FILE NO. 70-9697
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
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
The Connecticut Light and Power
Company
107 Selden Street
Berlin, CT 06037
Western Massachusetts Electric
Company
174 Brush Hill Avenue
West Springfield, MA 01090
Public Service Company of New Hampshire
1000 Elm Street
Manchester, NH 03101
(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
P.O. Box 270
Hartford, CT 06141-0270
Randy A. Shoop
Assistant Treasurer - Finance
Northeast Utilities Service
Company
P.O. Box 270
Hartford, CT 06141-0270
Richard J. Wasserman, Esq.
Day, Berry & Howard LLP
CityPlace I
Hartford, CT 06103-3499
The application/declaration, as amended, in this file is amended and
restated as follows:
I. DESCRIPTION OF PROPOSED TRANSACTIONS
A. Introduction
1. 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"), hereby
submit this application/declaration (this "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 with respect to the following proposed transactions: (a) the
formation of several new subsidiaries, which are expected to be limited
liability companies (each a special purpose entity, or "SPE"); (b) the
acquisition by each Utility of the equity interests in one or more SPEs; (c)
the issuance by the SPEs of "electric rate reduction bonds" or "rate
reduction bonds" ("RRBs") or other related debt instruments and the sale of
such RRBs or other instruments either to investors or to a special purpose
trust created by one or more agencies of the relevant state; and (d) the
entry by each of the Utilities into servicing agreements and administration
agreements with the SPEs. The Utilities further request that the Securities
and Exchange Commission (the "Commission") grant such other authorizations as
may be necessary in connection with the transactions described herein. As
described in greater detail herein, the authorizations sought relate to the
issuance of RRBs in stranded cost securitization transactions in connection
with electric utility restructuring in Connecticut, Massachusetts, and New
Hampshire. The Commission has recently authorized similar rate reduction
bond transactions. See West Penn Power Company, HCAR No. 27091 (October 19,
1999); Central and South West Corporation, HCAR No. 27168 (April 20, 2000).
2. In a previous proceeding under the Act - see Northeast Utilities,
et al., Application/Declaration on Form U-1, as amended, File No. 70-9541
(the "Use of Proceeds Filing"), granted and permitted to become effective in
HCAR No. 27147 (March 7, 2000) (the "Use of Proceeds Order") - the Utilities
sought and were granted authorization related to the use of proceeds from
various restructuring transactions, including the issuance of the RRBs
described herein. The authorizations sought in the Use of Proceeds Filing -
and granted by the Commission in the Use of Proceeds Order - related to the
capital restructuring of the NU system in connection with electric utility
restructuring in Connecticut, Massachusetts, and New Hampshire and the
related required asset divestitures and the issuance of RRBs in such states.
As described in the Use of Proceeds Filing and in paragraphs 15 and 16 below,
the Utilities will use the proceeds of such divestitures and issuances of
RRBs, 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.
B. Background
3. 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.(1) The new laws allow customers
to choose their electric suppliers. Accordingly, energy prices will be based
on competitive market forces rather than being set by the appropriate
regulatory commission. The transmission and distribution of electricity will
continue to be provided by the local utilities at regulated rates. The
restructuring statutes also require electric utilities to institute rate
reductions in amounts that vary from state to state. More detailed accounts
of the restructuring of the electric industries in Connecticut,
Massachusetts, and New Hampshire are contained in the Use of Proceeds Filing.
4. Prior to restructuring, electric utilities had monopolies to
provide retail electric service within their service areas, with rates for
retail sales of electricity established through the regulatory process. This
generally enabled electric utilities to recover energy costs, costs of
operations, depreciation attributable to capital costs, taxes, and a
reasonable return on capital investment through its rates. Electric
utilities were often required by the states in which they operate to
construct generation facilities and enter into long-term contracts to buy
power from non-utility generators. In a regulated market, electric utilities
could expect to recover these and other prudently incurred costs through rate
setting procedures.
5. 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. Such stranded costs may include previously incurred costs
associated with generation facilities that have market values below their
book value, costs associated with contracts to purchase electricity at above-
market prices, and other external costs. 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")(2) that is based on the
amount of electricity purchased by consumers, regardless of whether such
consumer continues to purchase electricity from that electric utility.
6. The restructuring statutes in Connecticut, Massachusetts, and New
Hampshire each provide for the use of securitization to facilitate utility
restructurings.(3) Under these securitization provisions (with respect to each
state, the "Securitization Act" and, collectively, 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").(4) Generally, the use of
securitization produces an immediate reduction in electric utilities' revenue
requirements by replacing higher cost capital with lower cost RRBs, thereby
helping to achieve the overall rate reduction envisioned by electric industry
restructuring.(5) Thus, securitization is an important component of electric
industry restructuring which allows utilities and regulators to work
collaboratively to reduce customer rates and speed the introduction of
competition.
7. The Securitization Acts each contain several important
characteristics that are necessary in order for any securities issued as part
of a securitization transaction to achieve investment grade ratings. These
include the following:
A portion of the Transition Charge may be securitized (such
portion, the "RRB Charge"). The right of the utility to collect
the RRB Charge is irrevocable, pursuant to a pledge by the relevant
state (as discussed in more detail below), and the charge itself is
non-bypassable to customers of the utility regardless of such
customers' source of electric power.
The right to collect the RRB Charge is established as a separate
property right (the "RRB Property") that includes all right, title,
and interest in and to all revenues, collections, claims, payments,
money, or proceeds of or arising from the RRB Charge.
The RRB Property may be transferred by the electric utility to an
SPE in a transaction that is treated as a true sale for bankruptcy
purposes. As such, if the electric utility were to become the
subject of a bankruptcy proceeding, the RRB Property would not be
part of the electric utility's bankruptcy estate and therefore
would not be subject to the claims of the electric utility's
creditors.
The electric utility is authorized to cause the issuance and sale
of RRBs. The RRB Property is the principal asset underlying the
RRBs.
Any Financing Order issued must include a procedure for the
periodic adjustment of RRB Charges. This true-up mechanism serves
to reconcile the actual RRB Charges collected against the RRB
Charges expected to have been collected. This true-up mechanism,
however, does not involve any recourse to the electric utility.
The state pledges and agrees that neither it nor any agency thereof
will alter, amend, reduce or impair the Transition Charge, the RRB
Charge, the RRB Property or the Financing Order and all rights
thereunder, until RRBs and any interest, fees and expenses
associated therewith are fully discharged, unless adequate
provision is made for the protection of the owners of the RRB
Property and holders of RRBs.
C. The Structure of the Proposed Transactions
8. In accordance with the legislative requirements described above,
the Utilities each intend to use securitization as a means of recovering a
portion of the stranded costs incurred as a result of electric industry
restructuring in Connecticut, Massachusetts, and New Hampshire. In
connection therewith, the Utilities have each applied for a Financing Order
from the appropriate state public utilities commission.(6) The structure of
the transactions for each Utility will be substantially similar and will
generally follow one of two formats. The first format (the "One Security
Format") is set forth below. Because of the similarities to the One Security
Format, the alternative format (the "Two Securities Format") will be
described below, but only to the extent that it differs from the One Security
Format.
(i) The One Security Format
(a) Formation and Capitalization of the SPE
9. The Utility will cause the organization of one or more bankruptcy
remote, wholly-owned SPEs, each of which is expected to be a Delaware limited
liability company authorized to acquire RRB Property and to issue RRBs.(7) 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 (the
"Capital Amount"). This capitalization is required in order that the Utility
may treat the RRB issuance by the SPE as debt for tax purposes. The SPE will
invest the equity in financial instruments that are issued by parties
unaffiliated with the Utility and that can be readily converted to cash.
Investment earnings on the Capital Amount, to the extent not used to satisfy
the RRBs, will be paid to the Utility periodically. The Capital Amount and
any investment earnings thereon, to the extent not used to satisfy the RRBs,
will be returned to the Utility after the RRBs are paid in full.
10. It is anticipated that the SPE will enter into an administration
agreement (the "Administration Agreement") with the Utility, pursuant to
which the Utility shall perform administrative services and provide
facilities for the SPE to ensure that it is able to perform such day-to-day
operations as are necessary to maintain its existence and perform its
obligations under the securitization transaction documents. Under the
Administration Agreement, the Utility will be entitled to receive an
administration fee for its provision of such services and facilities. In
order to support the SPE's status as a bankruptcy remote entity, separate and
apart from the Utility, and to satisfy related rating agency and legal
opinion requirements, the administration fee must be comparable to one
negotiated in a market-based, arm's-length transaction - i.e., reasonable and
sufficient for a similar, unaffiliated entity providing 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,(8) 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(9) thereunder.
Accordingly, the Utilities request an exemption from these requirements.
(b) Sale of RRB Property
11. 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. As provided for in the Securitization
Acts, it is expected that the transfer will constitute a true sale for
bankruptcy and commercial law purposes. Although the Utility will collect
the billed RRB Charge as servicer for the RRBs,(10) for legal purposes, the RRB
Property will remain isolated from the Utility's revenues and assets.
Isolating the RRB Property in this manner is intended to improve the
likelihood that the RRBs will receive the highest possible credit rating.
(c) Issuance of RRBs
12. Pursuant to the Securitization Acts, the SPE will issue RRBs, which
in turn will be sold to investors. The following principal amount of RRBs
will be issued on behalf of each Utility on or before August 31, 2005:(11)
CL&P not to exceed $1.489 billion
WMECO not to exceed $303 million
PSNH not to exceed $725 million
As set forth in paragraph 43 below, the Utilities respectfully request the
Commission's approval to consummate, on or prior to August 31, 2005, all
transactions described in this Application.
13. 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 the assets of
the SPE, including (i) the RRB Property (including by a statutory lien on the
RRB Property as provided by the Securitization Acts), (ii) the accounts
maintained by the SPE for payments on the RRBs (together the "Collection
Account"), (iii) all amounts or investment property on deposit in or credited
to the Collection Account from time to time, (iv) all other property of
whatever kind (other than certain amounts owing to certain service providers)
owned from time to time by the SPE, and (v) all rights of the SPE in and to
the transaction documents, such as (a) the purchase agreement by which the
SPE acquires the RRB Property and (b) the servicing agreement (the "Servicing
Agreement") by which the Utility or any successor thereto acts as servicer
(the "Servicer") for the RRB Property.(12) The RRBs will not be subordinated
to the claims of any creditors or the equity owner of the SPE, other than for
payments of trustee, servicing, and administrative fees.
14. 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. Each
Utility expects that the weighted average all-in cost of the RRBs issued on
its behalf will not exceed the applicable U.S. Treasury bond benchmark
security plus 300 basis points. 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, as
necessary to meet the rating agencies' triple-A rating standards.(13) 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 cost of any such agreements or arrangements will
be included in the weighted average all-in cost calculation referred to
above.
15. The SPE will transfer to the Utility, as consideration for the
transfer of the RRB Property to the SPE, the proceeds from the issuance of
the RRBs, net of its transaction expenses. Under the restructuring statutes,
the proceeds from the issuances of RRBs are required to be used to reduce
customer costs by reducing capitalization and, hence, the Utilities' revenue
requirements. In order to achieve these cost savings, the Utilities must
reduce their debt, preferred and common equity capitalizations to reflect the
fact that they are smaller corporate entities. The proceeds of restructuring
transactions (including the RRB transactions) are expected to provide the
Utilities with the funds to achieve this capitalization reduction.(14)
16. The Utilities will apply the net proceeds of the 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. In order to effectively reduce their capitalizations, the
Utilities previously sought Commission authorization to use all or a portion
of the proceeds from the restructuring transactions (including the RRB
transactions) 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 the receipt of restructuring proceeds (including RRB
proceeds) does not result in net income giving rise to earned surplus to the
Utilities, the Act and the regulations thereunder require Commission
authorization 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 authorization is required for the
repurchase by the Utilities of their stock from NU, an affiliate of the
Utilities. As previously indicated, the Commission granted the
authorizations described in this paragraph 16 in the Use of Proceeds
Order.(15)
17. The addition of securitization debt to the balance sheets of the
Utilities on a pro forma basis (16) 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 ratings of the respective
senior debt securities of each Utility will be unaffected or will be improved
by the issuance of the RRBs, which are not considered obligations of the
Utilities by the ratings agencies. 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. In all
likelihood, a sufficient amount of securitization debt will be amortized
prior to the end of such twelve-year period to restore each Utility's 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.(17)
(d) Servicing the RRBs
18. Through the transfer of the RRB Property to the SPE, the SPE will
obtain the right and the obligation to assess and collect the RRB Charge. 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 from all present and future customers that are
obligated to pay such charge. Therefore, the Utility will carry out billing
and collection activities both as Servicer with respect to the RRB Charge and
as principal with respect to its own charges to be paid by such customers.
The Utility can be replaced as Servicer only if it fails to perform its
obligation under the Servicing Agreement satisfactorily, and it can resign
only in limited circumstances.
19. As Servicer, the Utility will bill and collect the RRB Charge and
retain all books and records regarding the RRB Charge, subject to the right
of the SPE to inspect those records. The Utility, or any successor Servicer,
will periodically remit (as frequently as required by the rating agencies and
in all events within one calendar month of collection) the billed and
collected RRB Charge to the trustee appointed under an indenture in
connection with the issuance of the RRBs (the "RRB Trustee"). To the extent
that estimation of such collections is required, the Utility will design a
methodology that will be satisfactory to the rating agencies, and that will
approximate most closely actual collections. The monies deposited with the
RRB Trustee will be held in the Collection Account.
20. As initial Servicer, the Utility will be entitled to receive a
servicing fee for its servicing activities and reimbursement for certain of
its expenses in the manner set forth in the Servicing Agreement. In order to
support the SPE's status as a bankruptcy remote entity, separate and apart
from the Utility, and to satisfy related rating agency and legal opinion
requirements, the servicing fee must be comparable to one negotiated in a
market-based, arm's-length transaction - i.e., reasonable and sufficient for
a similar, unaffiliated entity providing similar services. Although this fee
is expected to approximate each Utility's estimate of the actual cost of
providing these services,(18) 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.(19) Accordingly, the Utilities request an exemption from
these requirements. See Central and South West Corporation, HCAR No. 27168
(April 20, 2000).
21. 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 (the "Overcollateralization
Amount"), and (iii) provide for any related fees, costs and expenses - based
upon assumptions including sales forecasts, charge-offs, and lags between RRB
Charge billing and collection by the Servicer.
22. The 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 Utility has been advised
that the Overcollateralization Amount is necessary for the RRBs to receive
the highest possible credit rating.
23. As a result of the Overcollateralization Amount, the Utility
expects to receive RRB Charge collections in excess of the total amount that
will be paid on the RRBs plus the fees and expenses that will be paid by the
SPE. After the date of the final payment of principal and interest on the
RRBs, this excess will be applied as a credit to the Transition Charge or the
Utility's other rates and charges that would otherwise be charged to the
Utility's customers.
24. The level of the RRB Charge may differ during the term of the RRBs
due to several factors, including changes in the principal balance of the
RRBs, changes in the weighted average interest rate of RRBs as the relative
principal balance outstanding changes, the impact of the variability of
energy sales and customer movements in and out of the service territory, and
changes in ongoing fees, costs, and expenses of the RRBs. In addition, the
amount of the RRB Charge remitted relative to the amount billed will likely
vary due to several factors, including changes in customer payment and
charge-off patterns.
(e) Credit Enhancement
25. In order to minimize the impact of variability in the remittance of
the RRB Charge on the payment of principal, interest, fees, costs and
expenses on 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. By
means of this true-up mechanism, on at least an annual basis, the Utility, as
Servicer (or any successor Servicer) on behalf of the SPE, will file the
revised RRB Charge with the public utilities commission, which will become
effective shortly thereafter.
26. Upon issuance of the initial series of RRBs, the SPE will establish
the Collection Account, which will consist of at least four subaccounts: a
general subaccount (the "General Subaccount"), a reserve subaccount (the
"Reserve Subaccount"), a subaccount for the Overcollateralization Amount (the
"Overcollateralization Subaccount"), and a subaccount for the Capital Amount
(the "Capital Subaccount"). Additional subaccounts may be established in
respect of additional credit enhancements or as necessitated for convenience
by the transaction documents. These accounts will be maintained and
administered in trust by the RRB Trustee.
27. The billed and collected RRB Charge will be remitted to the
Collection Account. Amounts in the Collection Account will be used to pay
the fees of the RRB Trustee, fees to the Servicer, administrative costs,
operating expenses of the SPE, accrued but unpaid interest on all classes of
the RRBs, and principal (to the extent scheduled) on the outstanding RRBs.
Any remaining billed and collected RRB Charge will be allocated to the
Capital Subaccount (to the extent that the Capital Subaccount is below the
required capital level), the Overcollateralization Subaccount (to the extent
scheduled), and then to the Reserve Subaccount.
28. If the billed and collected RRB Charge in any period is
insufficient to satisfy the SPE's payment obligations on the RRBs, then
amounts in the Reserve Subaccount, the accumulated Overcollateralization
Amount, and Capital Amount will be used (in that order) to satisfy scheduled
principal and interest payments. To the extent that the
Overcollateralization Amount or the Capital Amount is used to satisfy
principal and interest payments on the RRBs, the RRB Charge will be adjusted
in the future to restore those amounts.
29. Investment earnings on amounts in the Collection Account also may
be used to satisfy scheduled interest and principal payments on RRBs and to
restore the Capital Amount and the scheduled Overcollateralization Amount.
Except for earnings on the Capital Subaccount, any excess earnings will be
remitted to the SPE and, after the last scheduled date for the payment of
accrued interest and principal on the bonds, will be distributed to the
Utility for the benefit of its customers. As indicated above, investment
earnings on amounts in the Capital Subaccount, to the extent not used to
satisfy the RRBs, will be paid to the Utility periodically. As also
indicated above, amounts in the Capital Subaccount and any investment
earnings thereon, to the extent not used to satisfy the RRBs, will be
returned to the Utility after the RRBs are paid in full.
30. 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. If determined to be cost-effective, these forms of credit
enhancement will be implemented at the time of bond pricing and the related
cost will be recovered through the RRB Charge. The cost of any such credit
enhancement will be included in the weighted average all-in cost calculation
referred to in paragraph 14 above.
(f) Defaults
31. The RRBs will provide for the following events of default: (i) a
default in the payment of accrued interest on any class of RRBs (after a
specified grace period); (ii) a default in the payment of outstanding
principal as of the legal maturity date; (iii) a default in payment of the
redemption price following a call as of the redemption date; (iv) certain
breaches of covenants, representations or warranties by the SPE in the
indenture under which the RRBs are issued; and (v) certain events of
bankruptcy, insolvency, receivership or liquidation of the SPE.
32. In the event of a payment default on the RRBs, the RRB Trustee or
holders of a majority in principal amount of all series then outstanding may
declare the principal of all classes of the RRBs to be immediately due and
payable. If all classes of the RRBs have been declared to be due and payable
following an event of default, the RRB Trustee may, in its discretion, either
sell the RRB Property or allow the SPE to maintain possession of the RRB
Property and continue to apply receipts of the RRB Charge as if there had
been no declaration of acceleration.
(ii) Two Securities Format
33. The alternative format that one or more of the Utilities might
follow with respect to the proposed transactions is the same as the One
Security Format in all material respects, except as described in this
paragraph 33 and in paragraphs 34, 35, and 36 below. Under the Two
Securities 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 Two Securities 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
One Security Format. Overall, the characteristics of the SPE Debt Securities
under the Two Securities Format will be the same as those described for the
RRBs under the One Security Format.
34. Under the Two Securities 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.
35. 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 RRBs will be secured by a
statutory lien on the RRB Property as provided by the Securitization Acts.
Under the Two Securities Format, 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 cost of any such
agreements or arrangements will be included in the weighted average all-in
cost calculation referred to in paragraph 14 above.
36. Under the Two Securities format, the Trust will transfer the
proceeds from the issuance of the RRBs, net of its transaction expenses, if
any, to the SPE, as consideration for the SPE Debt Securities. The SPE will
then transfer to the Utility, as consideration for the transfer of the RRB
Property to the SPE, the balance of such RRB proceeds, net of any remaining
transaction expenses.
D. Statement Pursuant to Rule 54
37. Except in accordance with the Act, neither NU nor any subsidiary
thereof (a) has 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 or will as a
consequence of the transactions proposed herein 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 NU and its
subsidiaries to acquire any securities of, or any interest in, an EWG or a
FUCO.
38. NU currently meets all of the conditions of Rule 53(a), except for
clause (1). At March 31, 2000, NU's "aggregate investment," as defined in
Rule 53(a)(1), in EWGs and FUCOs was approximately $468.7 million, or
approximately 78.7% of NU's average "consolidated retained earnings," also as
defined in Rule 53(a)(1), for the four quarters ended March 31, 2000 ($595.6
million). With respect to Rule 53(a)(1), however, the Commission has
determined that NU's financing of its investment in Northeast Generation
Company ("NGC"), NU's only current EWG or FUCO, in an amount greater than the
amount that would otherwise be allowed by Rule 53(a)(1) would not have either
of the adverse effects set forth in Rule 53(c). See Northeast Utilities,
HCAR No. 27148 (March 7, 2000).
39. In addition, NU and its subsidiaries are in compliance with the
other provisions of Rule 53(a) and (b), as demonstrated by the following
determinations:
(i) NGC maintains books and records, and prepares financial
statements in accordance with Rule 53(a)(2). Furthermore, NU
has undertaken to provide the Commission access to such books
and records and financial statements, as it may request.
(ii) No employees of NU's public utility subsidiaries have rendered
services to NGC.
(iii) 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 the Form U5S and Exhibits G and
H thereof to each state regulator having jurisdiction over the
retail rates of NU's public utility subsidiaries.
(iv) Neither NU nor any subsidiary has been the subject of a
bankruptcy or similar proceeding unless a plan of
reorganization has been confirmed in such proceeding.
(v) NU's average consolidated retained earnings for the four most
recent quarterly periods have not decreased by 10% or more
from the average for the previous four quarterly periods.
(vi) In the previous fiscal year, NU did not report operating
losses attributable to its investment in EWGs/FUCOs exceeding
3 percent of NU's consolidated retained earnings.
II. FEES, COMMISSIONS AND EXPENSES
40. 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 Utilities are expected to be comprised primarily of fees
for ordinary legal, accounting and investment banking services and are not
expected to exceed the following amounts, assuming the RRBs are fully issued:
CL&P not to exceed $12 million
PSNH not to exceed $8 million
WMECO not to exceed $6 million
III. APPLICABLE STATUTORY PROVISIONS
41. Sections 6(a), 7, 9(a), 10, 12(f), 12(g) and 13(b) of the Act and
Rules 90 and 91 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 transactions, the Utilities
request appropriate orders thereunder. As noted above, the use of proceeds
from various restructuring transactions, including the issuance of the RRBs,
was the subject of the Use of Proceeds Filing and the Use of Proceeds Order.
IV. REGULATORY APPROVALS
42. CL&P, WMECO, and PSNH are seeking approval for the proposed
transactions from the Connecticut, Massachusetts, and New Hampshire public
utilities commissions respectively.(20) PSNH and WMECO will also request that
the Connecticut public utilities commission waive the requirement that it
approve their proposed RRB transactions.
V. PROCEDURE
43. The Utilities hereby request that the Commission publish a notice
under Rule 23 with respect to the filing of this Application as soon as
practicable and that the Commission's order be issued as soon as possible.
An amended and restated form of notice suitable for publication in the
Federal Register is attached hereto as Exhibit H 1. The Utilities
respectfully request the Commission's approval to consummate, on or prior to
August 31, 2005, all transactions described in this Application, whether
under the sections of the Act and Rules thereunder enumerated in paragraph 41
above or otherwise. It is further requested that the Commission issue a
single order authorizing the transactions proposed herein at the earliest
practicable date but in any event not later than September 15, 2000.
Additionally, the Utilities (i) request that there not be any recommended
decision by a hearing officer or by any responsible officer of the
Commission, (ii) consent to the Office of Public Utility Regulation within
the Division of Investment Management assisting in the preparation of the
Commission's decision, and (iii) waive the 30-day waiting period between the
issuance of the Commission's order and the date on which it is to become
effective, since it is desired that the Commission's order, when issued,
become effective immediately.
VI. EXHIBITS AND FINANCIAL STATEMENTS
44. Exhibits. Each Utility undertakes to file all material financing
documents relating to its RRB transaction with the certificate filed pursuant
to Rule 24 under the Act after the consummation of such transaction. The
following exhibits are filed with this Application (asterisked (*) items were
filed with the original Application; double asterisked (**) items were filed
with Amendment No. 1 to this Application; triple asterisked (***) items are
filed with this Amendment No. 2).
C 1 Registration Statement on Form S-3 for the CL&P
RRBs (to be filed by further amendment)
C 2 Registration Statement on Form S-3 for the WMECO
RRBs (to be filed by further amendment)
C 3 Registration Statement on Form S-3 for the PSNH
RRBs (to be filed by further amendment)
*D 1.1 Application of CL&P to the Connecticut Department
of Public Utility Control for Approval of the
Issuance of Rate Reduction Bonds and Related
Transactions
D 1.2 Financing Order of the Connecticut Department of
Public Utility Control (to be filed by further
amendment)
*D 2.1 Petition of WMECO to the Massachusetts Department
of Telecommunications and Energy for Approval of
the Issuance of Electric Rate Reduction Bonds
D 2.2 Financing Order of the Massachusetts Department of
Telecommunications and Energy (to be filed by
further amendment)
D 2.3 Application of WMECO to the Connecticut Department
of Public Utility Control for Waiver of Approval
for the Issuance of Electric Rate Reduction Bonds
(to be filed by further amendment)
D 2.4 Connecticut Department of Public Utility Control
Waiver of Approval for the Issuance of Electric
Rate Reduction Bonds by WMECO (to be filed by
further amendment)
*D 3.1 PSNH's Settlement Agreement (Exhibit 10.2, NU Form
10-Q for the Quarter ended June 30, 1999, File No.
1-5324)
***D 3.1.1 PSNH's Conformed Settlement Agreement
***D 3.1.2 PSNH's Motion to the New Hampshire Public
Utilities Commission for Findings of Fact and for
Issuance of Finance Order
*D 3.2.1 PSNH's Settlement Order
D 3.2.2 Finance Order of the New Hampshire Public
Utilities Commission (to be filed by further
amendment)
D 3.3 Application of PSNH to the Connecticut Department
of Public Utility Control for Waiver of Approval
for the Issuance of Electric Rate Reduction Bonds
(to be filed by further amendment)
D 3.4 Connecticut Department of Public Utility Control
Waiver of Approval for the Issuance of Electric
Rate Reduction Bonds by PSNH (to be filed by
further amendment)
***F Opinion of Counsel
**G Financial Data Schedules
*H Proposed Form of Notice
***H 1 Amended and Restated Proposed Form of Notice
45. Financial Statements. The following financial statements are filed
with this Application (double asterisked (**) items were filed with Amendment
No. 1 to this Application).
**1. Northeast Utilities (consolidated)
**1.1 Balance Sheet, per books and pro forma, as of
March 31, 2000.
**1.2 Statement of Income, per books and pro forma,
for 12 months ended March 31, 2000 and capital
structure, per books and pro forma, as of March
31, 2000.
**2. Northeast Utilities (parent company only)
**2.1 Balance Sheet, per books and pro forma, as of
March 31, 2000.
**2.2 Statement of Income, per books and pro forma,
for 12 months ended March 31, 2000 and capital
structure, per books and pro forma, as of March
31, 2000.
**3. The Connecticut Light and Power Company
**3.1 Balance Sheet, per books and pro forma, as of
March 31, 2000.
**3.2 Statement of Income, per books and pro forma,
for 12 months ended March 31, 2000 and capital
structure, per books and pro forma, as of March
31, 2000.
**4. Western Massachusetts Electric Company
**4.1 Balance Sheet, per books and pro forma, as of
March 31, 2000.
**4.2 Statement of Income, per books and pro forma,
for 12 months ended March 31, 2000 and capital
structure, per books and pro forma, as of March
31, 2000.
**5. Public Service Company of New Hampshire
**5.1 Balance Sheet, per books and pro forma, as of
March 31, 2000.
**5.2 Statement of Income, per books and pro forma,
for 12 months ended March 31, 2000 and capital
structure, per books and pro forma, as of March
31, 2000.
VII. INFORMATION AS TO ENVIRONMENTAL EFFECTS
46. (a) The financial transactions described herein do not involve a
major Federal action significantly affecting the quality of the environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed transaction.
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.
THE CONNECTICUT LIGHT AND POWER COMPANY
By: /s/Randy A. Shoop
Randy A. Shoop
Treasurer
WESTERN MASSACHUSETTS ELECTRIC COMPANY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By: /s/Randy A. Shoop
Randy A. Shoop
Assistant Treasurer - Finance
Date: August 25, 2000
FOOTNOTES:
(1) An Act Concerning Electric Restructuring, 1998 Conn. Acts. 98-28 (Reg.
Sess.); The Massachusetts Electric Industry Restructuring Act, 1997 Mass. Acts
164; N.H. Rev. Stat. Ann. ("RSA") 374-F.
In New Hampshire, the enactment of RSA 374-F was followed by several
governmental actions relating to electric industry restructuring,
including: (1) the initiation by the New Hampshire Public Utilities
Commission (the "NHPUC") of Docket No. DR 96-150, an administrative proceeding
to consider restructuring; (2) the issuance by the NHPUC on February 28, 1997
of a restructuring order in Docket No. DR 96-150; (3) the enactment in 1999
of 1999 N.H. Laws 289, including RSA 369-A, which made certain changes to the
law regarding implementation of restructuring and authorized the NHPUC to
consider whether implementation of securitization will result in
benefits to customers and to issue an order approving securitization,
subject to the enactment of future enabling legislation; (4) the
execution and delivery by the Governor of New Hampshire, the Staff of the
NHPUC, the Company, and certain other parties of an Agreement to Settle PSNH
Restructuring dated August 2, 1999 (the "Settlement Agreement"), which is
designed to, among other things, to provide resolution to all major issues
pertaining to PSNH in Docket No. DR 96-150 and to result in the restructuring
of PSNH in compliance with the objectives of the legislature and the NHPUC;
(5) following the execution and delivery of the Settlement Agreement,
the initiation by the NHPUC of Docket No. DE 99-099, an administrative
proceeding to consider the Settlement Agreement, including the
securitization proposal contained therein; (6) the issuance by the NHPUC
on April 19, 2000 of an order in Docket No. DE 99-099 (Order No. 23,443)
approving, with modifications and conditions, the Settlement Agreement (the
"Settlement Order"); (7) the enactment in 2000 of 2000 N.H. Laws 249, which,
among other things, includes securitization enabling legislation, RSA 369-B;
and (8) the execution and delivery by the parties to the Settlement Agreement
of a conformed Settlement Agreement dated August 2, 1999 and conformed as of
June 23, 2000 (the "Conformed Settlement Agreement"), to reflect changes and
corrections made during hearings before the NHPUC in Docket No. DE 99-099, the
requirements of 2000 N.H. Laws 249, and the Settlement Order.
(2) Connecticut, Massachusetts, and New Hampshire use different terms to refer
to analogous securitization-related concepts. Generic, non-state-specific
defined terms are used throughout this Application to refer to such concepts.
(3) See 1998 Conn. Acts. 98-28 (Reg. Sess.),sections 8-14, codified at Conn.
Gen. Stat. Sections 16-245e to 16-245k; 1997 Mass. Acts 164, Section 193,
codified at M.G.L. c. 164, Section 1G-1H; RSA 369-B.
Securitization is the financing of a specific asset or pool of assets, through
the issuance of securities,frequently referred to as "asset-backed securities"
("ABS"). For debt service and repayment of principal, these securities rely
solely on the revenue stream underlying the asset or pool of assets, and as a
result, their ratings are dependent upon the predictability or volatility of
that associated cash flow. The structure of a typical ABS transaction is
based on the underlying assets and the expected cash flows to be generated by
those assets. In general, the original owner of the underlying asset sells
the asset to a special-purpose financing entity. That entity then
issues securities (directly or indirectly), for which the primary source of
payment of principal and interest is the cash flow generated by
the underlying asset that was sold.
(4) See infra note 6 and accompanying text.
(5) See paragraph 0 below.
(6) CL&P filed its application for a Financing Order with the Connecticut
Department of Public Utility Control on May 31, 2000. A copy of CL&P's
application is attached hereto as Exhibit D 1.1. WMECO filed its petition
for a Financing Order with the Massachusetts Department of Telecommunications
and Energy on April 18, 2000. A copy of WMECO's petition is attached hereto as
Exhibit D 2.1. As part of the Settlement Agreement proceedings before the
NHPUC, see supra note 1, PSNH has petitioned the NHPUC for a Financing Order.
Copies of the Settlement Order, which was filed with the NHPUC on August 2,
1999, and of the Conformed Settlement Agreement and PSNH's Motion to the NHPUC
for Findings of Fact and for Issuance of Finance Order, each of which was
filed with the NHPUC on June 23, 2000, are attached hereto as Exhibits D 3.1,
D 3.1.1, and D 3.1.2, respectively.
(7) Each Utility must obtain approval from the appropriate state public
utilities commission prior to consummating the proposed transactions. See
supra note 6 and accompanying text. However, organization, alone, of one
or more SPEs does not require prior state approval.
(8) The annual administration fee applicable to each Utility's proposed RRB
transaction shall not exceed $75,000.
(9) Generally, Rule 91 requires "a fair and equitable allocation of expenses"
and allows "reasonable compensation for necessary capital procured."
(10) See paragraph 0 below.
(11) The "not to exceed" principal amounts set forth below are consistent with
the authorizations sought by the Utilities in the Use of Proceeds Filing and
granted by the Commission in the Use of Proceeds Order.
(12) See paragraph 0 below.
(13) Legal maturity is the date on which nonpayment constitutes a default.
Scheduled maturity is the date on which the final principal payment is
expected to be made.
The Utilities expect the Financing Orders to include guidance with
respect to RRB maturities. The Securitization Acts also include such
guidance. See Conn. Gen. Stat. Section 16-245j(c)(6); M.G.L. c. 164,
Section 1H(b)(4)(vi); RSA 369-B:5, VIII.
(14) See paragraph 0 above and the Use of Proceeds Filing.
(15) See paragraph 0 above, the Use of Proceeds Filing and the Use of
Proceeds Order.
(16) The SPE and the holders of the RRBs will expressly agree under the terms
of the applicable transaction documents to treat the RRBs as debt of the SPE
for all purposes. However, for each Utility's financial reporting purposes,
the RRBs will be treated as debt of such Utility.
(17) As described in the Use of Proceeds Filing, and subject to the
assumptions set forth therein, (i) 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 and (ii) each Utility's common equity ratio will be
over 30% by the end of the twelfth year. See Use of Proceeds Filing.
(18) The annual servicing fee applicable to CL&P's and WMECO's proposed RRB
transactions shall equal approximately 0.05% of the initial principal balance
of RRBs. The annual servicing fee applicable to PSNH's proposed RRB
transaction shall equal approximately 0.25% of the outstanding principal
balance of RRBs.
The servicing fee paid to the Utility will be lower than the servicing fee
paid to a successor Servicer that does not concurrently bill the RRB Charge
with charges for other services due to the fact that the successor Servicer
would not otherwise be sending bills to and making collections from customers,
and therefore the cost to that successor Servicer associated with servicing
the RRB Charge and the RRBs is higher.
(19) See supra note 9.
(20) See supra note 6.
