File No. 70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
APPLICATION/DECLARATION
ON FORM U-1
under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
(The "Act")
HEC INC. HEC ENERGY CONSULTING CANADA INC.
24 Prime Parkway 285 Yorkland Blvd
Natick, MA 01760 Willowdale, Ontario
M2J 1S5
HEC INTERNATIONAL
CORPORATION
24 Prime Parkway
Natick, MA 01760
(Name of company filing this statement and address of
principal executive office)
NORTHEAST UTILITIES
(Name of top registered holding company)
Jeffrey C. Miller
Assistant General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
(Name and address of agent for service)
The Commission is requested to mail signed copies of all orders, notices and
communications to:
Jeffery D. Cochran, Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
HEC Inc. ("HEC"), a non-utility subsidiary of Northeast Utilities
("NU"), formed in 1990 to provide energy management services, HEC Energy
Consulting Canada Inc. ("HEC Canada") and HEC International Corporation ("HEC
International"), wholly-owned subsidiaries of HEC (collectively, Applicants),
file this application/declaration (the "Application") on Form U-1 to the
Securities and Exchange Commission (the "Commission") for the purpose of
obtaining authorization for Applicants to (i) provide additional forms of
energy services to nonassociates, including customers of NU system companies,
and associate NU system companies and (ii) enter into joint ventures with
utilities located outside New York and New England.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
The 1990, 1993, 1994 & 1995 Orders
The 1990 Order (HCAR No. 35-25114-A) authorized NU's organization of
HEC, NU's acquisition of HEC's capital stock and HEC's provision of energy
management services. Pursuant to the 1990 Order, HEC was authorized to
provide various energy management services and demand side management ("DSM")
measures, without limitation, to customers in New England and New York (the
"Region"), and limited services outside the Region.
By order dated September 30, 1993 (HCAR No. 35-25900, the "1993 Order"),
the Commission authorized HEC to provide additional energy management and DSM
services and to enter the consulting business in the energy management and
DSM area. The 1993 Order provided that revenues (other than consulting
revenues) attributed to customers outside the Region would not exceed
revenues (other than consulting revenues) attributed to customers within the
Region (the "50% Restriction"). In general, the 1993 Order imposed no
restrictions on consulting revenues.
By order dated August 19, 1994 (HCAR No. 35-26108, the "1994 Order"),
the Commission authorized HEC to organize and acquire HEC Canada, an Ontario
corporation, and HEC International, a Massachusetts corporation. HEC Canada
was organized to provide energy management, DSM and consulting services to
customers located in Canada. HEC International was organized to participate,
on a fifty-fifty basis, in a joint venture with Barakat & Chamberlin, an
unaffiliated company, to form HECI, a subsidiary of HEC International.
By order dated July 19, 1995 (HCAR No. 35-26335, the "1995 Order"), the
Commission authorized HEC and HEC's direct and indirect subsidiaries to
provide energy management and DSM services to customers outside HEC's New
England and New York Region without regard to the 50% Restriction. In
addition, the 1995 Order authorized Applicants to form joint ventures with
utilities to serve customers in different areas outside of HEC's Region.
Authorization for Additional Forms of Energy Services
Based on Applicants' skills and expertise gained from providing energy
management, DSM and consulting services to a wide range of customers,
Applicants hereby request authorization to provide, to the extent the
following activities are deemed jurisdictional under the Act, the following
forms of energy services to and for (i) nonassociates, including customers of
the NU system operating companies, and (ii) associate HEC companies and other
NU system companies: 2
[2 Depending on the particular customer's circumstances and
the purposes of the overall project, many of the individual
energy services listed below are within Applicants' previously
authorized services; however, for purposes of clarity, groups
of related or similar individual services are listed below.
In addition, Applicants believe that the categorization of
their services between energy management, DSM and consulting
services is no longer necessary or useful because the 1995
Order authorized Applicants to provide energy management and
DSM services to customers without regard to the 50%
Restriction. That Restriction had previously limited
Applicants' revenues from energy management and DSM services
provided to customers outside HEC's New England and New York
region to no more than those revenues from customers within
the Region. In contrast, Applicants' consulting services had
not been subject to the 50% Restriction. Therefore,
Applicants have not attempted to categorize the following
services as being energy management, DSM or consulting
services.]
1. identification of (1) energy and other resource (water, labor,
maintenance, materials) cost reduction opportunities and (2)
energy/resource efficient application of technologies; 3
[3 The 1993 Order authorized HEC to identify energy and other
resource cost reduction opportunities. The second part of the
above proposed services indicates that Applicants can identify
energy/resource efficient applications of technologies for
their customers that increase or improve end-use services,
e.g., lighting or ventilation, but do not necessarily reduce
overall cost versus an existing application.]
2. design of facility and process modifications and/or enhancements; 4
[4 The 1993 Order also authorized HEC to design facility and
process modifications to realize energy/other resource cost
reduction opportunities. Similar to item 1 above, customers'
requests for Applicants' design of facility and process
modifications and/or enhancements may seek to increase or
improve end-use services of facilities or processes, such as
lighting or ventilation, instead of directly reducing costs.]
3. design, management of or direct construction, and/or installation
of mechanical, water and electrical systems, energy and other
resource consuming equipment, and equipment that controls or
monitors energy consumption and related equipment; 5
[5 The 1993 Order authorized HEC's design and specification
of energy consuming equipment and the 1990 Order authorized
HEC's management of or direct construction and installation of
energy conservation equipment. This item requests
authorization for Applicants to manage, construct and/or
install the types of equipment that they are authorized to
design and provide specifications for.]
4. implementation of operational and maintenance techniques and
measures related to energy and other resource consumption;6
[6 Some energy services customers need assistance in
achieving optimal operation and maintenance of equipment,
considering energy/other resource costs and their needs for
end-use services. The Commission has previously authorized
subsidiaries of registered holding companies to provide
various operation and maintenance services to nonassociates.
See, e.g., Jersey Central Power & Light Company, HCAR No. 35-
25948 (12/15/93).]
5. recommendations for acquisition and/or the acquisition of cost
effective energy and other resources to meet the needs of their
energy services customers; 7
[7 Applicants would offer the above services to assist
customers in their energy and other resource acquisitions
needed for their processes and facilities. In some cases,
achieving energy and resource efficiency requires expert
decision-making between alternative rate/quantity/source
options for purchasing energy and other resources. Applicants
would only acquire energy and other resources to satisfy their
customers' identified needs; they will not speculate as to the
energy/other resource needs of their customers or others. In
addition, Applicants will not offer to make recommendations
for acquisition or acquire electricity for NU system operating
companies or for their customers.]
6. marketing of energy-related products and services and/or associated
technical support of such marketing, pertaining to HEC's expertise
developed in its business, as previously authorized and as
described above; 8
[8 For example, Applicants may provide engineering evaluation
of various energy consuming equipment options available to
customers or evaluation of the applicability of various
energy-related products to a customer class or particular
customer. Based on substantial experience in the competitive
energy services business, Applicants are well qualified to
provide marketing and related technical support to associate
NU system companies and nonassociate companies that want to
offer energy-related products and services.]
7. construction, ownership, maintenance and/or operation of energy
consuming systems and related support equipment and structures;9
[9 Applicants have developed substantial expertise in helping
customers achieve the most efficient selection and use of
energy consuming equipment, from a total resource/cost
perspective. In some instances, Applicants' expertise and
services in this area can best be provided in transactions
where they construct, install, own, maintain, and/or operate
energy and other resource consuming equipment for their
customers. In this way, Applicants can ensure that the
customer achieves the most efficient use of such equipment.
Such services enable the customer to concentrate on managing
its specific business, and not waste time, effort and money on
energy and related issues.
The Commission has previously authorized similar services.
For instance, it has authorized the acquisition of steam
production facilities inside an industrial site. See Southern
Co., HCAR No. 35-26185 (12/13/94). Further, proposed Rule 58
would allow, without individual Commission approvals,
acquisitions of interests in the production, conversion, and
distribution of thermal energy products, such as process
steam, heat, hot water, chilled water, air conditioning,
compressed air and similar products. See HCAR No. 35-26313.]
8. design, construction and/or maintenance of cogeneration systems up
to 10 megawatts in capacity; 10
[10 The Commission has previously authorized registered
holding company subsidiaries to engage in the development,
construction and/or maintenance of cogeneration facilities.
See, e.g., Central and South West, HCAR No. 26184 (12/13/94).]
9. ownership and/or operation of cogeneration systems up to 10
megawatts in capacity; 11
[11 Applicants will not own or operate any individual
projects prior to obtaining all necessary Commission
approvals. HEC's management will undertake to ensure that
such services of Applicants do not interfere with Charter Oak
Energy, Inc.'s activities.]
10. training related to energy services, as described above; 12
[12 The 1993 Order authorized HEC to provide training of
customers in the operation of equipment. Energy services
customers sometimes also need training in other aspects of
energy services such as basic maintenance skills. In
addition, employees of other NU system companies may need
training to better understand the potential use of and
benefits from energy services for their work with customers of
the NU system operating companies.]
11. monitoring, tracking and reporting of system or program results; 13
[13 The 1993 Order authorized HEC to provide reporting of
system results and monitoring of demand side management
programs. This item would authorize applicants to monitor,
track and report on all aspects of their energy services,
which are important aspects of many of the above services]
12. design and/or marketing of energy-related proprietary and/or
intellectual property, e.g., processes, programs, techniques, or
computer software such as energy usage tracking software, and
energy management system monitoring programs and reports; 14
[14 Applicants do not expect that they will use any
intellectual property developed by Northeast Utilities Service
Company ("NUSCO"), NU's service company subsidiary, or another
NU system company (other than an Applicant); however, if one
of the Applicants does use such intellectual property, it
would pay the following amounts to the other NU system company
for any such intellectual property actually sold or licensed
by such Applicant:
(1) 70% of the revenues from the intellectual property
until the NU system company that developed the
intellectual property recovers its costs; and
(2) 20% of the such revenues thereafter.
Applicants would pay cost for any intellectual property
developed at their request. Applicants would not address any
such request to an NU system operating company. Further,
Applicants will not market intellectual property to another NU
system company if such intellectual property was developed by
an NU system company other than one of the Applicants.]
13. other energy engineering or related services (e.g., consulting,
development or evaluation of energy conservation/efficiency
protocols and standards, general technical advice concerning the
use, benefits, planning and/or administration of energy management
and/or energy services programs, indoor air quality, environmental
regulation compliance related to energy consuming systems).
Forms of payment for Applicants' services will vary by project and may
include fee-for-service, fixed price, time and materials, progress payments,
turnkey payment, third-party financing arrangements, performance contracts
with a savings guarantee or payment based on the energy and/or other resource
savings achieved, or the output of equipment (e.g., steam, water, chilled
water, air, heat, etc.), commission and/or other payment structures.
Applicants' services provided to any associate NU system companies will
be provided at cost. In addition, Applicants will not use other NU system
companies' employees in their provision of services to NU system operating
companies.
Legal Analysis
Applicants believe that the services described above are consistent with
the requirements of Section 11(b) of the Act for the following reasons:
Section 11(b)(1) of the Act limits the operations of a registered
holding company system to a single integrated public utility system, and to
such other businesses as are reasonably incidental, or economically necessary
or appropriate to the operations of such integrated public utility system.
Section 11(b)(1) explains that the Commission may permit, as reasonably
incidental or economically necessary or appropriate to the operations of one
or more integrated public utility systems, the retention of any business that
the Commission shall find necessary or appropriate in the public interest or
for the protection of investors or consumers and not detrimental to the
proper functioning of such system or systems.
As explained above, the Commission has previously authorized services
similar to many of those proposed by Applicants. Moreover, the Commission
has directly referenced the market conditions in the electric utility
industry that created the need for many of Applicants' proposed services:
"The electric and gas utility industry is in transition.... companies must
adapt to an increasingly competitive environment." HCAR No. 35-26153
(11/2/94).
In its June 1995 Study of the Regulation of Public-Utility Holding
Companies, the Division of Investment Management noted the restrictive impact
of the Act:
We believe that the Holding Company is unnecessarily restrictive in many
regards, and may prevent companies from responding effectively to the
changes now occurring in the utility industry. These effects, we have
concluded, are clearly detrimental to both investors and consumers.
With respect to diversified activities in particular, the Division noted:
The SEC must continue to respond flexibly to change in the utility
industry. Toward this end, the Division believes that the registered
holding companies should be permitted to invest in diversified
activities without unnecessary regulatory obstacles....
Applicants' proposed services respond directly to the increasingly
competitive utility environment. Electric utility customers desire optimal
solutions, in terms of energy and other resource costs, to their specific
needs for end-use services (such as lighting, heating, ventilation, air
conditioning or compressed air). They do not have the time, resources or
money to become expert in energy and other resource issues. Consequently,
maintaining Applicants' position on the cutting edge of their business
provides the NU system operating companies with direct access to skills and
knowledge that are critical to serving electric customers who are in
increasingly competitive businesses.
Through effective marketing and cost management, Applicants' business
has grown substantially and is producing increasingly positive operating
results, to the benefit of the NU system investors. As of December 31, 1995,
Applicants had assets of $11 million, annual revenues of $32 million, and net
income (after tax) of approximately $367,000 for 1995. Expanding Applicants'
authorized services should help ensure Applicants' continued positive trends
and leading competitive position. NU and its shareholders will continue to
bear any risks associated with Applicants' energy services.
Extension of Authorization to Form and Fund Joint Ventures
The 1995 Order authorized Applicants to form, without subsequent
Commission approval, joint ventures with utilities to serve customers in
different areas outside HEC's Region at any time in the period through June
30, 1996. Pursuant to that authorization, Applicants have formed one such
joint venture and may form one or more additional joint ventures on or before
June 30, 1996. However, Applicants believe that they will have attractive
opportunities to enter joint ventures with other utilities after June 30,
1996. Accordingly, Applicants request that this authorization be extended so
that they may form such joint ventures (as described in the 1995 Order) with
utilities (and acquire initial equity interests in such joint ventures) at
any time during the period through June 30, 2001.
The 1995 Order also authorized Applicants to make, and the joint
ventures to accept (from Applicants and from the participating utility),
advances of money, property or other contributions as needed for the joint
venture's operations during the period through June 30, 1996. The rate of
interest on such advances was to equal HEC's cost of money (for advances from
Applicants) and a rate not to exceed the utility's cost of money (for
advances from that utility).
Applicants request an extension of authorization for their advances of
money, property or other contributions (including direct payments of expenses
of the joint ventures) and for the joint ventures to accept such advances and
contributions (from Applicants and from the participating utilities,
including, to the extent Commission authorization is required, initial and
subsequent capital contributions from the respective participating utilities)
for operations of the joint ventures through June 30, 2001.
Applicants' advances would be subject to the same interest rate terms
that the Commission approved in the 1995 Order (i.e., HEC's cost of funds for
Applicants' advances and no higher than the utility's cost of funds for its
advances) and the same aggregate funding limits, which were as follows:
Applicants' outstanding advances plus the value of other contributions will
not exceed $1 million for any joint venture at any time unless further
Commission authorization is obtained. Also, Applicants' outstanding
advances, and any other contributions, in aggregate to all such joint
ventures will not exceed $8 million at any time unless further Commission
authorization is obtained. The participating utility's contributions and/or
advances to an individual joint venture would not exceed an aggregate amount
of $1 million for any such joint venture.
None of the Applicants shall become, as a result of the provision of
energy services described herein, a company that owns, operates or is an
equity participant in (1) any electric utility company, as defined in section
2(a)(3) of the Act (except as would result from an Applicant's operation
and/or ownership of a cogeneration system as described above), (2) any exempt
wholesale generator, as defined in the Energy Policy Act of 1992, or (3) any
foreign utility company, as defined in the Energy Policy Act. In addition,
Applicants will not have any rights or obligations under a service, sales or
construction contract with an exempt wholesale generator or a foreign utility
company as a result of the proposed transactions, except as permitted by the
Act.
The NU system is 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 the NU system's
consolidated retained earnings as reported for the four most recent
quarterly periods on NU's Form 10-K and 10-Qs. At December 31,
1995, the ratio of such investment ($39 million) to such
consolidated retained earnings ($1 billion) was 4 percent.
(ii) Encoe Partners, Central Termica San Miguel de Tucuman, S.A., Ave
Fenix, and Plantas Eolicas, S.A. (NU's only EWGs or FUCOs at this
time)(collectively "EWGs/FUCOs") maintain books and records, and
prepare 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.
(iii) No employees of the NU system's public utility companies have
rendered services to the EWGs/FUCOs.
(iv) NU has submitted (a) a copy of each Form U-1 and Rule 24
certificates that have 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 the retail rates
of the NU system public utility companies.
(v) Neither NU nor any NU subsidiary has been subject of a bankruptcy
or similar proceeding unless a plan of reorganization has been
confirmed in such proceeding. In addition, NU's average
consolidated retained earnings for the four most recent quarterly
periods has not decreased by 10% or more from the average for the
previous four quarterly periods.
(vi) In the previous fiscal year, NU's operating losses attributable to
its investment in the EWGs/FUCOs did not exceed 5 percent of NU's
consolidated retained earnings.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The estimated fees and expenses payable in connection with the
transactions contemplated by this Application are as follows:
Commission filing fee $2,000
Legal fees and expenses 3,500
Miscellaneous related expenses
(such as telephone, courier and travel) 200
TOTAL $5,700
ITEM 3. APPLICABLE STATUTORY PROVISIONS
The sections of the Act and the rules or exemptions thereunder that
Applicants consider applicable to the additional services and the basis for
exemption therefrom are set forth below:
Additional Energy Services Sections 9 and 10
Energy Services Provided by Applicants Section 13(b)
to NU system companies Rules 87, 90 and 91
Services Provided by NU System Section 13(b)
Companies to Applicants Rules 87, 90 and 91
Formation of and participation Sections 9, 6a, 7 and
in joint ventures by Applicants 10; Rule 45(a)
Advances from Applicants to Joint Ventures Section 12(b)
Rule 45
ITEM 4. REGULATORY APPROVAL
No commission, other than this Commission, has jurisdiction over any of
the proposed transactions described in this application/declaration.
ITEM 5. PROCEDURE
Applicants respectfully request, pursuant to Rule 23(c) of the
Commission's Rules and Regulations under the Act, that the Commission permit
this application/declaration to become effective on or before June 1, 1996,
or as soon thereafter as practicable. Applicants hereby waive any
recommended decision by a hearing officer or by any other responsible officer
of the Commission and waive the 30-day waiting period between the issuance of
the Commission's Order and the date on which it is to become effective,
because it is desired that the Commission's Order, when issued, become
effective forthwith. Applicants consent that the Office of Public Utility
Regulation within the Division of the Investment Management may assist in the
preparation of the Commission's decision and/or Order unless the Office
opposes the transactions covered by this application/declaration.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
Exhibit F-1 - Opinion of Counsel (to be filed by amendment)
Exhibit G - Form of Notice (filed herewith)
B. Financial Statements
1.1 Balance Sheet - HEC, as of December 31, 1995 actual
(to be filed by amendment).
1.2 Statement of Income - HEC, as of December 31, 1995,
& Retained Earnings actual (to be filed by amendment).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
It is believed that the granting and permitting to become effective of
this application/declaration will not constitute a major federal action
significantly affecting the quality of the human environment. No other
federal agency has prepared or is preparing an environmental impact statement
with respect to the proposed transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this
application/declaration to be signed on their behalf by the undersigned
thereunto duly authorized.
HEC INC.
HEC ENERGY CONSULTING CANADA INC.
HEC INTERNATIONAL CORPORATION
By /s/Linda A. Jensen
Linda A. Jensen
Vice President - Finance,
Treasurer and Clerk
Dated: April 1, 1996
Exhibit G
PROPOSED FORM OF NOTICE
HEC Inc.
HEC Energy Consulting Canada Inc.
HEC International Corporation
HEC Inc. ("HEC"), a non-utility subsidiary of Northeast Utilities, a
registered holding company, and HEC's subsidiaries, HEC Energy Consulting
Canada Inc. and HEC International Corporation (collectively, "Applicants")
have filed an application/declaration under Sections 6(a), 7, 9, 10, 12,
13(b) of the Public Utility Holding Company Act of 1935 and Rules 45, 52,
87(b)(1), 90, 91 thereunder for the authority to engage in certain
diversification activities, either directly or through existing or future
joint ventures with other companies.
Diversification activities proposed in the application/declaration include
the following energy services: (1) identification of energy/other resource
cost reduction opportunities and energy/other resource efficient application
of technologies, (2) design of facility and process modifications and/or
enhancements, (3) design, management of or direct construction, and/or
installation of mechanical, water, and electrical systems and other
equipment, (4) implementation of operational and maintenance techniques, (5)
recommendations for acquisition and/or acquisition of cost effective
energy/other resources for customers, (6) marketing of energy-related
products and services, (7) construction, ownership, maintenance and/or
operation of energy consuming systems and related support equipment and
structures, (8) design, construction and/or maintenance of cogeneration
systems up to ten megawatts in capacity, (9) ownership and/or operation of
cogeneration systems up to 10 megawatts in capacity, (10) training related to
energy services, (11) monitoring, tracking and reporting of system or program
results, (12) design and/or marketing of proprietary and/or intellectual
property, (13) other energy engineering and related services.
The Applicants also seek extension of Commission authorization to form joint
ventures with utilities serving customers in different areas, outside of New
England and New York, without subsequent Commission approval, during the
period through June 30, 2001. Applicants request authorization for their
advances of money, property and/or other contributions (including initial
equity contributions) and for the joint ventures to accept such advances and
other contributions from Applicants and from the respective participating
utilities. Applicants and the participating utilities advances and other
contributions would be subject to the same interest rate terms and the same
aggregate funding limits as established by the Commission in a previous
order.
The application/declaration and any amendments thereto are available for
public inspection through the Commission's Office of Public Reference. Any
interested persons should submit their views in writing by , 1996 to
the Secretary, Securities and Exchange Commission, Washington, D.C. 20549,
and serve a copy on the Applicants. 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 shall identify specifically the issues of
fact or law that are disputed. Any 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 Amendment, as filed or as may be
further amended, may be granted.
For the Commission, by the Division of Investment, pursuant to delegated
authority.
