File No. 70-10234
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
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, as heretofore
amended, is hereby further 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 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 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, also a Connecticut corporation,
performs various real estate functions for associate companies at cost,
including among other things, the acquisition or construction, and
ownership of office and other buildings and the leasing thereof to
associate companies. (See, Holding Company Act Release No. 15884,
Oct. 24, 1967). As of June 30, 2004, RRR had total assets of
approximately $71 million, mainly made up of real estate property
and equipment, including the main office facilities of the NU
System located in Berlin, CT, which it leases to affiliated
companies in the NU System.
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. It is currently anticipated that the majority of
any guarantees issued by NU for the benefit of RRR would be
guaranteeing real estate leases and the majority of Guarantees
issued by NU for the benefit of NUSCO will be guarantees of
equipment leases, though NU wishes to have the flexibility to
guarantee other obligations undertaken by the Service Companies.
The Guarantees issued pursuant to this application will be
subject to the limitations of rule 53 and 58 as applicable.
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 collateralization 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 and associated costs 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 NU's non-utility subsidiaries and
affiliates 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"). The Guarantees which NU intends to
issue under the 2004 Order are generally earmarked for issuance
for the benefit of NU's competitive companies, which would not
include the Service Subsidiaries. NU seeks an order herein for
separate guarantee authority which would allow it to issue
Guarantees solely for the benefit of the Service Subsidiaries.
The authorization sought herein is also separate from the
guaranty authority provided under the Commission's Rule 45(b)(6).
The issuance of Guarantees by NU, as proposed in this
application, is not expected to have any impact on its credit
ratings. The credit rating agencies (Standard & Poor's, Moody's
and Fitch) look at the total debt of the entire NU system in
establishing their respective credit ratings. Cash flows under
the agreements which are currently anticipated to be guaranteed
pursuant to the order granted in this file aggregated
approximately $1.1 million in the first quarter of 2004 and
approximately $1.3 million in the second quarter of 2004, and are
projected to aggregate approximately $1.35 million in the third
quarter of 2004 and for each quarter of 2005.
10. NU commits that it will, at all times during the
Authorization Period, maintain common equity of at least 30% of
its consolidated capitalization (common equity, preferred stock,
long-term debt and short-term debt), including rate reduction
bonds as debt, as reflected in the most recent Form 10-K or Form
10-Q filed with the Commission, adjusted to reflect changes in
capitalization since the balance sheet date of the filings.
OTHER MATTERS
11. 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.
12. NU currently meets all of the conditions of Rule
53(a), except for clause (1). At June 30, 2004, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs was
approximately $448.2 million, or approximately 53.6% of NU's
average "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended June 30, 2004 ($836
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.
13. 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.
14. 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 June 30, 2004 (NGC was acquired in March
2000).
15. The consolidated capitalization ratios of NU as of
June 30, 2004, with consolidated debt including all short-term
debt and non-recourse debt of the EWG, were as follows:
As of June 30, 2004
(thousands
of dollars) %
Common shareholders' equity $ 2,323,458 34.8%
Preferred stock 116,200 1.7
Long-term and short-term debt 2,605,848 39.0
Rate Reduction Bonds 1,639,344 24.5
$ 6,684,850 100.0
If Rate Reduction Bonds are excluded the consolidated
capitalization ratio of NU as of June 30, 2004 is as follows:
As of June 30, 2004
(thousands
of dollars) %
Common shareholders' equity $ 2,323,458 46.0
Preferred stock 116,200 2.3
Long-term and short-term debt 2,605,848 51.7
$ 5,045,506 100.0%
16. In addition, NGC has made a positive contribution to
earnings by contributing $148.7 million in revenues in the 12-
month period ending June 30, 2004 and net income of $39.4 million
for the same period.
ITEM II
FEES, COMMISSIONS, AND EXPENDITURES
17. 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.
18. 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
19. The Guarantees by NU are subject to Section 12(b) of the Act
and Rules 45 and 54 thereunder.
ITEM IV
REGULATORY APPROVAL
20. 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
21. 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.
22. 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.
[SIGNATURE PAGE TO FOLLOW]
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned has duly caused this
Amendment to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: October 19, 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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