U-1 1 FORM U-1 File No. 70- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM U-1 APPLICATION/DECLARATION WITH RESPECT TO BROKERING AND MARKETING ACTIVITIES under the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 HOLYOKE WATER POWER COMPANY PUBLIC SERVICE COMPANY OF WESTERN MASSACHUSETTS ELECTRIC COMPANY NEW HAMPSHIRE 174 Brush Hill Avenue 1000 Elm Street West Springfield, MA 01809 Manchester, NH 03015 THE CONNECTICUT LIGHT AND POWER COMPANY NORTHEAST UTILITIES SERVICE COMPANY 107 Selden Street Berlin, CT 06037 (Names of companies filing this statement and address of principal executive offices) NORTHEAST UTILITIES (Name of top registered holding company) Robert P. Wax, Esq. Vice President, Secretary and General Counsel Northeast Utilities P.O. Box 270 Hartford, CT 06141-0270 (Name and address of agent for service) The Commission is requested to mail signed copies of all orders, notices and communications to: Jeffrey C. Miller, Esq. John B. Keane Assistant General Counsel Vice President and Treasurer Northeast Utilities Service Company Northeast Utilities Service Company 107 Selden Street 107 Selden Street Berlin, CT 06037 Berlin, CT 06037 I DESCRIPTION OF PROPOSED TRANSACTIONS Introduction 1. The principal operating utility subsidiaries of Northeast Utilities, a registered electric utility holding company ("Northeast") and Northeast Utilities Service Company ("NUSCO"), Northeast's service company affiliate (Northeast, its operating companies and NUSCO are hereinafter collectively called "NU"), hereby request authority to the extent required to engage in a variety of brokering and marketing transactions in the Northeastern region of the country which either are or are closely related to their integrated electric utility business (as hereinafter further described, the "Proposed Activities"). The Proposed Activities will enable NU to compete more effectively in the rapidly evolving electric utility business, for the benefit of its consumers and investors. Background 2. Northeast and its subsidiaries (the "NU System") have been an integrated electric public-utility system since 1966. Through the four operating companies which are Applicants herein, The Connecticut Light and Power Company ("CL&P"), Western Massachusetts Electric Company ("WMECO"), Holyoke Water Power Company ("HWP") and Public Service Company of New Hampshire ("PSNH") (collectively, the "Operating Companies"), NU provides retail electric service in Connecticut, Western Massachusetts and New Hampshire and firm wholesale service to various municipalities and electric utilities, all primarily within the New England Power Pool ("NEPOOL"). NU also buys and sells electricity at wholesale from and to utilities throughout NEPOOL, New York, New Jersey, Pennsylvania, Delaware, Maryland (the latter four states comprising the general area of operation of the Pennsylvania, New Jersey, Maryland Interconnection, or "PJM") and the Canadian Provinces of New Brunswick, Ontario and Quebec. NU serves about 30 percent of New England's electric needs and is one of the 20 largest electric utility systems in the country. 3. Other Northeast subsidiaries include North Atlantic Energy Corporation, which owns a 35.6% interest in the Seabrook nuclear generating facility and sells its output to PSNH; North Atlantic Energy Service Corporation, which operates Seabrook; Northeast Nuclear Energy Company, which operates the NU System's nuclear facilities in Connecticut; NUSCO, which provides centralized services to the NU System; Charter Oak Energy, Inc. and its subsidiaries, which engage in non-traditional power development activities; and HEC, Inc., which provides energy management services in New England and elsewhere. Northeast, through various subsidiaries and affiliates, also owns portions of three regional nuclear generating facilities through the so-called Connecticut, Maine and Vermont "Yankee" companies. 4. NU serves retail electric customers located within the franchise limits of its retail service territory in Connecticut, Massachusetts and New Hampshire. It also makes wholesale electric sales to other utilities, whether located in its retail service territory or elsewhere in the northeastern United States and eastern Canada. Most of these sales are provided on a "firm", or uninterruptible (in the absence of circumstances beyond NU's control), basis, but NU also provides non-firm capacity and energy as well. Because NU currently has generating resources greater than Northeast Utilities, 42 S.E.C. 963 (1966); Northeast Utilities, Release No. 35-25221, December 21, 1990 and Release No. 35-25273, March 15, 1991; affd. sub nom. City of Holyoke Gas & Electric Department v. SEC. 972 F.2d 358 (C. of A. D.C. 1992). needed to serve its retail customers and its committed sales for more than a decade, NU is aggressive in seeking out additional markets for its generating surplus throughout the region. In addition, to satisfy its obligation to supply retail and wholesale customers on the most economic terms, NU aggressively seeks out the most economic sources of generating resources throughout the region; these transactions, which frequently involve base load capacity sales, result in cost savings for the contracting parties due to lower relative fuel charges. In the course of this activity, NU has developed extensive knowledge about the loads and resources of utilities and other power suppliers throughout the region. NU has developed relationships across the region with the power supply and resource planners for its current and potential customers and suppliers, and it has devoted substantial resources and efforts to build a staff of professionals and systems to manage a wide variety of resources and requirements across the region. 5. As this regional power supply market evolves, it has become apparent to NU that there is a need for related services which NU is well prepared to fill. These Proposed Activities are described below. 6. The past 15 years have seen dramatic changes in the nature of the utility business with an accelerating tendency towards deregulation in the name of enhanced competition, lower cost and better service. In competition with traditional utilities, electricity can now be supplied by a variety of legislatively- or administratively-created entities not known until recently: qualifying facilities, independent power producers, exempt wholesale generators, power marketers, brokers and foreign utility companies, in addition to customers' self-generation and competition between traditional utilities such as NU. What constitutes the "electric utility business" today is as much a question of interpretation and perspective as it is of legislative intent. 7. The Commission itself has taken note of these trends in its recent "Request for Comments on Modernization of the Regulation of Public-Utility Holding Companies" (HCA Release No. 35-26153). Similarly, the Commission has recognized the changing nature and extent of services provided to electric customers in its analysis and resultant easing of the so-called "50% limitation" in connection with the proposed expanded activities of an energy management and consulting registered holding company subsidiary. Eastern Utilities Associates, et al., HCA Release No. 35-26232 (February 14, 1995) (noting "significant changes in the utility industry" since the applicants' original 1986 application and that energy management services, which are closely related to the core utility business, have become an important complement to the utility business). Proposed Activities 8. The two Proposed Activities consist of Brokering and Marketing services to be provided to customers within the principal electric supply market of the NU System. This area, consisting of the New England states, New York, Pennsylvania, Delaware, New Jersey and Maryland, is hereinafter called the "Sales Region." The Proposed Activities are described in more detail below. Brokering 9. As NU seeks customers for its power supply and power sources for its own needs, it will occasionally hear of a source it cannot use and a customer it cannot supply, whose respective supply and need match. Such "market intelligence" is a byproduct of its day-to-day System-related activities and can result in a brokerage fee for bringing the two parties together (i.e., "Brokering"). As NU would neither buy nor sell power or energy in a Brokering transaction, there is no price exposure or significant financial risk. In addition, such activity is not regulated as the sale of power under the Federal Power Act or any state regulatory scheme, since NU itself is neither buying nor selling power or energy. These activities would be incidental to its principal electric business. NU now seeks authority to engage in Brokering within the Sales Region to the extent it constitutes the acquisition of an interest in another business under Sections 9 and 10 of the Public Utility Holding Company Act of 1935 ("Act"), or a disclaimer of jurisdiction by the Commission if its analysis shows it does not. 10. Brokering will be carried on by personnel employed by NUSCO, who engage in the day-to-day power marketing activities of the NU System on behalf of the Operating Companies. Revenues derived from Brokering are not expected to exceed approximately $1 million in each of 1995 and 1996 and will be credited entirely to reduce NUSCO's cost of operation which will, in turn, reduce NUSCO's cost of service to the Operating Companies and Northeast's other subsidiaries with resulting benefits to customers and investors. Marketing 11. In certain instances, a prospective customer will have needs that NU cannot fill, either in whole or in part, from System-owned resources and Brokering is not feasible for any number of practical reasons. Where this customer is not located within the boundaries of the franchised NU System and the supply may not be available from NU-owned resources, NU's only way to satisfy this customer's requirements is from third-party sources in or near the Sales Region. While it is expected that most purchases and sales will be made within the Sales Region, occasional sales and purchases may be made outside of such region. 12. If certain of this aggregated supply arises from sources within NEPOOL, or has to travel through NEPOOL to reach the buyer, it is likely to be commingled with power and energy derived from NU-owned generating stations and/or to have passed over NU System transmission lines by the time it reaches the customers. This is because NEPOOL is operationally a highly integrated power pool wherein all sources of generation are interconnected and dispatched independent of ownership from the NEPEX dispatch center in order to meet the electrical energy requirements of the NEPOOL members. In that NU constitutes approximately 30% of the NEPOOL capacity and 35% of its "backbone" transmission (69 kV and above), it is likely that every segment of energy shipped into or out of New England contains at the point of consumption some electrons generated at an NU System generating plant and/or which have flowed over transmission facilities owned by an Operating Company. The NU System's participation in such a transaction ("NEPOOL Marketing") constitutes the electric business in which it is presently authorized to engage. 13. In addition, circumstances may arise where it is unlikely any power and energy supplied by contracted sources engaged by NU would flow from NU System-owned generation facilities or over NU System transmission lines. The following are examples of such a situation: 1) both the seller and the buyer are in the Sales Region but neither are within NEPOOL; or 2) either the seller or the buyer is outside the Sales Region altogether, while the other party is within the Sales Region, not including NEPOOL. 14. Under certain conditions, it may be advantageous for NU to act not as a broker but as a marketer and stand as a principal between the prospective buyer and seller. For instance, NU might be unable to fulfill all of a customer's power needs from owned or controlled resources interconnected with its own facilities but would need other resources to supplement its own capabilities. Under present law, NU would be engaged in a wholesale transaction and such purchases and sales would generally be subject to regulation by the Federal Energy Regulatory Commission ("FERC"). Such transactions would be beneficial to NU from a number of perspectives: NU's presence in its principal wholesale market would be maintained or enhanced, customers' needs could be satisfied where NU could not otherwise provide service, the wholesale power market in the Sales Region and adjacent areas will be more competitive, NU's personnel would gain and enhance needed market expertise, and profits would accrue to the benefit of the NU System's investors and customers. 15. In addition, under certain circumstances, it may be necessary or economically efficient to substitute other sources of energy for electricity generated by NU. For example, if electricity is being sold across a transmission interface and the interface becomes constrained such that NU is precluded from transmitting the power to the purchasing utility, NU may be able to substitute some of its fuel supplies to the buying utility in order to allow the buying utility to generate a like amount of power itself. In this way NU would be able to substitute one source of energy for another to effect the same sale of electricity. Similarly, if local environmental constraints preclude NU from generating a certain amount of electricity for a wholesale customer, and the customer is not subject to a similar constraint, NU may be able to substitute some of its fuel supplies to the buying utility in order to allow the buying utility to generate a like amount of power itself in an environmentally acceptable manner. Another example would occur if the marginal cost of NU's generation made it uneconomic for the purchasing utility to buy a certain amount of power from NU, but it would be economic for that utility to purchase fuel from NU and generate the power itself, NU may be able to substitute some of its fuel supplies with the buying utility in order to allow the buying utility to generate economically a like amount of power itself. Such fuel-for-energy activities are hereinafter included within the defined term "Marketing." 16. All Marketing activities, including the Marketing activities conducted wholly outside of NEPOOL ("Non-NEPOOL Marketing") and the fuel-for- energy activities described above, will be carried on by personnel employed by NUSCO who engage in the day-to-day power marketing activity of the NU System. NUSCO in turn will be acting as agent for the joint account of those Operating Companies as are directly related to the customer involved. Revenues from Marketing will be credited entirely to reduce the affected Operating Companies' costs of operation, with resulting benefits to consumers and investors. Revenues from Marketing activities are not expected to exceed $110 million in each of 1995 and 1996, of which revenues from the fuel-for- energy activities described above are not estimated to exceed $10 million in each of 1995 and 1996. For each of the one year periods during the period ending December 31, 1993, NEPOOL Marketing revenues were $370 million in 1991, $350 million in 1992 and $380 million in 1993. The projected Non- NEPOOL Marketing revenues for each of the years 1995-1996 are not expected to exceed NEPOOL Marketing revenues for those years. 17. To the extent the Commission does not deem the proposed Non-NEPOOL Marketing activities of NU or the fuel-for-energy component of its Marketing activities wherever entered into to be the conduct of an integrated electric utility business, the Applicants herein seek approval for the acquisition of such businesses under Sections 9 and 10. Financial Matters 18. The Operating Companies have independent financial standing and do not anticipate needing financing backup from Northeast or independent sources of capital or financing to engage in the Proposed Activities. NUSCO will act solely as agent for the Operating Companies and assume no independent financial obligations in effecting the Proposed Activities. 19. Except in accordance with the Act, neither Northeast nor any subsidiary thereof (a) has acquired an ownership interest in an EWG or 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 the Applicants to acquire any securities of, or any interest in, an EWG or a FUCO. 20. The NU System is in compliance with Rule 53(a), (b), and (c), as demonstrated by the following determinations: (i) Northeast's aggregate investment in EWGs and FUCOs (i.e., amounts invested in or committed to be invested in EWGs and FUCOs, for which there is recourse to Northeast) does not exceed 50% of the NU System's consolidated retained earnings as reported for the four most recent quarterly periods on Northeast's Form 10-K and 10-Qs. At March 31, 1995 the ratio of such investment ($14,406,000) to such consolidated retained earnings ($978,001,000) was 1.47%. (ii) Encoe Partners and Central Termica San Miguel de Tucuman, S.A. ("CTSMT") (Northeast's only EWGs or FUCOs at this time) maintain books and records, and prepare financial statements in accordance with Rule 53(a)(2). Furthermore, Northeast has undertaken to provide the Commission access to such books and records and financial statements, as it may request. (iii)No employees of the NU System's public utility companies have rendered services to Encoe Partners or CTSMT. (iv) Northeast has submitted (a) a copy of each Form U-1 and Rule 24 certificates that have been filed with the Commission under Rule 53 and (b) a copy of Item 9 of Form U5S and Exhibits G and H thereof to each state regulator having jurisdiction over the retail rates of the Operating Companies. (v) Neither Northeast nor any Northeast subsidiary has been the subject of a bankruptcy or similar proceeding unless a plan of reorganization has been confirmed in such proceeding. In addition, Northeast's average consolidated retained earnings for the four most recent quarterly periods has not decreased by 10% or more from the average for the previous four quarterly periods. (vi) In the previous fiscal year, Northeast did not report operating losses attributable to its investment in Encoe Partners, unless such losses did not exceed 5 percent of Northeast's consolidated retained earnings. II FEES, COMMISSIONS, AND EXPENSES 21. 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 Northeast or any associate company thereof will be specified in Exhibit H.1 to be filed by amendment hereto. 22. None of such fees, commissions, or expenses are to be paid to any associate company or affiliate of the NU System companies or any affiliate of any such associate company except for financial, legal and other services to be performed at cost by NUSCO. III APPLICABLE STATUTORY PROVISIONS 23. Sections 9(a) and 10 of the Act are or may be applicable to the involvement of the Applicants in the Proposed Activities. 24. Within 45 days after the end of each calendar quarter, the Applicants will file certificates of partial consummation detailing the extent of the Proposed Activities undertaken within such months, to the extent necessary to demonstrate compliance with the standards of the Act and any conditions imposed herein. IV REGULATORY APPROVALS 25. The approval of FERC is required as to rates and charges imposed in any wholesale power contracts or tariffs entered into in connection with the Marketing aspect of the Proposed Activities. The Applicants do not presently intend to act as retail sellers of power and energy outside their present service areas but may qualify to do business if required by the laws of any state where they carry on the Proposed Activities. No state regulatory commission or any other federal commission (other than the Commission) has jurisdiction over the Applicants' participation in the Proposed Activities. However, the public service commissions of Connecticut, Massachusetts and New Hampshire may regulate the accounting for any revenues derived by their jurisdictional utilities from the Proposed Activities. V PROCEDURE 26. It is requested that the Commission issue an order with respect to the transactions proposed herein at the earliest practicable date, but in any event not later than July 15, 1995, which is not less than 40 days from the date of the filing of this Application/Declaration. 27. Each Applicant hereby waives the recommended decision by a hearing officer or other responsible officer of the Commission and consents that the Division of Investment Management, Office of Public Utility Regulation, may assist in the preparation of the Commission's decision and/or order and hereby requests that the Commission's order become effective forthwith upon issuance. VI EXHIBITS AND FINANCIAL STATEMENTS (a) Exhibits F.1 Opinion of Counsel (to be filed by amendment) G.1 Form of Proposed Notice under the Public Utility Holding Company Act of 1935 (to be filed by amendment) H.1 Estimated Fees and Expenses (to be filed by amendment) (b) Financial Statements No Financial statements are filed herewith, as the proposed transactions are not considered material to the financial positions of the Applicants. 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. SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, as amended, the undersigned applicants each has duly caused this statement to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 19, 1995 THE CONNECTICUT LIGHT AND POWER COMPANY By: /s/Frank P. Sabatino Vice President - Wholesale Marketing WESTERN MASSACHUSETTS ELECTRIC COMPANY By:/s/Frank P. Sabatino Vice President - Wholesale Marketing HOLYOKE WATER POWER COMPANY By:/s/Frank P. Sabatino Vice President - Wholesale Marketing PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE By: /s/Frank P. Sabatino Vice President - Wholesale Marketing NORTHEAST UTILITIES SERVICE COMPANY By: /s/Frank P. Sabatino Vice President - Wholesale Marketing