File No. 70-10234
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION/DECLARATION
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES
107 Selden Street
Berlin, Connecticut 06037-5457
(Name of company filing this statement and address of principal
executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company parent of declarant)
Gregory B. Butler, Esq.
Senior Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name of address of agent for service)
The Commission is requested to mail signed copies of all orders,
notices and communications to:
Randy A. Shoop Jane P. Seidl, Esq.
Assistant Treasurer - Finance Senior Counsel
Northeast Utilities Service Northeast Utilities Service
Company Company
P.O. Box 270 P.O. Box 270
Hartford, Connecticut 06141-0270 Hartford, Connecticut 06141-0270
The Application/Declaration in this file is hereby amended and
restated as follows:
ITEM 1
DESCRIPTION OF PROPOSED TRANSACTIONS
1. Northeast Utilities, a Massachusetts business trust and
registered holding company ("NU" or the "Company") under the Public
Utility Holding Company Act of 1935, as amended (the "Act"), hereby
requests authority, through June 30, 2007 (the "Authorization Period"),
for it to guarantee, indemnify and otherwise provide credit support
(each, a "Guarantee") in the aggregate amount of up to $100 million
(the "Guarantee Limit") in respect of the debt or obligations of
Northeast Utilities Service Company, a service company subsidiary of NU
("NUSCO"), and The Rocky River Realty Company, a non-utility subsidiary
of NU ("RRR", and together with NUSCO, the "Service
Subsidiaries").
2. NU is the parent of a number of companies comprising
system (the "System") and is not itself an operating company. The
System furnishes franchised retail electric service in Connecticut,
New Hampshire and western Massachusetts through three of NU's wholly-owned
subsidiaries, The Connecticut Light and Power Company ("CL&P"),
Public Service Company of New Hampshire ("PSNH") and Western
Massachusetts Electric Company ("WMECO" and collectively with CL&P and
PSNH, the "NU Utility Companies"). In addition to their retail
electric service business, the NU Utility Companies together
furnish wholesale electric service to various municipalities and other
utilities throughout the Northeast United States.
3. NU is also the parent of Yankee Energy System, Inc.
("YES"), an exempt gas utility holding company. YES is primarily
engaged in the retail distribution of natural gas through its
wholly-owned subsidiary, Yankee Gas Services Company ("Yankee
Gas"), a Connecticut retail gas distribution company, and also has
several non-utility subsidiaries. In addition, NU Enterprises, Inc.
("NUEI"), a wholly-owned holding company subsidiary of NU, acts as the
holding company for NU's unregulated businesses, including
Northeast Generation Company ("NGC"), the System's only exempt
wholesale generator.
4. NUSCO and RRR are wholly-owned subsidiaries of NU.
NUSCO, a Connecticut corporation, provides centralized support services
to NU System companies, including accounting, administrative,
information technology, engineering, financial, legal, operational,
planning and purchasing services. RRR, a Connecticut corporation,
engages in real estate transactions on behalf of NU System companies,
ncluding entering into leases for office space utilized by various
system companies.
5. NU requests authorization, through the Authorization
Period, to provide Guarantees with respect to the obligations of the
Service Subsidiaries as may be appropriate or necessary to enable such
Service Subsidiaries to carry on in the ordinary course of their
respective businesses, including guarantees of obligations of the
Service Companies to non-affiliated third-parties incurred in the
ordinary course of the System's business in an aggregate amount
which shall not exceed $100 million outstanding at any one time.
Guarantees may take the form of NU agreeing to guarantee, undertake
reimbursement obligations or assume liabilities or other obligations
with respect to or act as surety on, real estate and equipment leases,
letters of credit, evidences of indebtedness, equity commitments and
performance and other obligations undertaken by the Service Subsidiaries.
6. As part of normal business activities, from time to
time, NU is requested to provide financial or performance assurances of
the obligations of the Service Subsidiaries to third parties.
Such agreements include contract guarantees, surety bonds and
rating-contingent provisions. In addition, NU is requested to provide
payment and performance guarantees in connection with the real-estate
contracting activities of RRR, including construction, acquisition
and leasing of properties and facilities utilized by certain NU System
companies.
7. Guarantees may be provided from time to time with respect to
obligations of the Service Subsidiaries that are not capable of
exact quantification because of the nature of the services or
performance being guaranteed, and therefore the amount of such
Guarantee must be estimated. For example, NU might have to guarantee
RRR's completion of a particular project (as distinct from guaranteeing
payment of a specific sum of money). In such cases, NU will determine
the exposure under such Guarantee for purposes of measuring compliance
with the $100 million limitation in accordance with standard and
customary financial practices, including estimation of exposure based
on loss experience or projected potential payment amounts. If
appropriate, such estimates will be made in accordance with generally
accepted accounting principles. Such estimation will be re-evaluated
periodically. NU may, in its discretion, charge each Service
Subsidiary a fee for each Guarantee provided on its behalf that will
be determined by multiplying the amount of the Guarantee provided by
the cost of obtaining the liquidity necessary to perform the Guarantee
(for example, bank line commitment fees or letter of credit fees, plus
other transactional expenses) for the period of time the Guarantee
remains outstanding. The Service Companies will allocate these costs
to their affiliates receiving the services being guaranteed on a pro
rata basis based on the value of the services received by such affiliate.
Any guarantees or other credit support arrangements outstanding at the
end of the Authorization Period will remain in place
and expire or terminate in accordance with their terms.
8. The System attempts to have each individual company assume
responsibility for its own financial obligations. NU, the NU Utility
Companies, Yankee Gas and NGC have credit ratings which enable them
to incur obligations to non-affiliates without parent support. However,
in some instances, the Service Subsidiaries need to enter into
obligations with third parties on behalf of all or some of the System
companies, which obligations are then allocated to the System companies
which receive the benefit of such obligations. This has occurred in
the past with a number of shared resources such as real estate,
insurance policies, operating leases for vehicle fleets, etc. At the
present time, the System needs to lease several large office
facilities which will be utilized for the benefit of most of the
System. While a number of possible lease structures might be possible
(e.g. CL&P leases the facility and subleases to affiliates), the most
efficient structure is to have RRR be the lessee, backstopped by some
form of external credit. The Service Subsidiaries do not themselves
have independent credit standing and depend upon service or
reimbursement agreements with each of the System companies to
meet their obligations. As the recent financial difficulties of
large holding company systems demonstrate, creditors can be harmed if
the underlying credit structure of a transaction is not handled properly.
It is now apparent that NU will need to have the ability to
guarantee relatively routine commitments of the Service Subsidiaries to
enable necessary resources to be procured on a shared basis. These
commitments for which third parties are now requiring Guarantees are
the same sorts of commitments for which, in prior years, third parties
did not require parent guarantees. In a similar scenario, the
Commission authorized NU to guaranty the debt obligations of RRR in
1992 (Rel. No. 35-25514, File 70-7878, April 10, 1992).
9. By Commission Order, NU and NUEI are authorized to
issue guarantees and similar forms of credit support or enhancements
for the benefit of NUEI and NUEI's non-utility affiliates, which do not
include the Service Subsidiaries, in an aggregate amount not to exceed
$750 million through June 30, 2007 (Holding Co. Act Release No.
27868, June 30, 2004, the "2004 Order"). NU seeks an order herein for
the authorization of separate guarantee authority which would allow it
to issue Guarantees on behalf of the Service Subsidiaries. The
authorization sought herein is also separate form the guaranty
authority provided under the Commission's Rule 45(b)(6).
OTHER MATTERS
10. Except in accordance with the Act, neither NU nor any
subsidiary thereof (a) has acquired an ownership interest in an EWG or
a 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.
11. NU currently meets all of the conditions of Rule 53(a),
except for clause (1). At March 31, 2004, NU's "aggregate investment,"
as defined in Rule 53(a)(1), in EWGs and FUCOs was approximately $448.2
million, or approximately 54.3% of NU's average "consolidated
retained earnings," also as defined in Rule 53(a)(1), for the four
quarters ended March 31, 2004 ($825.7 million). With respect to Rule
53(a)(1), however, the Commission has determined that NU's financing of
its investment in EWGs in an amount not to exceed $1 billion would not
have either of the adverse effects set forth in Rule 53(c). (See
the 2004 Order). NU continues to assert that its EWG investments will
not adversely affect the System.
12. In addition, NU and its subsidiaries are in compliance and
will continue to comply with the other provisions of Rule 53(a) and
(b), as demonstrated by the following determinations:
(i) NGC, NU's only EWG, 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 affected 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 CREs for the four most recent
quarterly periods have not decreased by 10% or more
from the average for the previous four quarterly
periods; and
(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.
13. The proposed transactions, considered in conjunction with
the effect of the capitalization and earnings of NU's EWG, would not
have a material adverse effect on the financial integrity of the NU
system, or an adverse impact on NU's public-utility subsidiaries,
their customers, or the ability of State commissions to protect such
public-utility customers. The 2004 Order concerning EWG investments was
predicated, in part, upon an assessment of NU's overall financial
condition which took into account, among other factors, NU's
consolidated capitalization NU's current EWG investment, NGC (it has no
FUCO investment) has been profitable for all quarterly periods ending
June 30, 2000 through March 31, 2004 (NGC was acquired in March 2000).
14. The consolidated capitalization ratios of NU as of
March 31, 2004, with consolidated debt including all short-term
debt and non-recourse debt of the EWG, were as follows:
As of March 31, 2004
(thousands
of dollars) %
Common shareholders' equity $ 2,333,356 34.4%
Preferred stock 116,200 1.7
Long-term and short-term debt 2,642,413 39.0
Rate Reduction Bonds 1,682,500 24.9
$ 6,774,469 100.0
If Rate Reduction Bonds are excluded the consolidated
capitalization ratio of NU as of March 31, 2004 is as follows:
As of March 31, 2004
(thousands
of dollars) %
Common shareholders' equity $ 2,333,356 45.8
Preferred stock 116,200 2.3
Long-term and short-term debt 2,642,413 51.9
$ 5,091,969 100.0%
15. In addition, NGC has made a positive contribution to
earnings by contributing $146.8 million in revenues in the 12-month
period ending March 31, 2004 and net income of $38.3 million for the
same period.
ITEM II
FEES, COMMISSIONS, AND EXPENDITURES
16. The estimated fees, commissions, and expenses paid or
incurred, or to be paid or incurred, directly or indirectly, in
connection with the proposed transactions by the Company or any
associate company thereof are estimated to be not in excess of
$25,000.
17. None of such fees, commissions, or expenses are to be
paid to any associate company or affiliate of the Companies or
any affiliate of any such associate company except for financial,
legal, and other services to be performed at cost by NUSCO, an
affiliated service company.
ITEM III
APPLICABLE STATUTORY PROVISIONS
18. The Guarantees by NU are subject to Section 12(b) of
the Act and Rule 45 thereunder.
ITEM IV
REGULATORY APPROVAL
19. No other state commission has jurisdiction with
respect to any aspect of the proposed transaction, and no Federal
commission other than the Securities and Exchange Commission has
jurisdiction with respect to any aspect thereof.
ITEM V
PROCEDURE
20. The Company respectfully requests the Commission's
approval, pursuant to this Application/Declaration, of NU's
Guarantees as described herein, whether under the sections of the
Act and rules thereunder enumerated in Item III or otherwise.
The Company also requests the Commission's approval as may be
necessary of any other aspect of the transactions described in
this Application/Declaration under the appropriate provisions of
the Act or rules thereunder.
21. The Company hereby waives any recommended decision by
a hearing officer or by any other responsible officer of the
Commission and waives 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 forthwith. The Company
consents that the Office of Public Utility Regulation within the
Division of 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. It is
requested that the Commission issue an order authorizing the
jurisdictional transactions proposed herein at the earliest
practicable date but in any event not later than 40 days from
filing date. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public
Utility Regulation be permitted to assist in the preparation of the
Commission's decision, and (iii) the Commission's order become effective
forthwith upon issuance.
ITEM VI
EXHIBITS AND FINANCIAL STATEMENTS
1. Asterisked (*) items indicate items previously filed.
(a) Exhibits
*F. Preliminary Opinion of Counsel.
*H. Proposed notice of the proceeding initiated by the
filing of this Application/Declaration.
ITEM VII
INFORMATION AS TO ENVIRONMENTAL EFFECTS
(a) The issuance of an order with respect to this
Application/Declaration is not a major federal action significantly
affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an
environmental impact statement with respect to the subject
transactions.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, as amended, the undersigned have duly caused this
amendment to be signed on their behalf by the undersigned thereunto
duly authorized.
Dated: August 13, 2004
NORTHEAST UTILITIES
By: /s/ Randy A. Shoop
Name: Randy A. Shoop
Title: Assistant Treasurer - Finance
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It is likely that the Service Companies will provide
services to an EWG or FUCO (though there are currently no FUCOs
in the NU system) pursuant to a service contract. Any services
provided will be provided to the EWG (or FUCO) at cost consistent
with the terms of the Act. Guarantees issued pursuant to this
Application will not cause NU's EWG/FUCO investment to exceed the
amount authorized by the Commission in the 2004 Order.
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