File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION/DECLARATION
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES
174 Brush Hill Avenue
West Springfield, Massachusetts 01089
NU ENTERPRISES, INC.
SELECT ENERGY, INC.
107 Selden Street
Berlin, CT 06037
SELECT ENERGY NEW YORK, INC.
507 Plum Street
Syracuse, New York
(Name of companies filing this statement and address of
principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Gregory Butler, Esq.
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:
David R. McHale Jeffrey C. Miller
Vice President and Treasurer Assistant General Counsel
Northeast Utilities Service Northeast Utilities Service
Company Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
Item 1. Description of Proposed Transactions
A. Introduction
1. Northeast Utilities ("NU"), a Massachusetts business
trust and registered holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), NU Enterprises, Inc.
("NUEI"), a wholly-owned holding company subsidiary of NU, Select
Energy, Inc., a wholly-owned subsidiary of NUEI ("Select"), and Select
Energy New York, a wholly-owned subsidiary of Select acquired pursuant
to Rule 58 under the Act ("SENY", and collectively with NU, NUEI and
Select, the "Applicants")request authority:
(A) for NU and NUEI to own Select and SENY as "other
businesses" under Section 9 of the Act and to continue to
invest, directly or indirectly through open account advances
to, equity contributions in and loans to (collectively
"Investments") Select and SENY, with such investments, along
with existing investments of NU in Select and SENY to date,
not subject to the limitations of Rule 58 promulgated under
the Act;
(B) for NU, from time to time through the September 30,
2005 (the "Authorization Period"), to guarantee, indemnify
and otherwise provide credit support (each, a "Guarantee")
up to $750 million (the "Guarantee Limit") in respect of the
debt or obligations of NU's nonutility subsidiary or
affiliate companies (including Select and SENY and any
nonutility subsidiary or affiliate formed or acquired in
accordance with the Act at any time through the
Authorization Period), subject to the applicable limits of
Rules 53 and 58;
(C) for Select and SENY to engage in a broad variety of
energy-related activities generally permissible under Rule
58, including (i) the development and commercialization of
electro-technologies related to energy conservation, storage
and conversion, energy efficiency, waste treatment,
greenhouse gas reduction, and similar innovations, (ii) the
ownership, operation, sale, installation and servicing of
refueling, recharging and conversion equipment and
facilities relating to electric powered vehicles, (iii) the
sale of electric and gas appliances; equipment to promote
new technologies, or new applications for existing
technologies, that use gas or electricity; and equipment
that enables the use of gas or electricity as an alternate
fuel; and the installation and servicing thereof, (iv) the
brokering and marketing of energy commodities, including but
not limited to electricity, natural or manufactured gas and
other combustible fuels; (v) the production, conversion,
sale and distribution of thermal energy products, such as
process steam, heat, hot water, chilled water, air
conditioning, compressed air and similar products,
alternative fuels; and renewable energy resources; and the
servicing of thermal energy facilities; (vi) the sale of
technical, operational, management, and other similar kinds
of services and expertise, developed in the course of
utility operations in such areas as power plant and
transmission system engineering, development, design and
rehabilitation; construction, maintenance and operation;
fuel procurement, delivery and management; and environmental
licensing, testing and remediation, (vii) the development,
ownership and/or operation of "qualifying facilities", as
defined under the Public Utility Regulatory Policies Act of
1978, as amended ("PURPA"), and any integrated thermal,
steam host, or other necessary facility constructed,
developed or acquired primarily to enable the qualifying
facility to satisfy the useful thermal output requirements
of PURPA; (viii) the ownership, operation and servicing of
fuel procurement, transportation, handling and storage
facilities, scrubbers, and resource recovery and waste water
treatment facilities; (ix) the development and
commercialization of technologies or processes that utilize
coal waste by-products as integral component of such
technology or process; and (x) the rendering of energy
management services and demand-side management services, in
all cases without further Commission authorization
(items i-x above collectively, "Energy Services"); and
(D) for Select and SENY to engage in a variety of other
activities related to its energy marketing and brokering
business, including: (i) the brokering, marketing and
trading of other energy commodities, including gas and
electric transmission entitlements, weather hedging
products, emission credits and "paper" products in respect
of any of the above, including, but not limited to, hedges,
swaps, forwards, options and the like in the United States
and Canada, and (ii) the rendering of energy management
services and demand-side management services in Canada
(items i-ii above, collectively, "Other Activities").
2. The proposed transactions for which the Applicants now seek
authorization are generally consistent with authority granted to
many other registered holding companies or are reasonable and logical
extensions of the competitive energy related services business as
understood at the time Rule 58 was adopted in 1997. This Application,
if granted, will allow NU to grow (a) Select's Energy Services business
and (b) NU's other competitive energy businesses.
B. Background - NU and Subsidiaries
3. Northeast Utilities is the parent of a number of the Northeast
Utilities 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 additionally furnishes
retail electric service to a limited number of customers through
another wholly-owned subsidiary, Holyoke Water Power Company ("HWP"),
doing business in and around Holyoke, Massachusetts. In addition to
their retail electric service business, CL&P, PSNH, WMECO and HWP
(including its wholly-owned subsidiary, Holyoke Power and Electric
Company)(collectively, the "NU Operating Companies") together
furnish wholesale electric service to various municipalities
and other utilities throughout the Northeast United States.
4. 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 nonutility subsidiaries.
5. NUEI is a wholly-owned subsidiary of NU. NUEI acts as the
holding company for NU's unregulated businesses. NUEI
has numerous direct and indirect nonutility subsidiaries,
including, along with Select, Northeast Generation Company,
an exempt wholesale generator, as defined in section 32 of
the Act ("EWG"), Mode 1 Communications, Inc., an exempt
telecommunications company, as defined in section 34 of the
Act, another nonutility subsidiary whose securities NUEI
acquired pursuant to express Commission authorization, HEC
Inc., now known as Select Energy Services, Inc. (see HCAR
No. 26939, November 12, 1998) and other "energy-related
companies" as defined in Rule 58 under the Act, such as
Northeast Generation Services Company and E.S. Boulos
Company.
6. Select, a Connecticut corporation began active operation
under Rule 58 in 1998. Since that time Select has engaged in
brokering and marketing of energy commodities, including
electricity and natural gas, and sale of energy-related
products and services as permitted under Rule
58(b)(1)(iv) and (v). It engages in a wide variety of
wholesale and retail transactions and is licensed in
approximately 11 states to do energy brokering and
marketing. Select has contracts with major utilities to
provide standard offer service for such utilities'
customers. In connection with electric industry
restructuring and the introduction of competition, Select
has become a major part of NU's business as its revenues
have grown from approximately $29 million in 1998 to
approximately $555 million in 1999 and approximately $1.8
billion in 2000. Its projected revenues for 2001 are
approximately $2.3 billion. Select has become a major
participant in energy marketing and brokering in the
Northeast United States. Late in 2001, Select acquired the
securities of Niagara Mohawk Energy Marketing, Inc., an
energy marketing and brokering company in upstate New York,
from Niagara Mohawk Holdings, Inc., pursuant to Rule 58, and
subsequently renamed it Select Energy New York, Inc. The
authorization sought herein for NU to own Select and SENY
through September 30, 2005 outside the constraints of Rule
58 and provide credit support to its competitive affiliates
up to the Guarantee Limit will enable Select and NU's other
competitive businesses to maintain and grow their operations
as appropriate and necessary to continue to compete with
other energy marketing companies without the investment
constraints imposed by Rule 58. No authorization is sought
herein for off-balance sheet financing nor is Select or SENY
currently involved in such financing. Select and SENY
neither own nor deal in assets off balance sheet and neither
exercises control over any assets that are not fully
disclosed.
7. 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 nonutility
subsidiaries (including Select) in aggregate amount not to
exceed $500 million through December 31, 2002 (HCAR 35-
27093, October 21, 1999, the "1999 Order"). The order
sought herein will supersede and replace the authorization
granted in the 1999 Order with an order increasing the
amount of Guarantees which could be issued by NU, and also
broadening the class of beneficiaries of such Guaranties.
Whereas the 1999 Order allowed the issuance of Guarantees to
NUEI and its subsidiaries, the order sought herein would
authorize the issuance of Guarantees by NU to its nonutility
subsidiaries and affiliate companies, including Select and
those nonutility companies formed or acquired during the
Authorization Period (collectively, the "Nonutility
Subsidiaries").
8. Since it adopted Rule 58 the Commission has authorized other
registered holding company systems, for specified periods and
subject to investment limits, (1) to market energy management services
and consulting services outside the United States anywhere in the world
and (2) to engage in energy commodity marketing and brokering in
Canada. (See, e.g. American Electric Power Company, Inc.,
HCAR No. 27313, Dec. 21, 2000 (authority to invest $2
billion), Entergy Corporation, HCAR 27334 (January 5, 2001).
9. As industry restructuring in Connecticut and other
states has evolved, many utilities, including two of the
utilities in the NU System, have divested their generation,
and many energy systems, including NU, increased their focus
on the marketing and brokering of energy and related
services. As indicated by the increasing revenues of
Select, energy marketing and brokering activities have
become an integral part of NU's business and its strategy
for competing in the restructured energy industry.
C. Requested Authority
(i) Ownership of Select and SENY outside of Rule 58 and Issuance of
Guarantees
10. NU and NUEI request authority to (i) own Select and
SENY outside Rule 58 and to make Investments in Select and
SENY, with such investments, along with existing
investments, not subject to the limitations of Rule 58
promulgated under the Act; and (ii) to issue Guarantees of
up to $750 million for the benefit of the Nonutility
Subsidiaries through the Authorization Period. As of
September 30, 2001, NU had an aggregate investment,
including guarantees, in its Rule 58 subsidiaries of
approximately $800 million against a Rule 58 limit of
approximately $1 billion.
11. Mainly as a result of restructuring initiatives in
Connecticut and Massachusetts which resulted in the sale of
most of the generating assets of CL&P and WMECO, the total
consolidated capitalization of NU was approximately $6.1
billion as of December 31, 2000. While the "securitization"
of regulatory assets in the first half of 2001 increased
NU's capitalization to approximately $6.8 billion at
September 30, 2001, the rate reduction bonds which were
issued will amortize far more rapidly than traditional
utility assets, reducing the base for Rule 58 investments
accordingly. As the energy marketing and brokering business
of Select and SENY grows while the traditional bases of
capitalization in the regulated companies decreases, the
financial constraints of Rule 58 could impose obstacles to
the success of NU's strategy of increasing its marketing and
brokering business. By seeking the exclusion of NU's
existing investments in Select and SENY from Rule 58 and
seeking to operate Select and SENY outside of Rule 58, NU is
preserving room under Rule 58 for future investment.
12. Investments in Select and SENY may take the form of
equity contributions, open account advances or loans made
directly by NU or made through NUEI and Money Pool
borrowings by Select (Select's money pool borrowing limit is
currently $200 million). Guarantees may take the form of NU
or NUEI agreeing to guarantee, undertake reimbursement
obligations or assume liabilities or other obligations with
respect to or act as surety on, bonds, letters of credit,
evidences of indebtedness, equity commitments, performance
and other obligations undertaken by Select and the other
Nonutility Subsidiaries. Guarantees have become a necessary
component of the energy marketing and brokering business.
NU has provided Guarantees for obligations of Nonutility
Subsidiaries in an aggregate amount of approximately $ 375
million as of September 30, 2001. As NU's nonutility
operations continue to expand, NU projects the need to
provide Guarantees for 2002 and 2003 in an aggregate amount
up to $750 million at any one time outstanding. Because of
the temporary nature of the Guarantees and the low
likelihood that NU would be called upon to pay significant
amounts under the Guarantees, NU does not believe that the
requested increase will expose it or its Nonutility
Subsidiaries to improper risks. NU has not been called upon
by any guaranteed party to make a payment under any
Guarantee since it began issuing guarantees for the benefit
of its Nonutility Subsidiaries in 1998 nor have they
defaulted on any obligations. Certain of the Guarantees may
be in support of obligations that are not capable of exact
quantification. NU will in these cases determine the
exposure under a Guaranty for purposes of measuring
compliance with the Guaranty Limit by standard industry
methods, including estimation of exposure based on loss
experience or projected potential payment amounts. NU and
NUEI represent that the terms and conditions of Guarantees
will be established through arm's-length negotiations with
counterparties based upon current market conditions. NU and
NUEI further undertake that any Guarantee they issue will be
without recourse to any System operating company. Further,
any Guarantees of EWG/FUCO projects will also be subject to
the provisions of Rule 53 and 54, and any Guarantees of
energy-related companies formed under Rule 58 under the Act
("Rule 58 Companies") will also be subject to the aggregate
investment limitation of Rule 58.
(ii) Energy Management Services & Consulting Services
13. Select and SENY request authority to engage in the
Energy Services listed above. These activities are
identical with those activities enumerated in Rule 58.
Select and SENY also request authority to engage in the
business of marketing Energy Management Services and Demand-
side Management Services in the United States and Canada,
without the need for further Commission authorization.
(iii) Energy Commodity Brokering & Marketing; Trading
14. Select and SENY further request authority to
engage in the business of brokering and marketing energy
commodities, including but not limited to electricity,
natural gas and other combustible fuels (including
incidental related services, such as fuel management,
storage and procurement) anywhere in the world, without the
need for further Commission authorization. Select and SENY
each represent that it will not make any sales of energy
commodities to customers at retail or otherwise in any state
unless authorized or permitted to do make such sales under
the laws of that state. The foregoing notwithstanding,
pending completion of the record, NU requests the Commission
to reserve jurisdiction over Select and SENY engaging in
such business outside of the United States and Canada.
15. Select and SENY both have employed, and will
continue to employ various risk-management strategies,
including entering into off-setting physical delivery
contracts, the purchase and sale of derivative instruments,
such as options and futures contracts, for purposes of
hedging a physical position, and an appropriate mix of long
and short term contracts. To that end, Select and SENY also
seek authority to perform "hedging" activities and trading
activities, including interest rate swaps, caps, collars,
floors, and structured notes, the trading of electric and
gas transmission contracts, emission allowances, weather
products, and "paper" hedging products such as options and
forwards, whether or not such activities are tied to a
physical contract, in the United States and Canada. The
trading of such hedges and products is a common and integral
component of the energy marketing business. If Select and SENY
were not able to trade in such hedges and products, it would
be at a distinct disadvantage to those marketers and traders
who are not encumbered by the restrictions of the Act.
16. NU represents that it will not seek recovery
through higher rates to its utility subsidiaries' customers
for any losses NU may sustain, or any inadequate returns it
may realize, in respect of the proposed transactions.
Item 2. Fees, Commissions and Expenses
17. NU estimates total fees and expenses in
connection with the proposed transactions of not more than
$20,000, consisting chiefly of outside counsel fees and
expenses.
Item 3. Applicable Statutory Provisions
18. Sections 6(a), 7, 9(a), 10 and 12 of the Act
and Rules 42 and 54 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 Applicants request appropriate
orders thereunder.
19. 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.
20. NU currently meets all of the conditions of Rule
53(a), except for clause (1). At September 30, 2001, NU's
"aggregate investment," as defined in Rule 53(a)(1), in EWGs
and FUCOs was approximately $469.5 million, or approximately
80% of NU's average "consolidated retained earnings," also
as defined in Rule 53(a)(1), for the four quarters ended
September 30, 2001 ($586 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 not to
exceed $481 million or 83% of its "average consolidated
retained earnings" would not have either of the adverse
effects set forth in Rule 53(c). See Northeast Utilities,
Holding Company Act Release No. 27148, dated March 7, 2000
(the "Rule 53(c) Order"). NU continues to assert that its
EWG investment in NGC will not adversely affect the System.
21. 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 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 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.
22. The proposed transactions, considered in conjunction
with the effect of the capitalization and earnings of NU's
EWGs and FUCOs, 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 Rule 53(c) Order was predicated, in
part, upon an assessment of NU's overall financial condition
which took into account, among other factors, NU's
consolidated capitalization ratio and its retained earnings,
both of which have improved since the date of the order.
NU's EWG investment (it has no FUCO investment), has been
profitable for the quarterly periods ending June 30, 2000,
September 30, 2000, December 31, 2000, March 31, 2001, June 30,
2001 and September 30, 2001, respectively (NGC was acquired in
March 2000). As of December 31, 1999, the most recent period for
which financial statement information was evaluated in the
Rule 53(c) Order, NU's consolidated capitalization consisted
of 35.3% common equity and 64.7% debt (including long and
short-term debt, preferred stock, capital leases and
guarantees). As of June 30, 2000, the end of the first
quarter after the issuance of the Rule 53(c) Order, the
consolidated capitalization ratios of NU, with consolidated
debt including all short-term debt and non-recourse debt of
the EWG, were as follows:
As of June 30, 2000
(thousands
of dollars) %
Common shareholders' equity 2,365,854 36.9
Preferred stock 277,700 4.3
Long-term and short-term debt 3,768,353 58.8
6,411,907 100.0
23. The consolidated capitalization ratios of NU as of
September 30, 2001, with consolidated debt including all
short-term debt and non-recourse debt of the EWG, were as
follows:
As of September 30, 2001
(thousands
of dollars) %
Common shareholders' equity 2,133,851 31.6
Preferred stock 16,200 1.7
Long-term and short-term debt 2,391,557 35.4
Rate Reduction Bonds 2,118,400 31.3
6,760,008 100.0
24. NU's consolidated retained earnings decreased from
$581.8 million as of December 31, 1999 to $495.9 million as
of December 31, 2000, mainly as a result of an after-tax
write-off of $225 million by Public Service Company of New
Hampshire as part of a restructuring settlement and also
recognition of a loss due to a decision by the FERC lowering
the price for acquiring installed generating capacity in New
England but increased by $149 million through the three
quarters ended September 30, 2001. NGC (NU's only EWG or
FUCO) has made a positive contribution to earnings by
contributing $207 million in revenues from inception (March
2000) through September 30, 2001 and net income of $57.5
million for the same period. Accordingly, since the date of
the Rule 53(c) Order, the capitalization and earnings
attributable to NU's investments in EWGs and FUCOs has not
had an adverse impact on NU's financial integrity.
Item 4. Regulatory Approval
25. The proposed transactions are not subject to the
jurisdiction of any state or federal commission other than
this Commission.
Item 5. Procedure
26. NU requests that the Commission issue an order as soon
as practicable after the expiration of the applicable public
notice period granting and permitting this Application-Declaration
to become effective.
27. NU waives a recommended decision by a hearing officer or other
responsible officer of the Commission; consents that the Staff of the
Division of Investment Management may assist in the preparation of the
Commission's order; and requests that there be no waiting period
between the issuance of the Commission's order and its effectiveness.
28. NU hereby undertakes to include in its quarterly reports on
Form U-9C-3 a description of all energy-related activities conducted
outside the United States pursuant to the authorization requested in
this application.
Item 6. Exhibits and Financial Statements*
(a) Exhibits
F Preliminary opinion of counsel
H Form of notice
(b) Financial Statements
Item 7. Information as to Environmental Effects
(a) The Commission's action in this matter will not
constitute any major federal action significantly affecting
the quality of the human environment.
(b) No other federal agency has prepared or is preparing an
environmental impact statement with regard to the proposed
transactions.
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Guarantees issued by NUEI are exempt under Rule
52. This information is provided for background purposes.
*Exhibits and Financial Statements will be filed by
amendment.
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SIGNATURE
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned company has
duly caused this amended Form U-1 to be signed on its behalf
by the officer indicated below.
Northeast Utilities
NU Enterprises, Inc.
Select Energy, Inc.
Select Energy New York, Inc.
By: /S/ Randy A. Shoop
Name: Randy A. Shoop
Title: Assistant Treasurer - Finance
of Northeast Utilities Service Company
as Agent for the above named companies.
Dated: January , 2002