-----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, VFOzxaMWKlAH1ZtzNokWCHOkpN/waQkTSiOV6mE4XltS7yZkiKeWFyx6Yg7W5JgG 8iff94PvFe0YcTF7VbMYNA== 0000072741-04-000040.txt : 20040402 0000072741-04-000040.hdr.sgml : 20040402 20040402155256 ACCESSION NUMBER: 0000072741-04-000040 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20040402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST UTILITIES SYSTEM CENTRAL INDEX KEY: 0000072741 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042147929 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-09755 FILM NUMBER: 04713920 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDEN ST CITY: BERLIN STATE: CT ZIP: 06037-1616 U-1/A 1 nuu1a040404709755.txt NU U-1-A 040204 FILE NO. 70-9755 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 5 (AMENDMENT NO. 9) TO FORM U-1 APPLICATION/DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 Northeast Utilities Holyoke Water Power Company Western Massachusetts Electric Company One Canal Street 174 Brush Hill Avenue Holyoke, MA 01040 West Springfield, MA 01090-0010 The Connecticut Light and Power Company Public Service Company NU Enterprises, Inc. of New Hampshire Northeast Generation Service Company North Atlantic Energy E.S. Boulos Company Corporation Woods Network Services, Inc. Energy Park Woods Electrical Co., Inc. 780 North Commercial Street Northeast Generation Company Manchester, NH 03101 Select Energy, Inc. Select Energy New York, Inc. Select Energy Services, Inc. Mode 1 Communications, Inc. 24 Prime Parkway Northeast Utilities Service Company Natick, MA 01760 107 Selden Street Berlin, CT 06037 Yankee Energy System, Inc. The Rocky River Realty Yankee Gas Services Company Company Yankee Energy Financial Services Company The Quinnehtuk Company NorConn Properties, Inc. Northeast Nuclear Energy Yankee Energy Services Company Company 107 Selden Street Properties, Inc. Berlin, CT 06037 107 Selden Street Berlin, CT 06037 (Name of companies filing this statement and addresses of principal executive offices) NORTHEAST UTILITIES (Name of top registered holding company) Gregory B. Butler, Esq. Vice President, Secretary and General Counsel Northeast Utilities Service Company 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 David R. McHale Assistant General Counsel Vice President and Treasurer Northeast Utilities Service Northeast Utilities Service Company Company P.O. Box 270 P.O. Box 270 Hartford, CT 06141-0270 Hartford, CT 06141-0270 The Application/Declaration in this file, as heretofore amended, is further amended and restated as follow: ITEM 1 DESCRIPTION OF PROPOSED TRANSACTION BACKGROUND 1. Northeast Utilities ("NU"), a public utility holding company registered under the Public Utility Holding Company Act of 1935, as amended (the "Act"), located at 174 Brush Hill Ave., West Springfield, MA; Yankee Energy System, Inc. ("YES"), a public utility holding company subsidiary of NU, exempt from registration under the Act, and Northeast Utilities Service Company, NU's service company subsidiary ("NUSCO"), both located at 107 Selden Street, Berlin, CT; NU's direct and indirect public utility subsidiaries, The Connecticut Light and Power Company ("CL&P"), Northeast Nuclear Energy Company ("NNECO") and Yankee Gas Services Company (Yankee Gas"), located at 107 Selden Street, Berlin, CT, Western Massachusetts Electric Company ("WMECO"), located at 174 Brush Hill Avenue, West Springfield, MA, Public Service Company of New Hampshire ("PSNH") and North Atlantic Energy Corporation ("NAEC"), located at 780 North Commercial Street, Manchester, NH, and Holyoke Water Power Company ("HWP"), located at Canal Street, Holyoke, MA; and NU's direct and indirect nonutility subsidiaries, The Rocky River Realty Company ("RR"), The Quinnehtuk Company ("Quinnehtuk"), Properties, Inc. ("Properties"), Yankee Energy Financial Services Company ("Yankee Financial"), Yankee Energy Services Company ("YESCO"), NorConn Properties, Inc. ("NorConn"), NU Enterprises, Inc. ("NUEI"), Northeast Generation Company ("NGC"), Northeast Generation Services Company ("NGS"), E. S. Boulos Company ("Boulos"), Woods Electrical Company, Inc. ("Woods"), Woods Network Services, Inc. ("Woods Network"), Select Energy, Inc. ("Select Energy") and Mode 1 Communications, Inc. ("Mode 1"), all located at 107 Selden Street, Berlin, CT, Select Energy New York, Inc. ("SENY"), located at 507 Plum Street, Syracuse, NY and Select Energy Services, Inc. ("SESI"), located at 24 Prime Parkway, Natick, MA (collectively the "Applicants") submit this amendment to the application/declaration in this File (the "Amendment") pursuant to Sections 6(a), 7, 9(a), 10 and 12 of the Act and Rules 43, 45 and 52 thereunder with respect to the extension of certain financing authorizations granted by the Commission in the prior Commission order and the release of jurisdiction reserved in such order. 2. By order dated December 28, 2000 (Holding Co. Act Release No. 27328) issued by the Commission in this File No. 70-9755 (the "2000 Order"), the Applicants were authorized to continue participation in the NU system money pool ("NU Money Pool"), and, to the extent not exempt under Rules 45(b) and 52, for the Applicants to enter into short-term debt transactions with NU and to borrow from and extend credit to (and acquire promissory notes from) each other through their participation in the NU Money Pool, through June 30, 2003 subject to certain terms and conditions set forth therein. In addition, authorization was granted in the 2000 Order for NU and its utility subsidiaries to issue notes or commercial paper to unaffiliated third parties to evidence short-term debt up to specified limits and within specified parameters, through June 30, 2003. By Commission order dated June 30, 2003, (Holding Co. Act Release No. 35-27693, the "2003 Order") issued in this File, the Commission extended the authorization period for the issuance of short-term debt by NU, CL&P, WMECO, PSNH, YES and Yankee Gas (the "Utility Borrowers") through June 30, 2006, authorized such companies to enter into interest rate hedging transactions related to short-term debt transactions through June 30, 2006 and extended the authorization period for participation by the Applicants (other than Properties) in the NU Money Pool through June 30, 2004, pending the submission by the Applicants of a feasibility study concerning the creation of a separate money pool for nonutility subsidiaries of NU. 3. The Applicants have prepared and submitted such a study to the Commission and now request that the Commission issue an order in this file granting: (i) an extension through June 30, 2007 (the "Authorization Period"), of the authorizations granted by the Commission in the 2003 Order concerning (a) the issuance of notes or commercial paper by NU and the Utility Borrowers to unaffiliated third parties to evidence short-term debt, (b) the respective short-term debt limits of NU and the Utility Borrowers; (c) participation by the Applicants in the NU Money Pool; (d) entering into Interest Rate Hedges (as described herein) by NU and the Utility Borrowers; (ii) authorization for Properties to participate in the NU Money Pool both as borrower and lender; and (iii) a release of jurisdiction over the removal of limits on the NU Money Pool borrowings by Properties, RR, Quinnehtuk, Yankee Financial, YESCO, NorConn, NUEI, NGS, Boulos, Woods, Select Energy, SENY and SESI (the "Nonutility Subsidiaries"). DESCRIPTION OF THE APPLICANTS 4. NU is a registered holding company under the Act. It has 6 electric utilities as defined under the Act and one gas utility. CL&P, WMECO, PSNH engage in, among other things, the sale of electricity at retail. Prior to the sale by the NU system of all of its nuclear assets, NAEC and NNECO were an owner and a manager, respectively, of various nuclear generating assets. HWP sells the output of its electricity generating station directly to its affiliate, Select Energy. Yankee Gas, which is owned by YES, a public utility holding company subsidiary of NU exempt from registration under the Act by section 3(a)(1), engages in the sale of natural gas at retail. NU also owns, directly or indirectly, Properties, RR, Quinnehtuk and NorConn, which are real estate companies, NUSCO, the system's principal service company, NUEI, the system's nonutility holding company, NGC, an exempt wholesale generator, SESI, an energy services company acquired pursuant to Commission Order, Mode 1 and Woods Network, each exempt telecommunications companies, Yankee Financial, a financial services company and Select Energy, SENY, NGS, Woods, Boulos and YESCO, each companies formed or acquired pursuant to Rule 58. SHORT-TERM DEBT OF NU 5. In this Amendment NU seeks an order of the Commission authorizing it to issue and sell from time to time during the Authorization Period, short-term debt ("Short-term Debt") in an aggregate principal amount at any time outstanding not to exceed $450 million ("NU's Short-term Debt Limit"). NU's Short-term Debt has taken and will take a variety of forms, including commercial paper issuances and/ or unsecured notes with banks or other institutional lenders under credit facilities on terms that are generally available to borrowers with comparable credit ratings. All NU Short-term Debt will have maturities of less than one year from the date of issuance. 6. Commercial paper issued by NU hereunder may be issued manually or through The Depository Trust Company in the form of book entry notes in denominations of not less than $50,000 of varying maturities. Such commercial paper would typically be sold to dealers at the discount rate prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring the commercial paper will reoffer it at a discount to corporate and institutional investors. No commercial paper will be issued unless NU believes that the effective interest cost to it will be equal to or less than the effective interest rate at which it could issue short- term notes in an amount at least equal to the principal amount of such commercial paper. The commercial paper will be publicly issued and sold without registration under the Securities Exchange Act of 1933 in reliance upon one or more applicable exemptions from registration thereunder. 7. NU also seeks an extension through the Authorization Period of the authorization to continue, or to establish and maintain back-up credit lines with banks or other institutional lenders to support their commercial paper program(s), and other credit arrangements and/ or borrowing facilities generally available to borrowers with comparable credit ratings, providing for revolving credit or other loans. All amounts drawn and outstanding under these agreements and facilities will have maturities less than one year from the date of draw and will be counted against the proposed NU Short-term Debt Limit. 8. The effective cost of money on all external Short-term Debt of NU will not exceed competitive market rates available at the time of issuance for securities having the same or reasonably similar terms and conditions issued by companies of comparable credit quality, provided that in no event will the effective cost of capital exceed 500 basis points over the comparable term London Interbank Offered Rate ("LIBOR"). Issuance expenses in connection with any non-competitive offering of Short-term Debt will not exceed 5% of the principal amount thereof. Specific terms of any Short-term Debt will be determined by NU at the time of issuance and will comply in all regards to the parameters of financing authorizations set forth above. A copy of any new note or loan agreement executed pursuant to this Authorization will be filed under cover of the next quarterly report under Rule 24. Subject to the NU Short-term Debt Limits, NU intends to renew and extend outstanding short-term debt as it matures, to refund such short-term debt with other similar short-term debt, to repay such short-term debt or to increase the amount of their short-term debt from time to time. SHORT-TERM DEBT OF THE UTILITY BORROWERS 9. The Utility Borrowers also seek an order of the Commission authorizing each of them to issue and sell from time to time during the Authorization Period, Short-term Debt in an aggregate principal amount at any time outstanding not to exceed, when added to any debt of such companies through the NU Money Pool, the respective limits for the Utility Borrowers set forth below in paragraph 26 ("Short-term Debt Limit"). The Short-term Debt for the Utility Borrowers has taken and will take a variety of forms, including commercial paper issuances and/or secured or unsecured notes with banks or other institutional lenders under credit facilities on terms that are generally available to borrowers with comparable credit ratings. All Short-term Debt will have maturities of less than one year from the date of issuance. The Utility Borrowers request that the Commission reserve jurisdiction over their request to issue secured short- term debt pending completion of the record. 10. Commercial paper issued by a Utility Borrower hereunder may be issued manually or through The Depository Trust Company in the form of book entry notes in denominations of not less than $50,000 of varying maturities. Such commercial paper would typically be sold to dealers at the discount rate prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring the commercial paper will reoffer it at a discount to corporate and institutional investors. No commercial paper will be issued unless the Utility Borrower issuing such commercial paper believes that the effective interest cost to it will be equal to or less than the effective interest rate at which such company could issue short- term notes in an amount at least equal to the principal amount of such commercial paper. The commercial paper will be publicly issued and sold without registration under the Securities Exchange Act of 1933 in reliance upon one or more applicable exemptions from registration thereunder. 11. The Utility Borrowers also seek an extension through the Authorization Period of the authorization to continue, or to establish and maintain back-up credit lines with banks or other institutional lenders to support their commercial paper program(s), and other credit arrangements and/or borrowing facilities generally available to borrowers with comparable credit ratings, providing for revolving credit or other loans. All amounts drawn and outstanding under these agreements and facilities will have maturities less than one year from the date of draw and will be counted against the proposed Short-term Debt Limits of such Utility Borrower. 12. The effective cost of money on all external Short-term Debt of the Utility Borrowers will be subject to the same financing parameters as NU set forth above. Specific terms of any Short- term Debt will be determined by the respective Utility Borrowers at the time of issuance and will comply in all regards to the parameters of financing authorizations set forth above. A copy of any new note or loan agreement executed pursuant to this Authorization will be filed under cover of the next quarterly report under Rule 24. Subject to the applicable Short-term Debt Limits, the Utility Borrowers intend to renew and extend outstanding short-term debt as it matures, to refund such short- term debt with other similar short-term debt, to repay such short- term debt or to increase the amount of their short-term debt from time to time. INVESTMENT GRADE RESTRICTIONS 13. NU and the Utility Borrowers commit that, apart from the securities issued for the purpose of funding money pool operations or in the form of commercial paper or short-term bank facilities, no securities may be issued in reliance upon the Order issued in this file during the Authorization Period, unless: (i) the security to be issued, if rated, is rated investment grade; (ii) all outstanding debt securities of the issuer that are rated are rated investment grade; and (iii) all outstanding debt 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 Securities Exchange Act of 1934. NU and the Utility Borrowers request that the Commission reserve jurisdiction over the issuance by NU and the Utility Borrowers of any securities that do not meet these conditions. 14. Except in the case of CL&P and PSNH, NU and the Utility Borrowers commit that at all times during the Authorization Period, each will maintain common equity of at least 30% of its consolidated capitalization (common equity, preferred stock, long- term debt and short-term debt) as reflected in the most recent Form 10-K or Form 10-Q filed with the Commission, adjusted to reflect changes in capitalization since the balance sheet date therein. In the case of PSNH and CL&P, in Holding Co. Act Release No. 35-27147 (March 7, 2000), the Commission noted that such companies and the other Utility Borrowers could, from time to time, be below the 30% ratio when their respective Rate Reduction Bonds were included in the calculation of capitalization. The Commission found that the effect of being below the 30% test as a result of the issuance of Rate Reduction Bonds was mitigated because of the exceptional circumstance of the state's restructuring legislation, as follows,: (1) that CL&P, PSNH and WMECO have investment grade ratings of BBB-or better; (2) that CL&P, PSNH and WMECO's financial integrity would not be impaired by the proposed transaction; (3) that CL&P, PSNH and WMECO have and will continue to have, adequate cash and access to working capital facilities to meet and support their normal business operations; and (4) that the proposed transaction would be in the public's interest because both investors and consumers will benefit. CL&P and PSNH represent that such factors continue to be present and will continue through the Authorization Period. 15. Current Financial Condition (a) NU For the twelve (12) months ended December 31, 2003, NU's consolidated gross revenues and net income were approximately $6.1 billion and $116.4 million, respectively. As of December 31, 2003, NU's consolidated capitalization consisted of 33.5% common equity, 1.7% preferred stock, 25.6% of Rate Reduction Bonds, and 39.2% long-term and short-term debt. When the Rate Reduction Bonds are excluded, NU's consolidated capitalization consisted of 45% common equity, 2.3% preferred stock and 52.7% debt. NU Credit Ratings As of the date of this Amendment, the corporate credit rating for NU is BBB+ by Standard and Poor's and Baa1 by Moody's and the ratings issued by Moody's and Standard and Poor's for NU's Senior Unsecured Debt were Baa1 and BBB, respectively. (b) The Utility Borrowers The Connecticut Light and Power Company As of December 31, 2003, CL&P's consolidated capitalization consisted of 24.4% common equity, 4.1% preferred stock, 39.3% of Rate Reduction Bonds, and 32.2% of long-term and short-term debt. When the Rate Reduction Bonds are excluded, CL&P's consolidated capitalization consisted of 40.2% common equity, 6.7% preferred stock and 53.1% debt. The corporate credit rating for CL&P is BBB+ by Standard and Poor's and A3 by Moody's and the credit rating for its senior secured debt is A- by Standard and Poor's and A2 by Moody's. Western Massachusetts Electric Company As of December 31, 2003, WMECO's consolidated capitalization consisted of 31.4% common equity, 27.5% of Rate Reduction Bonds, and 41.1% of long-term and short-term debt. When the Rate Reduction Bonds are excluded, WMECO's consolidated capitalization consisted of 43.4% common equity and 56.6% debt. The corporate credit rating for WMECO is BBB+ by Standard and Poor's and A3 by Moody's and the credit rating for its senior unsecured debt is BBB+ by Standard and Poor's and A3 by Moody's. Public Service Company of New Hampshire As of December 31, 2003, PSNH's consolidated capitalization consisted of 28.8% common equity, 35.8% of Rate Reduction Bonds, and 35.4% of long-term and short-term debt. When the Rate Reduction Bonds are excluded, PSNH's consolidated capitalization consisted of 45% common equity and 55% debt. The corporate credit rating for PSNH is BBB+ by Standard and Poor's and Baa1 by Moody's and the credit rating for its senior secured debt is BBB+ by Standard and Poor's and A3 by Moody's. Yankee Energy System, Inc. As of December 31, 2003, YES's consolidated capitalization consisted of 67.8% common equity and 32.2% long-term and short- term debt. YES is not currently rated by Standard and Poor's, Moody's or Fitch. Yankee Gas Services Company As of December 31, 2003, Yankee Gas' consolidated capitalization consisted of 67.5% common equity and 32.5% of long- term and short-term debt. The corporate credit rating for Yankee Gas is BBB+ by Standard and Poor's and Baa1 by Moody's. INTEREST RATE HEDGES 16. To the extent not exempt under rule 52, each of NU and the Utility Borrowers also request an extension, through the Authorization Period, of the authorizations granted in the 2003 Order to enter into interest rate hedging transactions with respect to its outstanding short-term indebtedness ("Interest Rate Hedges"), subject to the limitations and restrictions below, in order to reduce or manage the effective interest rate cost. Interest Rate Hedges would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or the senior debt ratings of any credit support providers who have guaranteed the obligations of the Approved Counterparties, as published by S&P, are equal to or greater than BBB, or an equivalent rating from Moody's or Fitch, or through on- exchange transactions. 17. 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. Neither NU nor the Utility Borrowers will 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. 18. NU represents that each Interest Rate 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. USE OF PROCEEDS 19. The proceeds from the Short-term Debt of NU and the Utility Borrowers authorized by the Commission pursuant to this Application will be used for (i) general corporate purposes, including investments by and capital expenditures of NU and its subsidiaries, including, without limitation, the funding of future investments in exempt wholesale generators ("EWG"), Foreign Utility Companies ("FUCO") (each to the extent permitted under the Act or Commission order), Rule 58 Subsidiaries (to the extent permitted under the Act or Commission order), and exempt telecommunications companies ("ETC"), (ii) the repayment, redemption, refunding or purchase by NU or any subsidiary of any of its own securities from non-affiliates pursuant to Rule 42, and (iii) financing working capital requirements of NU and its subsidiaries. 20. NU and the Utility Borrowers represent 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 in this or a separate proceeding or is in accordance with an available exemption under the Act or rules thereunder, including Sections 32 and 33 and Rules 53, 54 and 58. NU states that the aggregate amount of proceeds of financing approved by the Commission in this proceeding used to fund investments in EWGs and FUCOs will not, when added to NU's "aggregate investment" (as defined in Rule 53) in all such entities at any point in time, exceed 50% of NU's average "consolidated retained earnings" (also as defined in Rule 53), except as permitted and authorized by the Commission. Further, NU represents that proceeds of financing utilized to fund investments in Rule 58 Subsidiaries will adhere to the limitations of that rule or Commission Order. THE NU MONEY POOL 21. By the 2003 Order, the Applicants, with the exception of NUSCO and Properties, were authorized to continue to participate in the NU Money Pool. NUSCO was authorized to continue to administer the NU Money Pool. In this Application, the Applicants seek authorization to continue the NU Money Pool established under the authority granted in the 2003 Order through June 30, 2007, subject to the same terms and conditions set forth therein. The Applicants request that the Commission authorize all of the Applicants, with the exception of NU, YES, NGC, Mode 1 and Woods Network, to continue participation in the NU Money Pool as both lenders and borrowers, to the extent not exempted by rule 52, and to authorize the participation, as lenders only, and not as borrowers, of NU, YES, NGC, Mode 1 and Woods Network. The Applicants request that the Commission authorize, through the Authorization Period, the participation of Properties in the NU Money Pool, both as a lender and a borrower and that the Commission reserve jurisdiction over the addition of any additional participants to the NU Money Pool. 22. The NU Money Pool will continue to be administered on behalf of the Applicants by NUSCO under the direction of an officer of NUSCO. NUSCO will not be a participant in the NU Money Pool. The NU Money Pool will consist principally of surplus funds received from the Applicants. In addition to surplus funds, funds borrowed by NU through the issuance of short-term notes or other debt, or by the selling of commercial paper ("External Funds") may be a source of funds for making loans or advances to the other Applicants through the NU Money Pool. OPERATION OF THE NU MONEY POOL 23. Applicants do not propose any changes to the operation of the NU Money Pool as it was approved in the 2003 Order. Transactions under the NU Money Pool will be designed to match, on a daily basis, the surplus funds of the pool participants with the short-term borrowing requirements of the pool participants (other than the pool participants who are lenders only), thereby minimizing the need for short-term debt to be incurred by the pool participants from external sources. The pool participants in the NU Money Pool who are regulated utility subsidiaries of NU will have priority as borrowers from the NU Money Pool over those participants that are nonutility companies. 24. The funds available through the NU Money Pool will be loaned on a short-term basis to those pool participants that have short- term debt requirements. If no such short-term requirements match the amount of funds that are available for the NU Money Pool for the period such funds are available, NUSCO will invest the funds, directly or indirectly, as described below and will allocate the interest earned on such investments among the pool participants providing such funds on a pro rata basis according to the amount of the funds provided: (i) interest-bearing accounts with banks; (ii) obligations issued or guaranteed by the U.S. government and/or its agencies and instrumentalities, including obligations under repurchase agreements; (iii) obligations issued or guaranteed by any state or political subdivision thereof, provided that such obligations are rated not less than "A" (or "A-1" or "P-1" or their equivalent for short term debt) by a nationally recognized rating agency; (iv) commercial paper rated not less than "A-1" or "P-1" or their equivalent by a nationally recognized rating agency; (v) moneymarket funds; (vi) bank certificates of deposit, (vii) Eurodollar funds; and (viii) such other investments as are permitted by Section 9(c) of the Act and Rule 40 thereunder and, with respect to contributions of WMECO, approved by the Massachusetts Department of Telecommunications and Energy ("MDTE") pursuant to Massachusetts General Laws Chapter 164, Section 17A and the regulations thereunder. 25. All borrowings from and contributions to the NU Money Pool will be documented and will be evidenced on the books of each pool participant that is borrowing from or contributing surplus funds to the NU Money Pool. Any pool participant contributing funds to the NU Money Pool may withdraw those funds at any time without notice to satisfy its daily need for funds. All short- term debt through the NU Money Pool (other than from NU's External Funds) will be payable on demand, may be prepaid by any borrowing pool participant at any time without penalty and will bear interest for both the borrower and lender, payable monthly, at a rate equal to the daily Federal Funds Effective Rate (the "Fed Funds Rate") as quoted by the Federal Reserve Bank of New York. Short-term debt of pool participants derived from the proceeds of External Funds of NU will bear interest at the same rate paid by NU on such External Funds, and no such short-term debt may be prepaid by the pool participant unless NU is made whole for any additional costs that it may incur because of such prepayment. NU will be fully reimbursed for all costs that it incurs in relation to loans made through the NU Money Pool to the pool participants. (See Exhibit A.5, Terms of the NU System Money Pool). SHORT TERM DEBT AND NU MONEY POOL DEBT LIMITS 26. In the 2003 Order, the Commission imposed limits on the short-term borrowings, including those done through the NU Money Pool (except for NU and YES, which may not borrow from the NU Money Pool), of NU, CL&P, WMECO, PSNH, HWP, NAEC, NNECO, YES and Yankee Gas as set forth below and the Applicants now request that the Commission authorize the revised Short-term Debt Limits set forth below through the Authorization Period Company 2003 Order Limit Requested Limit NU $400 Million $450 Million CL&P $375 Million $450 Million WMECO $200 Million $200 Million PSNH $100 Million $150 Million HWP $ 5 Million $ 5 Million NAEC $ 10 Million $ 10 Million NNECO $ 10 Million $ 10 Million YES $ 50 Million $ 50 Million Yankee Gas $100 Million $150 Million 27. In the 2003 Order, the Commission approved the following NU Money Pool borrowing limits for the Nonutility Subsidiaries as follows: Quinnehtuk $ 10 Million NUEI $100 Million NGS $ 25 Million Select $200 Million SENY $ 10 Million RR $ 30 Million Yankee Financial $ 10 Million NorConn $ 10 Million YESCO $ 10 Million SESI $ 35 Million Boulos $ 10 Million Woods $ 10 Million. 28. In the 2003 Order, the Commission reserved jurisdiction over the Applicants' request that there be no NU Money Pool borrowing limit imposed on the Nonutility Subsidiaries. The Applicants now request that, to the extent not exempt under Rule 52, the Commission release jurisdiction over the request that there be no limit placed on the NU Money Pool borrowings of the Nonutility Subsidiaries. Under Rule 52(b) the issue and sale of any security of a nonutility subsidiary of a registered holding company is exempt from section 6(a) of the Act if: "(1) the issue and sale of the security are solely for the purpose of financing the existing business of the subsidiary company; and (2) the interest rates and maturity dates of any debt security issued to an associate company are designed to parallel the effective cost of capital of that associate company." NU management believes that, although using the Fed Funds Rate in place of calculating each participant's "effective cost of capital" as described in Rule 52 does not appear to satisfy the language of the Rule, it otherwise satisfies the Act's concerns about preventing holding company abuses, and creates a framework where "holding company abuses are unlikely to exist." Using the Fed Funds Rate is a reasonable and non-discriminatory method by which to determine interest costs. This is especially true where, as is the case here, there are many pool participants who have not issued debt to non-affiliates on which to base their "effective cost of capital." In fact, the Commission, in the release adopting Rule 52, alluded to tying a company's effective cost of capital to an index such as the Fed Funds Rate ("In proposing the amendment to rule 52, the Commission contemplated that the effective cost of capital for debt securities which have recently been issued by the purchasing associate company will be the coupon rate of interest plus all expenses . . . associated with the issue and sale of such debt; and that, in the event the purchasing associate company has not recently issued debt securities, the effective cost of capital may be tied to an appropriate index such as, but not limited to, the Federal Funds' rate or a published bond index.") (Holding Co. Act Release 35-26311, June 20, 1995, 1995 SEC Lexis 1512, *11). 29. It is also interesting to note that the Commission does not generally set a limit on the external short-term borrowings of Nonutility Subsidiaries. Thus, the Nonutility Subsidiaries are free to borrow from external sources should such Nonutility Subsidiary's borrowing needs exceed the limit imposed by the Commission. Such borrowings could result in unnecessary external debt by the NU system if there were funds available through the NU Money Pool. The result would be an inefficient use of funds by the NU System as a whole. Applicants therefore request that the Commission release jurisdiction over the amount of borrowings through the NU Money Pool of the Nonutility Subsidiaries. The maximum amount of NU Money Pool borrowings outstanding for each Nonutility Subsidiary will be determined by NU and the management of each Nonutility Subsidiary in accordance with business needs. 30. This request is substantially similar to the request granted to Ameren Corp. by the Commission in Holding Co. Act Release No. 35-27655 (February 27, 2003)(the return on funds lent through a non-state regulated subsidiary money pool did not "parallel the effective cost of capital of the associate company" but was rather the CD yield equivalent of the 30-day Federal Reserve "AA" Non-financial commercial paper composite rate and the nonutility companies were not subject to a Commission imposed money pool borrowing limit), and National Fuel Gas Company, Holding Co. Act Release No. 35-27600 (November 12, 2002) (interest rate applicable to borrowings of internal funds in a money pool made up of utility and nonutility companies are the rates for high-grade, unsecured, 30-day commercial paper sold through dealers by major corporations as quoted in the Wall Street Journal and nonutility subsidiaries did not have a Commission imposed money pool borrowing limit but rather the "maximum amount of money pool borrowings outstanding for each Eligible Borrower will be determined by [National Fuel Gas Company] and each Eligible Borrower in accordance with business needs"). ITEM 2 FEES, COMMISSIONS AND EXPENSES 1. In addition to fees associated with specific borrowing or issuances of commercial paper as set forth in Item 1 above, the fees, commissions and expenses of the Applicants expected to be paid or incurred, directly or indirectly, in connection with the transactions described above are estimated as follows: Northeast Utilities Service Company (Legal, Financial, Accounting and Other Services) Not in excess of $10,000 ITEM 3 APPLICABLE STATUTORY PROVISIONS 1. The Applicants believe that Sections 6, 7, 9(a), 10 and 12 of the Act and Rules 43, 45 and 52 thereunder are applicable to the transactions contemplated by this Application. 2. The Applicants recognize that many registered holding company systems maintain two distinct money pools, one for utility companies and one for nonutility companies. As requested by the Commission, the Applicants prepared a study on the benefits of maintaining two separate money pools instead of the one that is currently maintained. The study was filed with the Commission as an exhibit to a Rule 24 certificate filed in this File on December 23, 2003. The study found that there was no substantial benefit to the NU System in maintaining separate money pools. The study focused on historical borrowings by NU companies through the period from January 2000 through September 2003. The study found that the use of two separate money pools, one for NU's non-utility subsidiaries and one for NU's utility subsidiaries, was feasible but, if used during the test period, would not have resulted in a significant benefit to the NU system. The study used the historical money pool data to determine the change in (1) bank borrowings, (2) money market investments, (3) interest expense and (4) interest income that would have resulted from separate money pools. The study's conclusion was that net interest expense for the NU system would have increased by an aggregate of $2.7 Million over the 3.75 year period of the study. 3. However, it should be noted that the study period does not necessarily represent the typical financial condition of the NU system. For example, during the test period, the utility subsidiaries were in a positive cash position as a result of selling substantially all of their generation assets during that period and "securitizing" much of their stranded costs. This circumstance led to fewer borrowings by the utility subsidiaries (either externally or through the NU Money Pool) and fewer external borrowings by NU to fund the Nonutility Subsidiaries. In a more typical situation, it is possible that there would be more borrowings required and the use of two money pools could lead to a less efficient use of system funds. For example, such an inefficient use of system funds would exist in a situation where a Nonutility Subsidiary has excess cash and a utility subsidiary needs to borrow cash. With one money pool, the Nonutility Subsidiary could lend its excess cash through the money pool at the Fed Funds rate for use by the utility subsidiary. With two pools, the Nonutility Subsidiary's excess cash would be trapped and NU would need to borrow funds from its short-term credit facility to lend to the utility subsidiary through the utility money pool. The interest rate paid by NU for its borrowing would generally be higher than the interest earned by the Nonutility Subsidiary on its overnight investment. The end result would be an inefficient use of system cash and increased administrative costs. Accordingly, there appears to be no significant benefit to the NU System to maintain two separate money pools. 4. Within 45 days after the end of each calendar quarter, the Applicants will file certificates of partial consummation describing the maximum borrowings from and loans to the NU Money Pool during the quarter and the interest rate applied to such borrowings and loans. ITEM 4 REGULATORY APPROVALS 1. The approval of the MDTE is required pursuant to C.164, Section 17A of the Massachusetts General Laws for the lending of funds by WMECO to affiliates through the NU Money Pool. The MDTE (formerly the Massachusetts Public Utilities Commission) granted such approval on October 29, 1986 as to lending of funds to CL&P, HWP, NNECO, Quinnehtuk and RR. Until further MDTE authorization is granted, WMECO may not lend its funds to other companies through the NU Money Pool. 2. NHPUC Order No. 20,416 (March 19, 1992), authorizes PSNH to participate in the NU Money Pool. In addition, under New Hampshire statute, PSNH may not issue short-term debt in excess of 10% of its net fixed plant without prior NHPUC approval. NHPUC Order 23,841, (November 9, 2001) authorizes PSNH to issue up to $100 million in debt which is in excess of 10% of net fixed plant debt limit. PSNH has filed an application with the NHPUC seeking to increase the short-term debt authorization to $150 million. The NHPUC also has jurisdiction over the issuance by PSNH of Interest Rate Hedges. 3. To the extent any Applicant issues secured debt, the granting of such security may be subject to an order from the relevant state utility commission. ITEM 5 PROCEDURE 1. The Applicants hereby request 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.3. The Applicants respectfully request 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, but not later than June 30, 2004 as that is the date on which the authorizations granted in the 2003 Order expires. Additionally, the Applicants (i) request that there not be any recommended decision by a hearing officer or by any responsible officer of the Commission, (ii) consent to the Office of Public Utility Regulation within the Division of Investment Management assisting in the preparation of the Commission's decision, and (iii) waive 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, 2003, NU's "aggregate investment," as defined in Rule 53(a)(1), in EWGs and FUCOs was approximately $448.2 million, or approximately 55.1% of NU's average "consolidated retained earnings," also as defined in Rule 53(a)(1), for the four quarters ended December 31, 2003 ($813.8 million). With respect to Rule 53(a)(1), however, the Commission has determined that NU's financing of its investment in 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 EWG, would not have a material adverse effect on the financial integrity of the NU system, or an adverse impact on NU's public-utility subsidiaries, their customers, or the ability of State commissions to protect such public-utility customers. The 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, 2003 (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 $2,264,120 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, 2003, with consolidated debt including all short- term debt and non-recourse debt of the EWG, were as follows: As of December 31, 2003 (thousands of dollars) % Common shareholders' equity $ 2,265,086 33.5% Preferred stock 116,200 1.7 Long-term and short-term debt 2,651,267 39.2 Rate Reduction Bonds 1,729,960 25.6 $ 6,762,513 100.0 If Rate Reduction Bonds are excluded the consolidated capitalization ratio of NU as of December 31, 2003 is as follows: As of December 31, 2003 (thousands of dollars) % Common shareholders' equity $ 2,265,086 45.0 Preferred stock 116,200 2.3 Long-term and short-term debt 2,651,267 52.7 $ 5,032,553 100.0% 6. NGC has made a positive contribution to earnings by contributing $143.8 million in revenues in the 12-month period ending December 31, 2003 and net income of $38.5 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 investment in its EWG has not had an adverse impact on NU's financial integrity. ITEM 6 EXHIBITS AND FINANCIAL STATEMENTS 1. The following additional exhibits and financial statements are filed herewith: (a) Exhibits A.5 Terms of the NU System Money Pool (revised July 2003) (incorporated by reference to Rule 24 certificate filed November 17, 2003) F.3 Opinion of Counsel H.3 Form of Notice (b) Financial Statements Northeast Utilities Consolidated Balance Sheets, as of December 31, 2003, Consolidated Statements of Income and Statement of Retained Earnings for the 12 months ended December 31, 2003 and Statement of Capitalization as of December 31, 2003 (incorporated by reference to NU Annual Report on Form 10K for the year ended December 31, 2003 filed with the Commission, File No. 1-5324). ITEM 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS 1. None of the matters that are the subject of this Application involve a "major federal action" nor do they "significantly affect the quality of the human environment" as those terms are used in Section 102(2)(C) of the National Environmental Policy Act. None of the proposed transactions that are the subject of this Application will result in changes in the operation of the Applicants that will have an impact on the environment. The Applicants are not aware of any federal agency which has prepared or is preparing an environmental impact statement with respect to the transactions proposed herein." [SIGNATURE PAGE TO FOLLOW] SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the Applicants have duly caused this Application-Declaration to be signed on their behalf by the undersigned thereunto duly authorized. April 2, 2004 Northeast Utilities Northeast Utilities Service Company The Connecticut Light and Power Company Western Massachusetts Electric Company Public Service Company of New Hampshire North Atlantic Energy Corporation Holyoke Water Power Company Northeast Nuclear Energy Company Yankee Energy System, Inc. Yankee Gas Services Company The Rocky River Realty Company The Quinnehtuk Company NU Enterprises, Inc. Northeast Generation Company Northeast Generation Service Company Properties, Inc. Woods Electrical Co., Inc. Woods Network Services, Inc. E. S. Boulos Company Select Energy, Inc. Select Energy New York, Inc. Mode 1 Communications, Inc. Select Energy Services, Inc. Yankee Energy Financial Services Company Yankee Energy Services Company NorConn Properties, Inc. By: /s/ Randy A. Shoop Name: Randy A. Shoop Title: Assistant Treasurer-Finance Northeast Utilities Service Company as Agent for all of the above-named Applicants - ----------------------------------------------------------------- The 2000 Order also authorized short-term debt issuances by NAEC and NNECO. This authorization for NAEC and NNECO was not extended in the 2003 Order. The 2003 Order also authorized Select Energy New York, Inc. ("SENY") and R. M. Services, Inc. to participate in the NU Money Pool. At the time of filing of this amendment, NU is in the process of merging SENY into its parent, Select, and thereafter SENY will no longer be a participant in the NU Money Pool. RMS is also no longer a participant in the NU Money Pool. Although the authorization period for the short-term debt for NU and the Utility Borrowers does not expire until June 30, 2006, certain of the Utility Borrowers are seeking an increase in their short-term debt limit and so the Applicants are seeking a three year authorization period for all requests herein. See, Great Plains Energy Incorporated, Holding CO. Act Release No. 35-27784, 70-9861 (December 29, 2003, Xcel Energy, Inc., Holding Co. Act Release No. 27731 (September 30, 2003). Rate Reduction Bonds (including Rate Reduction Certificates) are state-authorized bonds issued by special purpose entities formed by CL&P, WMECO and PSNH, respectively, and are non-recourse to each respective utility. The Commission has, by order dated March 7, 2000 (HCAR No. 27148)("Rule 53(c) Order"), authorized NU to invest an amount not to exceed $481 million or 83% of its "average consolidated retained earnings" in NGC. In addition, NU has filed an application with the Commission seeking an increase in its authorized EWG investment amount to an aggregate of $1 billion. (See File No. 70-10177). NU has filed an application with the Commission seeking authorization to invest up to $500 million in excess of the Rule 58 limitations in Rule 58 companies (see File No. 70-10177). The aggregate amount of unsecured debt that can be incurred by CL&P is also restricted by the provisions in its charter concerning its preferred stock. CL&P has authorization from the holders of its preferred stock, through March 31, 2014, to issue securities representing unsecured indebtedness up to a maximum of 20% of its capitalization. Based on its capitalization as of December 31, 2003, CL&P is limited to $503.1 million of unsecured indebtedness, an amount in excess of the amount for which authorization is sought hereunder. The aggregate amount of short-term debt that can be incurred by PSNH is restricted by New Hampshire Statute and Regulations to an amount equal to 10% of its net fixed plant without further New Hampshire Public Utilities Commission ("NHPUC") approval. Any short-term debt of PSNH in excess of 10% of net fixed plant would require NHPUC approval and thus would be exempt from Commission jurisdiction pursuant to Rule 52(a). PSNH currently has approval from the NHPUC to issue up to $100 million in short-term debt, which is in excess of 10% of net fixed plant debt limit, (NHPUC Order 23,841, November 9, 2001) and has filed an application to increase this limit to $150 million. However, in the event the NHPUC order is revoked, lapses or is rescinded, or to the extent the issuance of short-term debt in an amount up to $100 million is not exempt pursuant to rule 52, PSNH wishes to have the flexibility to issue short-term debt pursuant to Commission authorization hereunder. - ----------------------------------------------------------------- EX-99 3 nuu1aexhf040204.txt EXH. F.3 040204 EXHIBIT F.3 April 2, 2004 Securities and Exchange Commission 450 Fifth Street, N.W. Judiciary Plaza Washington, D.C. 20549 Re: Northeast Utilities et al. File No. 70-9755 Ladies and Gentlemen: I am Assistant General Counsel of Northeast Utilities Service Company("NUSCO"), a service company affiliate of Northeast Utilities ("NU"). In connection with the transactions contemplated by the Post-Effective Amendment No. 5 (Amendment No.8) to the Application/Declaration, as amended, in the above referenced file (the "Application"), I have acted as counsel to NU, The Connecticut Light and Power Company ("CL&P"), Western Massachusetts Electric Company ("WMECO"), Holyoke Water Power Company ("HWP"), Northeast Utilities Service Company ("NUSCO") Public Service Company of New Hampshire ("PSNH"), North Atlantic Energy Corporation ("NAEC") Yankee Energy System, Inc. ("YES") and Yankee Gas Services Company ("Yankee Gas") and the other applicants described therein (collectively, the "Applicants"). This opinion is given to you with respect to the transactions described in the Application pursuant to your Instructions as to Exhibits to applications and declarations filed on Form U-1. Except as otherwise defined herein, terms used herein shall have the meanings given them in the Application. In connection with this opinion, I have reviewed or caused to be reviewed the Application, and the exhibits thereto, the Applicants' charter documents, as amended to the date of this opinion, the proceedings of their shareholders and boards of directors to date and such other papers, documents and records, and have made or caused to be made such examination of law, as I have deemed relevant and necessary in order to give this opinion. I have assumed that in respect of the Application an appropriate order of the Commission under the Public Utility Holding Company Act of 1935 will be issued and all actions of the Applicants will be in conformity therewith. The opinions set forth herein are qualified in their entirety as follows: (a) every opinion rendered herein is expressly subject to the consummation of such transactions in accordance with the Application; (b) no opinion is expressed as to any laws other than the federal laws of the United States and the laws of the States of Connecticut and New Hampshire and of the Commonwealth of Massachusetts; (c) insofar as any opinion relates to the Declaration of Trust of NU or the Certificate of Incorporation or Bylaws of any other Applicant, I have assumed that the Declaration of Trust and that Certificate and those Bylaws will not be amended between now and the time the transactions contemplated by the Application are consummated; and (d) no opinion is expressed as to the securities laws of any state. Based on and subject to the foregoing, I am of the opinion that: 1. All state laws applicable to each of the transactions for which the Commission's approval is sought in the Application will have been complied with at the time each transaction is consummated. 2. Each of the Applicants are validly organized and duly existing under the laws of their respective state of organization and any debt securities issued by any such Applicant pursuant to the authorization sought in the Application will be the valid and binding obligation of such company. 3. Debt securities acquired by the Applicants through the NU System Money Pool pursuant to the authorization sought in the Application will be legally acquired. 4. The consummation of the transactions for which the Commission's approval is sought in the Application will not violate the legal rights of the holders of any securities issued by any of the Applicants or any associate company of such Applicants. I hereby consent to the use of this opinion in connection with the filing of the Application. I am a member of the Bar of the State of New York. As to matters involving the laws of other jurisdictions, I have made a study of such laws and consulted with lawyers employed by NUSCO who are admitted to the Bars of such other jurisdictions. Very truly yours, /s/ Jeffrey C. Miller Jeffrey C. Miller Assistant General Counsel Northeast Utilities Service Company EX-99 4 nuu1aexhh040204.txt EXH.H.3 NOTICE 040204 EXHIBIT H.3 FORM OF NOTICE Notice is hereby given that the following filing(s) has/have been made with the Commission under provisions of the Act and rules promulgated under the Act. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendment(s) is/are available for public inspection through the Commission's Branch of Public Reference. Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by _________, 2004, to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549- 0609, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below. Proof of service (by affidavit or, in the case of an attorney at law, by certificate) should be filed with the request. Any request for hearing should identify specifically the issues of facts or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After _______, 2004 the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective. Northeast Utilities, et al. (70-9755) Northeast Utilities ("NU"), located at 174 Brush Hill Avenue, West Springfield, MA 01090-0010, a registered holding company under the Act, Northeast Utilities Service Company ("NUSCO"), its wholly-owned service company subsidiary, located at 107 Selden Street, Berlin, CT 06307, and NU's wholly-owned public-utility subsidiaries, Western Massachusetts Electric Company ("WMECO"), located at 174 Brush Hill Avenue, West Springfield, MA 01090-0010, The Connecticut Light and Power Company ("CL&P") and Northeast Nuclear Energy Company ("NNECO"), both located at 107 Selden Street, Berlin, CT 06307, Holyoke Water Power Company ("HWP"), located at One Canal Street, Holyoke, MA 01040, Public Service Company of New Hampshire ("PSNH") and North Atlantic Energy Corporation ("NAEC"), both located at 780 North Commercial Street, Manchester, NH 03101, and NU's wholly-owned nonutility subsidiaries, NU Enterprises, Inc. ("NUEI"), a wholly-owned nonutility holding company subsidiary of NU and its direct and indirect wholly-owned subsidiaries, Northeast Generation Company ("NGC"), Northeast Generation Services Company ("NGS"), ES Boulos Company ("Boulos"), Woods Electrical Company, Inc. ("Woods"), Woods Network Services, Inc. ("Woods Network"), Select Energy, Inc. (Select Energy"), Select Energy New York, Inc. ("SENY"), Mode 1 Communications, Inc. ("Mode 1"); Yankee Energy System, Inc. ("YES"), a wholly-owned holding company subsidiary exempt under 3(a)(1) of the Act by rule 2 and its wholly-owned subsidiaries, Yankee Gas Services Company ("Yankee Gas"), a gas public-utility, Yankee Energy Financial Services Company ("Yankee Financial"), Yankee Energy Services Company ("YESCO") and NorConn Properties, Inc. ("NorConn"); The Rocky River Realty Company ("RR"), Properties, Inc. ("Properties") and The Quinnehtuk Company ("Quinnehtuk"), all located at 107 Selden Street, Berlin, CT 06307; Select Energy Services, Inc., (formerly HEC Inc.) ("SESI"), located at 24 Prime Parkway, Natick, MA 01760 (collectively, the "Applicants"), have filed a post- effective amendment to their application-declaration ("Application") under sections 6(a), 7, 9(a), 10, 12(b), of the Act and rules 43, 45 and 52. I. Background NU has seven public-utility company subsidiaries, CL&P, WMECO, PSNH, Yankee Gas, HWP, NAEC and NNECO. CL&P, WMECO and PSNH engage, among other things, in the sale of electric energy at retail and Yankee Gas engages in the sale of natural gas at retail. Prior to the sale by the NU system of all of its nuclear assets, NAEC and NNECO were an owner and a manager, respectively, of various nuclear generating assets. As noted above, YES is an intrastate exempt holding company subsidiary of NU, CL&P, WMECO, PSNH, YES and Yankee Gas are referred to collectively below as the "Utility Borrowers." Applicant nonutility subsidiaries of NU are: NUSCO, the NU system service company; NGC, an exempt wholesale generator ("EWG"); NUEI, a nonutility holding company; RR, Properties, Quinnehtuk and NorConn, each a real estate company; SESI, an energy services company; Select, SENY, NGS, Woods, Boulos and YESCO, each a rule 58 company; Mode 1 and Woods Network, each an exempt telecommunications company under section 34 of the Act ("ETC"); and Yankee Financial, a financial services company. By order dated June 30, 2003 (the "2003 Order"), the Commission authorized NU, CL&P, WMECO, PSNH, YES and Yankee Gas to enter into short-term unsecured debt within specified limits and parameters and interest rate hedging transactions, all through June 30, 2006. In addition, the 2003 Order authorized all of the Applicants, except NUSCO, to enter into short-term debt transactions with NU and to extend credit to, and acquire promissory notes from, one another through their participation in the NU Money Pool subject to certain restrictions through June 30, 2004, pending the submission by the Applicants of a feasibility study concerning the creation of a separate money pool for nonutility subsidiaries of NU. The 2003 Order also authorized NUSCO to administer the NU Money Pool. The Applicants state that they have submitted such a study on the benefits of maintaining two separate money pools instead of the one that is currently maintained and filed it with the Commission as an exhibit to a Rule 24 certificate filed in this File on December 23, 2003. According to Applicants the study focused on historical borrowings by NU companies through the period from January 2000 through September 2003. Applicants state that the study found that the use of two separate money pools, one for NU's non- utility subsidiaries and one for NU's utility subsidiaries, was feasible but, if used during the test period, would not have resulted in a significant benefit to the NU system. Applicants now seek the following authorizations through June 30, 2007 (the "Authorization Period"): 1. extension of the Commission authorization for NU and the Utility Borrowers to issue short-term unsecured debt to unaffiliated third parties. Although the authorization period for the short-term debt for NU and the Utility Borrowers does not expire until June 30, 2006, certain of the Utility Borrowers are seeking an increase in their short- term debt limit and so the Applicants are seeking a three- year authorization period for all requests; 2. increase in the short-term debt limits imposed by the 2003 Order on certain of the Utility Borrowers; 3. extension of the reservation of jurisdiction on the request for authorization for the Utility Borrowers to issue short-term secured debt, pending completion of the record; 4. extension of the authorization for NU and the Utility Borrowers to enter into interest rate hedging transactions ("Interest Rate Hedges") related to their short- term debt transactions; 5. continuation of the NU Money Pool, with NUSCO as the administrator and the other Applicants as participants; 6. authorization for Properties to participate in the NU Money Pool both as a borrower and a lender; and 7. release of the Commission's reservation of jurisdiction over the removal of money pool borrowing limits of the nonutility subsidiaries. II. The Proposed External Financings. A. General Terms and Conditions. Financings with third parties by NU and the Utility Borrowers will continue to be subject to the conditions imposed by the 2003 Order (the "Financing Parameters"). B. Use of Proceeds. The proceeds from the short-term debt of NU and the Utility Borrowers authorized by the Commission pursuant to this Application will be used for (i) general corporate purposes, including investments by and capital expenditures of NU and its subsidiaries, including, without limitation, the funding of future investments in EWGs, foreign utility companies (each to the extent permitted under the Act or Commission order), rule 58 subsidiaries and ETCs, (ii) the repayment, redemption, refunding or purchase by NU or any subsidiary of any of its own securities from non-affiliates pursuant to rule 42, and (iii) financing working capital requirements of NU and its subsidiaries. C. Short-Term Debt Limits. The Applicants seek external short-term debt financing authorization for NU and the five Utility Borrowers, subject to aggregate limits described below. The short-term debt authorization for HWP, NAEC and NNECO is limited to borrowings through the NU Money Pool, also described below. The short-term debt of NU, CL&P, WMECO, PSNH, HWP, NAEC, NNECO, YES and Yankee Gas outstanding at any one time, whether through external financings, pursuant to the authority requested in this Application, will not exceed the following: ____________________________________________________________ Company Aggregate Limits NU $ 450 Million CL&P $ 450 Million WMECO $ 200 Million PSNH $ 150 Million HWP $ 5 Million NAEC $ 10 Million NNECO $ 10 Million YES $ 50 Million Yankee Gas $ 150 Million ____________________________________________________________ With respect to the Utility Borrowers, as described below, these limitations would include both unsecured and secured debt amounts. D. Northeast Utilities Short-Term Debt. NU requests that the Commission extend the authority granted in the 2003 Order, to issue and sell, through the Authorization Period, short-term unsecured debt in an aggregate principal amount at any time outstanding not to exceed $450 million. NU states that the short-term unsecured debt of NU will take a variety of forms, including commercial paper and notes to banks or other financial institutions, and will be on terms that are generally available to borrowers with comparable credit ratings and that all NU short-term unsecured debt will have maturities of less than one year from the date of issuance. Subject to its short-term debt limit and the Financing Parameters, NU intends to renew and extend outstanding short- term debt as it matures, to refund such short-term debt with other similar short-term debt, to repay such short-term debt or to increase the amount of its short-term debt from time to time. E. Utility Borrowers' Short-Term Unsecured and Secured Debt. The Utility Borrowers request that the Commission extend the authority granted in the 2003 Order, to issue and sell, through the Authorization Period, short-term unsecured debt, on terms that are generally available to borrowers with comparable credit ratings, subject to the applicable debt limits, Financing Parameters and the same terms as are applicable to NU, described above. In addition, the Utility Borrowers request the Commission to reserve jurisdiction, through the Authorization Period, over their request to issue and sell short-term secured debt, on terms that are generally available to borrowers with comparable credit ratings, pending their completion of the record. In all other respects the proposed short-term secured debt would be subject to the applicable debt limits, Financing Parameters and, to the extent appropriate, the same terms as are applicable to NU. Subject to the applicable short-term debt limits and the Financing Parameters, discussed above, as in the case of NU, the Utility Borrowers intend to renew and extend outstanding short-term debt as it matures, to refund such short-term debt with other similar short-term debt, to repay such short- term debt or to increase the amount of their short-term debt from time to time. NU and the Utility Borrowers commit that, apart from the securities issued for the purpose of funding money pool operations or in the form of commercial paper or short-term bank facilities, no securities may be issued in reliance upon the Order issued in this file during the Authorization Period, unless: (i) the security to be issued, if rated, is rated investment grade; (ii) all outstanding debt securities of the issuer that are rated are rated investment grade; and (iii) all outstanding debt 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 Securities Exchange Act of 1934. NU and the Utility Borrowers request that the Commission reserve jurisdiction over the issuance by NU and the Utility Borrowers of any securities that do not meet these conditions. III. Authorization to Engage in Interest Rate Hedge Transactions. NU and the Utility Borrowers also request that the Commission extend its authorization through the Authorization Period for NU and the Utility Borrowers to enter into interest rate hedging transactions with respect to its outstanding indebtedness ("Interest Rate Hedges"), subject to the same limitations and restrictions as set forth in the 2003 Order. IV. The NU Money Pool. The Applicants request authorization to continue the NU Money Pool through the Authorization Period, with NUSCO as the NU Money Pool administrator. The Applicants also request continued participation in the NU Money Pool and authorization for Properties to participate in the NU Money Pool both as a borrower and Lender. The Pool Participants, other than NU, YES, Mode 1, Woods Network and NGC, request authority to continue to enter into, from time to time, short-term unsecured debt transactions through the NU Money Pool, to contribute surplus funds to the NU Money Pool and to lend to (and acquire promissory notes from) one another through the NU Money Pool. NU, YES, Mode1, Woods Network and NGC also request authority solely to contribute surplus funds and to lend to the Pool Participants through the NU Money Pool. Finally, the Applicants request that the Commission release jurisdiction over the request that there be no limit placed on the NU Money Pool borrowings of the nonutility subsidiaries. Under Rule 52(b) the issue and sale of any security of a nonutility subsidiary of a registered holding company is exempt from section 6(a) of the Act if: "(1) the issue and sale of the security are solely for the purpose of financing the existing business of the subsidiary company; and (2) the interest rates and maturity dates of any debt security issued to an associate company are designed to parallel the effective cost of capital of that associate company." According to the Applicants, using the Fed Funds Rate in place of calculating each participant's "effective cost of capital" as described in Rule 52 satisfies the Act's concerns about preventing holding company abuses, and creates a framework where "holding company abuses are unlikely to exist." Applicants state that using the Fed Funds Rate is a reasonable and non-discriminatory manner to assess interest costs, especially where, as is the case here, there are so many pool participants who have not issued debt to non-affiliates on which to base their "effective cost of capital" and that the Commission, in the release adopting Rule 52, alluded to tying a company's effective cost of capital to an index such as the Fed Funds Rate. For the Commission, by the Division of Investment Management, under delegated authority. - ------------------------------------------------------------ CL&P's aggregate unsecured debt is also restricted by charter provisions relating to its preferred stock. CL&P is authorized by its preferred stockholders, through March 31, 2014, to issue securities representing unsecured indebtedness to a maximum of 20% of its capitalization. Based on its capitalization as of December 31, 2003, CL&P is limited to an aggregate of $501 million of unsecured indebtedness, which exceeds the authorization sought here. PSNH aggregate short-term debt is restricted by New Hampshire law to an amount equal to 10% of its net fixed plant without further New Hampshire Public Utilities Commission ("NHPUC") approval. Any short-term debt of PSNH in excess of 10% of net fixed plant would require NHPUC approval and would be exempt from this Commission's jurisdiction pursuant to rule 52(a). PSNH currently has approval from NHPUC to issue up to $100 million in short- term debt, which is in excess of 10% of net fixed plant debt limit, for general corporate purposes (NHPUC Order 23,841, November 9, 2001) and has filed an application with the NHPUC seeking an increase in such authority to $150 million. However, in the event the NHPUC order is revoked, lapses or is rescinded or issuance of short-term debt in an amount to $100 million is not exempt pursuant to rule 52, PSNH wishes to have the flexibility to issue such debt pursuant to this Commission's authorization. - ------------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----