-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U1WkciUp0EAb/k/GibwMWjk7I3jQZRojqjF8JBIHs7hD2HZ1XWmjeW9OCgXTMXUF 57MnhgcjrV87aO2vISUr9w== 0000071297-95-000073.txt : 19951118 0000071297-95-000073.hdr.sgml : 19951118 ACCESSION NUMBER: 0000071297-95-000073 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19951109 SROS: BSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ELECTRIC SYSTEM CENTRAL INDEX KEY: 0000071297 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663060 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-08675 FILM NUMBER: 95588521 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 U-1/A 1 File No. 70-8675 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 AMENDMENT NO. 1 TO FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 NEW ENGLAND ELECTRIC SYSTEM NEW ENGLAND POWER COMPANY MASSACHUSETTS ELECTRIC COMPANY 25 Research Drive Westborough, Massachusetts 01582 (Name of company filing this statement and address of principal executive office) NEW ENGLAND ELECTRIC SYSTEM (Name of top registered holding company parent of applicant) Michael E. Jesanis Robert King Wulff Treasurer Corporation Counsel 25 Research Drive 25 Research Drive Westborough, Massachusetts 01582 Westborough, Massachusetts 01582 (Names and addresses of agents for service) Form U-1 Application/Declaration under the Public Utility Holding Company Act of the 1935, File No. 70-8675 is hereby amended by this Amendment No. 1. A. Under Item 1. Description of Proposed Transaction, A. Proposed Acquisition of NEC, the second paragraph is deleted and replaced with the following new paragraph: On May 26, 1995, the Attorney General, NEC and the Company filed an Offer of Settlement (Settlement) for approval with the Massachusetts Department of Public Utilities (DPU) that incorporates approval of the Agreement, other approvals required of the DPU to effectuate the merger and a rate plan for the period following the merger (See Exhibit D-1 hereto). The DPU issued an order dated October 10, 1995, approving unconditionally the merger and rate plan filed in the Settlement and resolving all issues associated with the merger and acquisition (the DPU Order, Exhibit D-1a hereto). The Company has filed with the Federal Energy Regulatory Commission (FERC) seeking either a declaratory order disclaiming jurisdiction over the merger or in the event FERC asserts jurisdiction, authorization of the merger under Section 203 of the Federal Power Act. B. Under Item 1. Description of Proposed Transaction, A Proposed Acquisition of NEC, 2. Acquisition of NEC, subpart 4 of the first paragraph is deleted and replaced with the following: "4. NEC stockholders will be receiving the Company's shares equivalent to $125 per NEC common share outstanding plus interest at a rate equivalent to the Bank of Boston prime rate on this amount from March 22, 1995 (the date the Agreement was signed) to the closing which shall occur on or before the last business day of the eighteenth month ending after the date of the Agreement (see Section 8.3 of the Agreement). The prime rate at Bank of Boston on October 30, 1995, was 8.75% and since March 22, 1995 has not exceeded 9%." C. Under Item. 1. Description of Proposed Transaction, A. Proposed Acquisition of NEC, 3. Common Shares Issued by the Company, the first paragraph is deleted and replaced with the following: "As stated, the NEC certificate holders will receive the Company's shares equivalent to $125 per NEC common share outstanding, plus an interest equivalent amount as described above. The exact number of Company shares exchanged will be determined based on the average high and low prices for the common shares reported for the New York Stock Exchange Corporate Transactions for the ten consecutive trading days immediately preceding twenty days prior to the closing. No fractional shares will be issued and a cash payment will be made in lieu thereof. The amount of interest as described above will be reduced on a dollar for dollar basis for anticipated dividends at the rate declared for the previous quarter or then declared for the current quarter pro-rated to cover the period from the end of the most recent record date to the closing. The calculation of this purchase price is set forth in Schedule 1 to the Agreement. As one example, if the closing were November 1, the price for the Company's shares would be $ 3,500,000.00, interest would be $ 193,000.00, and anticipated dividends would be $ 31,365.00. Under this example, the Company would issue approximately 97,850 shares, assuming a price per share of $37.425. D. Under Item 1. Description of Proposed Transaction, A. Proposed Acquisition of NEC, 4. Benefits to NEC of Becoming a Part of the Company's System, 5. Proposed Cable Project and Financing and 6. Effects on the Company's System are deleted and replaced with the following: 4. Benefits to NEC of Becoming a Part of the Company's System In view of the current circumstances of NEC and its electric system as described above, the Company believes that, in the event the merger is consummated, significant steps will be required to assure continued reliable electric service to NEC's customers over the long term. As previously indicated, because of its limited resources, NEC is in a disadvantaged position to take these necessary steps, and as a result, faces the prospect of deterioration in its system and its ability to serve its customers. The Company's system, serving well over one million customers in three states, has financial, operating, management, and other resources more than adequate to provide for NEC's needs both immediate and over the longer term. Among the ways in which these resources will be made available (at cost through NEPSCO) are the following: Full and complete responsibility for management at NEC and its system will be taken over by management of the Company's system; Responsibility for operation and maintenance of the NEC system, including storm restoration, necessary improvements, and replacement of equipment, will be taken over by the Company's system; Provision for adequate financing of NEC's needs, operational, regulatory, and other, will be provided by the Company's system; Updating of meter reading, billing, accounting, and similar activities, including computer support and other technological improvements will be provided by the Company's system; Personnel with the necessary skills in operations, maintenance, financing, accounting, rates, legal, and other matters will be available through the Company's system; and Conservation and load management services will be made available through the Company's system. The merger is expected to reduce administrative and general costs as a result of reductions in outside vendor costs for legal and other consultants, the economies of scale from the Company's buying power in the area of fuel and other materials, automation and/or consolidation of support functions and administrative requirements such as rate case development, reporting requirements, and other similar areas. The Company has guaranteed three years of employment to all non-bargaining unit personnel who worked for NEC as of June 30, 1994, and bargaining unit personnel who worked for NEC as of July 31, 1994, thus immediate savings will not be generated from staff reductions. Finally, there should be savings in financing costs due to the improved credit quality of Surviving Corporation as a subsidiary of the Company. Savings in operating costs are estimated at $500 thousand to $1 million annually. Furthermore, as a condition to the merger, NEC customers will receive a five percent reduction in their base rates upon consummation of the merger. On the in-service date of the Cable Project (as hereinafter described), NEC's customers' rates will be set at that point and going forward at MEC's then-current rate schedules plus a Cable Project surcharge with a commitment that during the first year these new rates will be no greater than the rates before the in-service date. This rate plan will provide NEC customers with lower, more stable rates and has been approved by the DPU. In short, it is the objective of the Company to make NEC a productive addition to the Company's system, capable of providing reliable electric service over the long term on an economical basis. The positive effect on NEC's electric bills will be immediate. Furthermore, by being part of the Company's system with access to services from NEPSCO, and other affiliates, NEC would be able to provide more dependable electric service to its customers. Today, because of NEC's limitations, NEC finds it difficult to provide this kind of reliable service at reasonable cost. The benefits to NEC and its ratepayers from the proposed merger are significant as evidenced by NEC's decision to sign and jointly sponsor with the Massachusetts Attorney General and the Company the Offer of Settlement (See Exhibit D-1) to the DPU and the unconditional approval thereof by the DPU (See Exhibit D-1a). 5. Proposed Cable Project and Financing Before possibility of a merger was even discussed, and as result of a bidding process and approval from the DPU, NEC entered into a long term power contract with NEP to supply electricity to NEC over a 46kV undersea cable to be embedded under Nantucket Sound for a length of about 26 miles with associated facilities at either end (the Cable Facilities). This interconnection is required for NEP to supply electricity to NEC. The current estimated cost of the Cable Facilities is about $34 million. NEC has received a DPU Order dated June 24, 1994, approving the Cable Project as a key part of its Long-Range Forecast and Resource Plan, based on it being the least-cost, most reliable and most environmentally sound means to supply electricity to the Island of Nantucket. This approval was granted after seven days of evidentiary hearings including 197 exhibits and 92 responses to record requests (See Exhibit D-1b). Now that the Agreement has been signed and provided that the merger is approved and NEC is acquired by the Company, the Cable Facilities will be built, owned, and operated by the Surviving Corporation. The Surviving Corporation will become an all requirements wholesale electric customer of NEP pursuant to an affiliate tariff as approved by FERC and the power contract referred to above will be terminated. Were the merger not to be effectuated for any reason, the Company would have to make a filing with the Commission for approvals covering the formation of the special purpose company and financing for the Cable Project. The Surviving Corporation will finance the Cable Facilities through a combination of tax-exempt debt and equity funds. The Company has already received an allocation of up to $28 million for 1995 of tax-exempt private activity bond (PAB) volume cap from Massachusetts for this purpose and is seeking to extend this allocation until 1996 since current expectations are to close this tax-exempt financing during early 1996. The Surviving Corporation has received DPU approval to enter into a loan agreement with the Massachusetts Industrial Finance Agency (MIFA) for up to $28 million. MIFA would be authorized to directly issue PABs on behalf of the Surviving Corporation, which would be expressly payable from revenues of the Surviving Corporation. MIFA contemplates selling the PABs through competitive bidding, negotiation with underwriters, or direct negotiations with investors. MIFA would lend the proceeds from the PAB's to the Surviving Corporation in exchange for the Surviving Corporation's promise of repayment. In order to reimburse MIFA, the Surviving Corporation would issue to MIFA its own indebtedness (New Bonds) with the form and provisions to be fixed at the time the terms of the PABs are established and in an amount not to exceed the amount of the PAB's. The New Bonds would mature in not more than 40 years and may be non-callable for all or a portion of their life. To allow for market conditions, the New Bonds would have an interest rate ceiling of 10 percent. In connection with the issuance of the New Bonds and the borrowing of debt funds, MEC has agreed to enter into a Credit and Operating Support Agreement (see Exhibit B-2) with Surviving Corporation in order to provide additional revenues to Surviving Corporation to cover its cost of service, including a return on common equity. This Support Agreement will provide assurance that Surviving Corporation will be able to maintain sufficient coverages, and this Support Agreement may be assigned to MIFA as collateral as part of debt financing by Surviving Corporation. In addition, MEC may be required to provide guarantees to MIFA of principal, interest, and other costs (see Exhibit B-3) in connection with the New Bonds. The DPU Order approved the Support Agreement and the guarantees of indebtedness. From a functional standpoint and in accordance with the DPU approved rate plan, Surviving Corporation will be operated as though it were a part of MEC, but in order to qualify for tax-exempt financing, it is to be a separate corporate entity that is a subsidiary of the Company and not a subsidiary or division of MEC. As a result of the merger, Surviving Corporation will likely assume some or all of the existing indebtedness of NEC, including a $3,500,000 long term note agreement issued by the Massachusetts Industrial Finance Administration and a revolving credit and term loan agreement in the amount of approximately $3,000,000 with Bank of Boston. The DPU Order approved the assumption by Surviving Corporation of NEC's liabilities, including specifically assumption of this indebtedness. Neither NEC nor the Company nor any subsidiary of the Company has ownership interest in an exempt wholesale generator ("EWG") or foreign utility company ("FUCO") as defined in Sections 32 and 33 of the Act. Additionally, neither the Company nor any subsidiary is a party to, or has any rights under, a service, sales, or construction agreement with an EWG or FUCO. 6. Effects on the Company's System It is not anticipated that the acquisition of NEC by the Company will have any material effect on the consolidated earnings per share of the Company. As shown in the financial statements, the proposed acquisition of NEC will have a de minimus impact on the Company's system. The acquisition of NEC makes sense to the Company at this time because NEP will be the wholesale supplier of electricity to NEC for the foreseeable future. The Company will receive a benefit from the acquisition since the DPU Order has approved an acquisition price of $125 per share or $3.5 million plus interest accrued since March 22, 1995. Acquisition at this price represents a discount to current book value of NEC, which at June 30, 1995, is approximately $4.5 million. NEC's income totalled $400,000 for 1994 and $500,000 for the nine months ended September 30, 1995. These results would have added slightly less than one cent per share to the Company's results. E. Under Item 1. Description of Proposed Transaction, B. Proposed Acquisition of NEC Generation by NEP, please add the following sentences to the end thereof: The DPU Order approved NEP's purchase of certain of the Surviving Corporation's diesel generators or assumption of existing leases for these facilities. Such purchase by NEP is not expected to occur until after the Cable Project goes in-service. F. Under Item 1. Description of Proposed Transaction, C. Money Pool and Short-term Borrowing, 1. Borrowing from Money Pool, please add the following sentence to the end thereof: "The Surviving Corporation will participate in the Money Pool in accordance with these amended terms." G. Under Item 3. Applicable Statutory Provisions, in the second paragraph, please delete (5) and replace it with the following: "5. The payment of indebtedness is exempted from Sections 9(a) and 12 and Rule 42 by said Rule." H. By supplying the following exhibits under Item 6. Exhibits and Financial Statements (a) Exhibits D-1(a) Certified copy of order of Massachusetts Department of Public Utilities dated October 10, 1995 D-1(b) Certified copy of order of Massachusetts Department of Public Utilities dated June 24, 1994 D-2 Filing with the Federal Energy Regulatory Commission (FERC) G-1 Proposed Amended Terms of the NEES Money Pool SIGNATURE _________ Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this Amendment No. 1 to Form U-1 Application/Declaration (Commission's File No. 70-8675) to be signed on its behalf by the undersigned officer thereunto duly authorized. NEW ENGLAND ELECTRIC SYSTEM MASSACHUSETTS ELECTRIC COMPANY s/Michael E. Jesanis By: ________________________ Michael E. Jesanis Treasurer of each company NEW ENGLAND POWER COMPANY s/John G. Cochrane By: ________________________ John G. Cochrane Assistant Treasurer Date: November 9, 1995 The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of The Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. EX-99 2 EXHIBIT INDEX Exhibit No. Description Page - ----------- ----------- ---- D-1(a) Certified copy of order of Massachusetts Filed under cover Department of Public Utilities dated of Form SE October 10, 1995 D-1(b) Certified copy of order of Massachusetts Filed under cover Department of Public Utilities dated of Form SE June 24, 1994 D-2 Filing with the Federal Energy Filed under cover Regulatory Commission (FERC) of Form SE G-1 Proposed Amended Terms of the NEES Filed herewith Money Pool EX-99 3 EXHIBIT G-1 Exhibit G-1 NANTUCKET ELECTRIC MERGER MDPU TESTIMONY: JOHN G. COCHRANE EXHIBIT JGC-4 [Marked to show changes to the currently approved terms] PROPOSED AMENDED TERMS OF THE NEES MONEY POOL 1. (a) The following Members of the Money Pool (the Pool) participate both as contributors and borrowers to the Pool and are divided into two groups based on the order each Group's borrowing needs will be met as provided hereinafter: Group I: Granite State Electric Company Massachusetts Electric Company The Narragansett Electric Company New England Electric Transmission Corporation New England Power Company New England Power Service Company Nantucket Electric Company Group II: New England Hydro-Transmission Electric Company, Inc. New England Hydro-Transmission Corporation (b) The following Members of the Pool participate as contributors only: New England Electric System New England Energy Incorporated New England Hydro Finance Company, Inc. Narragansett Energy Resources Corporation 2. The Pool will be administered by New England Power Service Company as Agent. 3. Each Member will determine each day on the basis of cash flow projections the amount of surplus funds it has available for contribution to the Pool (Surplus Funds.) 4. (a) Each Member will contribute its Surplus Funds to the Pool each day. (b) New England Electric System will not contribute funds to the Pool in excess of the amount authorized, from time to time, by its Board of Directors for loans to subsidiaries. 5. Each Member will receive as interest that fraction of the total interest received by the Pool equal to the ratio of the Surplus Funds the Member has contributed to the total Surplus Funds in the Pool. Such interest will be computed on a monthly basis. 6. Each Member may withdraw for operational purposes any of its Surplus Funds at any time without notice. 7. All short-term borrowing needs of Members permitted to borrow from the Pool will be met by Surplus Funds in the Pool to the extent such funds are available. 8. (a) On any one day, loans will be made first to satisfy the borrowing needs of Group I borrowers who have made a borrowing request that day and borrowing needs of Group II borrowers will be met only after all the Group I borrowers' needs for that day have been met. (b) Among borrowers of the same Group: (1) Loans will be made first to the borrower paying the highest rate. (2) Among borrowers paying the same rate: (i) loan requirements of $1,000,000 or less will be met first; (ii) loans to borrowers with loan requirements of greater than $1,000,000 will be made equally to each borrower until the needs of each is met. 9. (a) A borrowing Member who is eligible to issue commercial paper will pay interest at a rate equal to the weighted monthly average of the rates on its outstanding commercial paper. (b) During any month when a borrowing member with the ability to issue commercial paper has no such commercial paper outstanding, the rate will be the monthly average of the rate for high grade 30-day commercial paper sold through dealers by major corporations as published in the Wall Street Journal. The rate to be used for weekends and holidays will be the next preceding published rate. (c) Borrowing Members who are not eligible to issue commercial paper will pay interest at a rate of 1.08 times the rate described in paragraph (b). In no event will the rate be greater than the monthly average of the Base Lending Rate of the First National Bank of Boston. 10. Loans made by the Pool will be open account advances for periods of less than 12 months, although the Agent may receive upon demand a promissory note evidencing the transaction. 11. All loans made by the Pool are payable on demand by the Agent. 12. All loans made by the Pool may be prepaid by the borrower without penalty. 13. If there are more Surplus Funds in the Pool than are necessary to meet the borrowing needs of the Members, the Agent will invest the excess on behalf of the Pool in: (i) obligations issued or guaranteed by the United States of America; (ii) obligations issued or guaranteed by any person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States; (iii) obligations issued or guaranteed by any state or political subdivision thereof, provided that such obligations are rated for investment purposes at not less than "A" by Moody's Investors Service, Inc. or by Standard & Poor's Corporation; (iv) commercial paper rated not less than "P-2" by Moody's Investors Service, Inc., or not less than "A-2" by Standard & Poor's Corporation; (v) certificates of deposit issued or banker's acceptances drawn on and accepted by commercial bands which are members of the Federal Deposit Insurance Corporation and which have a combined capital, surplus and undistributed profits of at least $25,000,000; (vi) repurchase agreements with any such commercial bank secured by obligations issued or guaranteed by the United States of America or an instrumentality thereof; and (vii) such other instruments as are permitted by Massachusetts General Laws Chapter 164, section 17A, and regulations promulgated thereunder. 14. Any Member may terminate its participation in the Pool at any time without notice. -----END PRIVACY-ENHANCED MESSAGE-----