File No. 70-10051
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, CT 01037
(Name of companies filing this statement and address
of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Gregory Butler, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name of address of agent for service)
The Commission is requested to mail signed copies of all
orders, notices and communications to:
David R. McHale Jeffrey C. Miller
Vice President and Treasurer Assistant General Counsel
Northeast Utilities Service Northeast Utilities Service
Company Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
The Application/Declaration in this File, as heretofore
amended, is hereby further amended and restated to read as
follows:
"ITEM 1. Description of Proposed Transaction
1. Northeast Utilities ("NU") is a public utility holding
company registered under the Public Utility Holding Company
Act of 1935, as amended (the "Act"). NU files this
Application/Declaration under the Act to seek authorization
concerning long-term debt issuances at the NU level.
Specifically, NU is requesting authorization through the
period ending June 30, 2005 (the "Authorization Period"):
(i) to issue from time to time unsecured long-term debt
securities ("Long-term Debt") in an aggregate amount at any
time outstanding not to exceed $600 million; and
(ii) to enter into hedging transactions with respect to
existing indebtedness of NU and of its Nonutility Companies
(as defined below) ("Interest Rate Hedges") in order to
manage and minimize interest rate costs, and to enter into
hedging transactions with respect to future expected debt
issuances of NU and of its Nonutility Companies
("Anticipatory Hedges") in order to lock-in then current
interest rates and/or manage interest rate risk exposure.
For purposes of this Application, Nonutility Companies include
companies formed pursuant to Rule 58 ("Rule 58 Subsidiaries"), exempt
wholesale generators ("EWGs"), foreign utility companies ("FUCOS"),
exempt telecommunications companies ("ETCs") and other competitive
direct or indirect subsidiaries of NU, the acquisition of which has
been authorized by the Commission.
2. Use of Proceeds. NU will use the proceeds from these financings
for general corporate purposes, including (i) investments in its
regulated utility companies (The Connecticut Light and Power Company,
Western Massachusetts Electric Company, Public Service Company of New
Hampshire, Holyoke Water Power Company and Yankee Gas Services
Company, collectively, the "Operating Companies"), (ii) investments
in Rule 58 Subsidiaries, ETCs and other competitive companies
authorized by Commission order, (iii) the repayment, redemption,
refunding or purchase by NU of its own securities , (iv) financing
working capital requirements of NU and its subsidiaries, and (v)
other corporate purposes. NU will retain the benefit or absorb any
losses resulting from Interest Rate Hedges or Anticipatory Hedges for
debt issuances of the Nonutility Companies. A detailed list of the
anticipated use of proceeds is filed herewith as Exhibit I.
3. NU represents 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 or is in accordance
with an exemption under the Act or rules thereunder, including Sections
32, 33 and 34 and Rules 52, 53 and 58. The aggregate amount of
proceeds invested in Rule 58 Subsidiaries will adhere to the
limitations of that rule.
LONG TERM DEBT
4. NU requests authorization to issue Long-term Debt, the proceeds
of which will enable NU to reduce or refinance short-term debt with
more permanent capital and provide an important source of future
financing for the operations of and investments in non- utility
businesses that are exempt under the Act and its regulated businesses.
5. Long-term Debt would be in the form of unsecured notes
("Debentures") issued in one or more series. The Debentures of any
series (i) will have a maturity ranging from one to 50 years, (ii)
will bear interest at a rate not to exceed 500 basis points over the
yield to maturity of a U.S. Treasury security having a remaining term
approximately equal to the term of such series of Debentures, (iii)
may be subject to optional and/or mandatory redemption, in whole or in
part, at par or at various premiums above or discounts below the
principal amount thereof, (iv) may be entitled to mandatory or optional
sinking fund provisions and (v) may provide for reset of the coupon
pursuant to a remarketing arrangement. Long-term Debt of NU also may
be in the form of unsecured bank lines of credit ("Bank Lines"). Bank
Lines will have maturities of not more than five years from the date
of each borrowing and the effective cost of such loans will not exceed
at the time of issuance 500 basis points over LIBOR.
6. NU contemplates that the Debentures would be issued and sold
directly to one or more purchasers in privately-negotiated transactions
or to one or more investment banking or underwriting firms or other
entities that would resell the Debentures without registration under
the 1933 Act, in reliance upon one or more applicable exemptions from
registration thereunder, or to the public either (i) through
underwriters selected by negotiation or competitive bidding or (ii)
through selling agents acting either as agent or as principal for
resale to the public either directly or through dealers.
7. The maturity dates, interest rates, call, redemption and sinking
fund provisions and conversion features, if any, with respect to the
Debentures of a particular series, as well as any associated placement,
underwriting or selling agent fees, commissions and discounts, if any,
will be established by negotiation or competitive bidding and
reflected in the applicable supplemental indenture or officer's
certificate and purchase agreement or underwriting agreement setting
forth such terms. NU further commits that, apart from the securities
issued for the purpose of funding money pool operations, no Long-term
Debt may be issued in reliance upon this Order during the Authorization
Period, unless: (i) the security to be issued, if rated, is rated
investment grade; and (ii) all outstanding 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 1934 Act. NU requests that the Commission reserve
jurisdiction over the issuance by NU of any Long-term Debt that is
rated below investment grade.
HEDGES
8. Interest Rate Hedges. NU requests authorization to enter into
Interest Rate Hedges with respect to indebtedness of NU and of the
Nonutility Companies, subject to certain limitations and restrictions
set forth herein, in order to reduce or manage interest rate costs and
risks and to generate parent-level cash and earnings. Interest Rate
Hedges would generally be privately negotiated and only be entered into
with counterparties ("Approved Counterparties") whose senior unsecured
debt ratings, or the Senior unsecured debt ratings of any guaranteeing
parent companies of the Counterparties, as published by Standard and
Poor's Ratings Group, are equal to or greater than BBB, or an
equivalent rating from Moody's Investors Service or Fitch IBCA. NU from
time to time may also acquire Interest Rate Hedges through an
on-exchange transaction.
9. 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. NU will not 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.
10. Anticipatory Hedges. In addition, NU requests authorization to
enter into Anticipatory Hedges with respect to anticipated debt
offerings of NU and the Nonutility Companies, subject to certain
limitations and restrictions set forth herein. Such Anticipatory Hedges
would only be entered into with Approved Counterparties, and would be
utilized to manage the interest rate risk associated with any new
Long-term Debt issuance of its own or of its Nonutility Companies
through (i) a sale of exchange-traded U.S. Treasury futures contracts,
a forward sale of U.S. Treasury Securities and/or a swap for the sale
of the value of U.S. Treasury Securities (each a "Forward Sale"), (ii)
the purchase of put options on U.S. Treasury Securities (a "Put Options
Purchase"), (iii) a Put Options Purchase in combination with the sale of
call options on U.S. Treasury Securities (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short sales,
of U.S. Treasury Securities, or (v) some combination of a
Forward Sale, Put Options Purchase, Zero Cost Collar and/or other
derivative or cash transactions, including, but not limited to options,
locks, caps and collars, appropriate for the Anticipatory Hedges.
11. Anticipatory Hedges may be executed on-exchange ("On-Exchange
Trades") through brokers by trading futures and/or options positions
publicly traded, or over-the-counter with one or more counterparties
("Off-Exchange Trades"), or a combination of On-Exchange Trades and
Off-Exchange Trades. NU will determine the optimal structure of each
Anticipatory Hedge transaction at the time of execution. NU may decide
to lock in interest rates and/or limit its exposure to interest rate
increases.
12. NU represents that each Interest Rate Hedge and Anticipatory
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.
13. Current Financial Conditions
(a) NU
For the twelve (12) months ended December 31, 2002, NU's gross
revenues and net income were approximately $5.0 billion and $152
million, respectively. As of December 31, 2002, NU's consolidated
capitalization consisted of 33.4% common equity, 1.8% preferred stock,
28.6% of Rate Reduction Bonds issued pursuant to state law by the
operating public utility companies (the "Operating Companies"), and
36.2% debt. When the Rate Reduction Bonds are excluded, NU's
consolidated capitalization consisted of 46.8% common equity, 2.4%
preferred stock and 50.8% debt.
NU Credit Ratings (Senior Unsecured Debt)
Moody's S&P
Baa1 BBB
(b) The Operating Companies
The Operating Companies are in strong financial condition, as
indicated by such factors as debt/equity ratios and securities ratings.
The Connecticut Light and Power Company ("CL&P")
As of December 31, 2002, CL&P's consolidated capitalization consisted of
24.1% common equity, 4.0% preferred stock, 43.2% of Rate Reduction Bonds
issued pursuant to state law, and 28.7% of long-term and short-term debt.
When the Rate Reduction Bonds are excluded, CL&P's consolidated
capitalization consisted of 42.4% common equity, 7.0% preferred stock
and 50.5% debt. The credit rating for senior debt of CL&P is BBB+ by
Standard and Poor's and A3 by Moody's.
Western Massachusetts Electric Company ("WMECO")
As of December 31, 2002, WMECO's consolidated capitalization consisted
of 31.9% common equity, 28.8% of Rate Reduction Bonds issued pursuant
to state law, and 39.3% of long-term and short-term debt. When the Rate
Reduction Bonds are excluded, WMECO's consolidated capitalization
consisted of 44.8% common equity and 55.2% debt. The credit rating
for senior unsecured debt of WMECO is BBB+ by Standard and Poor's and
A3 by Moody's.
Public Service Company of New Hampshire ("PSNH")
As of December 31, 2002, PSNH's consolidated capitalization consisted
of 26.0% common equity, 41.2% of Rate Reduction Bonds issued pursuant
to state law, and 32.8% of long-term and short-term debt. When
the Rate Reduction Bonds are excluded, PSNH's consolidated
capitalization consisted of 44% common equity and 56% debt. The credit
rating for senior secured debt of PSNH is BBB+ by Standard and Poor's
and A3 by Moody's.
ITEM 2. Fees, Commissions, and Expenses
1. The fees, commissions and expenses of the Applicant expected to be
paid or incurred, directly or indirectly, in connection with the
transactions described above, other than those fees specified in Item
1 above, are estimated as follows:
Northeast Utilities Service Company (Legal, Financial, Accounting and
Other Services):
Not in excess of $25,000
ITEM 3. Applicable Statutory Provisions
1. Sections 6(a) and 7 of the Act are applicable to the issuance of
Long-term Debt, Interest Rate Hedges and Anticipatory Hedges.
ITEM 4. Regulatory Approvals
1. No state commission, and no federal commission, other than the
Commission, has jurisdiction over the proposed transactions.
ITEM 5. Procedure
1. The Applicant hereby requests 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. The Applicant respectfully
requests 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.
Additionally, the Applicant (i) requests that there not be any
recommended decision by a hearing officer or by any responsible officer
of the Commission, (ii) consents to the Office of Public Utility
Regulation within the Division of Investment Management assisting in
the preparation of the Commission's decision, and (iii) 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 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, 2002, NU's "aggregate investment," as
defined in Rule 53(a)(1), in EWGs and FUCOs was approximately $448.2
million, or approximately 59% of NU's average "consolidated retained
earnings," also as defined in Rule 53(a)(1), for the four quarters
ended December 31, 2002 ($713.1 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 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 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 all quarterly periods ending June 30, 2000 through
December 31, 2002 (NGC was acquired in March 2000). As of December 31,
1999, the most recent period for which financial statement information
was evaluated in the Rule 53(c) Order, NU's consolidated capitalization
consisted of 35.3% common equity and 64.7% debt (including long and
short-term debt, preferred stock, capital leases and guarantees).
As of June 30, 2000, the end of the first quarter after the issuance
of the Rule 53(c) Order, the consolidated capitalization ratios of NU,
with consolidated debt including all short-term debt and non-recourse
debt of the EWG, were as follows:
As of June 30, 2000
(thousands
of dollars) %
Common shareholders' equity 2,365,854 36.9
Preferred stock 277,700 4.3
Long-term and short-term debt 3,768,353 58.8
6,411,907 100.0
5. The consolidated capitalization ratios of NU as of December 31,
2002, with consolidated debt including all short-term debt and
non-recourse debt of the EWG, were as follows:
As of December 31, 2002
(thousands
of dollars) %
Common shareholders' equity $2,210,521 33.4
Preferred stock 116,200 1.8
Long-term and short-term debt 2,400,050 36.2
Rate Reduction Bonds 1,899,312 28.6
$6,626,312 100.0
If Rate Reduction Bonds are excluded the consolidated capitalization
ratio of NU as of December 31, 2002 is as follows:
As of December 31, 2002
(thousands
of dollars) %
Common shareholders' equity $2,210,521 46.8
Preferred stock 116,200 2.4
Long-term and short-term debt 2,400,050 50.8
$4,726,771 100.0%
6. NGC has made a positive contribution to earnings by contributing
$131.9 million in revenues in the 12-month period ending December 31,
2002 and net income of $30.4 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 investments in
its EWG has not had an adverse impact on NU's financial integrity.
ITEM 6. Exhibits and Financial Statements
The following exhibits and financial statements marked by
an asterisk (*) were previously filed:
(a) Exhibits
*F. Opinion of Counsel
*H. Form of Notice
I. Use of Proceeds (Filed Confidentially)
(b) Financial Statements
*1.1 Northeast Utilities Consolidated Balance Sheets, actual and
pro forma, as of December 31, 2001, and Consolidated Statements of
Income, actual and pro forma, and Statement of Retained Earnings, for
the 12 months ended December 31, 2001 and Statement of Capitalization
as of December 31, 2001.
*1.2 Northeast Utilities Parent Balance Sheets, actual and pro
forma, as of December 31, 2001, and Statements of Income, actual
and pro forma, and Statement of Retained Earnings, for the 12 months
ended December 31, 2001 and Statement of Capitalization as of December
31, 2001.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this amendment to be
signed on its behalf by the undersigned officer or attorney thereunto
duly authorized.
Date: March 18, 2003
NORTHEAST UTILITIES
By: /s/ Randy A. Shoop
Randy A. Shoop
Assistant Treasurer - Finance
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In Holding Co. Act Rel. No. 35-27127 (January 31, 2000) the
Commission authorized NU to issue short or long-term debt in order to
fund the acquisition of Yankee Energy System, Inc., up to an aggregate
amount of $275 million. The authorization expired June 30, 2002. The
order sought in this file will replace the order received in File
No. 35-27127. In addition, pursuant to Holding Co. Act Rel. 35-27328
(Dec. 28, 2000), the Commission authorized NU to incur up to $400
million in short-term debt. The Long-term Debt authorization sought
here is in addition to such short-term debt.
Recently, the Commission approved a similar financing
application filed by The Southern Company in which Southern requested
approval to issue preferred securities and long-term debt directly
or indirectly through special-purpose financing entities. See The
Southern Company, Holding Co. Act Release No. 35-27134 (Feb. 9,
2000). In that case, the Commission took account of the changing needs
of registered holding companies for sources of capital other than
common equity and short-term debt brought about primarily by the
elimination of restrictions under the Act on investments in various
types of non-core businesses (e.g., EWGs, FUCOs, ETCs and Rule 58
Companies). The Commission noted that, without the ability to raise
capital in external markets that is appropriate for such investments,
registered holding companies would be at a competitive disadvantage to
other energy companies that are not subject to regulation under the
Act. See also American Electric Power Co., Inc., Holding Co. Act
Release No. 35-27382 (Apr. 20, 2001).
A "lock" is another term for a forward hedge, whereby a
counterparty commits to ("locks") a specific interest rate on a
notional principal amount, to enable the purchaser to lock in the
desired rate of interest on a proposed new issue.
The Commission has previously authorized similar hedging
transaction proposals. See Entergy Corporation, Holding Co. Act
Release No. 35-27371 (April 3, 2001), New Century Energies, Inc.,
et al., Holding Co. Act Release No. 35-27000 (April 7, 1999); and
Ameren Corp., et al., Holding Co. Act Release No. 35-27053 (July 23,
1999).
In Holding Co. Act Release No. 35-27147 (March 7, 2000), the
Commission noted that NU, CL&P, WMECO and PSNH were all below the
Commission's benchmark of 30% common equity-to-total capitalization
ratio if Rate Reduction Bonds were included in the calculation. The
Commission found that because of the exceptional circumstance of the
state's restructuring legislation, the following representations
mitigated the fact that the Utilities were below the 30% test: (1)
that CL&P and WMECO had investment grade ratings of BBB-or better;
(2) that CL&P and WMECO's financial integrity would not be impaired by
the payment of dividends; (3) that the Operating Companies have and
will continue to have, following the consummation of the transactions,
adequate cash and access to working capital facilities to meet and
support their normal business operations; and finally (4) that it is
in the public's interest because both investors and consumers
benefited. See also Holding Co. Act. Release No. 35-27529 (May 11, 2002).
Id.
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