POS AMC 1 HEC U-1/A AMENDMENT #9 - DOCUMENT File No. 70-8076 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 9 (Post-Effective Amendment 1) to APPLICATION/DECLARATION ON FORM U-1 under THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 (The "Act") NORTHEAST UTILITIES HEC INC. 174 Brush Hill Avenue 24 Prime Parkway West Springfield, MA 01089 Natick, MA 01760 HEC ENERGY CONSULTING CANADA INC HEC INTERNATIONAL 285 YORKLAND BLVD CORPORATION Willowdale, Ontario 24 Prime Parkway M2J 1S5 Natick, MA 01760 HECI 1800 Harrison St. Oakland, CA 94612 (Name of company filing this statement and address of principal executive office) NORTHEAST UTILITIES (Name of top registered holding company) Robert P. Wax 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: Jeffery D. Cochran Counsel Northeast Utilities Service Company P.O. Box 270 Hartford, CT 06141-0270 The application/declaration in this proceeding, as previously amended, is further amended as follows: ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS Northeast Utilities ("NU"), a registered holding company, HEC Inc. ("HEC"), its non-utility subsidiary formed in 1990 to provide energy management services, HEC Energy Consulting Canada ("HEC Canada") and HEC International Corporation ("HEC International"), wholly-owned subsidiaries of HEC, and HECI, a joint venture subsidiary that is fifty percent owned by HEC International and fifty percent owned by a non-affiliate (collectively, except for the non-affiliate, "Applicants"), file this Amendment No. 9 (Post-Effective Amendment No. 1) to their application/declaration (the "Application") on Form U-1, as heretofore amended, to the Securities and Exchange Commission (the "Commission") for the purpose of obtaining authorization for HEC and its subsidiaries to provide energy management and demand-side management ("DSM") services without regard to the 50% Limitation, as described below. NU and HEC management believe that the 50% Limitation is not mandated by the Act or a recent Commission order (hereinafter referred to) to limit the Applicants' activities and should be removed. In addition, Applicants request authorization to form joint ventures and other agreements with utilities outside New England and New York, at any time during the period through June 30, 1996, for purposes of joining forces with these utilities, on a joint ownership basis, to market and provide energy management, DSM and consulting services (i.e., those services HEC and its subsidiaries have previously been authorized to provide) within designated regions without the necessity of subsequent Commission approval of the individual joint ventures. Applicants also request authorization to invest funds, and/or contribute property or other consideration to pay for their share of such joint ventures in amounts (and/or value) of no greater than $1 million per joint venture and no more than $8 million in total for all such joint ventures invested through June 30, 1996. The 1990, 1993 & 1994 Orders The 1990 Order authorized NU's organization of HEC, NU's acquisition of HEC's capital stock and HEC's provision of energy management services. Pursuant to the 1990 Order, HEC was authorized to provide various energy management services and DSM measures, without limitation, to customers in New England and New York (the "Region"), and limited services outside the Region. By order dated September 30, 1993 (HCA Rel. 35-25900, the "1993 Order"), the Commission authorized HEC to provide additional energy management and DSM services and to enter the consulting business in the energy management and DSM area. The 1993 Order provided that revenues (other than consulting revenues) attributed to customers outside the Region would not exceed revenues (other than consulting revenues) attributed to customers within the Region (the "50% Limitation"). In general, the 1993 Order imposed no limitations on consulting revenues. By order dated August 19, 1994 (HCA Rel. 35-26108, the "1994 Order"), the Commission authorized HEC to organize and acquire HEC Canada, an Ontario corporation, and HEC International, a Massachusetts corporation. HEC Canada was organized to provide energy management, DSM and consulting services to customers located in Canada. HEC International was organized to participate, on a fifty-fifty basis, in a joint venture with Barakat & Chamberlin, an unaffiliated company, to form HECI, a subsidiary of HEC International. HECI was formed to provide energy management, DSM and consulting services to customers located in the western United States (Washington, Oregon, California, Montana, Idaho, Wyoming, Colorado, Utah, New Mexico, Nevada, and Arizona) and in foreign countries (except Canada). Under the 1994 Order, the revenues (except consulting revenues) of HEC Canada and HEC's share of HECI's revenues are combined with HEC's revenues for purposes of the 50% Limitation. HEC and its subsidiaries provide energy management, DSM services and consulting services (as described in the 1993 and 1994 Orders) to their customers. As of December 31, 1994, HEC and its subsidiaries had assets of $7.5 million, estimated revenues of $20.7 million and estimated net income of $221,000 for 1994. 50% Limitation The Applicants herein request that the Commission amend its prior orders to authorize HEC's and HEC's direct and indirect subsidiaries' (hereinafter, referred to collectively as "HEC's") activities, as authorized in the 1990, 1993,and 1994 Orders, without regard to the 50% Limitation for the following reasons: HEC was originally formed to provide improved energy management and DSM services primarily to customers in the Region, in order to hold down the need for additional generating capacity and to contain the associated costs. The Region's situation has changed since 1990. It now has surplus generating capacity. Although recent conservation expenditures by some utilities in the Region have decreased slightly, conservation has become a critical component of the integrated resource planning of most utilities in the United States. In addition, conservation is becoming an important part of the customer service and marketing efforts of some utilities in the Region (including the NU System operating companies -- i.e., The Connecticut Light and Power Company, Western Massachusetts Electric Company, and Public Service Company of New Hampshire) and elsewhere. As a result of its emphasis on engineering and technical skills, HEC is uniquely qualified as a provider of energy management and DSM services. HEC has attained a recognized position in its market. Consequently, retaining and expanding HEC's unique skills and expertise in energy management and DSM services is important to the NU System's competitive position. For example, maintaining HEC's position on the cutting edge of its business provides the NU System operating companies with direct access to skills and knowledge that are critical to serving large electric customers in their increasingly competitive business. Although the 50% Limitation has not yet become an impediment to HEC's business outside the Region, that development is a definite possibility considering that other areas of the United States outside the Region and many foreign countries have a substantial need for the type of competitively-priced energy management and DSM services that HEC provides when compared to demand for such services within the Region. The Applicants believe that removal of the 50% Limitation is necessary and appropriate in the public interest. Energy management and DSM services are in the public interest within and outside the United States. More efficient use of energy and other resources reduces the adverse environmental and other effects of increased generation and unnecessary consumption of finite resources. Further, as the Commission noted in a recent order involving a similar request by one of HEC's competitors, Congress has confirmed the "strong national interest in promoting energy conservation and efficiency." Eastern Utilities Associates (HCA Rel. 35-26232; File 70-7287, February 14, 1995)(hereinafter, "Eastern Utilities") at 8. HEC, as a leader in energy management and DSM services, has the potential to provide its services in a broad range of circumstances world-wide. The experience and skills that HEC can gain from such activity will improve HEC's service to customers within the Region. HEC's business has grown substantially since its organization. Through effective marketing and cost management, HEC's business has produced increasingly positive operating results, to the benefit of the NU System investors. Removing the 50% Limitation on HEC's business should help insure HEC's continued positive trends and leading competitive position. Also, removing the 50% Limitation on HEC's business will not adversely impact the NU System or the customers of the NU System operating companies. HEC's projects normally involve no more than a small investment of funds for relatively short time periods. Those projects serve customers in various geographic areas and industries. Consequently, the risk of HEC's activities is diversified and the potential for adverse impact on NU is minimized. Further, NU's total investment of capital in HEC and its authorized amount of lending through the System Money Pool to HEC are small compared to the NU System's assets and revenues. See the Commission's June 25,1993 Order (HCA Rel. No. 35-25836) authorizing HEC to participate in the Money Pool, and its December 28, 1994 Order (HCA Rel. No. 35-26207) authorizing HEC's current borrowing limit of $11 million. NU and its shareholders will bear any risks associated with HEC's increased activities outside of the Region. Applicants will not allocate an inappropriate amount of time to HEC's activities and expect that the core utility business within the Region will remain the primary focus of their management efforts. Applicants believe that the 50% Limitation on HEC's business is not mandated by the Act or Commission precedent. See Eastern Utilities; Jersey Central Power & Light Company HCA Rel. 35-24348 (March 18, 1987); Southern Company HCA Re. 35-22315 (December 18, 1981) amending HCA Rel. 35-22132 (July 17, 1981). HEC engages in a low-risk, small-investment, electric utility- related business. HEC's goal is to earn the maximum possible rate of return for the benefit of NU's investors, while developing and retaining highly skilled professionals, who are available to serve the energy management and DSM needs of the NU System operating companies and their customers. Joint Ventures with Utilities HEC also requests Commission authorization to form joint ventures with utilities serving customers in different areas outside of the Region, without subsequent Commission approval. These joint ventures would be organized to provide the services that HEC currently provides. The services of each such joint venture would be provided to customers located in a defined region that would include, but not be limited to, the service areas of the participating utility. These joint ventures would combine the participating utility's knowledge of the regional market and its established relationships with its customers with HEC's technical expertise and competitive marketing capabilities. In this way, the complementary capabilities of the joint venture participants would be efficiently joined in a comprehensive market offering. The joint venture structure reduces HEC's risk of expanding in a new regional market by sharing the requisite financial investment and using existing capabilities. The utilities benefit by adding more services to their offerings to retain or acquire new customers and by sharing the investment risk with HEC. Funding of Joint Ventures The joint ventures between HEC and the utilities would usually be formed on a 50/50 ownership basis, although other equity sharing may be negotiated. HEC and the participating utility would each advance money, property or other consideration to the joint venture (all of which will be treated as open account advances) for their respective interests in the joint venture as needed for the joint venture's operations during the period through June 30, 1996. The joint ventures will reimburse HEC for its cost of money allocable to such advances. Similarly, each of the joint ventures would also reimburse the participating utility for its advance at a rate not to exceed the utility's cost of money. Some of the joint ventures' expenses may be paid directly by HEC or the participating utility. For those expenses, the joint venture participant paying the bill will invoice the other participant's share of the paid expense. Direct payment of the joint venture's expenses would be treated as an advance to the joint venture with the same term and interest rate as the open account advances described above. HEC's outstanding advances plus the value of any other contributions to a joint venture combined with HEC's direct payment of any costs associated with that venture would not exceed $1 million at any time for any of these joint ventures, unless further Commission authorization is obtained. In aggregate, HEC's outstanding advances and other payments to all such joint ventures will not exceed $8 million at any time, unless further Commission approval is obtained. The joint ventures would enter into agreements with HEC (and the participating utilities) to subcontract for their services. Those services would be provided at cost pursuant to Rule 90 and would not be applied toward the $1 million per venture limit noted in the previous paragraph. These subcontract agreements would include provisions prohibiting HEC and the participating utility from competing with the joint venture. As the level of their business activities increases, some of these joint ventures may hire staff to manage the joint venture's activities. Earnings from the joint ventures' operations will be accounted for on at least a quarterly basis. Neither NU nor HEC shall become, as a result of the provision of consulting, energy management or DSM services described herein, a company that owns, operates or is an equity participant in (1) any electric utility company, as defined in section 2(a)(3) of the Act, (2) any exempt wholesale generator, as defined in the Energy Policy Act of 1992, or (3) any foreign utility company, as defined in the Energy Policy Act. In addition, neither NU nor HEC will have any rights or obligations under a service, sales or construction contract with an exempt wholesale generator or a foreign utility company as a result of the proposed transactions, except as permitted by the Act. The NU System is in compliance with Rule 53(a), (b), and (c), as demonstrated by the following determinations: (i) NU's aggregate investment in the EWGs and FUCOs (i.e., amounts invested in or committed to be invested in EWGs and FUCOs, for which there is recourse to NU) does not exceed 50% of the NU System's consolidated retained earnings as reported for the four most recent quarterly periods on NU's Form 10-K and 10-Qs. At December 31, 1994, the ratio of such investment $5,417,000) to such consolidated retained earnings ($946,988,000) was 0.6%. NU has also made investments related to a gas-fired generating project (the "Project") that is being constructed in Argentina. On March 3, 1995, the Argentinian company (Central Termica San Miguel de Tucuman, S.A., "C.T.S.M.T.") that will own and operate the Project filed a Form U-57 notifying the Commission of foreign utility company status. As of December 31, 1994, NU had made investments of $5,000,000 associated with the Project. (ii) Encoe Partners and C.T.S.M.T. (NU's only EWGs or FUCOs at this time) maintain 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. (iii) No employees of the NU System's public utility companies have rendered services to Encoe partners or C.T.S.M.T. (iv) NU has submitted (a) a copy of each Form U-1 and Rule 24 certificates that have been filed with the Commission under Rule 53 and (b) a copy of Item 9 of Form U5S and Exhibits G and H thereof to each state regulator having jurisdiction over the retail rates of the Operating Companies. (v) Neither NU nor any NU subsidiary has been the subject of a bankruptcy or similar proceeding unless a plan of reorganization has been confirmed in such proceeding. In addition, NU's average consolidated retained earnings for the four most recent quarterly periods has not decreased by 10% or more from the average for the previous four quarterly periods. (vi) In the previous fiscal year, NU did not report operating losses attributable to its investment in Encoe Partners, unless such losses did not exceed 5 percent of NU's consolidated retained earnings. ITEM 2. FEES, COMMISSIONS AND EXPENSES The estimated fees and expenses payable in connection with the transactions contemplated by this Amendment 9 are as follows: Commission filing fee $2,000 Legal fees and expenses $3,500 Miscellaneous related expenses (such as telephone courier and travel) $ 200 TOTAL $5,700 ITEM 3. APPLICABLE STATUTORY PROVISIONS The sections of the Act and the rules or exemptions thereunder that Applicants consider applicable to the transactions and the basis for exemption therefrom are set forth below: Transactions Section 11(b)(1) Formation of, and participation Sections 9 and 10 in joint ventures by Applicants Rule 45(a) Services Provided by HEC Sections 13(b) to the joint ventures Rules 87, 90 and 91 ITEM 4. REGULATORY APPROVAL No commission, other than this Commission, has jurisdiction over any of the proposed transactions described in this application/declaration. ITEM 5. PROCEDURE Applicants respectfully request, pursuant to Rule 23(c) of the Commission's Rules and Regulations under the Act, that the Commission permit this Amendment to become effective on or before April 30, 1995, or as soon thereafter as practicable. Applicants hereby waive any recommended decision by a hearing officer or by any other responsible officer of the Commission and 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 forthwith. Applicants consent that the Office of Public Utility Regulation within the Division of the Investment Management may assist in the preparation of the Commission's decision and/or Order unless the Office opposes the transactions covered by this application/declaration. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS A. Exhibits Exhibit A-1 - Copy of Articles of Organization of HEC (previously filed)* Exhibit A-2 - Copy of by-laws of HEC (previously filed)* Exhibit B - Form of Joint Venture Agreement (to be filed by amendment) Exhibit F-1 - Opinion of Counsel (to be filed by amendment) Exhibit G - Form of Notice (filed herewith) *Filed as exhibits to its 1990 U-1 application/declaration (File No. 70- 7698). B. Financial Statements 1.1 Balance Sheet - HEC Inc., as of December 31, 1994, actual and pro-forma (to be filed by amendment). 1.2 Statement of Income - HEC Inc., as of December 31, 1994, & Retained Earnings actual and pro-forma (to be filed by amendment). ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS It is believed that the granting and permitting to become effective of this Amendment will not constitute a major federal action significantly affecting the quality of the human environment. No other federal agency has prepared or is preparing an environmental impact statement with respect to the proposed transactions. SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this Amendment to their application/declaration to be signed on their behalf by the undersigned thereunto duly authorized. NORTHEAST UTILITIES HEC INC. HEC ENERGY CONSULTING CANADA INC. HEC INTERNATIONAL CORPORATION HECI By /s/Jeffery D. Cochran ____________________ Jeffery D. Cochran Their Counsel Dated: March 28, 1995 Exhibit G PROPOSED FORM OF NOTICE Northeast Utilities HEC Inc. HEC Energy Consulting Canada Inc. HEC International Corporation HECI Northeast Utilities ("NU"), a registered holding company, HEC Inc.("HEC'), a wholly-owned subsidiary of NU, HEC Energy Consulting Canada Inc. ("HEC Canada") and HEC International Corporation ("HEC International"), wholly- owned subsidiaries of HEC, and HECI a joint venture subsidiary 50% owned by HEC International have filed Amendment No. 9 (Post-Effective Amendment No. 1) (the "Amendment") to an application/declaration on Form U-1 (File No. 70-8076). The Amendment is filed pursuant to Sections 9, 10, 11(b)(1), and 13(b) of the Public Utility Holding Company Act and Rules 45(a), 87, 90 and 91 promulgated thereunder. By order September 30, 1993 (HCA Rel. 35-25900, the "1993 Order"), the Commission authorized HEC to provide additional energy management and DSM services and to enter the consulting business in the energy management and DSM area. The 1993 Order provided that revenues (other than consulting revenues) attributed to customers outside the Region would not exceed revenues (other than consulting revenues) attributed to customers within the Region (the "50% Limitation"). In general, the 1993 Order imposed no limitations on consulting revenues. By order dated August 19, 1994 (HCA Rel. 35-26108, the "1994 Order"), the Commission authorized HEC to organize and acquire HEC Canada, an Ontario corporation, and HEC International, a Massachusetts corporation. HEC Canada was organized to provide energy management, DSM and consulting services to customers located in Canada. HEC International was organized to participate, on a fifty-fifty basis, in a joint venture with an unaffiliated company, to form HECI, a subsidiary of HEC International. HECI was formed to provide energy management, DSM and consulting services to customers located in the western United States (Washington, Oregon, California, Montana, Idaho, Wyoming, Colorado, Utah, New Mexico, Nevada, and Arizona) and in foreign countries (except Canada). Under the 1994 Order, the revenues (except consulting revenues) of HEC Canada and HEC's share of HECI's revenues are combined with HEC's revenues for purposes of the 50% Limitation. The Applicants request authorization for HEC and its subsidiaries to provide energy management and demand-side management ("DSM") services without regard to the 50% Limitation. NU and HEC management believe that the 50% Limitation is not mandated by the Act or a recent Commission order (See Eastern Utilities Associates HCA Rel. 35-26232 (February 14, 1995) and should be removed. In addition, Applicants request authorization to form joint ventures and other agreements with utilities outside New England and New York, at any time during the period prior to June 30, 1996, for purposes of joining forces with these utilities, on a joint ownership basis, to market and provide energy management, DSM and consulting services (i.e., those services HEC and its subsidiaries have previously been authorized to provide) within designated regions which include, but will not necessarily be limited to, the utility's service territories without the necessity of subsequent Commission approval of the individual joint ventures. Applicants also request authorization to invest funds, contribute property and/or provide other consideration to acquire their share of such joint ventures in amounts and/or value of no greater than $1 million per joint venture and no more than $8 million in total for all such joint ventures invested through June 30, 1996. The application/declaration and all amendments thereto are available for public inspection through the Commission's Office of Public Reference. Any interested persons should submit their views in writing by _______, 1995 to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549, and serve a copy on the Applicants. 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 shall identify specifically the issues of fact or law that are disputed. Any person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in this matter. After said date, the Amendment, as filed or as may be further amended, amy be granted. For the Commission, by the Division of Investment, pursuant to delegated authority.