EXHIBIT H 1
to Application/Declaration of
The Connecticut Light and Power Company
Western Massachusetts Electric Company
Public Service Company of New Hampshire
AMENDED AND RESTATED
PROPOSED FORM OF NOTICE
(Release No. 35-_____; 70-9697)
FORM U-1
APPLICATION/DECLARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
WITH RESPECT TO THE ISSUANCE OF RATE REDUCTION BONDS
AND RELATED TRANSACTIONS
_______________, 2000
The Connecticut Light and Power Company ("CL&P"), Western Massachusetts
Electric Company ("WMECO"), and Public Service Company of New Hampshire
("PSNH" and, together with CL&P and WMECO, each a "Utility" and collectively
the "Utilities"), each an electric utility subsidiary of Northeast Utilities
("NU"), a public holding company registered under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), have submitted an
application/declaration, as amended (the "Application"), pursuant to Sections
6(a), 7, 9(a), 10, 12(f), 12(g) and 13(b) of the Act and Rules 90 and 91
thereunder. CL&P is located at 107 Selden Street, Berlin, Connecticut 06037,
WMECO is located at 174 Brush Hill Avenue, West Springfield, Massachusetts
01090, and PSNH is located at 1000 Elm Street, Manchester, New Hampshire
03101.
According to the Utilities, the states in which CL&P, WMECO, and PSNH
operate - Connecticut, Massachusetts, and New Hampshire, respectively - have
enacted legislation that restructures the electric industries in such states
by introducing retail competition in electricity generation. In light of the
transition to the new competitive environment, electric utilities will have
certain "stranded costs" - i.e., costs that would have been recoverable in a
regulated environment but are not expected to be recoverable as a result of
the introduction of competition in the generation market. To facilitate the
transition, the restructuring statutes contain provisions which permit
electric utilities to recover some or all of these costs through the
collection from consumers of electricity located within the service area of
the electric utility of a non-bypassable special charge (the "Transition
Charge") that is based on the amount of electricity purchased by consumers,
regardless of whether such consumer continues to purchase electricity from
that electric utility. The restructuring statutes each contain provisions
(such provisions, collectively, the "Securitization Acts") that permit
electric utilities to securitize a portion of the Transition Charge (such
portion, the "RRB Charge") to facilitate electric industry restructuring.
Pursuant to the Securitization Acts, electric utilities may petition the
state public utilities commission for an order authorizing and setting forth
the details of the securitization transaction (such order, a "Financing
Order"). The Utilities have each applied for a Financing Order from the
appropriate state public utilities commission. The structure of the
transactions for each Utility will be substantially similar and will
generally follow one of two formats.
The Utilities state that under the first format, the Utility will cause
the organization of one or more bankruptcy remote, wholly-owned special
purpose entities, each of which is expected to be a Delaware limited
liability company (each an "SPE"). Pursuant to the Securitization Acts, the
right to collect the RRB Charge is established as a separate property right
(the "RRB Property"), and the SPE is authorized to acquire RRB Property and
to issue rate reduction bonds ("RRBs"). The Utility will contribute as
equity to the SPE cash equal to at least 0.50% of the initial principal
balance of RRBs issued with respect to such SPE. It is anticipated that the
SPE will enter into an administration agreement with the Utility, pursuant to
which the Utility shall perform administrative services and provide
facilities for the SPE. Under such administration agreement, the Utility
will be entitled to receive an administration fee for its provision of such
services and facilities. Although this fee is expected to approximate each
Utility's estimate of the actual cost of providing these services and
facilities, the Utilities cannot be certain that this fee will meet the "at
cost" requirements of Section 13(b) of the Act and Rules 90 and 91
thereunder. Accordingly, the Utilities have requested an exemption from
these requirements.
The Utility will sell the RRB Property to an SPE for an amount equal to
the issue price of the RRBs less any transaction costs paid by the SPE from
the proceeds of the RRBs. It is expected that the transfer will constitute a
true sale for bankruptcy and commercial law purposes, and therefore the RRB
Property will remain isolated from the Utility's revenues and assets. The
SPE will issue RRBs, which in turn will be sold to investors. The Utilities
state that the following principal amount of RRBs will be issued on behalf of
each Utility on or before August 31, 2005: CL&P - not to exceed $1.489
billion; WMECO - not to exceed $303 million; and PSNH - not to exceed $725
million.
The RRBs will be in the form of promissory notes of the SPE. The RRBs
will be nonrecourse to the Utility but will be secured by all of the assets
of the SPE, including the RRB Property. The RRBs will be issued in one or
more series. Each series of RRBs may be offered in one or more classes, each
expected to have a different principal amount, term, interest rate, and
amortization schedule. The Utilities also expect that the RRBs will have
legal maturities not longer than 15 years and that the longest-term RRBs will
have scheduled maturities that are at least 6 months earlier. Other terms
and characteristics of the RRBs will be determined at the time of issuance
based on then-current market conditions. The SPE may enter into swap
agreements or other hedging arrangements solely to permit the issuance of
variable rate RRBs.
The Utilities state that they will apply the net proceeds of various
restructuring transactions (including the RRB transactions), among other
things, to retire outstanding debt and preferred stock, to buy down existing
power purchase agreements with independent power producers and to reduce
their capitalizations. The buy-down of power purchase contracts and the
retirement of debt and preferred stock can be accomplished without Commission
authorization. To reduce their capitalizations, the Utilities will either
pay dividends to NU, buy back a portion of their outstanding common stock
owned by NU, or some combination of the above transactions. In a previous
proceeding under the Act, the Utilities sought and were granted authorization
related to the use of proceeds from various restructuring transactions,
including the issuance of the RRBs described in the Application. See
Northeast Utilities, et al., HCAR No. 27147 (March 7, 2000) (File No. 70-
9541).
The Utilities note that the addition of securitization debt to the
balance sheets of the Utilities on a pro forma basis, and the accounting
treatment of such debt, will cause each Utility (and NU on a consolidated
basis) to fall below the Commission's benchmark 30% common equity-to-total
capitalization ratio. However, the Utilities presently anticipate that all
such debt will have been amortized by no later than twelve years after the
respective date when the maximum principal amount of RRBs has been issued on
such Utility's behalf. Thus, each Utility's common equity ratio will exceed
30% by no later than the end of such twelve-year period.
The Utilities state that on behalf of the SPE, the Utility will act
initially as the servicer for the RRB Property and will be responsible for
calculating, billing, collecting, and remitting the RRB Charge. As initial
servicer, the Utility will be entitled to receive a servicing fee for its
servicing activities and reimbursement for certain of its expenses. Although
this fee is expected to approximate each Utility's estimate of the actual
cost of providing these services, the Utilities cannot be certain that this
fee will meet the "at cost" requirements of Section 13(b) of the Act and
Rules 90 and 91 thereunder. Accordingly, the Utilities have requested an
exemption from these requirements.
The RRB Charge will be established at a level (or at different levels
during specified periods over the life of RRBs) intended to (i) provide for
the full recovery of payments of interest and principal on RRBs, in
accordance with the expected amortization schedule determined at the time of
offering, (ii) provide credit enhancement, including any liquidity reserves
and an amount for overcollateralization, and (iii) provide for any related
fees, costs and expenses. The Utilities state that such
overcollateralization amount will eventually reach at least 0.50% of the
initial principal amount of the RRBs, and will be collected ratably over the
expected term of the RRBs.
The Financing Order is expected to provide for the RRB Charge to be
adjusted by a true-up mechanism at least annually to keep actual principal
amortization in line with the expected amortization schedule. Other forms of
credit enhancement customary for securitization transactions also might be
used, such as a liquidity reserve, debt service reserve fund, bank letter of
credit, or surety bond or similar insurance policy.
The Utilities state that the alternative format that one or more of the
Utilities might follow with respect to the proposed transactions is the same
as the first format in all material respects, except as described in the
Application. Under the second format, instead of issuing RRBs to investors,
the SPE will issue promissory notes (the "SPE Debt Securities") to a
governmentally-sponsored trust established by one or more agencies of the
state in which the Utility operates (the "Trust"). Under the second format,
the SPE Debt Securities will be secured by the RRB Property and all of the
other assets of the SPE - i.e., in the same manner that the RRBs would be
secured under the first format. The Trust will issue RRBs in aggregate
principal amount equal to the aggregate principal amount of the SPE Debt
Securities. The RRBs in turn will be sold to investors. The RRBs will be in
the form of pass-through certificates representing beneficial ownership
interests in the SPE Debt Securities held by the Trust, and therefore
effectively will be secured by the RRB Property and all of the other assets
of the SPE. Each class of each series of RRBs will represent fractional
undivided beneficial interests in a class of a series of SPE Debt Securities
held by the Trust and the proceeds thereof and will have terms and
characteristics that are substantially identical to the corresponding class
of SPE Debt Securities. The SPE or the Trust may enter into swap agreements
or other hedging arrangements solely to permit the issuance of variable rate
RRBs. In such case, the RRBs would also represent beneficial ownership
interests in those agreements or arrangements.
The Utilities state that they intend to request the Commission's
approval of all transactions described in the Application, whether under
sections of the Act and the rules thereunder enumerated therein or otherwise.
The Application is available for public inspection through the
Commission's Branch of Public Reference. Interested persons wishing to
comment or request a hearing on the Application should submit their views in
writing by _________, 2000, to the Secretary, Securities and Exchange
Commission, Washington, D.C. 20549-0609, and serve a copy on the Utilities at
the addresses specified above. Proof of service (by affidavit or, in the
case of an attorney at law, by certificate) should be filed with the request.
Any request for hearing should identify specifically the issues of facts 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
this matter. After said date, the Application, as filed or as it may be
amended, may be granted and/or permitted to become effective.
For the Commission by the Division of Investment Management, under
delegated authority.
_____________________________
Secretary
