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 01090-0010
Name of company filing this statement and
address of principal executive offices)
***
Northeast Utilities
(Name of top registered holding company parent
of each applicant or declarant)
***
Cheryl W. Grise, Esq.
Senior Vice President, Secretary and
General Counsel
Northeast Utilities
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:
Jeffrey C. Miller
Assistant General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
Richard M. Early
Senior Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, CT 06141-0270
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
1. Northeast Utilities (NU), a registered holding company, hereby
submits to the Commission an application/declaration
(theApplication) pursuant to Sections 6(a), 7, and 12(e) of the
Public Utility Holding Company Act of 1935 (the Act) and Rules 62
and 65 thereunder. NU seeks Commission approval for:
(a) the solicitation of proxies from NU's common shareholders
seeking the approval of the adoption of the Northeast Utilities
Employee Share Purchase Plan (the Plan), which contemplates the
issuance of NU's Common Shares, $5.00 par value (NU Common
Shares) and derivative securities thereof, subject to the
limitations set forth therein, and
(b) the issuance each year, during the ten-year term of the Plan,
of NU Common Shares (either authorized but previously unissued
shares or reacquired shares) not to exceed one-half percent
(0.5%) of the number of shares outstanding as of the end of the
preceding year (subject to appropriate adjustment in the event of
recapitalizations, mergers, splits or similar corporate
transactions), and derivatives of such shares, in accordance with
the terms of the Plan.
2. The Plan will replace an earlier Employee Share Purchase
Plan adopted in 1998 (See HCAR No. 35-26865, File No. 70-9185,
April 29, 1988) ("Original Plan"). NU terminated the Original
Plan in December 2000 in anticipation of its merger with
Consolidated Edison, Inc., which was subsequently abandoned. NU
has no way to reinstate the Original Plan and so wishes to
commence the Plan in lieu thereof. The Plan terms discussed
below are essentially the same as those of the original Plan
except where otherwise indicated.
3. The Plan was adopted by action of NU's Board of Trustees (the
Board) on April 9, 2001, subject to shareholder approval at the
Annual Meeting of Shareholders to be held June 28, 2001. The
Plan will be effective on August 1, 2001, assuming shareholder
and Commission approval. A draft of the proposed proxy statement
disclosure regarding the Plan is filed herewith as Exhibit A.2.
A copy of the Plan is filed herewith as Exhibit A.3.
4. The purpose of the Plan, as with the Original Plan, is to
increase employee ownership of NU Common Shares, which the NU
Board of Trustees believes is in the mutual interest of the
employees and the NU system. Under the Plan, which is to be
administered by the Compensation Committee of the Board, or its
delegate (collectively, the Committee), eligible employees of
participating subsidiaries of NU will be given the opportunity to
purchase NU Common Shares periodically through payroll
deduction. Purchases will be made on the last day of each
purchase period as established by the Committee, at a discounted
price. The price will be 85 percent of the lower of the closing
market price on the first day or the last day of the purchase
period, unless a higher price (not to exceed the lower of the
closing market price on the first day or the last day of the
purchase period) is set by the Committee prior to the
commencement of the purchase period (under the Original Plan,
officers were not eligible for the discounted price). The Plan is
intended to be an "employee stock purchase plan" as described in
Section 423 of the Code.
5. Shares purchased pursuant to the Plan will be held in
participant accounts to be established by Northeast Utilities
Service Company until withdrawn by the participant. Such shares
may not be sold or otherwise transferred by the participant for
six months following the date of purchase. Dividends on such
shares will be reinvested into additional shares under NU's
Dividend Reinvestment Plan (see Holding Co. Act Rel. No. 26279,
dated April 26, 1995, in File No. 70-7701).
6. The Plan will terminate ten years from its effective date,
unless terminated earlier by the Board. The maximum number of NU
Common Shares, which may be authorized but previously unissued
shares and/or shares that are reacquired by NU on the open
market, that may be issued for purchases under the Plan in any
calendar year is one-half of one percent (0.5%) of the number of
shares outstanding as of the last day of the previous calendar
year. This limitation is subject to adjustment in the event of a
recapitalization, stock split, merger, combination, exchange or
similar corporate transaction. Shares that are eligible to be
used for purchases under the Plan but are not so used cumulate
and may be used for purchases in subsequent years in addition to
those shares made available under the limit described above.
Based on the issued and outstanding NU Common Shares on December
31, 2000, this restriction would permit 719,181 NU Common Shares
to be issued to fund purchases by Plan Participants in 2001.
7. Approval of the Plan by NU's common shareholders will require
the affirmative vote of the holders of a majority of the NU
Common Shares present or represented at the 2001 Annual Meeting
of Shareholders. Shareholder approval is required pursuant to
Article (19) of NU's Declaration of Trust, a copy of which is
filed herewith as Exhibit A.1, in order to issue NU Common Shares
free from pre-emptive rights.
8. 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.
9. NU currently meets all of the conditions of Rule 53(a),
except for clause (1). At December 31, 2000, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs was
approximately $469.5 million, or approximately 76.1% of NU's
average "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended December 31, 2000 ($617.3
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.
10. 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.
11. 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 periods beginning March 7, 2000 and ending
March 31, 2000, June 30, 2000, September 30, 2000, and December
31, 2000, respectively. 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 was 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
The consolidated capitalization ratios of NU as of September 30,
2000, with consolidated debt including all short-term debt and
non-recourse debt of the EWG was as follows:
As of September 30, 2000
(thousands
of dollars) %
Common shareholders' equity 2,413,785 37.9
Preferred stock 277,700 4.3
Long-term and short-term debt 3,683,667 57.8
--------- -----
6,375,152 100.0
The consolidated capitalization ratios of NU as of December 31,
2000, with consolidated debt including all short-term debt and
non-recourse debt of the EWG was as follows:
As of December 31, 2000
(thousands
of dollars) %
Common shareholders' equity 2,218,583 36.1
Preferred stock 276,968 4.5
Long-term and short-term debt 3,653,843 59.4
--------- -----
6,149,394 100.0
NU's consolidated retained earnings have decreased from $581.8
million as of December 31, 1999 to $495.9 million as of December
31, 2000. NU's interest in NGC (its only EWG or FUCO) has made a
positive contribution to earnings in that time by contributing
$26.4 million to NU's retained earnings with revenues of $108.5
million and net income of $26.4 million. 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 2. FEES, COMMISSIONS AND EXPENSES.
12. No fees, commissions or expenses have been paid or will be
paid or incurred in connection with the proposed transactions
other than routine expenses for: legal, financial, stock transfer
and other services billed to the Applicants at cost by NUSCO,
which are not expected to exceed $40,000 to implement the Plan
and $40,000 annually thereafter; the additional fees and expenses
of the Company in respect of the proxy solicitation, not expected
to exceed $40,000; the fees and expenses of outside counsel to
the Applicants, not expected to exceed $30,000; and the fees and
expenses of various external service providers involved in the
implementation of the Plan and their operation, which are not
expected to exceed $30,000 for Plan implementation and $30,000
annually for ongoing administration.
13. 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 3. APPLICABLE STATUTORY PROVISIONS.
Sections 6(a) and 7 of the Act and Rule 50 thereunder apply to
the issuance by NU from time to time of authorized but unissued
shares and treasury shares in connection with the Plan as
described above. Section 12(e) of the Act and Rules 62 and 65
thereunder apply to the proxy solicitation as described above.
ITEM 4. REGULATORY APPROVAL.
No commission, other than this Commission, has jurisdiction
over the Applicants with respect to any of the proposed
transactions described in this Application.
ITEM 5. PROCEDURE.
In order for NU to complete the printing of proxy cards and
proxy statements for the 2001 Annual Meeting and to permit the
solicitation of proxies, NU requests that the Commission issue an
order on or before May 7, 2001 declaring this Application
effective with respect to the solicitation of proxies from the
holders of NU Common Shares in connection with shareholder
approval of the Plan, as provided by Rule 62 under the Act. The
Commission is requested to issue its further order on or before
June 28, 2001 permitting the Application to become effective as
to all other matters described herein.
Applicants hereby waive a recommended decision by a hearing
officer or other responsible officer of the Commission. It
consents that the Office of Public Utility Regulation within the
Division of Investment Management may assist in the preparation
of the Commission's finding and/or order and hereby requests that
the Commission's orders become effective forthwith upon issuance.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
The following exhibits and financial statements are filed as
part of this application:
(a) Exhibits:
Exhibit A.1 -- Declaration of Trust of Northeast Utilities, as
amended, incorporated by reference to Exhibit 3.1.1 of the 1988
Annual Report on Form 10-K of Northeast Utilities (File No. 1-
5324)
Exhibit A.2 -- Draft of Proposed Proxy Solicitation
Exhibit A.3 -- Proposed Employee Share Purchase Plan
Exhibit B -- None
Exhibit C -- None
Exhibit D -- None
Exhibit E -- None
Exhibit F -- Opinion of Counsel.
Exhibit G -- Form of Notice.
(b) Financial Statements.
Financial statements are omitted since they are not deemed
relevant for a proper disposition of the proposed transactions by
the Commission.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
This Application relates to the implementation by NU of a
new incentive plan and employee share purchase plan and the
solicitation of proxies from the holders of NU Common Shares with
respect thereto, and to the issuance of additional NU Common
Shares. As such, it is believed that the granting and permitting
to become effective of this Application 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 transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned hereunto
duly authorized.
NORTHEAST UTILITIES
By Cheryl W. Grise,
Senior Vice President, Secretary and
General Counsel
Dated: April 24, 2001