FILE NO. 70-9541
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM U-1
APPLICATION/DECLARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
WITH RESPECT TO THE PAYMENT OF DIVIDENDS, SHARE REPURCHASES AND SHARE
ISSUANCES IN CONNECTION WITH RESTRUCTURING BY NORTHEAST UTILITIES AND
CERTAIN SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Northeast Utilities The Connecticut Light and Power Company
Western Massachusetts NU Enterprises, Inc.
Electric Company Northeast Generation Company
174 Brush Hill Avenue Northeast Generation Services Company
West Springfield, MA 01090 Select Energy, Inc.
Select Energy Portland Pipeline, Inc.
107 Selden Street
Berlin, CT 06037
Public Service Company of HEC Inc.
New Hampshire Select Energy Contracting, Inc.
North Atlantic Energy Corporation 24 Prime Parkway
1000 Elm Street Natick, MA 01760
Manchester, NH 03015
Reeds Ferry Supply Co., Inc. HEC Energy Consulting Canada Inc.
605 Front Street 242 Simcoe Street
Manchester, NH 03102 Niagara on the Lake
Ontario, Canada LOS1J0
</TABLE>
(Names of companies filing this statement and addresses of principal
executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Cheryl W. Grise
Senior 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
Assistant General Counsel Vice President and Treasurer
Northeast Utilities Service Company Northeast Utilities Service Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
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The application/declaration, as amended, in this file is amended and
restated as follows:
ITEM 1
DESCRIPTION OF PROPOSED TRANSACTIONS
INTRODUCTION
1. Northeast Utilities ("NU"), a public utility holding company
registered under the Public Utility Holding Company Act of 1935, as amended
("the Act"), The Connecticut Light and Power Company ("CL&P"), Public
Service Company of New Hampshire ("PSNH"), Western Massachusetts Electric
Company ("WMECO"), and North Atlantic Energy Corporation ("NAEC"), each an
electric utility subsidiary of NU, NU Enterprises, Inc. ("NUEI"), a sub-
holding company over certain of NU's non-utility subsidiaries, Northeast
Generation Company ("NGC"), Northeast Generation Services Company ("NGS"),
Select Energy, Inc. ("SE"), HEC Inc. ("HEC"), and Select Energy Portland
Pipeline, Inc. ("SEPPI"), each a direct subsidiary of NUEI and an indirect
non-utility subsidiary of NU, and Reeds Ferry Supply Co., Inc. ("Reeds"),
Select Energy Contracting, Inc. ("SECI")and HEC Energy Consulting Canada
Inc. ("HEC Energy"), each a direct subsidiary of HEC and an indirect non-
utility subsidiary of NU, (collectively, the "Applicants"), hereby submit
this application/declaration (the "Application") pursuant to Sections 6(a),
7, 9(a), 10 and 12(c) of the Act and Rules 26(c)(3), 42, 43, 44 and 46(a)
thereunder with respect to (a) the payment of dividends to, and/or the
repurchase of stock from, NU out of capital or unearned surplus by each of
CL&P, PSNH, WMECO NAEC, (b) the payment of dividends to, and/or the
repurchase of stock from, NU out of capital or unearned surplus by NUEI,
the payment of dividends to, and/or the repurchase of stock from, NUEI out
of capital or unearned surplus by each of NGC, NGS, SE, HEC and SEPPI, and
the payment of dividends to, and/or the repurchase of stock from, HEC out
of capital or unearned surplus by Reeds, SECI and HEC Energy (c) the
payment of dividends and/or the repurchase of stock out of capital or
unearned surplus by CL&P in accordance with the provisions of CL&P's
dividend covenant under its First Mortgage Indenture and Deed of Trust
dated May 1, 1921 to the Bankers Trust Company as trustee (the "Mortgage
Indenture"), in the case of (a), (b) and (c) above, all through December
31, 2004 (the "Authorization Period"), (d) the issuance of additional
shares by NU to the extent necessary to fulfill its obligations under one
or more forward stock purchase contracts through December 31, 2000 and (e)
the waiver of the Commission's 30% common equity-to-total capitalization
test as to CL&P, WMECO and PSNH through December 31, 2012 and as to NU
through December 31, 2004. As described in greater detail herein, the
authorizations sought relate to the capital restructuring of the NU system
in connection with electric utility deregulation in Connecticut,
Massachusetts and New Hampshire and the related required asset divestitures
and the issuance of rate reduction bonds related to stranded cost
securitization transactions in such states. The transactions described
herein will permit NU and its subsidiaries to use the proceeds of those
divestitures and bond issuances, among other things, to adjust their debt-
to-equity ratios and reduce their collective and individual capitalizations
in order to keep the rates charged to their utility customers as low as
possible, to provide those companies with financing flexibility, and to
maintain the value of the investment in NU by its shareholders.
BACKGROUND
2. Connecticut, Massachusetts and New Hampshire, the states in which
CL&P, WMECO, PSNH and NAEC (collectively, the "Utilities") operate, have
enacted or shortly will enact legislation deregulating the electric utility
industry in such states to provide retail consumers with a choice of
electricity providers. Eventually, consumers in all of those states will
be allowed to choose their energy providers, and energy prices will no
longer be set by a state regulatory commission. The transmission and
distribution of electricity will continue to be provided by the local
utilities at regulated rates.
As vertically integrated utilities with both generation assets and
transmission and distribution assets, CL&P, PSNH, WMECO and NAEC are or
will be (in the case of PSNH and NAEC) required to restructure their
companies to comply with state statutory provisions. This restructuring
includes, among other things, the divestiture of their generating assets.
This divestiture, combined with authorization for the issuance of rate
reduction bonds as part of the restructuring process, will leave the
Utilities 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.
CONNECTICUT RESTRUCTURING LAW AND CL&P
3. On April 29, 1998, the Connecticut Governor signed into law a
comprehensive restructuring bill entitled An Act Concerning Electric
Restructuring (the "Connecticut Act"). The Connecticut Act mandates retail
access for up to thirty-five percent of customers located in distressed
cities on and after January 1, 2000, with full retail competition to be
completed by July 1, 2000. Further, during the time period from July 1,
1998 through December 31,1999, rates may not exceed their levels on
December 31, 1996. Starting January 1, 2000, the Act requires CL&P to
implement standard offer rates that are ten percent lower than the rates in
effect on December 1, 1996.
The Connecticut Act authorizes the Connecticut Department of Public
Utility Control ("DPUC") to permit electric public utilities to recover the
full amount of their stranded costs through a competitive transition
assessment, conditioned upon the divestiture of all non-nuclear generating
assets at auction by January 1, 2000 and divestiture of all nuclear
generating assets at auction by January 1, 2004. Additionally, all
electric public utilities are required to undertake steps to mitigate
stranded costs. The DPUC is responsible for determining the rate of
recovery for each utility.
The Connecticut Act allows for the issuance of rate reduction bonds to
finance portions of a utility's stranded costs, as determined to be
appropriate by the DPUC, through securitization transactions. The savings
generated through the use of rate reduction bonds ultimately results in a
reduction of electric rates. The Connecticut Act limits the use of
securitization to non-nuclear generation-related regulatory assets and
costs associated with the renegotiation of purchased-power contracts. CL&P
may not securitize any of its nuclear stranded costs.
Pursuant to the Connecticut Act, CL&P has filed stranded cost
estimates and unbundled rates with the DPUC. On July 7, 1999, the DPUC
issued a Final Decision on CL&P's stranded costs, ruling that CL&P can
recover up to $3.5 billion in stranded costs.
NEW HAMPSHIRE RESTRUCTURING LAW AND PSNH AND NAEC
4. Effective May 21, 1996, the New Hampshire legislature enacted Chapter
374-F of the New Hampshire Revised Statutes (the "New Hampshire Act")
mandating full retail electric choice by January 1, 1998, but allowing a
six-month extension to July 1, 1998. On February 28, 1997, the final
version of the New Hampshire Public Utilities Commission (the "PUC") plan
was released pursuant to which electric utilities are required to divest
generation facilities by January 1, 2000. Concurrent with the release of
the PUC plan, the PUC issued utility-specific orders regarding interim
stranded cost charges that resulted in litigation between PSNH and the PUC.
That litigation was stayed as a result of a Memorandum of Understanding
between New Hampshire and PSNH which was entered into on June 14, 1999. A
final settlement agreement was filed on August 2, 1999 with state
regulators.
The settlement agreement provides that PSNH must reduce its rates by
approximately eighteen percent from current levels on the effective date of
the agreement, which is estimated to occur sometime in early 2000. PSNH is
seeking to recover almost $1.9 billion of its total estimated stranded
costs, which would require that PSNH write off approximately $225 million,
after taxes, in existing stranded costs. In addition, the settlement
agreement authorizes the issuance of approximately $725 million in rate
reduction bonds. The final settlement agreement must be approved by the
PUC and by the New Hampshire Legislature.
MASSACHUSETTS RESTRUCTURING LAW AND WMECO
5. On November 25, 1997, the Massachusetts Governor signed into law a
comprehensive restructuring bill entitled "An Act Relative to Restructuring
the Electric Utility Industry in the Commonwealth, Regulating the Provision
of Electricity and Other Services, and Promoting Enhanced Consumer
Protections Therein" (the "Massachusetts Act"). Pursuant to the
Massachusetts Act, retail electric competition began on March 1, 1998.
WMECO was ordered to institute a mandatory ten percent reduction in
approved rates commencing March 1, 1998. An additional five percent
discount is required on September 1, 1999. As a result of the rate
reductions to date, WMECO's annual revenues have declined from $426 million
in 1997 to $393 million in 1998.
The Massachusetts Act authorizes the Massachusetts Department of
Telecommunications and Energy (the "DTE") to permit electric public
utilities to recover stranded costs through a non-bypassable market
transition charge, and the DTE is responsible for determining each
utility's specific recovery, which recovery is conditioned upon aggressive
mitigation by the recovering utility. The DTE has not issued an order on
WMECO's pending filing regarding stranded cost recovery. In addition, the
Massachusetts Act provides for securitization bonds to be issued to finance
a portion of a utility's stranded costs, as determined by the DTE. WMECO
is seeking approval to securitize up to $500 million in stranded costs.
THE IMPACT OF RESTRUCTURING ON THE UTILITIES
6. Pursuant to the states' statutory restructuring requirements, the
electric generating assets of CL&P, PSNH and WMECO will be sold, and PSNH
will buy out its power purchase agreement with NAEC. However, the
applicable state deregulation laws mandate that any gains on the sale of
the electric generating assets reduce stranded cost recovery, and
accordingly the Utilities will recognize no earnings effect when those
gains are realized.
WMECO has already closed on its sale of approximately 290 MW of fossil
and hydroelectric generating assets for a sale price approximately 3.8
times greater than the assets' 1997 book value. The sales of these assets
and future asset sales will be used to reduce WMECO's stranded costs.
WMECO has auctioned another 270 MW of pumped storage and conventional
hydroelectric generating assets and hopes to receive final regulatory
approval for the sale of those assets and close on the transaction near the
end of 1999. CL&P auctioned off its generating facilities, as required by
the Connecticut Act. In February 1999, the DPUC announced the offering for
sale of CL&P's fossil fuel and hydroelectric generating facilities, and
CL&P hopes to receive final regulatory approval for the sale of those
assets and close on that transaction near the end of 1999. PSNH and NAEC
expect to sell their interests in non-nuclear generating assets once a
settlement agreement with the State of New Hampshire has been approved,
which is expected to occur in the latter part of 2000. In addition,
proceeds from the sale of the Utilities' nuclear generating assets will
result in additional restructuring proceeds.
In addition to the proceeds raised from these sales of generating
assets, at least three of the Utilities, CL&P, PSNH and WMECO, will receive
proceeds from the issuance of rate reduction bonds as part of the
restructuring process. Because of the accounting treatment required by the
regulatory process, the receipt of proceeds from the rate reduction bonds
will have no effect on the respective net incomes of the Utilities.
Accordingly, while the Utilities will experience a substantial influx of
cash from these transactions, none of that cash will be treated as "income"
on their financial statements.
When the aforementioned process is completed, CL&P presently expects
to receive net proceeds of approximately $1.191 billion from the sales of
non-nuclear generating assets and net proceeds of $1.489 billion from the
issuance and sale of rate reduction bonds. Thus, CL&P is presently
expecting to receive approximately $2.680 billion of cash from these
restructuring transactions.
When the aforementioned process is completed, PSNH presently expects
to receive net proceeds of approximately $360 million from the sales of
non-nuclear generating assets and net proceeds of approximately $725
million from the issuance and sale of rate reduction bonds. Thus, PSNH
presently expects to receive approximately $1.085 billion of cash from
these restructuring transactions.
When the aforementioned process is completed, WMECO presently expects
to receive net proceeds of approximately $233 million from the sales of
non-nuclear generating assets and net proceeds of approximately $303
million from the issuance and sale of rate reduction bonds. Thus, WMECO is
presently expecting to receive approximately $536 million of cash from
these restructuring transactions.
NAEC presently expects to receive net proceeds from restructuring
activities (primarily from PSNH's buy-out of its power contract with NAEC)
of approximately $646 million. NAEC does not expect to receive proceeds
from the issuance of rate reduction bonds.
A table summarizing these transactions is included as Exhibit I to
this Application.
THE RESULTS OF RESTRUCTURING
1. As described above, CL&P, PSNH, WMECO and NAEC, after completing their
restructuring transactions, will become much smaller companies,
requiring much less capitalization. Further, the proceeds from the
securitization of the Utilities' stranded costs are required to be used
to reduce customer costs by reducing capitalization and, hence, their
capital revenue requirements. In order to achieve these cost savings,
CL&P, PSNH, WMECO and NAEC must reduce their common equity
capitalizations to reflect the fact that they are smaller corporate
entities. The above-described proceeds of restructuring transactions
are expected to provide the Utilities with the funds to achieve this
capitalization reduction.
CL&P, WMECO and PSNH have a financial objective, post-restructuring,
of obtaining and maintaining a strong investment grade rating. A major
factor in achieving this objective is to have a common equity to total
capitalization ratio of approximately 40-45%, with a target date for
achieving this objective of December 31, 2000 and assuming that
securitization debt will not count for rating agency purposes as
indebtedness in this computation. Using these assumptions, NU derived the
amount of equity which it wished to have these companies pay to itself and
still meet the rating objective.
The Utilities plan to apply the net proceeds of their restructuring
transactions during the Authorization Period, among other things, to retire
outstanding debt and preferred stock, to buy down existing power purchase
agreements with independent power producers (except NAEC, which has no such
agreements) and to reduce their capitalizations. CL&P presently expect to
use approximately $310 million to reduce its common equity capitalization;
WMECO presently expects to use approximately $145 million to reduce its
common equity capitalization; PSNH presently expects to use approximately
$297 million to reduce its common equity capitalization; and NAEC presently
expects to use approximately $164 million to reduce its common equity
capitalization. (Individually, "CL&P Returned Equity", "WMECO Returned
Equity", "PSNH Returned Equity" and "NAEC Returned Equity" respectively).
The buy-down of power purchase contracts and the retirement of debt
and preferred stock can be accomplished without Commission approval. In
order to effectively reduce their capitalizations, CL&P, PSNH, WMECO and
NAEC seek Commission authorization to use all or a portion of,
respectively, the CL&P Returned Equity, the PNSH Returned Equity, the WMECO
Returned Equity and the NAEC Returned Equity either (i) to pay dividends to
NU, (ii) to buy back a portion of their outstanding common stock owned by
NU or (iii) to effect common equity capital reductions through a
combination of dividends and stock repurchases. Since, as described
earlier, the receipt of restructuring proceeds does not result in net
income giving rise to earned surplus to the Utilities, the Act and the
regulations thereunder require Commission approval for the use of such
proceeds for the payment of dividends or the repurchase of stock, in the
full amount required to decapitalize the Utilities. In addition,
Commission approval is required for the repurchase by the Utilities of
their stock from NU, an affiliate of the Utilities, and these approvals are
sought in this Application.
The Commission has previously approved the payment of dividends out of
capital or unearned surplus by a utility subsidiary of a registered holding
company when the payment would not impair the subsidiary's ability to meet
its obligations and the subsidiary's assets would be sufficient to meet any
anticipated expenses or liabilities. SEE, E.G., AEP GENERATING CO., H.C.A.
Rel. No. 26754 (August 12, 1997). As described above, CL&P, PSNH, WMECO
and NAEC would not face adverse financial consequences as a result of the
payment to NU. Rather, CL&P, PSNH, WMECO and NAEC are reacting to a unique
situation, restructuring and its related financial impacts, which has
created a large influx of cash not treatable as earned surplus. Payment of
the dividends would not impair the financial integrity of CL&P, PSNH, WMECO
or NAEC because, after the payment of such dividends, each Utility would
still have adequate cash to operate its substantially smaller business.
The authorization being sought by the Utilities is similar to that sought
by Conectiv Inc. and its utilities in its application/declaration on Form
U-1 in File No. 70-9499 (May 19, 1999). Similarly, the Commission has
recently approved the use of proceeds from the sale of generating assets to
repurchase the selling entity's stock from its parent registered holding
company in order to keep its capital structure balanced, in the same manner
as the Utilities propose to do here. NEW ENGLAND ELEC. SYSTEM, H.C.A. Rel.
No. 26918 (Sept. 25, 1998). That approval would seem to be apt precedent
for the stock repurchases proposed here.
PAYMENTS OF DIVIDENDS OR A STOCK REPURCHASE BY COMPETITIVE SUBSIDIARIES
8. NU's other direct or indirect competitive subsidiaries, NUEI, NGC,
NGS, SE, HEC, Reeds, SECI, HEC Energy, and SEPPI, (collectively, the
"Competitive Subsidiaries") request approval during the Authorization
Period for: (i) the payment of dividends to, and/or the repurchase of stock
from, NU by NUEI; (ii) the payment of dividends to, and/or the repurchase
of stock from, NUEI by NGC, NGS, SE, HEC and SEPPI; and (iii) the payment
of dividends to, and/or the repurchase of stock from, HEC by Reeds, SECI
and HEC Energy; in each case out of capital or unearned surplus and in
amounts not to exceed the amounts set forth in the table in paragraph 11
below. The Competitive Subsidiaries anticipate that they may have
unrestricted cash available from time to time for distribution in excess of
their current or retained earnings. To best arrange and deploy the NU
system's equity capital, the Competitive Subsidiaries propose to use some
of this unrestricted cash for the payment of dividends to NU, HEC and NUEI
or to effect a stock repurchase from NU, HEC and NUEI, the proceeds of
which NU ultimately would use to reduce its capitalization and other
corporate purposes. Fundamentally, the question of how much capital NU
should have invested at any one time in its Competitive Subsidiaries will
be dictated by competitive and commercial needs not fully foreseeable at
this time. NU needs the flexibility to adjust its level of equity
investment at any time in these companies as such circumstances dictate.
The Commission has permitted competitive subsidiaries of registered
holding companies to pay dividends out of capital or unearned surplus when
that payment will not adversely affect the financial integrity of the
holding company system or jeopardize the working capital of the operating
subsidiaries, AMERICAN ELECTRIC POWER CO., H.C.A. Rel. No. 26760 (Sept. 18,
1997), or when not permitting such a payment would cause cash to be trapped
at the competitive subsidiaries when there is no need for it. THE SOUTHERN
CO., H.C.A. Rel. No. 26543 (July 17, 1996). SEE ALSO NORTHEAST UTILITIES,
H.C.A. Rel. No. 26810 (December 30, 1997). Here, the payment of dividends
by the Competitive Subsidiaries directly or indirectly to NU or the
repurchase of stock by the Competitive Subsidiaries is part of the NU
system's overall plan to maintain its level of investment in each
subsidiary as will most benefit its shareholders and ratepayers, and so
having such flexibility will improve, rather than harm, the financial
integrity of the NU system and its operating companies. Moreover, the cash
to be used to pay the dividends or to repurchase stock may not be needed to
achieve their corporate goals, so there is no need to leave that cash with
the Competitive Subsidiaries. Accordingly, the payment of dividends or the
repurchase of stock by the Competitive Subsidiaries out of capital or
unearned surplus should be approved.
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES BY NU
TO SETTLE ONE OR MORE FORWARD CONTRACTS
9. In order to fund the share portion of its proposed merger with Yankee
Energy System, Inc. (see SEC File No. 70-09535), NU anticipates entering
into one or more forward stock purchase contracts (collectively, the
"Forwards") with a third party to repurchase, on NU's behalf, the necessary
NU shares. Since NU does not yet have sufficient proceeds from the various
restructuring transactions described above, Forwards provide NU with a
viable method of obtaining its own shares at anti-dilutive prices and with
no balance sheet impact during the carrying period.
In a typical Forward transaction, a broker acting for NU will acquire
a negotiated number of shares at market prices, hold them until a
negotiated deadline, and then deliver them at the acquisition price
(determined by one of a number of possible methods) to NU. NU will pay a
carrying charge plus a fee to compensate the broker, and will collateralize
the broker should the aggregate market price of the carried shares fall
below a negotiated percentage of the original aggregate cost. Ultimately,
and critical to the broker's own financial standing, the broker retains the
right to sell out the position and charge the difference to NU should the
market fall off be substantial. Under present accounting rules, the
transaction will be accounted for as an equity commitment and not as an
obligation of indebtedness. In order to settle a negative forward in
shares, NU must have the lawful right to issue such shares, which is the
purpose of this portion of the Application.
NU estimates that it will need the ability to issue up to 8.5
million shares to compensate for the possibility of negative Forward
settlements and accordingly requests permission to issue such shares in one
or more transactions through the period ending December 31, 2000, which is
the latest date it could envision needing such authorization .
APPROVAL OF THE PAYMENT OF ADDITIONAL AMOUNTS UNDER THE CL&P
MORTGAGE INDENTURE RESTRICTION, DATED MAY 1, 1921.
10. In addition to the other transactions described herein, the Applicants
request that the Commission exercise its reserved power as provided in the
dividend covenant in CL&P's Mortgage Indenture relating to CL&P's first
mortgage bonds, so as to permit CL&P, during the Authorization Period, to
effect dividend payments, the repurchase of its shares or any combination
thereof, notwithstanding the fact that the CL&P Returned Equity does not
represent net earnings giving rise to earned surplus. The full text of the
dividend covenant, Section 6.13 of the Mortgage Indenture, is attached
hereto as Exhibit J. CL&P has an additional issue of first mortgage bonds,
its Series TT Bonds, with a comparable covenant, but such bonds will be
retired with the proceeds of CL&P's asset sales in the fourth quarter of
1999 and prior to any such upstream payment to NU.
The dividend covenant provides, among other things, that cash
dividends may not be paid on the capital stock of CL&P, or distributions
made, or capital stock purchased by CL&P, in an aggregate amount which
exceeds CL&P's earned surplus after December 31, 1966, plus the earned
surplus of CL&P accumulated prior to January 1, 1967 in an amount not
exceeding $13,500,000, plus such additional amount as may be authorized or
approved by the Commission under the Act. CL&P hereby is requesting that
the Commission approve such an additional amount to enable the payment of
dividends and/or the repurchase of stock, as described above. The actual
amount over such limit for which authorization is being sought depends on
the amount of CL&P's earned surplus at the time of the dividend payment or
stock repurchase. However, the maximum aggregate amount of capital
expected to be transferred to NU through these means during the
Authorization Period will not exceed $310 million. The Commission has
previously approved the payment of additional amounts under similar
dividend restrictions upon a finding that such approval was in the public
interest. SEE, E.G., AEP GENERATING CO., H.C.A. Rel. No. 24989 (Nov. 21,
1989); SOUTHERN ELEC. GEN. CO., H.C.A. Rel. No. 14417 (April 25, 1961).
The requested dividend payments and/or repurchase of CL&P stock from
restructuring proceeds are in the public interest as it will not impair
CL&P's ability to meet its obligations and it will result in the benefits
to the NU system, the NU shareholders and the Utilities' customers
described above. Without such authorization in this case, much of the
extraordinary funds received by CL&P through generation asset sales and
securitization would remain trapped at CL&P and would not be available to
benefit the NU system as a whole. Thus, such payments will not negatively
affect the interests sought to be protected under the dividend restriction
and CL&P's request should be approved.
Waiver of Commission's 30% Common Equity Ratio Test
11. The addition of securitization debt to the balance sheets of these
companies on a pro forma basis will cause these companies to fail the
Commission's benchmark of 30% common equity-to-capitalization test. These
companies presently anticipate that all such debt will have been amortized
by no later than December 31, 2012, and thus the companies' common equity
ratio will exceed 30% by no later than that date. Accordingly, CL&P,
WMECO and PSNH seek a waiver of the Commission's 30% common equity ratio
test through the end of 2012. In all likelihood, a sufficient amount of
securitization debt will be amortized prior to 2012 to restore the
companies' common equity ratio to over 30% prior to that date, but at this
point the terms of such debt are not known so an earlier date cannot be
reliably predicted.
SUMMARY OF REQUESTED ACTION
12. The Applicants request that the Commission issue an order authorizing:
(a) the payment of dividends to, and/or the repurchase of stock from, NU
out of capital or unearned surplus by each of the Utilities during the
Authorization Period; (b) during the Authorization Period (i) the payment
of dividends to, and/or the repurchase of stock from, NU out of capital or
unearned surplus by NUEI, (ii) the payment of dividends to, and/or the
repurchase of stock from, NUEI out of capital or unearned surplus by each
of NGC, NGS, SE, HEC and SEPPI, and (iii) the payment of dividends to,
and/or the repurchase of stock from, HEC out of capital or unearned surplus
by Reeds, SECI and HEC Energy, (d) the payment of dividends and/or the
repurchase of stock out of capital or unearned surplus by CL&P to NU under
its Mortgage Indenture dividend covenant during the Authorization Period,
(d) the issuance of additional shares by NU to the extent necessary to
fulfill its obligations under the Forwards through December 31, 2000 and
(e) the waiver of the Commission's 30% common equity-to-total
capitalization test as to CL&P, WMECO and PSNH through December 31, 2012
and as to NU through December 31, 2004. The following chart depicts
graphically the various approvals sought in this Application:
(a) APPROVALS SOUGHT FOR PAYMENT OF DIVIDENDS AND/OR REPURCHASE OF
STOCK OUT OF CAPITAL OR UNEARNED SURPLUS
<TABLE>
<CAPTION>
COMPANY MAXIMUM AMOUNT
<S> <C>
CL&P not in excess of $310 million
WMECO not in excess of $145 million.
PSNH not in excess of $297 million
NAEC not in excess of $164 million
NUEI not in excess of $132 million
NGC not in excess of $10 million
NGS not in excess of $10 million
SE not in excess of $70 million
HEC (Consolidated)
SECI
HEC Energy not in excess of $19 million
Reeds
SEPPI not in excess of $8.5 million
</TABLE>
(B) OTHER APPROVALS
NU (a) issuance of up to 8.5 million additional shares to the extent
necessary to fulfill Forward obligations
(b) waiver of the Commission's 30% common equity-to-capitalization
test through December 31, 2004
WMECO waiver of the Commission's 30% common equity-to-capitalization test
through December 31, 2012
PSNH waiver of the Commission's 30% common equity-to-capitalization test
through December 31, 2012
CL&P (a) payment of dividends and/or repurchase of stock out of capital or
unearned surplus in accordance with Mortgage Indenture dividend
covenant
(b) waiver of the Commission's 30% common equity-to-capitalization
test through December 31, 2012
STATEMENT PURSUANT TO RULE 54
13. Except in accordance with the Act, none of the Applicants (a) have
acquired an ownership interest in an exempt wholesale generator ("EWG") or
a foreign utility company ("FUCO") as defined in Sections 32 and 33 of the
Act, or (b) now is or as a consequence of the transactions proposed herein
will become a party to, or has as a consequence of the transactions
proposed herein will have a right under, a service, sales or construction
contract with an EWG or a FUCO. None of the proceeds from the transactions
proposed herein will be used by the Applicants to acquire any securities
of, or any interest in, an EWG or a FUCO.{1}
The Applicants are in compliance with Rule 53(a), (b) and (c), as
demonstrated by the following determinations:
(i) NU's aggregate investment in EWGs and FUCOs (i.e., amounts
invested in or committed to be invested in EWGs and FUCOs for
which there is no recourse to the NU) does not exceed 50% of NU
and its subsidiaries' consolidated retained earnings as reported
for the four most recent quarterly periods on NU's Form 10-K and
10-Qs. At June 30, 1999 the ratio of such investment ($6
million) to such consolidated retained earnings ($579 million)
was 1 percent.
(ii) Ave Fenix (NU's only EWG or FUCO at this time) maintains books
and records, and prepares financial statements in accordance with
Rule 53(a)(2). Furthermore, NU has undertaken to provide the
Commission with access to such books and records and financial
statements, as it may request.
(iii) No employees of the Applicants have rendered services to the
EWG/FUCO.
(iv) NU has submitted (a) a copy of each Form U-1 and Rule 24
certificate that has been filed with the Commission under Rule 53
and (b) a copy of Item 9 of Form U5S and Exhibits G and H thereof
to each state regulator having jurisdiction over all the rates of
NU's public utility
subsidiaries.
(v) None of the Applicants have been the subject of a bankruptcy or
similar proceeding unless a plan of reorganization has been
confirmed in such proceeding. In addition, although NU's average
consolidated retained earnings ("CREs") for the four most recent
quarterly periods have decreased by 10% or more from the average
for the previous four quarterly periods (at June 30, 1998, NU's
CREs were $698 million; at June 30, 1999 NU's CREs were $579
million), NU's aggregate investment in EWGs/FUCOs at such date
($6 million) did not exceed two percent of NU's consolidated
capital invested in utility operations ($5,950 million).
(vi) In the previous fiscal year, NU did not report operating losses
attributable to its investment in EWGs/FUCOs, unless such losses
did not exceed 5 percent of NU's consolidated retained earnings.
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
transactions by the Applicants are not expected to exceed $150,000 and are
expected to be comprised primarily of fees for ordinary legal, accounting
and investment banking services. None of such fees, commissions or
expenses will be paid to any associate company or affiliate of the
Applicants except for payments to Northeast Utilities Service Company for
financial and other services.
ITEM 3
APPLICABLE STATUTORY PROVISIONS
15. Sections 6(a), 7, 9(a), 10 and 12(c) of the Act and Rules 26(c)(3),
42, 43, 44 and 46(a) thereunder are or may be applicable to the proposed
transactions. To the extent any other sections of the Act or Rules
thereunder may be applicable to the proposed transaction, the Applicants
request appropriate orders thereunder.
ITEM 4
REGULATORY APPROVALS
16. No state or Federal regulatory approval, other than the approval of
the Commission pursuant to this Application, is required to consummate the
transactions described herein, except that NU will be required to register
any shares issuable under the terms of a Forward to compensate for a
funding deficiency if a Forward terminates under the provisions of the
Securities Act of 1933, as amended.
ITEM 5
PROCEDURE
17. The Applicants respectfully request the Commission's approval,
pursuant to this Application, of all 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 the transactions proposed herein at the earliest practicable
date, but in any event no later than December 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 on 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 STATEMENTS
(asterisked (*) items were filed with the original Application; items with
a double asterisk (**) were filed with Amendment No. 1 and items marked
(***) were filed with Amendment No.2).
18. (a) Exhibits
A. Pro Forma Capitalization Ratios Schedule
**F. Opinion of Counsel
**G. Financial Data Schedules
*H. Proposed Form of Notice
***H.1 Revised Proposed Form of Notice
*I. Chart Depicting Utilities' Proceeds from Restructuring
Transactions and Uses Thereof
*J. CL&P Mortgage Indenture Dividend Covenant
** (b) FINANCIAL STATEMENTS
1. Northeast Utilities and Subsidiaries (consolidated)
1.1 Balance Sheet, per books and pro forma, as of June 30,
1999.
1.2 Statement of Income, per books and pro forma, for 12
months ended June 30, 1999 and capital structure, per
books and pro forma, as of June 30, 1999.
2. Northeast Utilities (parent company only).
2.1 Balance Sheet, per books and pro forma, as of June 30,
1999.
2.2 Statement of Income and Surplus, per books and pro
forma, for 12 months ended June 30, 1999 and capital
structure, per books and pro forma, as of June 30,
1999.
3. The Connecticut Light and Power Company
3.1 Balance Sheet, per books and pro forma, as of June 30,
1999.
3.2 Statement of Income and Surplus, per books and pro
forma, for 12 months ended June 30, 1999 and capital
structure, per books and pro forma, as of June 30,
1999.
4. Public Service Company of New Hampshire
4.1 Balance Sheet, per books and pro forma, as of June 30,
1999.
4.2 Statement of Income and Surplus, per books and pro
forma, for 12 months ended June 30, 1999 and capital
structure, per books and pro forma, as of June 30,
1999.
5. Western Massachusetts Electric Company
5.1 Balance Sheet, per books and pro forma, as of June 30,
1999.
5.2 Statement of Income and Surplus, per books and pro
forma, for 12 months ended June 30, 1999 and capital
structure, per books and pro forma, as of June 30,
1999.
6. North Atlantic Energy Corporation
6.1 Balance Sheet, per books and pro forma, as of June 30,
1999.
6.2 Statement of Income and Surplus, per books and pro
forma, for 12 months ended June 30, 1999 and capital
structure, per books and pro forma, as of June 30,
1999.
ITEM 7
INFORMATION AS TO ENVIRONMENTAL EFFECTS
19. (a) The financial transactions described herein do not involve a
major Federal action significantly affecting the quality of the human
environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transaction.
**FOOTNOTES**
{1} Please see the application/declaration filed with the Commission
by NU and NGS on August 26, 1999, as amended, in File No. 70-9543
concerning the anticipated investments in EWGs by NU.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned companies have duly caused this
statement to be signed on their behalf by the undersigned thereunto duly
authorized.
NORTHEAST UTILITIES
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NORTH ATLANTIC ENERGY CORPORATION
NU ENTERPRISES, INC.
NORTHEAST GENERATION COMPANY
NORTHEAST GENERATION SERVICES COMPANY
SELECT ENERGY, INC.
SELECT ENERGY PORTLAND PIPELINE, INC.
By: /s/ John J. Roman
John J. Roman
Vice President and Controller
HEC INC.
HEC ENERGY CONSULTING CANADA, INC.
By: /s/ Linda A. Jensen
Linda A. Jensen
Vice President-Finance,
Treasurer and Clerk
REEDS FERRY SUPPLY CO, INC.
SELECT ENERGY CONTRACTING, INC.
By: /s/ Linda A. Jensen
Linda A. Jensen
Treasurer
THE CONNECTICUT LIGHT AND POWER COMPANY
By: /s/ Randy A. Shoop
Randy A. Shoop
Treasurer
Date: November 18, 1999
<PAGE>
EXHIBIT A
PRO FORMA CAPITALIZATION SCHEDULE
TOTAL CAPITALIZATION INCLUDES:
total common stockholder's equity
preferred stock not subject to mandatory redemption
preferred stock subject to mandatory redemption
long-term debt
minority interest in consolidated subsidiaries
rate reduction bond obligations
notes payable to banks and affiliated companies
current portion of long-term debt and preferred stock
<TABLE>
<CAPTION>
TOTAL COMMON
CAPITALIZATION EQUITY %
<S> <C> <C> <C> <C>
NU 6,221,145 1,808,972 29.1%
CL&P 3,247,510 619,043 19.1%
WMECO 561,384 93,166 16.6%
PSNH 1,176,826 166,788 14.2%
</TABLE>
