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
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
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. RRR, a Connecticut corporation,
engages in real estate transactions on behalf of NU System
companies.
5. NU requests authorization, through the Authorization
Period, to provide Guarantees with respect to the obligations of
the Service Subsidiaries as may be appropriate or necessary to
enable such Service Subsidiaries to carry on in the ordinary
course of their respective businesses, including guarantees of
non-affiliated third-party obligations in the ordinary course of
the System's business, in an aggregate amount which shall not
exceed $100 million outstanding at any one time. Guarantees may
take the form of NU agreeing to guarantee, undertake
reimbursement obligations or assume liabilities or other
obligations with respect to or act as surety on, real estate and
equipment leases, letters of credit, evidences of indebtedness,
equity commitments and performance and other obligations
undertaken by the Service Subsidiaries.
6. As part of normal business activities, from time to
time, NU is requested to provide financial or performance
assurances of the obligations of the Service Subsidiaries to
third parties. Such agreements include contract guarantees,
surety bonds and rating-contingent 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. 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 GAAP. 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. 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. This can occur
with any shared resource such as real estate, insurance policies,
operating leases for vehicle fleets, etc. The Service
Subsidiaries do not themselves have independent credit standing
and depend upon internal service or reimbursement agreements from
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. In
a similar scenario, the Commission authorized NU to guaranty the
debt obligations of RRR in 1992 (Rel. No. 35-25514, File 70-7878,
April 10, 1992).
9. By Commission Order, NU and NUEI are authorized to
issue guarantees and similar forms of credit support or
enhancements for the benefit of NUEI and NUEI's non-utility
affiliates, which do not include the Service Subsidiaries, in an
aggregate amount not to exceed $750 million through June 30, 2007
(Holding Co. Act Release No. 27868, June 30, 2004, the "2004
Order"). NU seeks an order herein for the authorization of
separate guarantee authority which would allow it to issue
Guarantees on behalf of the Service Subsidiaries. The
authorization sought herein is also separate form the guaranty
authority provided under the Commission's Rule 45(b)(6).
OTHER MATTERS
10. Except in accordance with the Act, neither NU nor any
subsidiary thereof (a) has acquired an ownership interest in an
EWG or a FUCO, as defined in Sections 32 and 33 of the Act, or
(b) now is or as a consequence of the transactions proposed
herein will become a party to, or has or will as a consequence of
the transactions proposed herein have a right under, a service,
sales, or construction contract with an EWG or a FUCO. None of
the proceeds from the transactions proposed herein will be used
by NU and its subsidiaries to acquire any securities of, or any
interest in, an EWG or a FUCO.
11. NU currently meets all of the conditions of Rule
53(a), except for clause (1). At March 31, 2004, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs was
approximately $448.2 million, or approximately 54.3% of NU's
average "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended March 31, 2004 ($825.7
million). With respect to Rule 53(a)(1), however, the Commission
has determined that NU's financing of its investment in EWGs in
an amount not to exceed $1 billion would not have either of the
adverse effects set forth in Rule 53(c). (See the 2004 Order). NU
continues to assert that its EWG investments will not
adversely affect the System.
12. In addition, NU and its subsidiaries are in
compliance and will continue to comply with the other provisions
of Rule 53(a) and (b), as demonstrated by the following
determinations:
(i) NGC, NU's only EWG, maintains books and records, and
prepares financial statements, in accordance with Rule
53(a)(2). Furthermore, NU has undertaken to provide the
Commission access to such books and records and
financial statements, as it may request;
(ii) No employees of NU's public utility subsidiaries
have rendered services to NGC;
(iii) NU has submitted (a) a copy of each Form U-1 and
Rule 24 certificate that has been filed with the
Commission under Rule 53 and (b) a copy of Item 9 of
the Form U5S and Exhibits G and H thereof to each state
regulator having jurisdiction over the retail rates of
NU's affected public utility subsidiaries;
(iv) Neither NU nor any subsidiary has been the subject
of a bankruptcy or similar proceeding unless a plan of
reorganization has been confirmed in such proceeding;
(v) NU's average CREs for the four most recent
quarterly periods have not decreased by 10% or more
from the average for the previous four quarterly
periods; and
(vi) In the previous fiscal year, NU did not report
operating losses attributable to its investment in
EWGs/FUCOs exceeding 3 percent of NU's consolidated
retained earnings.
13. The proposed transactions, considered in conjunction with the
effect of the capitalization and earnings of NU's EWG, would not have
a material adverse effect on the financial integrity of the NU system,
or an adverse impact on NU's public-utility subsidiaries, their
customers, or the ability of State commissions to protect such
public-utility customers. The 2004 Order concerning EWG investments
was predicated, in part, upon an assessment of NU's overall financial
condition which took into account, among other factors,
NU's consolidated capitalization NU's current EWG investment,
NGC, (it has no FUCO investment) has been profitable for all
quarterly periods ending June 30, 2000 through March 31, 2004
(NGC was acquired in March 2000).
14. The consolidated capitalization ratios of NU as of
March 31, 2004, with consolidated debt including all short-term
debt and non-recourse debt of the EWG, were as follows:
As of March 31, 2004
(thousands
of dollars) %
Common shareholders' equity $ 2,333,356 34.4%
Preferred stock 116,200 1.7
Long-term and short-term debt 2,642,413 39.0
Rate Reduction Bonds 1,682,500 24.9
$ 6,774,469 100.0
If Rate Reduction Bonds are excluded the consolidated capitalization
ratio of NU as of March 31, 2004 is as follows:
As of March 31, 2004
(thousands
of dollars) %
Common shareholders' equity $ 2,333,356 45.8
Preferred stock 116,200 2.3
Long-term and short-term debt 2,642,413 51.9
$ 5,091,969 100.0%
15. In addition, NGC has made a positive contribution to earnings
by contributing $146.8 million in revenues in the 12-month period
ending March 31, 2004 and net income of $38.3 million for the same
period.
ITEM II
FEES, COMMISSIONS, AND EXPENDITURES
16. The estimated fees, commissions, and expenses paid or
incurred, or to be paid or incurred, directly or indirectly, in
connection with the proposed transactions by the Company or any
associate company thereof are estimated to be not in excess of $25,000.
17. None of such fees, commissions, or expenses are to be
paid to any associate company or affiliate of the Companies or
any affiliate of any such associate company except for financial,
legal, and other services to be performed at cost by NUSCO, an
affiliated service company.
ITEM III
APPLICABLE STATUTORY PROVISIONS
18. The Guarantees by NU are subject to Section 12(b) of
the Act and Rule 45 thereunder.
ITEM IV
REGULATORY APPROVAL
19. No other state commission has jurisdiction with respect
to any aspect of the proposed transaction, and no Federal
commission other than the Securities and Exchange Commission has
jurisdiction with respect to any aspect thereof.
ITEM V
PROCEDURE
20. The Company respectfully requests the Commission's
approval, pursuant to this Application/Declaration, of NU's
Guarantees as described herein, whether under the sections of the
Act and rules thereunder enumerated in Item III or otherwise.
The Company also requests the Commission's approval as may be
necessary of any other aspect of the transactions described in
this Application/Declaration under the appropriate provisions of
the Act or rules thereunder.
21. The Company hereby waives any recommended decision by a
hearing officer or by any other responsible officer of the
Commission and waives the 30-day waiting period between the
issuance of the Commission's order and the date on which it is to
become effective, since it is desired that the Commission's
order, when issued, become effective forthwith. The Company
consents that the Office of Public Utility Regulation within the
Division of Investment Management may assist in the preparation
of the Commission's decision and/or order unless the Office
opposes the transactions covered by this Application. It is
requested that the Commission issue an order authorizing the
jurisdictional transactions proposed herein at the earliest
practicable date but in any event not later than 40 days from
filing date. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public
Utility Regulation be permitted to assist in the preparation of
the Commission's decision, and (iii) the Commission's order
become effective forthwith upon issuance.
ITEM VI
EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
F. Preliminary Opinion of Counsel.
H. Proposed notice of the proceeding initiated by the filing of
this Application/Declaration.
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 have
duly caused this statement to be signed on their behalf by the
undersigned thereunto duly authorized.
Dated: July 7, 2004
NORTHEAST UTILITIES
By /s/ Randy A. Shoop
Name: Randy A. Shoop
Title: Assistant Treasurer - Finance