File No.: 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
APPLICATION/DECLARATION
on
FORM U-1
APPLICATION/DECLARATION WITH RESPECT TO
THE ORGANIZATION AND FINANCING OF A
WHOLLY-OWNED SUBSIDIARY
under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 (the "ACT")
EUA COGENEX CORPORATION
Boott Mills South, 100 Foot of John Street,
Lowell, Massachusetts 01852
(Name of company or companies filing this statement and
addresses of principal executive offices)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company parent
of each applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333
Boston, Massachusetts 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies of all
orders, notices and communications to:
ARTHUR I. ANDERSON, P.C.
McDermott Will & Emery
75 State Street
Boston, Massachusetts 02109
*n*
Item 1. Description of Proposed Transactions.
I. Introduction
A. Background of Applicant. This application-declaration
is filed with the United States Securities and Exchange
Commission (the "Commission") by EUA Cogenex Corporation ("EUA
Cogenex"), a Massachusetts corporation and a wholly-owned
subsidiary of Eastern Utilities Associates ("EUA"), a
Massachusetts voluntary association and a registered holding
company under the Public Utility Holding Company Act of 1935, as
amended (the "Act"). The holding company system of EUA is
sometimes hereinafter referred to as the "EUA System" or the
"System".
B. Overview of Application. In this application/
declaration EUA Cogenex requests authorization to form, organize
and fund a new wholly owned corporate subsidiary ("EUA Cogenex-
Canada") to carry on EUA Cogenex's business activities in Canada.
Under order dated September 17, 1992 (Release No. 35-25636), EUA
Cogenex is authorized to conduct its business subject to a "50%
Restriction" which requires that less than 50% of EUA Cogenex's
revenues be attributable to customers located outside of the New
England/New York service area. For the purposes of determining
compliance with the 50% Restriction, all activities relating to
Qualifying Facilities ("QFs"), as defined in the Public Utility
Regulatory Policies Act of 1978, are excluded. Subject to
Commission authorization, as requested herein, all business
activities conducted by EUA Cogenex and its subsidiaries in the
Canadian provinces of Ontario, New Brunswick and Quebec, and all
consulting services (defined in paragraph C(4) below) rendered by
EUA Cogenex and its subsidiaries worldwide, would also be
excluded from the 50% Restriction calculation. EUA Cogenex
believes that there are significant opportunities for expansion
of its business in Canada, and that the formation of a separate
subsidiary to conduct such business is desirable.
C. Authorization of EUA Cogenex. By order dated December
19, 1986 (Release No. 35-24273), EUA was authorized to acquire
all of the issued and outstanding capital stock of the energy
management services company now known as EUA Cogenex. EUA
Cogenex designs, finances, installs and maintains energy
conservation and self-generation systems. EUA Cogenex is
currently authorized: (i) to provide energy management services/
shared savings ("EMS") to institutional, commercial/industrial
and governmental customers to reduce their energy costs and
consumption; (ii) to participate in utility-sponsored demand side
management ("DSM") programs to decrease base load and peak demand
on utilities' systems; (iii) subject to further Commission
authorization, to develop self-generation ("COGEN") projects; and
(iv) to render consulting services. Specifically, EUA Cogenex
operates within the four above-listed market segments as follows:
(1) EMS: EUA Cogenex employs energy efficiency technology
and equipment through building automation, lighting
modifications, boiler replacement and other heat recovery methods
to reduce electrical energy, fuel and other natural resource
consumption and related costs of its customers. The principal
equipment installed and maintained by EUA Cogenex for EMS
projects consists of lighting equipment including, among other
things, lamps, ballasts, reflectors, sensor switches and exit
sign retrofit kits; variable speed drives used in connection with
heating; ventilation and air conditioning systems; building
automation control and conservation equipment; high efficiency
motors; chillers and heat exchangers. EUA Cogenex is paid for
these services primarily through "shared savings" agreements in
which the customer, who owns or occupies a facility, pays EUA
Cogenex a portion of the energy savings that result from the
installation and maintenance of the energy efficient equipment in
the facility. EUA Cogenex also purchases benefits under existing
EMS contracts from other utilities and EMS providers. As part of
its EMS business, EUA Cogenex also engages in the retail sale and
concurrent installation of energy-conserving window film for
residential, commercial, industrial and institutional sites, and
sells reflectors wholesale to demand side management contractors.
(2) Utility-Sponsored DSM: In utility-sponsored DSM
programs, EUA Cogenex contracts with the utility and its
customers to provide energy management services to the utility's
customers to reduce demands on the utility's system. EUA Cogenex
is paid by the utility based on the reduction in the demand on
the utility's system and may also receive a portion of the
customer's savings.
(3) COGEN: EUA Cogenex develops COGEN projects in which an
electric and heat generating facility is installed for a
particular building or group of buildings. Typically,
electricity and heat can be generated by the COGEN facility at a
lower cost to the building owners or occupants than the retail
cost of heating fuel and electricity sold by the local utility.
When combined with other energy management services provided by
EUA Cogenex, COGEN projects can result in savings to the owners
or occupants, a portion of which is paid to EUA Cogenex. EUA
Cogenex's strategy has been to keep its COGEN projects below the
five megawatt (MW) level, sized to a minimum base load thermal
requirement for the particular facility to avoid competition from
larger independent power project developers. Almost all of the
COGEN projects that EUA Cogenex currently owns, operates or has
investments in are certified QFs, the revenues from which are
excludable from the determination of EUA Cogenex's compliance
with the 50% Restriction. EUA Cogenex will seek further
authorization from the Commission prior to undertaking any new QF
project.
(4) Consulting Services: EUA Cogenex performs and evaluates
feasibility studies and provides assistance with respect to the
design and implementation of energy savings programs tailored to
customers' needs. In designing a tailored program for a
customer, EUA Cogenex may develop and assess architectural,
structural and engineering aspects of energy and other resource
efficiencies, determine specifications for energy consuming
equipment, design and market processes, programs, software and
techniques to analyze energy conservation opportunities and
results, and render general technical advice regarding energy
management. These activities constitute consulting services in
cases where EUA Cogenex is not directly involved in the
performance of EMS, utility-sponsored DSM or COGEN projects.
D. Request for Further Modification of 50% Restriction.
(1) Request for EMS and DSM Activities Conducted in the
Canadian Provinces of Ontario, New Brunswick and Quebec to be
Excluded from 50% Restriction. SEC Order 35-25636 dated
September 17, 1992 authorized expansion of EUA Cogenex's
operational service area to include New York for the purpose of
determining compliance with the 50% Restriction based on the
"extensive coordinated planning and procedures between New York
and New England supplemented by transmission interconnections
allowing a significant amount of power for economy interchange
and reliability between New York and New England" and the close
coordination of resources and transmission facilities among all
New England Power Pool ("NEPOOL") participants including the EUA
System. For substantially the same reasons, EUA Cogenex hereby
requests authorization to include revenues from its EMS and DSM
activities in the Canadian provinces of Ontario, New Brunswick
and Quebec with its revenues from the New England/New York
service area, excluding all activities relating to QF's, for
purposes of determining its compliance with the 50% Restriction.
The New York/New England utility service area is presently
interconnected with Northeastern Canada through eleven separate
transmission lines, and has power system interconnections with
Ontario Hydro, Hydro-Quebec and the Maritimes region of Canada
(including New Brunswick and Nova Scotia). Furthermore, EUA
System companies participate in the Northeast Power Coordinating
Council ("NPCC"), which was formed to promote the reliability and
efficiency of the interconnected bulk power systems of its
members through improved coordination in system design and
operating procedures. EUA Cogenex believes that improving
conservation in eastern Canada through EMS and DSM activities
would directly benefit its New England/New York service area
customers and improve reliability in New England for all NEPOOL
participants by: (i) reducing the chances of overloaded
transmission lines between New England and eastern Canada and
minimizing the frequency of occasions when New England must
curtail power imports from Canada under various firm energy
contracts due to Canadian power emergencies; (ii) making
available more power in eastern Canada to send to New England
during New England's peak demand and emergency periods; and (iii)
freeing up low cost energy generated by hydroelectric projects in
eastern Canada. EUA Cogenex therefore proposes that the
characteristics described herein support the existence of
"extensive coordinated planning and procedures ... supplemented
by transmission interconnections allowing a significant amount of
power for economy interchange and reliability" between the New
England/New York service area and Canada's eastern provinces.
(2) Request for Revenues from Consulting Services to be
Excludable: EUA Cogenex hereby requests that the revenues from
its consulting services (defined in Section I.C(4) above) be
excludable from the determination of its compliance with the 50%
Restriction. To ensure that EUA Cogenex's consulting revenues do
not include any revenues from EMS, utility-sponsored DSM or COGEN
activities, EUA Cogenex states that: (1) its revenues will only
be categorized as consulting revenues if EUA Cogenex is not at
the same time also providing EMS, utility-sponsored DSM and/or
COGEN activities for that customer; (2) if a consulting services
client of EUA Cogenex requests that EUA Cogenex also provide EMS,
utility-sponsored DSM or COGEN activities, all revenues received
from that customer, until the EMS, utility-sponsored DSM or COGEN
activities are completed, would be subject to the 50%
Restriction; and (3) if a customer for whom EUA Cogenex is
providing EMS, utility-sponsored DSM or COGEN activities requests
that EUA Cogenex also provide a consulting service or services,
all revenues from that customer would be subject to the 50%
Restriction until all EMS, utility-sponsored DSM or COGEN
activities are completed.
E. Reasons for Expansion in the Canadian Market. EUA
Cogenex believes that in addition to providing valuable and
timely services to Canadian utilities and their customers, the
expansion of EUA Cogenex's activities in Canada will be
beneficial (i) for the New York/New England utility service area,
(ii) for the business and profitability of EUA Cogenex, and (iii)
for EUA Cogenex's competitive position generally.
(1) Benefits to the New York/New England Utility Service
Area: As discussed in paragraph I.D(1) above, the New York/New
England utility service area is presently interconnected with
northeastern Canada and the Maritimes region, and the reliability
and efficiency of power delivery between these neighboring
systems is enhanced by the planning and coordination efforts of
the NPCC. The sharing of reserves among New England/New York and
eastern Canadian power sources allows for a reduction in
installed generating capacity and the transfer of power for
enhanced economic and reliability purposes. The Applicant
believes that the operation of a subsidiary of EUA Cogenex in
Canada would significantly further the purposes of the NPCC and
enhance the pooled benefits to be shared across power systems in
the Northeast. (For additional support, see Northeast Utilities
application-declaration on Form U-1, File No. 80-8086.)
(2) Benefits for the Business and Profitability of EUA
Cogenex: EUA Cogenex believes that it is well positioned using
its existing resources and technological know-how to provide
state of the art energy management and demand side management
services and, subject to further Commission authorization, to
develop COGEN projects in the rapidly developing Canadian market.
The profits generated by the Canadian business would either be
reinvested or paid to EUA Cogenex. These profits would also
indirectly benefit the EUA System by enhancing the attractiveness
of an investment in the common shares of EUA.
(3) Benefits with respect to the Competitiveness of EUA
Cogenex: The execution of the North American Free Trade
Agreement (NAFTA), recent economic and political developments in
Canada and this country's growing emphasis on global
environmental responsibility and international competitiveness
have created timely opportunities for EUA Cogenex to expand its
business in Canada. Additionally, EUA Cogenex believes that such
Canadian experience would enhance not only the management
capabilities of its employees but the competitiveness of EUA
Cogenex generally.
F. Subsidiary Structure Preferable for EUA Cogenex-Canada.
Upon authorization, EUA Cogenex proposes to conduct its Canadian
business through a new subsidiary for tax and administrative
reasons. Additional advantages of structuring Canadian
activities through a corporate subsidiary include:
(1) insulation of EUA Cogenex from legal liability for
obligations of the Canadian activities of EUA Cogenex, absent any
guarantee or contractual arrangement to the contrary;
(2) simplification of contracting and insulation of EUA
Cogenex: (i) from requirements under Canadian regulations; and
(ii) from specific contract provisions which might be burdensome
to otherwise avoid;
(3) establishment of a convenient operational mechanism for
accounting for appropriate EUA Cogenex and EUA Service
Corporation employee services performed for, and resources
rendered to, outside parties;
(4) maintenance of separate books and accounts enabling
direct and periodic measurement of the efficiency and
profitability of EUA Cogenex's Canadian activities; and
(5) establishment of a mechanism which would not unduly or
excessively complicate the capital structure of the EUA System
for the payment of dividends derived from such business directly
to EUA Cogenex.
II. Proposed Activities and/or Transactions
A. Formation of "EUA Cogenex-Canada". EUA Cogenex hereby
requests authorization to form, acquire the capital stock of and
finance a direct wholly-owned subsidiary to be incorporated under
the laws of Canada ("EUA Cogenex-Canada"). EUA Cogenex would
initially subscribe to 100 shares of the common stock of EUA
Cogenex-Canada at a subscription price of $1.00 per share. As
the sole stockholder of EUA Cogenex-Canada, EUA Cogenex would
prepare and file a Stockholder's Declaration pursuant to Section
146 of the Canada Business Corporations Act to restrict in whole
the powers of the directors of EUA Cogenex-Canada, thereby
retaining management and control of EUA Cogenex-Canada in EUA
Cogenex indefinitely.
B. Request for Authorization of Capitalization and
Financing for EUA Cogenex-Canada. EUA Cogenex hereby requests
authorization from time to time through December 31, 1999 to
subscribe for and purchase additional shares of EUA Cogenex-
Canada common stock, and to make capital contributions in cash or
in kind, open account advances and/or short-term loans to EUA
Cogenex-Canada (such contributions, advances, loans and purchases
of capital stock, collectively, the "Cogenex Investments"), up to
an aggregate of $20,000,000. All short-term loans and advances
by EUA Cogenex to EUA Cogenex-Canada would be made on the basis
of the terms and conditions authorized and available to EUA
Cogenex under the EUA System's lines of credit, as set forth in
EUA Release No. 35-25839 (June 29, 1993), as such order from time
to time may be supplemented.
EUA Cogenex hereby also requests authorization for EUA
Cogenex-Canada from time to time through December 31, 1999 to
effect short term borrowings from lending institutions and for
EUA Cogenex to guarantee such borrowings as necessary, in an
aggregate amount together with the Cogenex Investments not to
exceed U.S. $20,000,000. The interest rate on such borrowings
shall not exceed the commercial base rate at The First National
Bank of Boston at the time any such loan is made. Any such
borrowings and guarantees shall be in accordance with the EUA
System's authorized lines of credit.
C. Consolidated Revenues of EUA Cogenex-Canada Subject to
50% Restriction. As described in paragraphs B and C(3) of
Section I above, EUA Cogenex is currently restricted to earning
less than 50% of its revenues (other than revenues in connection
with the ownership, operation or investment in QFs) from outside
the New England and New York service area. Upon Commission
authorization, which is hereby requested, EUA Cogenex and, upon
its formation, EUA Cogenex-Canada, also would be authorized to:
(1) expand the New England-New York service area to include the
Canadian provinces of Ontario, New Brunswick and Quebec for the
purposes of determining EUA Cogenex's compliance with the 50%
Restriction; and (2) provide consulting services (as defined in
paragraph C(4) of Section I above) worldwide, with the revenues
from such consulting services to be excludable from calculation
of the 50% Restriction. The balance of the revenues of EUA
Cogenex-Canada will be consolidated with the other revenues of
EUA Cogenex for purposes of determining compliance with the 50%
Restriction. The criteria set forth in this paragraph II.C and
in paragraphs I.C(4) and I.D above are the same in principle as
those underlying the Commission's previous grant of authorization
to exclude from the service area restriction all revenues
attributable solely to the worldwide consulting activities of HEC
Inc., a wholly-owned non-utility subsidiary of Northeast
Utilities. (See Release No. 35-25900 dated September 30, 1993.)
III. Intercompany Activities and/or Transactions.
A. Service Agreement Between EUA Cogenex-Canada and EUA
Service. EUA Cogenex anticipates that EUA Service Corporation
will provide management, financial, accounting and other services
to EUA Cogenex-Canada upon its formation pursuant to the terms
and conditions of a standard System Service Agreement in the form
attached hereto as Exhibit B-1.
B. Provision of Equipment and Services by EUA Cogenex to
EUA Cogenex-Canada. EUA Cogenex hereby requests Commission
authorization to provide equipment and services to EUA Cogenex-
Canada as and when required, on a fair market value basis but in
no event at less than cost. None of the EUA System operating
companies will render services to EUA Cogenex-Canada without
first seeking further Commission authorization.
C. Licensing of Know-How. EUA Cogenex hereby requests
Commission authorization to license the use of appropriate know-
how, technologies, models and systems for conservation and load
management services to EUA Cogenex-Canada under a License
Agreement substantially in the form of License Agreement to be
filed by amendment as Exhibit B-2 hereto. No EUA System company
other than EUA Cogenex will transfer or license its know-how and
technology to EUA Cogenex-Canada without first seeking further
Commission authorization.
Neither EUA Cogenex nor any subsidiary thereof has acquired
an ownership interest in any exempt wholesale generator ("EWG")
or a foreign utility company ("FUCO") as defined in Sections 32
and 33 of the Act, or 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
any right under a service, sales or construction contract with an
EWG or FUCO, except in accordance with the provisions of the Act.
Item 2. Fees, Commissions and Expenses.
The estimate of fees, commissions and expenses to be paid or
incurred directly or indirectly in connection with the proposed
transactions will be filed by amendment.
Item 3. Applicable Statutory Provisions.
Transactions Applicable Sections
Issuance and sale by EUA Sections 6(a) and 7 and
Cogenex-Canada to EUA Cogenex Rule 43(a).
of the notes and common stock
of EUA Cogenex-Canada.
Purchase by EUA Cogenex Sections 9(a), 10 and
of the notes and shares 12(b); Rule 45(a).
of common stock of EUA
Cogenex-Canada.
Prepayment by EUA Cogenex- Section 12(c); exempt
Canada of its notes or other from Rule 42 by paragraph
obligations held by EUA Cogenex. (b)(2) thereof.
Open account advances, short- Section 12(b); Rule
term loans and guaranties by 45(a).
EUA Cogenex to, and receipt
thereof by, EUA Cogenex-Canada.
Capital contributions by Section 12(b);
EUA Cogenex to, and receipt Rule 45(a).
thereof by, EUA Cogenex-Canada.
Provision of services and goods Section 13(b); Rules 86,
by EUA Cogenex and EUA Service 87, 90, and 91
to EUA Cogenex-Canada. thereunder.
Licensing of know-how and Section 13(b); Rule
technology by EUA Cogenex to 90(a)(2).
EUA Cogenex-Canada.
Item 4. Regulatory Approval.
No consent or approval of any state commission or any
federal commission other than the Securities and Exchange
Commission is necessary for the transactions which are the
subject of this Application/Declaration.
Item 5. Procedure.
(a) In order to enable the Applicant to enter into the
proposed transactions promptly, the Applicant hereby requests
that this application/declaration be granted and made effective
at the earliest convenient date.
(b) It is not considered necessary that there be a
recommended decision by a hearing officer or by any other
responsible officer of the Commission. The Office of Public
Utility Regulation may assist in the preparation of the
Commission's decision and it is believed that a 30-day waiting
period between the issuance of the Commission's order and the
date on which the order is to become effective would not be
appropriate.
Item 6. Exhibits and Financial Statements.
(a) Exhibits.
(* Filed herewith)
A-1 Form of Articles of Incorporation of EUA Cogenex-
Canada. (To be filed by amendment.)
A-2 By-laws of EUA Cogenex-Canada. (To be filed by
amendment.)
A-3 Shareholder Declaration of EUA Cogenex as EUA Cogenex-
Canada's Sole Stockholder (to be filed by Amendment.)
B-1 Form of Service Contract between EUA Service and EUA
Cogenex-Canada. (To be filed by amendment.)
B-2 Form of License Agreement between EUA Cogenex and EUA
Cogenex-Canada. (To be filed by amendment.)
C None.
D None.
E None.
F-1 Form of Opinion of U.S. Counsel. (To be filed by
amendment.)
F-2 Form of Opinion of Canadian Counsel (To be filed by
amendment.)
G None.
H Proposed Form of Notice. (To be filed by amendment.)
(b) Financial Statements.
(to be filed by amendment.)
Item 7. Information as to Environmental Effects.
The transactions described in Item 1 do not involve major
federal action significantly affecting the quality of the human
environment. No federal agency has prepared or is preparing an
environmental impact statement with respect to the proposed
transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned thereunto
duly authorized.
EUA COGENEX CORPORATION
By: ________________________
Clifford J. Hebert, Jr.
Treasurer
DATED: July 8, 1994
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