File No. 70-10051
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM U-1
APPLICATION/DECLARATION
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NORTHEAST UTILITIES
107 Selden Street
Berlin, CT 01037
(Name of companies filing this statement and address
of principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Gregory Butler, Esq.
Vice President, Secretary and General Counsel
Northeast Utilities Service Company
P.O. Box 270
Hartford, Connecticut 06141-0270
(Name of address of agent for service)
The Commission is requested to mail signed copies of all
orders, notices and communications to:
David R. McHale Jeffrey C. Miller
Vice President and Treasurer Assistant General Counsel
Northeast Utilities Service Northeast Utilities
Service Company Service Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
The Application/Declaration in this File, as heretofore
amended, is hereby further amended and restated to read as
follows:
"ITEM 1. Description of Proposed Transaction
1. Northeast Utilities ("NU") is a public utility holding
company registered under the Public Utility Holding Company
Act of 1935, as amended (the "Act"). NU files this
Application/Declaration under the Act to seek authorization
concerning long-term debt issuances at the NU level.
Specifically, NU is requesting authorization through the
period ending June 30, 2005 (the "Authorization Period"):
(i) to issue from time to time unsecured long-term
debt securities ("Long-term Debt") in an aggregate
amount at any time outstanding not to exceed $600
million; and
(ii) to enter into hedging transactions with respect
to existing indebtedness of NU and
of its Nonutility Companies (as defined below)
("Interest Rate Hedges") in order to manage and
minimize interest rate costs, and to enter into hedging
transactions with respect to future expected debt
issuances of NU and of its Nonutility Companies
("Anticipatory Hedges") in order to lock-in then
current interest rates and/or manage interest rate risk
exposure.
2. Use of Proceeds. NU will use the proceeds from these
financings for general corporate purposes, including (i)
investments in its regulated utility companies, (ii)
investments in exempt wholesale generators ("EWGs"), Foreign
Utility Companies ("FUCOs"), nonutility companies formed
pursuant to Rule 58 ("Rule 58 Subsidiaries") and exempt
telecommunications companies ("ETCs") and other competitive
companies (collectively with EWGs, FUCOs, Rule 58
Subsidiaries, the "Nonutility Companies"), (iii) the
repayment, redemption, refunding or purchase by NU of its
own securities, (iv) financing working capital requirements
of NU and its subsidiaries, and (v) other corporate
purposes. NU will retain the benefit or absorb any losses
resulting from Interest Rate Hedges or Anticipatory Hedges
for debt issuances of the Nonutility Companies.
3. NU represents 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 or is in accordance with an exemption under the
Act or rules thereunder, including Sections 32, 33 and 34
and Rules 52, 53 and 58. The aggregate amount of proceeds
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 "consolidated retained earnings" (also as defined in
Rule 53) or such other amount as may be authorized by the
Commission. Further, proceeds invested in Rule 58
Subsidiaries will adhere to the limitations of that rule.
LONG TERM DEBT
4. NU requests authorization to issue Long-term Debt,
the proceeds of which will enable NU to reduce or refinance
short-term debt with more permanent capital and provide an
important source of future financing for the operations of
and investments in non- utility businesses that are exempt
under the Act.
5. Long-term Debt would be in the form of unsecured
notes ("Debentures") issued in one or more series. The
Debentures of any series (i) will have a maturity ranging
from one to 50 years, (ii) will bear interest at a rate not
to exceed 500 basis points over the yield to maturity of a
U.S. Treasury security having a remaining term approximately
equal to the term of such series of Debentures, (iii) may be
subject to optional and/or mandatory redemption, in whole or
in part, at par or at various premiums above or discounts
below the principal amount thereof, (iv) may be entitled to
mandatory or optional sinking fund provisions and (v) may
provide for reset of the coupon pursuant to a remarketing
arrangement. Long-term Debt of NU also may be in the form
of bank lines of credit ("Bank Lines"). Bank Lines will
have maturities of not more than five years from the date of
each borrowing and the effective cost of such loans will not
exceed at the time of issuance 500 basis points over LIBOR.
6. NU contemplates that the Debentures would be issued
and sold directly to one or more purchasers in privately-
negotiated transactions or to one or more investment banking
or underwriting firms or other entities that would resell
the Debentures without registration under the 1933 Act, in
reliance upon one or more applicable exemptions from
registration thereunder, or to the public either (i) through
underwriters selected by negotiation or competitive bidding
or (ii) through selling agents acting either as agent or as
principal for resale to the public either directly or
through dealers.
7. The maturity dates, interest rates, call, redemption
and sinking fund provisions and conversion features, if any,
with respect to the Debentures of a particular series, as
well as any associated placement, underwriting or selling
agent fees, commissions and discounts, if any, will be
established by negotiation or competitive bidding and
reflected in the applicable supplemental indenture or
officer's certificate and purchase agreement or underwriting
agreement setting forth such terms.
HEDGES
8. Interest Rate Hedges. NU request authorization to
enter into Interest Rate Hedges with respect to indebtedness
of NU and of the Nonutility Companies, subject to certain
limitations and restrictions set forth herein, in order to
reduce or manage its own interest rate cost and risk and to
retain parent-level cash and earnings. Interest Rate Hedges
would only be entered into with counterparties ("Approved
Counterparties") whose senior unsecured debt ratings, or
whose parent companies' senior debt rating, as published by
Standard and Poor's Ratings Group, are equal to or greater
than BBB, or an equivalent rating from Moody's Investors
Service or Fitch IBCA.
9. Interest Rate Hedges will involve the use of financial
instruments commonly used in the capital markets, such as
interest rate swaps, locks, caps, collars, floors, and other
similar appropriate instruments. The transactions would be
for fixed periods and stated notional amounts. In no case
will the notional principal amount of any interest rate swap
exceed that of the underlying debt instrument. NU will not
engage in speculative transactions within the meaning of
such term in FAS 133. Transaction fees, commissions and
other amounts payable to the counterparty or exchange
(excluding, however, the swap or option payments) in
connection with an Interest Rate Hedge will not exceed those
generally obtainable in competitive markets for parties of
comparable credit quality.
10. Anticipatory Hedges. In addition, NU requests
authorization to enter into Anticipatory Hedges with respect
to anticipated debt offerings of NU and the Nonutility
Companies, subject to certain limitations and restrictions
set forth herein. Such Anticipatory Hedges would only be
entered into with Approved Counterparties, and would be
utilized to fix and/or manage the interest rate risk
associated with any new Long-term Debt issuance of its own
or any debt securities of its Nonutility Companies through
(i) a forward sale of exchange-traded U.S. Treasury futures
contracts, U.S. Treasury Securities and/or a forward swap
(each a "Forward Sale"), (ii) the purchase of put options on
U.S. Treasury Securities (a "Put Options Purchase"), (iii) a
Put Options Purchase in combination with the sale of call
options on U.S. Treasury Securities (a "Zero Cost Collar"),
(iv) transactions involving the purchase or sale, including
short sales, of U.S. Treasury Securities, or (v) some
combination of a Forward Sale, Put Options Purchase, Zero
Cost Collar and/or other derivative or cash transactions,
including, but not limited to locks, caps and collars,
appropriate for the Anticipatory Hedges.
11. Anticipatory Hedges may be executed on-exchange ("On-
Exchange Trades") with brokers through the opening of
futures and/or options positions publicly traded, the
opening of over-the-counter positions with one or more
counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. NU will
determine the optimal structure of each Anticipatory Hedge
transaction at the time of execution. NU may decide to lock
in interest rates and/or limit its exposure to interest rate
increases.
12. The Applicant represents that each Interest Rate
Hedge and Anticipatory Hedge will qualify for hedge
accounting treatment under generally acceptable accounting
practices ("GAAP"). The Applicant will also comply with the
then existing financial disclosure requirements of the
Financial Accounting Standards Board associated with hedging
transactions.
13. Current Financial Conditions
(a) NU
For the twelve (12) months ended March 31, 2002,
NU's gross revenues and net income were approximately $6.9
billion and $150 million, respectively. As of March 31,
2002, NU's consolidated capitalization consisted of 31.1%
common equity, 1.7% preferred stock, 29.9% of Rate Reduction
Bonds issued pursuant to state law by the operating
companies, and 37.3% debt.
NU Credit Ratings - Senior Unsecured Debt
Moody's S&P
Baa1 BBB
(b) The Operating Companies
The Operating Companies are in strong financial
condition, as indicated by such factors as debt/equity
ratios and securities ratings.
CL&P
As of June 30, 2002, CL&P's consolidated capitalization
consisted of 24% common equity, 3.8% preferred stock, 43.9%
of Rate Reduction Bonds issued pursuant to state law, and
28.3% of long-term and short-term debt. The credit rating
for senior unsecured debt of CL&P is BBB by Standard and Poor's
and A3 by Moody's.
WMECO
As of June 30, 2002, WMECO's consolidated capitalization
consisted of 31.3% common equity, 30.6% of Rate Reduction
Bonds issued pursuant to state law, and 38.1% of long-term
and short-term debt. The credit rating for senior unsecured debt
of WMECO is BBB+ by Standard and Poor's and A3 by Moody's.
PSNH
As of June 30, 2002, PSNH's consolidated capitalization
consisted of 25.1% common equity, 38.6% of Rate Reduction
Bonds issued pursuant to state law, and 36.3% of long-term
and short-term debt. The credit rating for senior secured debt
of PSNH is BBB+ by Standard and Poor's and A3 by Moody's.
ITEM 2. Fees, Commissions, and Expenses
1. The fees, commissions and expenses of the Applicant
expected to be paid or incurred, directly or indirectly, in
connection with the transactions described above, other than
those fees specified in Item 1 above, are estimated as
follows:
Northeast Utilities Service Company (Legal, Financial, Accounting and
Other Services):
Not in excess of $25,000
ITEM 3. Applicable Statutory Provisions
1. Sections 6(a) and 7 of the Act are applicable to the
issuance of Long-term Debt, Interest Rate Hedges and
Anticipatory Hedges.
ITEM 4. Regulatory Approvals
1. No state commission, and no federal commission, other
than the Commission, has jurisdiction over the proposed transactions.
ITEM 5. Procedure
1. The Applicant hereby requests 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. The Applicant respectfully
requests 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 in any event not later than September 30, 2002.
Additionally, the Applicant (i) requests that there not be
any recommended decision by a hearing officer or by any
responsible officer of the Commission, (ii) consents to the
Office of Public Utility Regulation within the Division of
Investment Management assisting in the preparation of the
Commission's decision, and (iii) waives 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 June 30, 2002, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs
was approximately $448.2 million, or approximately 67% of
NU's average "consolidated retained earnings," also as
defined in Rule 53(a)(1), for the four quarters ended March
31, 2002 ($670.7 million). With respect to Rule 53(a)(1),
however, the Commission has determined that NU's financing
of its investment in Northeast Generation Company ("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
Company 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
EWGs and FUCOs, 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 June 30, 2002 (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 2,365,854 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
March 31, 2002, with consolidated debt including all short-
term debt and non-recourse debt of the EWG, were as follows:
As of March 31, 2002
(thousands
of dollars) %
Common shareholders' equity 2,143,719 31.2
Preferred stock 116,200 1.7
Long-term and short-term debt 2,615,914 38.0
Rate Reduction Bonds 2,001,191 29.1
6,877,034 100.0
6. NGC has made a positive contribution to earnings by
contributing $129.9 million in revenues in the 12-month
period ending June 30, 2002 and net income of $34.8 million
for the same period. Accordingly, since the date of the
Rule 53(c) Order, the capitalization and earnings
attributable to NU's investments in EWGs and FUCOs has not
had an adverse impact on NU's financial integrity.
ITEM 6. Exhibits and Financial Statements
1. The following exhibits and financial statements are filed
herewith:
(a) Exhibits
F. Opinion of Counsel
H. Form of Notice (previously filed)
(b) Financial Statements (previously filed)
1.1 Northeast Utilities Consolidated Balance Sheets,
actual and pro forma, as of December 31, 2001, and
Consolidated Statements of Income, actual and pro forma,
and Statement of Retained Earnings, for the 12 months ended
December 31, 2001 and Statement of Capitalization as of
December 31, 2001.
1.2 Northeast Utilities Parent Balance Sheets, actual
and pro forma, as of December 31, 2001, and Statements of
Income, actual and pro forma, and Statement of Retained
Earnings, for the 12 months ended December 31, 2001 and
Statement of Capitalization as of December 31, 2001.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused
this amendment to be signed on its behalf by the undersigned
officer or attorney thereunto duly authorized.
Date: November 18, 2002
NORTHEAST UTILITIES
By: /s/ Randy A. Shoop
Randy A. Shoop
Assistant Treasurer
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In Holding Company Act Rel. No. 35-27127 (January 31,
2000) the Commission authorized NU to issue short or long-
term debt in order to fund the acquisition of Yankee Energy
System, Inc., up to an aggregate amount of $275 million.
The authorization expired June 30, 2002. The order sought
in this file will replace the order received in File No. 35-
27127. In addition, pursuant to Holding Company Act Rel.
35-27328 (Dec. 28, 2000), the Commission authorized NU to
incur up to $400 million in short-term debt. The Long-term
Debt authorization sought here is in addition to such short-
term debt.
In March 2000, NU received an order from the
Commission authorizing the investment in Northeast
Generation Company, an EWG, in an amount equal to 83% of
NU's average consolidated retained earnings (Holding Co. Act
Rel. 35-27148 (March 7, 2000)).
Recently, the Commission approved a similar
financing application filed by The Southern Company in which
Southern requested approval to issue preferred securities
and long-term debt directly or indirectly through special-
purpose financing entities. See The Southern Company,
Holding Co. Act Release No. 27134 (Feb. 9, 2000). In that
case, the Commission took account of the changing needs of
registered holding companies for sources of capital other
than common equity and short-term debt brought about
primarily by the elimination of restrictions under the Act
on investments in various types of non-core businesses
(e.g., EWGs, FUCOs, ETCs and Rule 58 Companies). The
Commission noted that, without the ability to raise capital
in external markets that is appropriate for such
investments, registered holding companies would be at a
competitive disadvantage to other energy companies that are
not subject to regulation under the Act. See also American
Electric Power Co., Inc., Holding Co. Act Release No. 27382
(Apr. 20, 2001).
The Commission has previously authorized similar
hedging transaction proposals. See Entergy Corporation,
Holding Co. Act Release No. 27371 (April 3, 2001), New
Century Energies, Inc., et al., Holding Co. Act Release No.
27000 (April 7, 1999); and Ameren Corp., et al., Holding Co.
Act Release No. 27053 (July 23, 1999).
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