FILE NO. 70-9755
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
(AMENDMENT NO. 9)
TO FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Northeast Utilities Holyoke Water Power Company
Western Massachusetts Electric Company One Canal Street
174 Brush Hill Avenue Holyoke, MA 01040
West Springfield, MA 01090-0010
The Connecticut Light and Power Company Public Service Company
NU Enterprises, Inc. of New Hampshire
Northeast Generation Service Company North Atlantic Energy
E.S. Boulos Company Corporation
Woods Network Services, Inc. Energy Park
Woods Electrical Co., Inc. 780 North Commercial Street
Northeast Generation Company Manchester, NH 03101
Select Energy, Inc.
Select Energy New York, Inc. Select Energy Services, Inc.
Mode 1 Communications, Inc. 24 Prime Parkway
Northeast Utilities Service Company Natick, MA 01760
107 Selden Street
Berlin, CT 06037
Yankee Energy System, Inc. The Rocky River Realty
Yankee Gas Services Company Company
Yankee Energy Financial Services Company The Quinnehtuk Company
NorConn Properties, Inc. Northeast Nuclear Energy
Yankee Energy Services Company Company
107 Selden Street Properties, Inc.
Berlin, CT 06037 107 Selden Street
Berlin, CT 06037
(Name of companies filing this statement and addresses of
principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Gregory B. Butler, Esq.
Vice President, Secretary and 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
Jeffrey C. Miller David R. McHale
Assistant General Counsel Vice President and Treasurer
Northeast Utilities Service Northeast Utilities Service
Company Company
P.O. Box 270 P.O. Box 270
Hartford, CT 06141-0270 Hartford, CT 06141-0270
The Application/Declaration in this file, as heretofore amended,
is further amended and restated as follow:
ITEM 1
DESCRIPTION OF PROPOSED TRANSACTION
BACKGROUND
1. Northeast Utilities ("NU"), a public utility holding company
registered under the Public Utility Holding Company Act of 1935,
as amended (the "Act"), located at 174 Brush Hill Ave., West
Springfield, MA; Yankee Energy System, Inc. ("YES"), a public
utility holding company subsidiary of NU, exempt from
registration under the Act, and Northeast Utilities Service
Company, NU's service company subsidiary ("NUSCO"), both located
at 107 Selden Street, Berlin, CT; NU's direct and indirect public
utility subsidiaries, The Connecticut Light and Power Company
("CL&P"), Northeast Nuclear Energy Company ("NNECO") and Yankee
Gas Services Company (Yankee Gas"), located at 107 Selden Street,
Berlin, CT, Western Massachusetts Electric Company ("WMECO"),
located at 174 Brush Hill Avenue, West Springfield, MA, Public
Service Company of New Hampshire ("PSNH") and North Atlantic
Energy Corporation ("NAEC"), located at 780 North Commercial
Street, Manchester, NH, and Holyoke Water Power Company ("HWP"),
located at Canal Street, Holyoke, MA; and NU's direct and
indirect nonutility subsidiaries, The Rocky River Realty Company
("RR"), The Quinnehtuk Company ("Quinnehtuk"), Properties, Inc.
("Properties"), Yankee Energy Financial Services Company ("Yankee
Financial"), Yankee Energy Services Company ("YESCO"), NorConn
Properties, Inc. ("NorConn"), NU Enterprises, Inc. ("NUEI"),
Northeast Generation Company ("NGC"), Northeast Generation
Services Company ("NGS"), E. S. Boulos Company ("Boulos"), Woods
Electrical Company, Inc. ("Woods"), Woods Network Services, Inc.
("Woods Network"), Select Energy, Inc. ("Select Energy") and Mode
1 Communications, Inc. ("Mode 1"), all located at 107 Selden
Street, Berlin, CT, Select Energy New York, Inc. ("SENY"),
located at 507 Plum Street, Syracuse, NY and Select Energy
Services, Inc. ("SESI"), located at 24 Prime Parkway, Natick, MA
(collectively the "Applicants") submit this amendment to the
application/declaration in this File (the "Amendment") pursuant
to Sections 6(a), 7, 9(a), 10 and 12 of the Act and Rules 43, 45
and 52 thereunder with respect to the extension of certain
financing authorizations granted by the Commission in the prior
Commission order and the release of jurisdiction reserved in such
order.
2. By order dated December 28, 2000 (Holding Co. Act Release
No. 27328) issued by the Commission in this File No. 70-9755 (the
"2000 Order"), the Applicants were authorized to continue
participation in the NU system money pool ("NU Money Pool"), and,
to the extent not exempt under Rules 45(b) and 52, for the
Applicants to enter into short-term debt transactions with NU and
to borrow from and extend credit to (and acquire promissory notes
from) each other through their participation in the NU Money
Pool, through June 30, 2003 subject to certain terms and
conditions set forth therein. In addition, authorization was
granted in the 2000 Order for NU and its utility subsidiaries to
issue notes or commercial paper to unaffiliated third parties to
evidence short-term debt up to specified limits and within
specified parameters, through June 30, 2003. By Commission order
dated June 30, 2003, (Holding Co. Act Release No. 35-27693, the
"2003 Order") issued in this File, the Commission extended the
authorization period for the issuance of short-term debt by NU,
CL&P, WMECO, PSNH, YES and Yankee Gas (the "Utility Borrowers")
through June 30, 2006, authorized such companies to enter
into interest rate hedging transactions related to short-term
debt transactions through June 30, 2006 and extended the
authorization period for participation by the Applicants (other
than Properties) in the NU Money Pool through June 30, 2004,
pending the submission by the Applicants of a feasibility study
concerning the creation of a separate money pool for nonutility
subsidiaries of NU.
3. The Applicants have prepared and submitted such a study to
the Commission and now request that the Commission issue an order
in this file granting:
(i) an extension through June 30, 2007 (the "Authorization
Period"), of the authorizations granted by the Commission in
the 2003 Order concerning
(a) the issuance of notes or commercial paper by NU
and the Utility Borrowers to unaffiliated third
parties to evidence short-term debt,
(b) the respective short-term debt limits of NU and
the Utility Borrowers;
(c) participation by the Applicants in the NU Money
Pool;
(d) entering into Interest Rate Hedges (as described
herein) by NU and the Utility Borrowers;
(ii) authorization for Properties to participate in the NU
Money Pool both as borrower and lender; and
(iii) a release of jurisdiction over the removal of
limits on the NU Money Pool borrowings by Properties, RR,
Quinnehtuk, Yankee Financial, YESCO, NorConn, NUEI, NGS,
Boulos, Woods, Select Energy, SENY and SESI (the "Nonutility
Subsidiaries").
DESCRIPTION OF THE APPLICANTS
4. NU is a registered holding company under the Act. It has 6
electric utilities as defined under the Act and one gas utility.
CL&P, WMECO, PSNH engage in, among other things, the sale of
electricity at retail. Prior to the sale by the NU system of all
of its nuclear assets, NAEC and NNECO were an owner and a
manager, respectively, of various nuclear generating assets. HWP
sells the output of its electricity generating station directly
to its affiliate, Select Energy. Yankee Gas, which is owned by
YES, a public utility holding company subsidiary of NU exempt
from registration under the Act by section 3(a)(1), engages in
the sale of natural gas at retail. NU also owns, directly or
indirectly, Properties, RR, Quinnehtuk and NorConn, which are
real estate companies, NUSCO, the system's principal service
company, NUEI, the system's nonutility holding company, NGC, an
exempt wholesale generator, SESI, an energy services company
acquired pursuant to Commission Order, Mode 1 and Woods Network,
each exempt telecommunications companies, Yankee Financial, a
financial services company and Select Energy, SENY, NGS, Woods,
Boulos and YESCO, each companies formed or acquired pursuant to
Rule 58.
SHORT-TERM DEBT OF NU
5. In this Amendment NU seeks an order of the Commission
authorizing it to issue and sell from time to time during the
Authorization Period, short-term debt ("Short-term Debt") in an
aggregate principal amount at any time outstanding not to exceed
$450 million ("NU's Short-term Debt Limit"). NU's Short-term
Debt has taken and will take a variety of forms, including
commercial paper issuances and/ or unsecured notes with banks or
other institutional lenders under credit facilities on terms that
are generally available to borrowers with comparable credit
ratings. All NU Short-term Debt will have maturities of less
than one year from the date of issuance.
6. Commercial paper issued by NU hereunder may be issued
manually or through The Depository Trust Company in the form of
book entry notes in denominations of not less than $50,000 of
varying maturities. Such commercial paper would typically be
sold to dealers at the discount rate prevailing at the date of
issuance for commercial paper of comparable quality and
maturities sold to commercial paper dealers generally. It is
expected that the dealers acquiring the commercial paper will
reoffer it at a discount to corporate and institutional
investors. No commercial paper will be issued unless NU believes
that the effective interest cost to it will be equal to or less
than the effective interest rate at which it could issue short-
term notes in an amount at least equal to the principal amount of
such commercial paper. The commercial paper will be publicly
issued and sold without registration under the Securities
Exchange Act of 1933 in reliance upon one or more applicable
exemptions from registration thereunder.
7. NU also seeks an extension through the Authorization Period
of the authorization to continue, or to establish and maintain
back-up credit lines with banks or other institutional lenders to
support their commercial paper program(s), and other credit
arrangements and/ or borrowing facilities generally available to
borrowers with comparable credit ratings, providing for revolving
credit or other loans. All amounts drawn and outstanding under
these agreements and facilities will have maturities less than
one year from the date of draw and will be counted against the
proposed NU Short-term Debt Limit.
8. The effective cost of money on all external Short-term Debt
of NU will not exceed competitive market rates available at the
time of issuance for securities having the same or reasonably
similar terms and conditions issued by companies of comparable
credit quality, provided that in no event will the effective cost
of capital exceed 500 basis points over the comparable term
London Interbank Offered Rate ("LIBOR"). Issuance expenses in
connection with any non-competitive offering of Short-term Debt
will not exceed 5% of the principal amount thereof. Specific
terms of any Short-term Debt will be determined by NU at the time
of issuance and will comply in all regards to the parameters of
financing authorizations set forth above. A copy of any new note
or loan agreement executed pursuant to this Authorization will be
filed under cover of the next quarterly report under Rule 24.
Subject to the NU Short-term Debt Limits, NU intends to renew and
extend outstanding short-term debt as it matures, to refund such
short-term debt with other similar short-term debt, to repay such
short-term debt or to increase the amount of their short-term
debt from time to time.
SHORT-TERM DEBT OF THE UTILITY BORROWERS
9. The Utility Borrowers also seek an order of the Commission
authorizing each of them to issue and sell from time to time
during the Authorization Period, Short-term Debt in an aggregate
principal amount at any time outstanding not to exceed, when
added to any debt of such companies through the NU Money Pool,
the respective limits for the Utility Borrowers set forth below
in paragraph 26 ("Short-term Debt Limit"). The Short-term Debt
for the Utility Borrowers has taken and will take a variety of
forms, including commercial paper issuances and/or secured or
unsecured notes with banks or other institutional lenders under
credit facilities on terms that are generally available to
borrowers with comparable credit ratings. All Short-term Debt
will have maturities of less than one year from the date of
issuance. The Utility Borrowers request that the Commission
reserve jurisdiction over their request to issue secured short-
term debt pending completion of the record.
10. Commercial paper issued by a Utility Borrower hereunder may
be issued manually or through The Depository Trust Company in the
form of book entry notes in denominations of not less than
$50,000 of varying maturities. Such commercial paper would
typically be sold to dealers at the discount rate prevailing at
the date of issuance for commercial paper of comparable quality
and maturities sold to commercial paper dealers generally. It is
expected that the dealers acquiring the commercial paper will
reoffer it at a discount to corporate and institutional
investors. No commercial paper will be issued unless the Utility
Borrower issuing such commercial paper believes that the
effective interest cost to it will be equal to or less than the
effective interest rate at which such company could issue short-
term notes in an amount at least equal to the principal amount of
such commercial paper. The commercial paper will be publicly
issued and sold without registration under the Securities
Exchange Act of 1933 in reliance upon one or more applicable
exemptions from registration thereunder.
11. The Utility Borrowers also seek an extension through the
Authorization Period of the authorization to continue, or to
establish and maintain back-up credit lines with banks or other
institutional lenders to support their commercial paper
program(s), and other credit arrangements and/or borrowing
facilities generally available to borrowers with comparable
credit ratings, providing for revolving credit or other loans.
All amounts drawn and outstanding under these agreements and
facilities will have maturities less than one year from the date
of draw and will be counted against the proposed Short-term Debt
Limits of such Utility Borrower.
12. The effective cost of money on all external Short-term Debt
of the Utility Borrowers will be subject to the same financing
parameters as NU set forth above. Specific terms of any Short-
term Debt will be determined by the respective Utility Borrowers
at the time of issuance and will comply in all regards to the
parameters of financing authorizations set forth above. A copy
of any new note or loan agreement executed pursuant to this
Authorization will be filed under cover of the next quarterly
report under Rule 24. Subject to the applicable Short-term Debt
Limits, the Utility Borrowers intend to renew and extend
outstanding short-term debt as it matures, to refund such short-
term debt with other similar short-term debt, to repay such short-
term debt or to increase the amount of their short-term debt from
time to time.
INVESTMENT GRADE RESTRICTIONS
13. NU and the Utility Borrowers commit that, apart from the
securities issued for the purpose of funding money pool
operations or in the form of commercial paper or short-term bank
facilities, no securities may be issued in reliance upon the
Order issued in this file during the Authorization Period,
unless: (i) the security to be issued, if rated, is rated
investment grade; (ii) all outstanding debt securities of the
issuer that are rated are rated investment grade; and (iii) all
outstanding debt securities of NU that are rated, are rated
investment grade. For purposes of this condition, a security
will be considered investment grade if it is so rated by at least
one nationally recognized statistical rating organization, as
that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of
Rule 15c3-1 under the Securities Exchange Act of 1934. NU
and the Utility Borrowers request that the Commission reserve
jurisdiction over the issuance by NU and the Utility Borrowers of
any securities that do not meet these conditions.
14. Except in the case of CL&P and PSNH, NU and the Utility
Borrowers commit that at all times during the Authorization
Period, each will maintain common equity of at least 30% of its
consolidated capitalization (common equity, preferred stock, long-
term debt and short-term 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
therein. In the case of PSNH and CL&P, in Holding Co. Act
Release No. 35-27147 (March 7, 2000), the Commission noted that
such companies and the other Utility Borrowers could, from time
to time, be below the 30% ratio when their respective Rate
Reduction Bonds were included in the calculation of
capitalization. The Commission found that the effect of
being below the 30% test as a result of the issuance of Rate
Reduction Bonds was mitigated because of the exceptional
circumstance of the state's restructuring legislation, as
follows,: (1) that CL&P, PSNH and WMECO have investment grade
ratings of BBB-or better; (2) that CL&P, PSNH and WMECO's
financial integrity would not be impaired by the proposed
transaction; (3) that CL&P, PSNH and WMECO have and will continue
to have, adequate cash and access to working capital facilities
to meet and support their normal business operations; and (4)
that the proposed transaction would be in the public's interest
because both investors and consumers will benefit. CL&P and PSNH
represent that such factors continue to be present and will
continue through the Authorization Period.
15. Current Financial Condition
(a) NU
For the twelve (12) months ended December 31, 2003, NU's
consolidated gross revenues and net income were approximately
$6.1 billion and $116.4 million, respectively. As of December
31, 2003, NU's consolidated capitalization consisted of 33.5%
common equity, 1.7% preferred stock, 25.6% of Rate Reduction
Bonds, and 39.2% long-term and short-term debt. When the Rate
Reduction Bonds are excluded, NU's consolidated capitalization
consisted of 45% common equity, 2.3% preferred stock and 52.7%
debt.
NU Credit Ratings
As of the date of this Amendment, the corporate credit
rating for NU is BBB+ by Standard and Poor's and Baa1 by Moody's
and the ratings issued by Moody's and Standard and Poor's for
NU's Senior Unsecured Debt were Baa1 and BBB, respectively.
(b) The Utility Borrowers
The Connecticut Light and Power Company
As of December 31, 2003, CL&P's consolidated capitalization
consisted of 24.4% common equity, 4.1% preferred stock, 39.3% of
Rate Reduction Bonds, and 32.2% of long-term and short-term debt.
When the Rate Reduction Bonds are excluded, CL&P's consolidated
capitalization consisted of 40.2% common equity, 6.7% preferred
stock and 53.1% debt. The corporate credit rating for CL&P is
BBB+ by Standard and Poor's and A3 by Moody's and the credit
rating for its senior secured debt is A- by Standard and Poor's
and A2 by Moody's.
Western Massachusetts Electric Company
As of December 31, 2003, WMECO's consolidated capitalization
consisted of 31.4% common equity, 27.5% of Rate Reduction Bonds,
and 41.1% of long-term and short-term debt. When the Rate
Reduction Bonds are excluded, WMECO's consolidated capitalization
consisted of 43.4% common equity and 56.6% debt. The corporate
credit rating for WMECO is BBB+ by Standard and Poor's and A3 by
Moody's and the credit rating for its senior unsecured debt is
BBB+ by Standard and Poor's and A3 by Moody's.
Public Service Company of New Hampshire
As of December 31, 2003, PSNH's consolidated capitalization
consisted of 28.8% common equity, 35.8% of Rate Reduction Bonds,
and 35.4% of long-term and short-term debt. When the Rate
Reduction Bonds are excluded, PSNH's consolidated capitalization
consisted of 45% common equity and 55% debt. The corporate
credit rating for PSNH is BBB+ by Standard and Poor's and Baa1 by
Moody's and the credit rating for its senior secured debt is BBB+
by Standard and Poor's and A3 by Moody's.
Yankee Energy System, Inc.
As of December 31, 2003, YES's consolidated capitalization
consisted of 67.8% common equity and 32.2% long-term and short-
term debt. YES is not currently rated by Standard and Poor's,
Moody's or Fitch.
Yankee Gas Services Company
As of December 31, 2003, Yankee Gas' consolidated
capitalization consisted of 67.5% common equity and 32.5% of long-
term and short-term debt. The corporate credit rating for Yankee
Gas is BBB+ by Standard and Poor's and Baa1 by Moody's.
INTEREST RATE HEDGES
16. To the extent not exempt under rule 52, each of NU and the
Utility Borrowers also request an extension, through the
Authorization Period, of the authorizations granted in the 2003
Order to enter into interest rate hedging transactions with
respect to its outstanding short-term indebtedness ("Interest
Rate Hedges"), subject to the limitations and restrictions below,
in order to reduce or manage the effective interest rate cost.
Interest Rate Hedges would only be entered into with
counterparties ("Approved Counterparties") whose senior debt
ratings, or the senior debt ratings of any credit support
providers who have guaranteed the obligations of the Approved
Counterparties, as published by S&P, are equal to or greater than
BBB, or an equivalent rating from Moody's or Fitch, or through on-
exchange transactions.
17. Interest Rate Hedges will involve the use of financial
instruments commonly used in the capital markets, such as
options, interest rate swaps, locks, caps, collars, floors,
exchange-traded futures and options, and other similar
appropriate instruments. The transactions would be for fixed
periods and stated notional amounts as are generally accepted as
prudent in the capital markets. In no case will the notional
principal amount of any Interest Rate Hedge exceed that of the
underlying debt instrument. Neither NU nor the Utility Borrowers
will engage in speculative transactions within the meaning of
such term in Statement of Financial Accounting Standard 133, as
amended ("FAS 133"). Transaction fees, commissions and other
amounts payable to brokers in connection with an Interest Rate
Hedge will not exceed those generally obtainable in competitive
markets for parties of comparable credit quality.
18. NU represents that each Interest Rate Hedge will qualify
for hedge accounting treatment on a continuing basis under
generally acceptable accounting practices ("GAAP"). NU will also
comply with the then existing financial disclosure requirements
of the Financial Accounting Standards Board associated with
hedging transactions. Currently FAS 133 is the applicable
standard.
USE OF PROCEEDS
19. The proceeds from the Short-term Debt of NU and the Utility
Borrowers authorized by the Commission pursuant to this
Application will be used for (i) general corporate purposes,
including investments by and capital expenditures of NU and its
subsidiaries, including, without limitation, the funding of
future investments in exempt wholesale generators ("EWG"),
Foreign Utility Companies ("FUCO") (each to the extent permitted
under the Act or Commission order), Rule 58 Subsidiaries (to the
extent permitted under the Act or Commission order), and exempt
telecommunications companies ("ETC"), (ii) the repayment,
redemption, refunding or purchase by NU or any subsidiary of any
of its own securities from non-affiliates pursuant to Rule 42,
and (iii) financing working capital requirements of NU and its
subsidiaries.
20. NU and the Utility Borrowers represent that no financing
proceeds will be used to acquire the securities of, or other
interests in, any company unless such acquisition has been
approved by the Commission in this or a separate proceeding or is
in accordance with an available exemption under the Act or rules
thereunder, including Sections 32 and 33 and Rules 53, 54 and 58.
NU states that the aggregate amount of proceeds of financing
approved by the Commission in this proceeding used to fund
investments in EWGs and FUCOs will not, when added to NU's
"aggregate investment" (as defined in Rule 53) in all such
entities at any point in time, exceed 50% of NU's average
"consolidated retained earnings" (also as defined in Rule 53),
except as permitted and authorized by the Commission.
Further, NU represents that proceeds of financing utilized to
fund investments in Rule 58 Subsidiaries will adhere to the
limitations of that rule or Commission Order.
THE NU MONEY POOL
21. By the 2003 Order, the Applicants, with the exception of
NUSCO and Properties, were authorized to continue to participate
in the NU Money Pool. NUSCO was authorized to continue to
administer the NU Money Pool. In this Application, the
Applicants seek authorization to continue the NU Money Pool
established under the authority granted in the 2003 Order through
June 30, 2007, subject to the same terms and conditions set forth
therein. The Applicants request that the Commission authorize
all of the Applicants, with the exception of NU, YES, NGC, Mode 1
and Woods Network, to continue participation in the NU Money Pool
as both lenders and borrowers, to the extent not exempted by rule
52, and to authorize the participation, as lenders only, and not
as borrowers, of NU, YES, NGC, Mode 1 and Woods Network. The
Applicants request that the Commission authorize, through the
Authorization Period, the participation of Properties in the NU
Money Pool, both as a lender and a borrower and that the
Commission reserve jurisdiction over the addition of any
additional participants to the NU Money Pool.
22. The NU Money Pool will continue to be administered on behalf
of the Applicants by NUSCO under the direction of an officer of
NUSCO. NUSCO will not be a participant in the NU Money Pool.
The NU Money Pool will consist principally of surplus funds
received from the Applicants. In addition to surplus funds,
funds borrowed by NU through the issuance of short-term notes or
other debt, or by the selling of commercial paper ("External
Funds") may be a source of funds for making loans or advances to
the other Applicants through the NU Money Pool.
OPERATION OF THE NU MONEY POOL
23. Applicants do not propose any changes to the operation of
the NU Money Pool as it was approved in the 2003 Order.
Transactions under the NU Money Pool will be designed to match,
on a daily basis, the surplus funds of the pool participants with
the short-term borrowing requirements of the pool participants
(other than the pool participants who are lenders only), thereby
minimizing the need for short-term debt to be incurred by the
pool participants from external sources. The pool participants
in the NU Money Pool who are regulated utility subsidiaries of NU
will have priority as borrowers from the NU Money Pool over those
participants that are nonutility companies.
24. The funds available through the NU Money Pool will be loaned
on a short-term basis to those pool participants that have short-
term debt requirements. If no such short-term requirements match
the amount of funds that are available for the NU Money Pool for
the period such funds are available, NUSCO will invest the funds,
directly or indirectly, as described below and will allocate the
interest earned on such investments among the pool participants
providing such funds on a pro rata basis according to the amount
of the funds provided:
(i) interest-bearing accounts with banks;
(ii) obligations issued or guaranteed by the U.S. government
and/or its agencies and instrumentalities, including
obligations under repurchase agreements;
(iii) obligations issued or guaranteed by any state or
political subdivision thereof, provided that such
obligations are rated not less than "A" (or "A-1" or "P-1"
or their equivalent for short term debt) by a nationally
recognized rating agency;
(iv) commercial paper rated not less than "A-1" or "P-1" or
their equivalent by a nationally recognized rating agency;
(v) moneymarket funds;
(vi) bank certificates of deposit,
(vii) Eurodollar funds; and
(viii) such other investments as are permitted by Section 9(c)
of the Act and Rule 40 thereunder and, with respect to
contributions of WMECO, approved by the Massachusetts
Department of Telecommunications and Energy ("MDTE")
pursuant to Massachusetts General Laws Chapter 164, Section
17A and the regulations thereunder.
25. All borrowings from and contributions to the NU Money Pool
will be documented and will be evidenced on the books of each
pool participant that is borrowing from or contributing surplus
funds to the NU Money Pool. Any pool participant contributing
funds to the NU Money Pool may withdraw those funds at any time
without notice to satisfy its daily need for funds. All short-
term debt through the NU Money Pool (other than from NU's
External Funds) will be payable on demand, may be prepaid by any
borrowing pool participant at any time without penalty and will
bear interest for both the borrower and lender, payable monthly,
at a rate equal to the daily Federal Funds Effective Rate (the
"Fed Funds Rate") as quoted by the Federal Reserve Bank of New
York. Short-term debt of pool participants derived from the
proceeds of External Funds of NU will bear interest at the same
rate paid by NU on such External Funds, and no such short-term
debt may be prepaid by the pool participant unless NU is made
whole for any additional costs that it may incur because of such
prepayment. NU will be fully reimbursed for all costs that it
incurs in relation to loans made through the NU Money Pool to the
pool participants. (See Exhibit A.5, Terms of the NU System Money
Pool).
SHORT TERM DEBT AND NU MONEY POOL DEBT LIMITS
26. In the 2003 Order, the Commission imposed limits on the
short-term borrowings, including those done through the NU Money
Pool (except for NU and YES, which may not borrow from the NU
Money Pool), of NU, CL&P, WMECO, PSNH, HWP, NAEC, NNECO, YES and
Yankee Gas as set forth below and the Applicants now request that
the Commission authorize the revised Short-term Debt Limits set
forth below through the Authorization Period
Company 2003 Order Limit Requested Limit
NU $400 Million $450 Million
CL&P $375 Million $450 Million
WMECO $200 Million $200 Million
PSNH $100 Million $150 Million
HWP $ 5 Million $ 5 Million
NAEC $ 10 Million $ 10 Million
NNECO $ 10 Million $ 10 Million
YES $ 50 Million $ 50 Million
Yankee Gas $100 Million $150 Million
27. In the 2003 Order, the Commission approved the following NU
Money Pool borrowing limits for the Nonutility Subsidiaries as
follows:
Quinnehtuk $ 10 Million
NUEI $100 Million
NGS $ 25 Million
Select $200 Million
SENY $ 10 Million
RR $ 30 Million
Yankee Financial $ 10 Million
NorConn $ 10 Million
YESCO $ 10 Million
SESI $ 35 Million
Boulos $ 10 Million
Woods $ 10 Million.
28. In the 2003 Order, the Commission reserved jurisdiction over
the Applicants' request that there be no NU Money Pool borrowing
limit imposed on the Nonutility Subsidiaries. The Applicants now
request that, to the extent not exempt under Rule 52, the
Commission release jurisdiction over the request that there be no
limit placed on the NU Money Pool borrowings of the Nonutility
Subsidiaries. Under Rule 52(b) the issue and sale of any
security of a nonutility subsidiary of a registered holding
company is exempt from section 6(a) of the Act if: "(1) the issue
and sale of the security are solely for the purpose of financing
the existing business of the subsidiary company; and (2) the
interest rates and maturity dates of any debt security issued to
an associate company are designed to parallel the effective cost
of capital of that associate company." NU management believes
that, although using the Fed Funds Rate in place of calculating
each participant's "effective cost of capital" as described in
Rule 52 does not appear to satisfy the language of the Rule, it
otherwise satisfies the Act's concerns about preventing holding
company abuses, and creates a framework where "holding company
abuses are unlikely to exist." Using the Fed Funds Rate is a
reasonable and non-discriminatory method by which to determine
interest costs. This is especially true where, as is the case
here, there are many pool participants who have not issued debt
to non-affiliates on which to base their "effective cost of
capital." In fact, the Commission, in the release adopting Rule
52, alluded to tying a company's effective cost of capital to an
index such as the Fed Funds Rate ("In proposing the amendment to
rule 52, the Commission contemplated that the effective cost of
capital for debt securities which have recently been issued by
the purchasing associate company will be the coupon rate of
interest plus all expenses . . . associated with the issue and
sale of such debt; and that, in the event the purchasing
associate company has not recently issued debt securities, the
effective cost of capital may be tied to an appropriate index
such as, but not limited to, the Federal Funds' rate or a
published bond index.") (Holding Co. Act Release 35-26311, June
20, 1995, 1995 SEC Lexis 1512, *11).
29. It is also interesting to note that the Commission does not
generally set a limit on the external short-term borrowings of
Nonutility Subsidiaries. Thus, the Nonutility Subsidiaries are
free to borrow from external sources should such Nonutility
Subsidiary's borrowing needs exceed the limit imposed by the
Commission. Such borrowings could result in unnecessary external
debt by the NU system if there were funds available through the
NU Money Pool. The result would be an inefficient use of funds by
the NU System as a whole. Applicants therefore request that the
Commission release jurisdiction over the amount of borrowings
through the NU Money Pool of the Nonutility Subsidiaries. The
maximum amount of NU Money Pool borrowings outstanding for each
Nonutility Subsidiary will be determined by NU and the management
of each Nonutility Subsidiary in accordance with business needs.
30. This request is substantially similar to the request
granted to Ameren Corp. by the Commission in Holding Co. Act
Release No. 35-27655 (February 27, 2003)(the return on funds lent
through a non-state regulated subsidiary money pool did not
"parallel the effective cost of capital of the associate company"
but was rather the CD yield equivalent of the 30-day Federal
Reserve "AA" Non-financial commercial paper composite rate and
the nonutility companies were not subject to a Commission imposed
money pool borrowing limit), and National Fuel Gas Company,
Holding Co. Act Release No. 35-27600 (November 12, 2002)
(interest rate applicable to borrowings of internal funds in a
money pool made up of utility and nonutility companies are the
rates for high-grade, unsecured, 30-day commercial paper sold
through dealers by major corporations as quoted in the Wall
Street Journal and nonutility subsidiaries did not have a
Commission imposed money pool borrowing limit but rather the
"maximum amount of money pool borrowings outstanding for each
Eligible Borrower will be determined by [National Fuel Gas
Company] and each Eligible Borrower in accordance with business
needs").
ITEM 2
FEES, COMMISSIONS AND EXPENSES
1. In addition to fees associated with specific borrowing or
issuances of commercial paper as set forth in Item 1 above, the
fees, commissions and expenses of the Applicants expected to be
paid or incurred, directly or indirectly, in connection with the
transactions described above are estimated as follows:
Northeast Utilities Service Company
(Legal, Financial, Accounting and
Other Services) Not in excess of $10,000
ITEM 3
APPLICABLE STATUTORY PROVISIONS
1. The Applicants believe that Sections 6, 7, 9(a), 10 and 12
of the Act and Rules 43, 45 and 52 thereunder are applicable to
the transactions contemplated by this Application.
2. The Applicants recognize that many registered holding
company systems maintain two distinct money pools, one for
utility companies and one for nonutility companies. As requested
by the Commission, the Applicants prepared a study on the
benefits of maintaining two separate money pools instead of the
one that is currently maintained. The study was filed with the
Commission as an exhibit to a Rule 24 certificate filed in this
File on December 23, 2003. The study found that there was no
substantial benefit to the NU System in maintaining separate
money pools. The study focused on historical borrowings by NU
companies through the period from January 2000 through September
2003. The study found that the use of two separate money pools,
one for NU's non-utility subsidiaries and one for NU's utility
subsidiaries, was feasible but, if used during the test period,
would not have resulted in a significant benefit to the NU
system. The study used the historical money pool data to
determine the change in (1) bank borrowings, (2) money market
investments, (3) interest expense and (4) interest income that
would have resulted from separate money pools. The study's
conclusion was that net interest expense for the NU system would
have increased by an aggregate of $2.7 Million over the 3.75 year
period of the study.
3. However, it should be noted that the study period does not
necessarily represent the typical financial condition of the NU
system. For example, during the test period, the utility
subsidiaries were in a positive cash position as a result of
selling substantially all of their generation assets during that
period and "securitizing" much of their stranded costs. This
circumstance led to fewer borrowings by the utility subsidiaries
(either externally or through the NU Money Pool) and fewer
external borrowings by NU to fund the Nonutility Subsidiaries.
In a more typical situation, it is possible that there would be
more borrowings required and the use of two money pools could
lead to a less efficient use of system funds. For example, such
an inefficient use of system funds would exist in a situation
where a Nonutility Subsidiary has excess cash and a utility
subsidiary needs to borrow cash. With one money pool, the
Nonutility Subsidiary could lend its excess cash through the
money pool at the Fed Funds rate for use by the utility
subsidiary. With two pools, the Nonutility Subsidiary's excess
cash would be trapped and NU would need to borrow funds from its
short-term credit facility to lend to the utility subsidiary
through the utility money pool. The interest rate paid by NU for
its borrowing would generally be higher than the interest earned
by the Nonutility Subsidiary on its overnight investment. The
end result would be an inefficient use of system cash and
increased administrative costs. Accordingly, there appears to be
no significant benefit to the NU System to maintain two separate
money pools.
4. Within 45 days after the end of each calendar quarter, the
Applicants will file certificates of partial consummation
describing the maximum borrowings from and loans to the NU Money
Pool during the quarter and the interest rate applied to such
borrowings and loans.
ITEM 4
REGULATORY APPROVALS
1. The approval of the MDTE is required pursuant to C.164,
Section 17A of the Massachusetts General Laws for the lending of
funds by WMECO to affiliates through the NU Money Pool. The MDTE
(formerly the Massachusetts Public Utilities Commission) granted
such approval on October 29, 1986 as to lending of funds to CL&P,
HWP, NNECO, Quinnehtuk and RR. Until further MDTE authorization
is granted, WMECO may not lend its funds to other companies
through the NU Money Pool.
2. NHPUC Order No. 20,416 (March 19, 1992), authorizes PSNH to
participate in the NU Money Pool. In addition, under New
Hampshire statute, PSNH may not issue short-term debt in excess
of 10% of its net fixed plant without prior NHPUC approval.
NHPUC Order 23,841, (November 9, 2001) authorizes PSNH to issue
up to $100 million in debt which is in excess of 10% of net fixed
plant debt limit. PSNH has filed an application with the NHPUC
seeking to increase the short-term debt authorization to $150
million. The NHPUC also has jurisdiction over the issuance by
PSNH of Interest Rate Hedges.
3. To the extent any Applicant issues secured debt, the
granting of such security may be subject to an order from the
relevant state utility commission.
ITEM 5
PROCEDURE
1. The Applicants hereby request that the Commission publish a
notice under Rule 23 with respect to the filing of this
Application as soon as practicable and that the Commission's
order be issued as soon as possible. A form of notice suitable
for publication in the Federal Register is attached hereto as
Exhibit H.3. The Applicants respectfully request the
Commission's approval, pursuant to this Application, of all
transactions described herein, whether under the sections of the
Act and Rules thereunder enumerated in Item 3 or otherwise. It
is further requested that the Commission issue an order
authorizing the transactions proposed herein at the earliest
practicable date, but not later than June 30, 2004 as that is the
date on which the authorizations granted in the 2003 Order
expires. Additionally, the Applicants (i) request that there not
be any recommended decision by a hearing officer or by any
responsible officer of the Commission, (ii) consent to the Office
of Public Utility Regulation within the Division of Investment
Management assisting in the preparation of the Commission's
decision, and (iii) waive 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 immediately.
OTHER MATTERS
1. 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.
2. NU currently meets all of the conditions of Rule 53(a),
except for clause (1). At December 31, 2003, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs was
approximately $448.2 million, or approximately 55.1% of NU's
average "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended December 31, 2003 ($813.8
million). With respect to Rule 53(a)(1), however, the Commission
has determined that NU's financing of its investment in 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 Co. 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.
3. 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.
4. 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 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 all quarterly periods ending June 30, 2000 through
December 31, 2003 (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 $2,264,120 36.9
Preferred stock 277,700 4.3
Long-term and short-term debt 3,768,353 58.8
$6,411,907 100.0
5. The consolidated capitalization ratios of NU as of
December 31, 2003, with consolidated debt including all short-
term debt and non-recourse debt of the EWG, were as follows:
As of December 31, 2003
(thousands
of dollars) %
Common shareholders' equity $ 2,265,086 33.5%
Preferred stock 116,200 1.7
Long-term and short-term debt 2,651,267 39.2
Rate Reduction Bonds 1,729,960 25.6
$ 6,762,513 100.0
If Rate Reduction Bonds are excluded the consolidated
capitalization ratio of NU as of December 31, 2003 is as follows:
As of December 31, 2003
(thousands
of dollars) %
Common shareholders' equity $ 2,265,086 45.0
Preferred stock 116,200 2.3
Long-term and short-term debt 2,651,267 52.7
$ 5,032,553 100.0%
6. NGC has made a positive contribution to earnings by
contributing $143.8 million in revenues in the 12-month period
ending December 31, 2003 and net income of $38.5 million for the
same period. Although since the date of the Rule 53(c) Order,
the common equity ratio of NU on a consolidated basis has
decreased, it still remains at a financially healthy level, above
the 30% benchmark required by the Commission, and if Rate
Reduction Bonds are excluded, the consolidated common equity
ratio has increased. Accordingly, NU's investment in its EWG has
not had an adverse impact on NU's financial integrity.
ITEM 6
EXHIBITS AND FINANCIAL STATEMENTS
1. The following additional exhibits and financial statements
are filed herewith:
(a) Exhibits
A.5 Terms of the NU System Money Pool (revised July
2003) (incorporated by reference to Rule 24
certificate filed November 17, 2003)
F.3 Opinion of Counsel
H.3 Form of Notice
(b) Financial Statements
Northeast Utilities Consolidated Balance Sheets, as of
December 31, 2003, Consolidated Statements of Income and
Statement of Retained Earnings for the 12 months ended
December 31, 2003 and Statement of Capitalization as of
December 31, 2003 (incorporated by reference to NU Annual
Report on Form 10K for the year ended December 31, 2003
filed with the Commission, File No. 1-5324).
ITEM 7
INFORMATION AS TO ENVIRONMENTAL EFFECTS
1. None of the matters that are the subject of this
Application involve a "major federal action" nor do they
"significantly affect the quality of the human environment" as
those terms are used in Section 102(2)(C) of the National
Environmental Policy Act. None of the proposed transactions that
are the subject of this Application will result in changes in the
operation of the Applicants that will have an impact on the
environment. The Applicants are not aware of any federal agency
which has prepared or is preparing an environmental impact
statement with respect to the transactions proposed herein."
[SIGNATURE PAGE TO FOLLOW]
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the Applicants have duly caused this
Application-Declaration to be signed on their behalf by the
undersigned thereunto duly authorized.
April 2, 2004
Northeast Utilities
Northeast Utilities Service Company
The Connecticut Light and Power Company
Western Massachusetts Electric Company
Public Service Company of New Hampshire
North Atlantic Energy Corporation
Holyoke Water Power Company
Northeast Nuclear Energy Company
Yankee Energy System, Inc.
Yankee Gas Services Company
The Rocky River Realty Company
The Quinnehtuk Company
NU Enterprises, Inc.
Northeast Generation Company
Northeast Generation Service Company
Properties, Inc.
Woods Electrical Co., Inc.
Woods Network Services, Inc.
E. S. Boulos Company
Select Energy, Inc.
Select Energy New York, Inc.
Mode 1 Communications, Inc.
Select Energy Services, Inc.
Yankee Energy Financial Services Company
Yankee Energy Services Company
NorConn Properties, Inc.
By: /s/ Randy A. Shoop
Name: Randy A. Shoop
Title: Assistant Treasurer-Finance
Northeast Utilities Service Company as Agent for
all of the above-named Applicants
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The 2000 Order also authorized short-term debt issuances by
NAEC and NNECO. This authorization for NAEC and NNECO was not
extended in the 2003 Order.
The 2003 Order also authorized Select Energy New York,
Inc. ("SENY") and R. M. Services, Inc. to participate in the NU
Money Pool. At the time of filing of this amendment, NU is in the
process of merging SENY into its parent, Select, and thereafter
SENY will no longer be a participant in the NU Money Pool. RMS is
also no longer a participant in the NU Money Pool.
Although the authorization period for the short-term debt
for NU and the Utility Borrowers does not expire until June 30,
2006, certain of the Utility Borrowers are seeking an increase in
their short-term debt limit and so the Applicants are seeking a three
year authorization period for all requests herein.
See, Great Plains Energy Incorporated, Holding CO. Act
Release No. 35-27784, 70-9861 (December 29, 2003, Xcel Energy,
Inc., Holding Co. Act Release No. 27731 (September 30, 2003).
Rate Reduction Bonds (including Rate Reduction
Certificates) are state-authorized bonds issued by special
purpose entities formed by CL&P, WMECO and PSNH, respectively,
and are non-recourse to each respective utility.
The Commission has, by order dated March 7, 2000 (HCAR No.
27148)("Rule 53(c) Order"), authorized NU to invest an amount not
to exceed $481 million or 83% of its "average consolidated
retained earnings" in NGC. In addition, NU has filed an
application with the Commission seeking an increase in its
authorized EWG investment amount to an aggregate of $1 billion. (See
File No. 70-10177).
NU has filed an application with the Commission seeking
authorization to invest up to $500 million in excess of the Rule
58 limitations in Rule 58 companies (see File No. 70-10177).
The aggregate amount of unsecured debt that can be
incurred by CL&P is also restricted by the provisions in its
charter concerning its preferred stock. CL&P has authorization
from the holders of its preferred stock, through March 31, 2014,
to issue securities representing unsecured indebtedness up to a
maximum of 20% of its capitalization. Based on its
capitalization as of December 31, 2003, CL&P is limited to $503.1
million of unsecured indebtedness, an amount in excess of the
amount for which authorization is sought hereunder.
The aggregate amount of short-term debt that can be
incurred by PSNH is restricted by New Hampshire Statute and
Regulations to an amount equal to 10% of its net fixed plant
without further New Hampshire Public Utilities Commission
("NHPUC") approval. Any short-term debt of PSNH in excess of 10%
of net fixed plant would require NHPUC approval and thus would be
exempt from Commission jurisdiction pursuant to Rule 52(a). PSNH
currently has approval from the NHPUC to issue up to $100 million
in short-term debt, which is in excess of 10% of net fixed plant
debt limit, (NHPUC Order 23,841, November 9, 2001) and has filed
an application to increase this limit to $150 million. However,
in the event the NHPUC order is revoked, lapses or is rescinded,
or to the extent the issuance of short-term debt in an amount up
to $100 million is not exempt pursuant to rule 52, PSNH wishes to
have the flexibility to issue short-term debt pursuant to
Commission authorization hereunder.
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