FILE NO. 70-9541
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5 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
Northeast Utilities
Western Massachusetts Electric
Company
174 Brush Hill Avenue
West Springfield, MA 01090
The Connecticut Light and Power Company
NU Enterprises, Inc.
Northeast Generation Company
Northeast Generation Services Company
Select Energy, Inc.
Select Energy Portland Pipeline, Inc.
107 Selden Street
Berlin, CT 06037
Public Service Company of New Hampshire
North Atlantic Energy Corporation
1000 Elm Street
Manchester, NH 03015
HEC Inc.
Select Energy Contracting, Inc.
24 Prime Parkway
Natick, MA 01760
Reeds Ferry Supply Co., Inc.
605 Front Street
Manchester, NH 03102
HEC Energy Consulting Canada Inc.
242 Simcoe Street
Niagara on the Lake
Ontario, Canada LOS1J0
(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.
Assistant General Counsel
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
David R. McHale
Vice President and Treasurer
Northeast Utilities Service Company
107 Selden Street
Berlin, CT 06037
The application/declaration, as amended, in this file is amended as follows:
A. Item 1 is deleted and replaced in its entirety 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 and NAEC, from certain restructuring proceeds, (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 from certain restructuring
proceeds 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") and, in the case of CL&P, WMEOC and PSNH, so long as the senior debt
securities of the respective company remain rated investment grade by at
least one rating agency, and (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 June 30, 2001. 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 reduce and adjust
their capital structures by retiring outstanding debt, preferred stock and
common equity, and to buy down existing power purchase agreements with
independent power producers. As a result, CL&P, WMECO, PSNH and NAEC
(collectively, the "Utilities") will be able to lower the rates charged to
their utility customers, and gain greater financing flexibility. In
addition, the value of the investment in NU held by its shareholders will be
enhanced. The senior debt ratings of CL&P, WMECO and PSNH issued by Standard
& Poor's are each currently "BBB-" while the senior debt ratings of CL&P and
WMECO issued by Moody's Investor Service, Inc. are each "Baa3" and that of
PSNH is "Ba3." These ratings will be unaffected or improved by the issuance
of the rate reduction bonds, as the agencies do not consider such securities
to be obligations of utilities.
Background
2. Connecticut, Massachusetts and New Hampshire, the states in which 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 could 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 $300 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 and no accretion to their
retained earnings account 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 has obtained final regulatory approval for the sale of
those assets and hopes to close on the transaction in the first quarter of
2000. CL&P has auctioned off its non-nuclear 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. CL&P has received final regulatory approval for the sale of
those assets and hopes to close on that transaction in the first quarter of
2000. PSNH and NAEC expect to sell their interests in non-nuclear and
nuclear generating assets, respectively, 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 and no
accretion to their retained earnings account. Accordingly, while CL&P, PSNH
and WMECO will experience a substantial influx of cash from these
transactions, none of that cash will be treated as "income" or "retained
earnings" on their financial statements. In addition ratings on securities
of CL&P, PSNH and WMECO will not be adversely affected and may improve by the
issuance of the rate reduction bonds. Rated senior debt of CL&P, PSNH and
WMECO are presently expected to remain rated as investment grade by at least
one rating agency through the Authorization Period. In the event that the
senior debt of any of CL&P, PSNH or WMECO is not rated investment grade by at
least one rating agency, the affected company undertakes to request further
authorization from the Commission prior to issuing any further dividends.
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 and
to a lesser extent from the sale of NAEC's interest in the Seabrook Nuclear
Power Plant) 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
7. 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 be treated as indebtedness for rating agency
purposes in this computation. Using these assumptions, NU derived the amount
of equity which it wished to have removed from these companies 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. Each of CL&P, WMECO,
PSNH and NAEC currently has, and following the consummation of the
transactions described herein, will continue to have, through the
Authorization Period, adequate cash and access to working capital facilities
to meet and support its normal business operations. Payment of the dividends
(or repurchases of common stock, as the case may be) 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 operations through the Authorization Period.
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. This could
occur, for example, where a company experienced an operating loss or asset
impairment which created negative retained earnings and also sold assets
which resulted in an influx of cash. 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). In response to more recently
filed applications under the Act, the Commission has given blanket
authorization for the payment of dividends out of capital or unearned
surplus. See, GPU International, Inc., et al. H.C.A. Rel. No. 27023 (May 14,
1999). 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 by the Competitive Subsidiaries to achieve their corporate
goals, so there would be 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 the fall of 1999, NU entered into 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.
NU anticipates closing out the Forwards by June 30, 2001 assuming the
availability of adequate proceeds from the restructuring activities described
above.
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 June 30, 2001, 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 first quarter of 2000 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.
Inability to meet the Commission's 30% Common Equity Ratio Test
11. As shown on Exhibit K hereto, the addition of securitization debt to the
balance sheets of CL&P, WMECO and PSNH on a pro forma basis will cause these
companies (and NU on a consolidated basis) to fail the Commission's benchmark
of 30% common equity-to-capitalization test, with their respective pro forma
common equity ratios at 19.1%, 16.6%, 14.2% and 29.1%, As indicated earlier,
however, the ratings of the respective senior debt securities of CL&P, WMECO
and PSNH will be unaffected or will be improved by the issuance of the rate
reduction bonds, as such bonds are not considered obligations of the
Utilities by the ratings agencies. CL&P, WMECO and PSNH presently anticipate
that all such debt will have been amortized by no later than twelve years
after the respective date when such company has issued the maximum principal
amount of rate reduction bonds which it intends to issue ("Full
Securitization"). Thus the companies' common equity ratio will exceed 30% by
no later than the end of such period. Assuming a straight line amortization
over the twelve-year period from Full Securitization of $84 million annually
in the case of CL&P, $20 million annually in the case of WMECO and $50
million annually in the case of PSNH, each company's common equity ratio will
be over 30% by the end of the twelfth year. Assuming full amortization of
the rate reduction bonds by the end of the twelfth year, the common equity
ratio will reach 30% in the ninth year in the case of CL&P and in the tenth
year in the case of WMECO and PSNH. In all likelihood, a sufficient amount
of securitization debt will be amortized prior to the end of such twelve year
period 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 and, in the case of CL&P, WMECO and PSNH, so long as the
senior debt securities of the respective company is rated investment grade by
at least one rating agency; (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, (c) 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 and
(d) the issuance of additional shares by NU to the extent necessary to
fulfill its obligations under the Forwards through June 30, 2001. 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
Company Maximum amount
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
Reeds not in excess of $19 million
SEPPI not in excess of $8.5 million
* Sources limited to restructuring proceeds.
(b) Other Approvals
NU issuance of up to 8.5 million
additional shares to the extent
necessary to fulfill Forward
obligations through June 30, 2001
CL&P payment of dividends and/or
repurchase of stock out of capital or
unearned surplus from restructuring
proceeds in accordance with Mortgage
Indenture dividend covenant
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
________________________
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
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 recourse
to 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."
B. Item 3 is deleted in its entirety and replaced with the following:
"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.
NU hereby undertakes to file reports with the Commission within 60 days
after the end of each calendar quarter, beginning with the quarter ending
March 31, 2000, providing
1. A total capitalization calculation to include a breakdown of the common
stock equity account and by percentage for each equity and debt category
for the period ending for each Applicant that indicates the amount of
dividends paid to NU and/or the amount of repurchase stock from NU during
the quarter; total capitalization is to include all short-term debt and
current maturities.
2. The current senior debt rating of CL&P, WMECO and PSNH to include a
representation that the rating is at or above investment grade.
3. The amount of cash-on-hand both during the quarter and as of the end of
each quarter for CL&P, PSNH, WMECO and NAEC to include a representation as
to whether internal cash funds available during the quarter were
sufficient to fund each company's normal business operations or had to be
supplemented with borrowing from working capital facilities."
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/ David R. McHale
David R. McHale
Vice President and Treasurer
HEC INC.
HEC ENERGY CONSULTING CANADA, INC.
REEDS FERRY SUPPLY CO, INC.
SELECT ENERGY CONTRACTING, INC.
By: /s/ David R. McHale
David R. McHale
Assistant Treasurer
THE CONNECTICUT LIGHT AND POWER COMPANY
By: /s/ Randy A. Shoop
Randy A. Shoop
Treasurer
Date: March 6, 2000
