-----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, Qx0GUFdEU1nmpIkvCj8+EZLcVcD+tTrdV/YgWVxNjPLji3uj6TW3witvJGuXg2gz CHasFMd9BRCGJA25eiSSew== 0000071297-96-000067.txt : 19960919 0000071297-96-000067.hdr.sgml : 19960919 ACCESSION NUMBER: 0000071297-96-000067 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960918 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 SEC ACT: 1935 Act SEC FILE NUMBER: 070-08921 FILM NUMBER: 96631749 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 U-1 1 File No. 70- SECURITIES AND EXCHANGE COMMISSION 450 Fifth Street, N.W. Washington, DC 20549 FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 NEW ENGLAND ELECTRIC SYSTEM and NEES ENERGY, INC. (Name of companies filing this statement) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) NEW ENGLAND ELECTRIC SYSTEM (Name of top registered holding company parent of applicant) Michael E. Jesanis Kirk L. Ramsauer Treasurer Associate General Counsel 25 Research Drive 25 Research Drive Westborough, MA 01582 Westborough, MA 01582 (Names and address of agents for service) Item 1. Description of Proposed Transactions - -------------------------------------------- New England Electric System (NEES) is a registered holding company under the Public Utility Holding Company Act of 1935 (the Act) whose subsidiary companies include New England Power Company, an electric generation subsidiary (NEP), retail electric utility subsidiaries (the Retail Companies), New England Power Service Company (NEPSCO, a service company subsidiary), New England Electric Resources, Inc. (NEERI), a wholly-owned, non-utility subsidiary of NEES, an energy company subsidiary, and two electric power marketing subsidiaries (collectively, the NEES System). By its Orders dated May 23, 1996 (HCAR No. 26520) and August 28, 1996 (HCAR No. 26563) (the Orders), the Commission approved the formation of one or more marketing companies by NEES in Massachusetts, New Hampshire, Rhode Island, Connecticut, Maine, Vermont, Maryland, Delaware, Pennsylvania, New Jersey, and New York (the Marketing Companies) as described in NEES' Application/Declaration on Form U-1 (File No. 70-8803) (the Statement). Pursuant to the Orders, NEES has formed NEES Energy, Inc. (NEES Energy), a Massachusetts corporation, and Granite State Energy, Inc. (Granite State Energy), a New Hampshire corporation, to undertake marketing activities consistent with the Commission's Orders. A. AllEnergy LLC Investment ---------------------------- NEES Energy intends to enter into a joint venture with a subsidiary of Eastern Enterprises (Eastern) to engage in the marketing of energy and related services and products. The retail electric utility subsidiaries of NEES serve approximately 1.3 million customers and have peak demand and capacity resources above 4300 MW and 5500 MW, respectively. Eastern, an exempt public utility holding company, owns and operates Boston Gas Company, New England's largest distributor of natural gas, serving over 500,000 customers in eastern and central Massachusetts including Boston, and Midland Enterprises, Inc. a coal and other dry bulk cargo inland waterway carrier. NEES Energy proposes to invest, from time to time, not exceeding $50 million in, and be a voting member of, AllEnergy Marketing Company, L. L. C., a limited liability corporation to be formed under the laws of The Commonwealth of Massachusetts on September 18, 1996 (AllEnergy LLC) pursuant to a Limited Liability Company Agreement (the LLC Agreement), a copy of which is attached hereto as Exhibit B-1. NEES Energy proposes to own not exceeding a fifty percent (50%) voting interest in AllEnergy LLC. The remaining fifty percent (50%) voting interest in AllEnergy LLC will initially be owned by AllEnergy Marketing Company, Inc., a wholly owned subsidiary of Eastern Enterprises (Eastern Sub). The LLC Agreement makes NEES Energy's obligation to invest in AllEnergy LLC conditional upon NEES Energy's receipt of investment authorization from the Commission in a satisfactory form. Third parties may later invest in owning an interest in AllEnergy LLC pursuant to the terms of the LLC Agreement. AllEnergy LLC will engage in the business of marketing and selling: (i) energy commodities, including electricity, natural gas, oil and other energy sources as well as options, futures contracts, forward contracts, collars, spot contracts or swap contracts related to the choice, purchase or consumption of any such energy commodity and any other financial products marketed or used in connection therewith, and (ii) products and services related to the choice, purchase or consumption of any such energy commodity, whether or not sold or provided on a bundled basis with such natural gas, electricity, oil, or other energy source. AllEnergy LLC will employ various risk-reduction measures to limit potential losses that could be incurred through AllEnergy LLC activities. These measures may include energy commodity hedging transactions. Management of AllEnergy LLC will be by its members, NEES Energy, Eastern Sub, and other entities (if any) subsequently admitted to membership in AllEnergy LLC. The members of AllEnergy LLC may delegate powers and authority to officers of AllEnergy LLC, subject to the restrictions of the LLC Agreement. AllEnergy LLC has developed a five year business plan to implement its marketing strategy. AllEnergy LLC's initial target markets are Massachusetts, Rhode Island, New Hampshire, Connecticut, Vermont, Maine, and New York. AllEnergy LLC will only make retail sales of an energy commodity in a target market state or other state if such sales are allowed by other than a franchised utility. To date, three New England states have initiated programs for the retail wheeling of electricity. Granite State Energy is participating in the New Hampshire pilot program to establish retail electric competition adopted by the New Hampshire Public Utilities Commission. NEES Energy is participating in two of the Massachusetts retail electric competition pilot programs approved by the Massachusetts Department of Public Utilities. On August 7, 1996, the Governor of Rhode Island signed into law the Electric Restructuring Act of 1996 (96-H 8124 SUB B; the RI Act). The RI Act authorizes retail wheeling in Rhode Island on the following timetable for the indicated customer classes: July 1, 1997 -- All new customers over 200 KW, existing manufacturing customers over 1500 KW, and all state accounts January 1, 1998 -- All manufacturing customers over 200 KW, and all municipal accounts July 1, 1998 -- All remaining customers The RI Act provides that, if 40 percent of New England has customer choice before July 1998, all Rhode Island customers will have choice within three months, regardless of the above timetable. Gas deregulation in Massachusetts is proceeding on a company by company basis. Boston Gas Company has a rate case on file with the Massachusetts Department of Public Utilities setting forth a plan to transition from traditional bundled service to a "distribution only" company (by exiting the merchant function of buying and arranging transport of gas) by the end of 1999 for all commercial/industrial and residential customers; Boston Gas Company's system is presently open for its largest customer class. AllEnergy LLC may choose to form one or more subsidiaries in order, among other things, to pursue its business in a particular state; AllEnergy LLC requests authority to form such subsidiaries. AllEnergy LLC may, pursuant to its business as outlined above, acquire ownership interests in the physical or other assets of third parties. AllEnergy LLC may have opportunities to acquire businesses to complement its business, and rather than acquire assets may prefer to acquire the securities thereof, but will not acquire any securities of third parties, paying in the aggregate therefor more than $20 million, without the further authorization of the Commission. AllEnergy LLC will not acquire any utility assets or gas distribution facilities, as those terms are defined under the Act and regulations and orders issued thereunder, and will, therefore, not be either an electric or gas utility under the Act. AllEnergy LLC may also be required to supply guarantees or other credit support agreements of its members, or their respective parents, in the ordinary course of its business including, without limitation, in connection with its execution of office leases, or of long term gas or electrical supply contracts. The applicants request authorization to provide such guarantees or credit support in amounts not to exceed, in the aggregate and inclusive of guarantees or credit support provided in connection with short term borrowing as set forth in Section E of this filing, $20 million. B. LLC Agreement Loan and Transfer Provisions ----------------------------------------------- Section 3.7 of the LLC Agreement provides that in the event an AllEnergy LLC member defaults in making a required capital contribution to AllEnergy LLC, the non-defaulting member may, at its discretion, advance to AllEnergy LLC on behalf of the defaulting member all or a portion of such required capital contribution (a Member Default Loan). The defaulting member is responsible for repaying the Member Default Loan to the member making such loan in accordance with Section 3.7.3 of the LLC Agreement. In the event that (i) the non-defaulting member elects not to make such a Member Default Loan, or (ii) the Member Default Loan is not repaid, then the members' percentage interests in AllEnergy LLC shall, at the election of the non-defaulting member, be adjusted to reflect the failure of the defaulting member to either make the required capital contribution, or repay the Member Default Loan, as the case may be, in accordance with a formula set forth in Section 3.7.4 of the LLC Agreement. The applicants request authorization to make or repay any such Member Default Loan, or effect such adjustments of member interests, pursuant to the terms of the LLC Agreement. Members of AllEnergy LLC may effect a transfer of all or a portion of their interest therein in accordance with Article 9 of the LLC Agreement. Such transfers may include required regulatory transfers, transfers to affiliates, transfers to another member of AllEnergy LLC, and transfers to third parties. Section 9.3 of the LLC Agreement provides that, in the event an AllEnergy LLC member receives an offer to purchase its interest therein and intends to transfer its interest pursuant to such offer, or must make a required regulatory transfer of all or a portion of its interest, the other member shall have a right to purchase such interest at the offer price, or at the fair market value of the transferred portion of such interest (in the case of a required regulatory transfer), (the Purchase Right). The applicants request authorization to make from time to time such transfers, and to exercise such Purchase Right, pursuant to the terms of the LLC Agreement. The LLC Agreement provides a mechanism whereby either NEES Energy or Eastern Sub may trigger a withdrawal of either party from AllEnergy LLC by means of a buy/sell transaction (the Buy/Sell Provision). In summary, the Buy/Sell Provision permits either party to withdraw by giving the other party a notice of intention to withdraw indicating a cash price at which the withdrawing party would be willing to either buy or sell its interest in AllEnergy LLC. The party receiving such notice may then either buy the other party's AllEnergy LLC interest, or sell its own AllEnergy LLC interest to such other party, at such price. The Buy/Sell Provision may, among other things, be used to address conflicts between NEES Energy and Eastern Sub in connection with AllEnergy LLC which the parties are unable to resolve. The Buy/Sell Provision is set forth in detail in Section 9.6 of the LLC Agreement (see Exhibit B-1). The applicants request authorization to consummate a Buy/Sell Provision transaction, should this become necessary, without further approval from the Commission. C. Financing of AllEnergy LLC Investment ----------------------------------------- NEES proposes to provide initial financing for NEES Energy's investment in AllEnergy LLC by making capital contributions and/or loans to NEES Energy from time to time, provided that such NEES financing shall not be in excess of $50 million in the aggregate outstanding at any one time. Any such loans will be in the form of non-interest bearing subordinated notes payable in twenty years or less from the date of issue (see Exhibit B-2 hereto). NEES Energy may prepay any or all of such outstanding notes, in whole or in part, at any time and from time to time without premium or penalty. NEES shall only make such loans provided: (a) there shall be in full force and effect appropriate orders of all regulatory authorities having jurisdiction in the premises; (b) the making of such loan shall not contravene any provision of law or any provision of the certificate of incorporation or by-laws of NEES Energy or any agreement binding upon NEES Energy; and (c) the making of such loan shall not contravene any provision of law or any provision of the Agreement and Declaration of Trust of NEES. Subsequent capital contributions or open account advances without interest, loans, or extensions of credit, from NEES to NEES Energy in accordance with the terms of Rule 45 of the Act, are exempt from the requirement of authorization by the Commission. It is proposed that the above investments be authorized through December 31, 2001. D. Personnel ------------- AllEnergy LLC staffing is expected to begin with a small group of employees. It is intended that four employees of NEPSCO will be assigned to AllEnergy LLC on a full-time basis; to the extent any more NEPSCO personnel are assigned to AllEnergy LLC, they will become employees of AllEnergy LLC. Other than such four NEPSCO employees, AllEnergy LLC will have its own employees and only rely on NEPSCO or an Eastern subsidiary for administrative services such as accounting, tax, legal, information services, insurance, and personnel management. All costs associated with these NEPSCO services, and with services of the above four NEPSCO employees assigned to AllEnergy LLC on a full-time basis, would be fully reimbursed on a cost basis by AllEnergy LLC in accordance with Rules 90 and 91 of the Act; reimbursements for these costs will be on a thirty-day cycle basis. E. Short-term Borrowing ------------------------ AllEnergy LLC seeks approval of the Commission for short-term borrowings from third parties through December 31, 2001, such borrowings not to exceed $50 million in the aggregate outstanding at any one time. The proceeds from the proposed borrowings are to be used for general corporate purposes relating to ordinary business operations, including working capital. As AllEnergy LLC is a new entity, it is not possible to provide a meaningful analysis of the source and application of funds through December 31, 2001. The proposed borrowings will be evidenced by notes maturing in less than one year from the date of issuance. AllEnergy LLC will negotiate with the lenders the interest costs of such borrowings. AllEnergy LLC will pay fees to the lenders in lieu of compensating balance arrangements. The effective interest cost of borrowings from a lender will not exceed the greater of the lender's base or prime lending rate, or the rate published in the "Wall Street Journal," as the high federal funds rate, plus, in either case, two percent. Based on the current base lending rate of 8.75% and an equivalent or lower high federal funds rate, the effective interest costs of such a borrowing today would not exceed 9.75% per annum. Certain of such borrowings may be without prepayment privileges. Payment of any short-term promissory notes prior to maturity will be made on the basis most favorable to AllEnergy LLC, taking into account fixed maturities, interest rates, and any other relevant financial considerations. In connection with such borrowings, it may be necessary for NEES, NEES Energy, Eastern, Eastern Sub, or affiliates thereof to enter into guarantee or other credit support agreements with lenders. The applicants request authorization to enter into such agreements from time to time in connection with such borrowings. F. Compliance with Rule 53 --------------------------- Neither NEES nor any subsidiary currently has an ownership interest in an exempt wholesale generator ("EWG") as defined in Section 32 of the Act or a foreign utility company ("FUCO") as defined in Section 33 of the Act. Additionally, neither NEES nor any subsidiary is a party to, or has any rights under, a service, sales, or construction agreement with an EWG or FUCO. By its Order dated April 15, 1996 (HCAR 35-26504), the Commission has authorized financings by NEES and/or NEERI for the purpose of acquiring EWGs and FUCOs as set forth in their Application/Declaration in File No. 70-8783. In the event that the total amount of authority requested in the above-referenced Application/Declaration (File No. 70-8783) is invested in connection with EWGs and FUCOs, NEES' "aggregate investment" (determined in accordance with Rule 53(a)(1)(i)) in EWGs and FUCOs would not exceed 50% of NEES' "consolidated retained earnings" (as defined in Rule 53(a)(1)(ii)) in compliance with the provisions set forth in Rule 53 under the Act. NEES and its subsidiaries shall comply with the requirements of Rules 53 and 54 of the Act in connection with EWG and FUCO acquisitions and financings. No funds or borrowings requested in this filing will be used by NEES, NEERI, NEES Energy, AllEnergy LLC, or any associated company to invest in EWGs and/or FUCOs. G. Rule 24 Certificates ------------------------ NEES Energy and AllEnergy LLC shall file certificates with the Commission pursuant to the terms and conditions of Rule 24 under the Act on an annual basis, within 90 days of the end of each year, in connection with the business of AllEnergy LLC. As part of such Rule 24 filings, NEES Energy and AllEnergy LLC shall provide the Commission with: (1) a report of the number of permanent employees assigned to AllEnergy LLC during such period, (2) a balance sheet, twelve months ending income statement, and statement of cash flow for AllEnergy LLC, and (3) a description of the general category of energy commodity related services and products provided by AllEnergy LLC during such period. In addition, AllEnergy LLC shall file a Rule 24 certificate with the Commission informing it of any of the following transactions, within thirty (30) days following the consummation of any such transaction: (i) the formation of any subsidiary of AllEnergy LLC, (ii) a Buy/Sell Provision transaction, or (iii) any other transaction resulting in a change in the ownership of membership interests in AllEnergy LLC. Finally, within 90 days after the end of each calendar quarter, AllEnergy LLC will file a Rule 24 certificate covering the transactions effected pursuant to the short-term borrowing authority requested in Section E hereof during such quarter. Such certificate will show the dates and amounts of all new money borrowings, the names of the lenders, the maximum concurrent amount of notes outstanding to the lenders, the aggregate total outstanding at any one time, and the aggregate total outstanding at the end of such quarter. Each certificate will include a statement of whether any of the funds borrowed were paid by a subsidiary company to NEES through dividends for the purpose of NEES acquiring an interest in an exempt wholesale generator or foreign utility company. The amount of such dividend payment must be given. The final certificate of notification will be accompanied by the required past-tense opinion of counsel. Item 2. Fees, Commissions and Expenses - -------------------------------------- Fees, commissions, and expenses to be incurred in connection with the transactions contemplated by this Application/Declaration are not expected to exceed $10,000. This amount includes a $2,000 filing fee paid by wire transfer to the Commission at the time of filing this Application/Declaration. Item 3. Applicable Statutory Provisions - ---------------------------------------- The sections of the Act and rules or exemptions thereunder that are believed to be applicable to the transactions are: Sections 6(a), 7, 9(a), 10, 12, 13, 22, 32, 33, and Rules 45, 53, 54, 90, 91, and 104, all relating to the authority requested herein. Item 4. Regulatory Approval - ---------------------------- No Federal or state commission or regulatory body, other than the Commission, has jurisdiction over the proposed transactions. Item 5. Procedure - ------------------ The Applicants request that the Commission take action with respect to this Application/Declaration without a hearing being held, on or before October 18, 1996. The Applicants (i) do not request a recommended decision by a hearing officer, (ii) do not request a recommended decision by any other responsible officer of the Commission, (iii) hereby specify that the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) hereby request that there be no 30-day waiting period between the date of issuance of the Commission's Order and the date on which it is to become effective. Item 6. Exhibits: - ------------------ (a) Exhibits *B-1 LLC Agreement B-2 Form of Subordinated Promissory Note *F Opinion of Counsel *G-1 Financial Data Schedule for NEES (Parent Company Only) *G-2 Financial Data Schedule for NEES (Consolidated) *G-3 Financial Data Schedule for NEES Energy H Proposed Form of Notice Pursuant to Section 22 and Rule 104, the applicants hereby object to the public disclosure of any part or parts of Exhibit B-1 and request confidential treatment therefor. The information contained in Exhibit B-1 is commercially sensitive and the public disclosure of such information has the potential to harm commercial prospects for AllEnergy LLC and/or the applicants. Since the contents of Exhibit B-1 are of a technical nature or concern the rights and obligations as between the private parties to the LLC Agreement, public disclosure of such information is not necessary or appropriate in the public interest or for the protection of consumers or investors. *To be filed by amendment (b) Financial Statements *1-A Balance Sheet of NEES at June 30, 1996, Actual and Pro Forma (Parent Company Only) *1-B Statement of Income and Retained Earnings for NEES for twelve months ended June 30, 1996, Actual and Pro Forma (Parent Company Only) *2-A Consolidated Balance Sheet of NEES at June 30, 1996, Actual and Pro Forma *2-B Statement of Consolidated Income for NEES for twelve months ended June 30, 1996, Actual and Pro Forma *3-A Balance Sheet of NEES Energy at June 30, 1996, Actual and Pro Forma *3-B Statement of Income and Retained Earnings for NEES Energy for twelve months ended June 30, 1996, Actual and Pro Forma *To be filed by amendment Item 7. Environmental Effects - ------------------------------ The transactions proposed by this Application/Declaration do not involve a major Federal action significantly affecting the quality of the human environment. SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this Application/Declaration on Form U-1 to be signed on their behalf, as indicated by the undersigned officers thereunto duly authorized. NEW ENGLAND ELECTRIC SYSTEM s/Alfred D. Houston _______________________________________ Alfred D. Houston, Exec. Vice President NEES ENERGY, INC. s/John G. Cochrane _______________________________________ John G. Cochrane, Treasurer Dated: September 18, 1996 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 therefore. EX-99 2 EXHIBIT INDEX EXHIBIT INDEX ------------- Exhibit Number Description Page - ------- ------------------------- --------------- B-1 LLC Agreement To be filed by amendment B-2 Form of Subordinated Filed herewith Promissory Note F Opinion of Counsel To be filed by amendment G-1 Financial Data Schedule To be filed by for NEES (Parent Company amendment only) G-2 Financial Data Schedule To be filed by for NEES (Consolidated) amendment G-3 Financial Data Schedule To be filed by for NEES Energy amendment H Proposed Form of Notice Filed herewith FINANCIAL STATEMENT INDEX ------------------------- Financial Statement No. Description Page - ------------- ----------- ---- 1-A Balance Sheet of NEES at To be filed June 30, 1996, Actual and by amendment Pro Forma (Parent Company only) 1-B Statement of Income and To be filed Retained Earnings for by amendment NEES for twelve months ended June 30, 1996, Actual and Pro Forma (Parent Company only) 2-A Consolidated Balance To be filed Sheet of NEES at June 30, by amendment 1996, Actual and Pro Forma 2-B Statement of Consolidated To be filed Income for NEES for by amendment twelve months ended June 30, 1996, Actual and Pro Forma 3-A Balance Sheet of To be filed NEES Energy at June 30, by amendment 1996, Actual and Pro Forma 3-B Statement of Income for To be filed NEES Energy for twelve by amendment months ended June 30, 1996, Actual and Pro Forma EX-99 3 EXHIBIT B-2 EXHIBIT B-2 FORM OF OPEN ACCOUNT ADVANCE SUBORDINATED PROMISSORY NOTE $_____________________ DATED:_________________ FOR VALUE RECEIVED, the undersigned NEES ENERGY, INC. (NEES ENERGY), a Massachusetts corporation hereby promises to pay to NEW ENGLAND ELECTRIC SYSTEM (NEES) ON DEMAND, but in any event, no later than ____________ the principal sum of ________________________ DOLLARS ($____________) or, if less, the aggregate unpaid principal amount of all advances made by NEES to NEES ENERGY pursuant to authority granted by orders of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 (the 1935 Act) without interest. All such advances and all payments made on account of the principal hereof shall be recorded by NEES and endorsed on the grid attached hereto which is part of this Subordinated Promissory Note. TERMS OF SUBORDINATION (a) The principal on this Subordinated Promissory Note is and shall be subordinated in right of payment in all respects to all other indebtedness of NEES ENERGY to any lender which is not an "affiliate" of NEES ENERGY, as that term is defined in the 1935 Act (hereinafter, "Senior Debt"). (b) Without limiting the foregoing subparagraph (a), (i) no payment on this Subordinated Promissory Note shall be made or received, directly or indirectly, in cash or other property or by set-off or in any other manner (including, without limitation, from or by way of collateral), so long as any Senior Debt remains outstanding, except that prepayments of principal on this Subordinated Promissory Note may be made and received so long as, but only so long as, at the time of such payments and immediately after giving effect thereto, no Event of Default, or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default exists under the provisions of any Senior Note or any other instrument evidencing Senior Debt or any agreement under which Senior Debt is then outstanding, and (ii) in the event of any insolvency or bankruptcy proceedings directly or indirectly involving NEES ENERGY, then all principal of and interest (including, without limitation, any and all interest which shall accrue after the filing of any petition in bankruptcy) on, the Senior Debt shall first be paid in full before any payment on account of principal, premium (if any) or interest is made upon this Subordinated Promissory Note, and in any such proceedings any payment or distribution of any kind or character, whether in cash, securities or other property, to which the holder of this Subordinated Promissory Note would be entitled if this Subordinated Promissory Note were not subordinated to the Senior Debt shall be made by the liquidating trustee or agent or other person making such payment or distribution, or by the holder of this Subordinated Promissory Note if received by him, directly to the holders of the Senior Debt to the extent necessary to make payment in full of the Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to or for the holders of the Senior Debt. (c) The foregoing provisions regarding subordination are intended solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand and the holder of this Subordinated Promissory Note on the other hand. Nothing contained herein, is intended to or shall impair, as between NEES ENERGY and the holder of this Subordinated Promissory Note, the obligation of NEES ENERGY to pay to the holder of this Subordinated Promissory Note the principal of such Subordinated Promissory Note, subject, in each case, to the rights under the foregoing subparagraphs of the holders of the Senior Debt. NEES ENERGY, INC. By:_______________________________ Title: EX-99 4 EXHIBIT H EXHIBIT H PROPOSED FORM OF NOTICE New England Electric System (NEES) is a registered holding company under the Public Utility Holding Company Act of 1935 (the Act) whose subsidiary companies include New England Power Company, an electric generation subsidiary (NEP), retail electric utility subsidiaries (the Retail Companies), New England Power Service Company (NEPSCO, a service company subsidiary), New England Electric Resources, Inc. (NEERI), a wholly-owned, non-utility subsidiary of NEES, an energy company subsidiary, and two electric power marketing subsidiaries (collectively, the NEES System). By its Orders dated May 23, 1996 (HCAR No. 26520) and August 28, 1996 (HCAR No. 26563) (the Orders), the Commission approved the formation of one or more marketing companies by NEES in Massachusetts, New Hampshire, Rhode Island, Connecticut, Maine, Vermont, Maryland, Delaware, Pennsylvania, New Jersey, and New York (the Marketing Companies) as described in NEES' Application/Declaration on Form U-1 (File No. 70-8803) (the Statement). Pursuant to the Orders, NEES has formed NEES Energy, Inc. (NEES Energy), a Massachusetts corporation, and Granite State Energy, Inc. (Granite State Energy), a New Hampshire corporation, to undertake marketing activities consistent with the Commission's Orders. NEES Energy intends to enter into a joint venture with a subsidiary of Eastern Enterprises (Eastern) to engage in the marketing of energy and related services and products. NEES Energy proposes to invest, from time to time, not exceeding $50 million in, and be a voting member of, AllEnergy Marketing Company, L. L. C., a limited liability corporation to be formed under the laws of The Commonwealth of Massachusetts on September 18, 1996 (AllEnergy LLC) pursuant to a Limited Liability Company Agreement (the LLC Agreement). NEES Energy proposes to own not exceeding a fifty percent (50%) voting interest in AllEnergy LLC. The remaining fifty percent (50%) voting interest in AllEnergy LLC will initially be owned by AllEnergy Marketing Company, Inc., a wholly owned subsidiary of Eastern Enterprises (Eastern Sub). The LLC Agreement makes NEES Energy's obligation to invest in AllEnergy LLC conditional upon NEES Energy's receipt of investment authorization from the Commission in a satisfactory form. Third parties may later invest in owning an interest in AllEnergy LLC pursuant to the terms of the LLC Agreement. AllEnergy LLC will engage in the business of marketing and selling: (i) energy commodities, including electricity, natural gas, oil and other energy sources as well as options, futures contracts, forward contracts, collars, spot contracts or swap contracts related to the choice, purchase or consumption of any such energy commodity and any other financial products marketed or used in connection therewith, and (ii) products and services related to the choice, purchase or consumption of any such energy commodity, whether or not sold or provided on a bundled basis with such natural gas, electricity, oil, or other energy source. AllEnergy LLC will employ various risk-reduction measures to limit potential losses that could be incurred through AllEnergy LLC activities. These measures may include energy commodity hedging transactions. AllEnergy LLC will not engage in speculative trading in the energy market and will limit any hedging activity to no more than the total amount of energy and energy related commodities that are subject to market price fluctuations. AllEnergy LLC's initial target markets are Massachusetts, Rhode Island, New Hampshire, Connecticut, Vermont, Maine, and New York. AllEnergy LLC will only make retail sales of an energy commodity in a target market state or other state if such sales are allowed by other than a franchised utility. AllEnergy LLC may choose to form one or more subsidiaries in order, among other things, to pursue its business in a particular target state; AllEnergy LLC requests authority to form such subsidiaries. AllEnergy LLC may, pursuant to its business as outlined above, acquire ownership interests in the physical or other assets of third parties. AllEnergy LLC may have opportunities to acquire small businesses to complement its business, and rather than acquire assets may prefer to acquire the securities thereof, but will not acquire any securities of third parties, paying in the aggregate therefor more than $20 million, without the further authorization of the Commission. AllEnergy LLC will not acquire any utility assets or gas distribution facilities, as those terms are defined under the Act and regulations and orders issued thereunder, and will, therefore, not be either an electric or gas utility under the Act. AllEnergy LLC may also be required to supply guarantees or other credit support agreements of its members, or their respective parents, in the ordinary course of its business including, without limitation, in connection with its execution of office leases, or of long term gas or electrical supply contracts. The applicants request authorization to provide such guarantees or credit support in amounts not to exceed, in the aggregate and inclusive of guarantees or credit support provided in connection with short term borrowing, $20 million. The LLC Agreement provides that in the event an AllEnergy LLC member defaults in making a required capital contribution to AllEnergy LLC, the non-defaulting member may, at its discretion, advance to AllEnergy LLC on behalf of the defaulting member all or a portion of such required capital contribution (a Member Default Loan). The defaulting member is responsible for repaying the Member Default Loan to the member making such loan in accordance with the LLC Agreement. In the event that (i) the non-defaulting member elects not to make such a Member Default Loan, or (ii) the Member Default Loan is not repaid, then the members' percentage interests in AllEnergy LLC shall, at the election of the non- defaulting member, be adjusted to reflect the failure of the defaulting member to either make the required capital contribution, or repay the Member Default Loan, as the case may be, in accordance with a formula set forth in the LLC Agreement. The applicants and request authorization to make or repay any such Member Default Loan, or effect such adjustments of member interests, pursuant to the terms of the LLC Agreement. Members of AllEnergy LLC may effect a transfer of all or a portion of their interest therein in accordance with terms of the LLC Agreement. Such transfers may include required regulatory transfers, transfers to affiliates, transfers to another member of AllEnergy LLC, and transfers to third parties. The LLC Agreement provides that, in the event an AllEnergy LLC member receives an offer to purchase its interest therein and intends to transfer its interest pursuant to such offer, or must make a required regulatory transfer of all or a portion of its interest, the other member shall have a right to purchase such interest at the offer price, or at the fair market value of the transferred portion of such interest (in the case of a required regulatory transfer), (the Purchase Right). The applicants request authorization to make from time to time such transfers, and to exercise such Purchase Right, pursuant to the terms of the LLC Agreement. The LLC Agreement provides a mechanism whereby either NEES Energy or Eastern Sub may trigger a withdrawal of either party from AllEnergy LLC by means of a buy/sell transaction (the Buy/Sell Provision). In summary, the Buy/Sell Provision permits either party to withdraw by giving the other party a notice of intention to withdraw indicating a cash price at which the withdrawing party would be willing to either buy or sell its interest in AllEnergy LLC. The party receiving such notice may then either buy the other party's AllEnergy LLC interest, or sell its own AllEnergy LLC interest to such other party, at such price. The Buy/Sell Provision is intended as a means of addressing disputes between NEES Energy and Eastern Sub in connection with AllEnergy LLC which the parties are unable to resolve. The applicants request authorization to consummate a Buy/Sell Provision transaction, should this become necessary, without further approval from the Commission. NEES proposes to provide initial financing for NEES Energy's investment in AllEnergy LLC by making capital contributions and/or loans to NEES Energy from time to time, provided that such NEES financing shall not be in excess of $50 million in the aggregate outstanding at any one time. Any such loans will be in the form of non-interest bearing subordinated notes payable in twenty years or less from the date of issue. NEES Energy may prepay any or all of such outstanding notes, in whole or in part, at any time and from time to time without premium or penalty. Subsequent capital contributions or open account advances without interest, loans, or extensions of credit, from NEES to NEES Energy in accordance with the terms of Rule 45 of the Act, are exempt from the requirement of authorization by the Commission. It is proposed that the above investments be authorized through December 31, 2001. AllEnergy LLC staffing is expected to begin with a small group of employees. It is intended that four employees of NEPSCO will be assigned to AllEnergy LLC on a full-time basis; to the extent any more NEPSCO personnel are assigned to AllEnergy LLC, they will become employees of AllEnergy LLC. Other than such four NEPSCO employees, AllEnergy LLC will have its own employees and only rely on NEPSCO or an Eastern subsidiary for administrative services such as accounting, tax, legal, information services, insurance, and personnel management. All costs associated with these NEPSCO services, and with services of the above four NEPSCO employees assigned to AllEnergy LLC on a full-time basis, would be fully reimbursed on a cost basis by AllEnergy LLC in accordance with Rules 90 and 91 of the Act; reimbursements for these costs will be on a thirty-day cycle basis. AllEnergy LLC seeks approval of the Commission for short-term borrowings from third parties through December 31, 2001, such borrowings not to exceed $50 million in the aggregate outstanding at any one time. The proceeds from the proposed borrowings are to be used (i) to pay then outstanding notes initially issued to banks, and (ii) for other corporate purposes relating to ordinary business operations, including working capital. Certain of such borrowings may be without prepayment privileges. In connection with such borrowings, it may be necessary for NEES, NEES Energy, Eastern, Eastern Sub, or affiliates thereof to enter into guarantee or other credit support agreements with lenders. The applicants request authorization to enter into such agreements from time to time in connection with such borrowings. -----END PRIVACY-ENHANCED MESSAGE-----