [1] 2,274,224
INVEST. IN TRANSMISSION COS. 17,900 17,900
OTHER INVESTMENTS 54 54
--------- --------- ---------
TOTAL OTHER PROP. & INVEST. 2,217,178 75,000 2,292,178
--------- --------- ---------
CURRENT ASSETS:
CASH & CASH EQUIVALENTS 0 (7,125)[2] (7,125)
NOTES REC. FROM ASSOC. COS 22,300 22,300
NOTES AND ACCOUNTS RECEIVABLE 571 571
ACCOUNTS REC. FROM ASSOC. COS 4,172 4,172
PREPAYMENTS AND OTHER 27 27
--------- --------- ---------
TOTAL CURRENT ASSETS 27,070 (7,125) 19,945
--------- --------- ---------
DEFERRED CHARGES:
ACCUMULATED DEF. INC. TAXES 6,160 6,160
UNAMORTIZED DEBT EXPENSE 46 46
OTHER 2,562 2,562
--------- --------- ---------
TOTAL DEF. CHARGES 8,768 0 8,768
--------- --------- ---------
TOTAL ASSETS $ 2,253,016 $ 67,875 $ 2,320,891
========= ========= =========
</TABLE>
[1] See adjustments a, b, and d.
[2] See adjustments a, b, c, d, and e.
Exhibit 6.b
NORTHEAST UTILITIES PARENT
PRO FORMA BALANCE SHEET - AMENDED
AS OF JUNE 30, 1999
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUST.* TRANSACTION
<S> <C> <C> <C>
CAPITALIZATION:
COMMON SHARES $ 686,188 $ $ 686,188
CAPITAL SURPLUS, PAID IN 940,448 940,448
DEFERRED COMPENSATION--(ESOP) (133,947) (133,947)
RETAINED EARNINGS 579,449 (4,631) 574,818
ACCUM OTHER COMP INCOME 1,524 1,524
---------- --------- ----------
TOTAL COMMON EQUITY 2,073,662 (4,631) 2,069,031
NON-REDEEMABLE PREF. STOCK 0 0
REDEEMABLE PREF. STOCK 0 0
LONG-TERM DEBT 152,000 152,000
---------- --------- ----------
TOTAL CAPITALIZATION 2,225,662 (4,631) 2,221,031
---------- --------- ----------
MINOR. INT. IN CONS. SUBS 0 0 0
---------- --------- ----------
OBLIG. UNDER CAP. LEASES 0 0 0
---------- --------- ----------
CURRENT LIABILITIES:
NOTES PAYABLE TO BANK 0 75,000 [3] 75,000
L-T DEBT AND P.S., CURRENT 19,000 19,000
OBLIG. UNDER CAP. LEASES, CUR 0 0
ACCOUNTS PAYABLE 742 742
ACCOUNTS PAYABLE TO ASSOC. COS. 3,233 3,233
ACCRUED TAXES PAYABLE 2,047 (2,494)[4] (447)
ACCRUED INTEREST 1,969 1,969
ACCRUED PENSION BENEFITS 0 0
OTHER 2 2
---------- --------- ----------
TOT. CURRENT LIABILITIES 26,993 72,506 99,499
---------- --------- ----------
OTHER DEFERRED CREDITS 361 361
---------- --------- ----------
TOTAL DEFERRED CREDITS 361 0 361
---------- --------- ----------
TOTAL CAPITALIZATION AND LIAB. $ 2,253,016 $ 67,875 $ 2,320,891
========== ========= ==========
</TABLE>
[3] See adjustment c.
[4] See adjustment f.
* See attached Pro Forma Adjustments
Exhibit 6.b
NORTHEAST UTILITIES PARENT
PRO FORMA INCOME STATEMENT AND STATEMENT
OF RETAINED EARNINGS - AMENDED
FOR THE 12 MONTHS ENDED JUNE 30, 1999
INCOME STATEMENT
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTS* TRANSACTION
<S> <C> <C> <C>
OPERATING REVENUE $ 0 $ 0 $ 0
-------- -------- --------
OPERATING EXPENSES:
OPERATION--
FUEL, PURCH. & NET INTRCHG PWR 0 0
OTHER 6,563 6,563
MAINTENANCE 1 1
DEPRECIATION 0 0
FED/ STATE INCOME TAXES (8,389) (2,494)[1] (10,883)
OTHER TAXES 2 2
-------- -------- --------
TOTAL OPERATING EXPENSES (1,823) (2,494) (4,317)
-------- -------- --------
OPERATING INCOME 1,823 2,494 4,317
-------- -------- --------
OTHER INCOME (LOSS):
EQUITY IN REG. GEN & TRANS. COS. 2,725 2,725
OTHER, NET 53,003 53,003
MIN. INT. IN INCOME OF SUB 0 0
INCOME TAXES (4,776) (4,776)
-------- -------- --------
OTHER INCOME, NET 50,952 0 50,952
-------- -------- --------
INCOME BEF. INT. CHARGES 52,775 2,494 55,269
-------- -------- --------
INTEREST CHARGES:
INTEREST ON L-T DEBT 15,332 15,332
AMORT. DEBT DISC, PREM EXP, NET 117 117
INTEREST ON SHORT TERM LOAN 319 319
OTHER INTEREST EXPENSES 63 7,125 [2] 7,188
-------- -------- --------
NET INCOME AFTER INTEREST CHARGES 36,944 (4,631) 32,313
-------- -------- --------
PREF. DIVIDENDS OF SUBSIDIARIES 0 0
-------- -------- --------
NET INCOME $ 36,944 $ (4,631) $ 32,313
======== ======== ========
</TABLE>
[1] See adjustment f.
[2] See adjustment e.
STATEMENT OF RETAINED EARNINGS - AMENDED
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTS* TRANSACTION
<S> <C> <C> <C>
BAL. AT BEGINNING OF PERIOD $ 542,505 $ $ 542,505
NET GAIN (LOSS) 36,944 (4,631) 32,313
CASH DIVIDENDS ON PREF. STOCK 0 0
CASH DIVIDEND ON COMMON STOCK 0 0
-------- -------- --------
BALANCE AT END OF PERIOD $ 579,449 $ (4,631) $ 574,818
======== ======== ========
</TABLE>
* See attached Pro Forma Adjustments
Exhibit 6.b
NORTHEAST UTILITIES PARENT
PRO FORMA CAPITAL STRUCTURE - AMENDED
AS OF JUNE 30, 1999
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
GIVING EFFECT
PRO FORMA TO PROPOSED
PER BOOK ADJUSTS * TRANSACTION
<S> <C> <C> <C>
LONG TERM DEBT $ 171,000 $ $ 171,000
PREFERRED STOCK SUBJECT TO
MANDATORY REDEMPTION 0 0
PREFERRED STOCK NOT
SUBJECT TO MAND. RED 0 0
COMMON STOCK EQUITY 2,073,662 (4,631) 2,069,031
---------- -------- ----------
$ 2,244,662 $ (4,631) $ 2,240,031
========== ======== ==========
</TABLE>
* See attached Pro Forma Adjustments
Exhibit 6.b
NORTHEAST UTILITIES PARENT
PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENTS-AMENDED
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Debit Credit
<S> <C> <C>
a)Cash 310,000
Investment in Subsidiary Companies - CL&P 310,000
To record CL&P's repurchase of common shares held by
NU Parent at the average price per share.
b)Cash 90,000
Investment in Subsidiary Companies - WMECO 90,000
To record WMECO's repurchase of common shares held by
NU Parent at the average price per share.
c)Cash 35,000
Notes Payable to Bank 35,000
To record additional short-term debt.
d)Investment in Subsidiary Companies - NGC 475,000
Cash 475,000
To record NU's equity investment in NGC.
e)Interest Expense 7,125
Cash 7,125
To record interest expense on additional short-term debt.
f)Accrued Taxes 2,494
Federal and State Taxes 2,494
To record tax effect of additional interest expense.
</TABLE>
