File No. 70-10051
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
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 Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
The Application/Declaration in this File is hereby 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 subsidiaries ("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 subsidiaries ("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 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 its subsidiaries.
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 its subsidiaries, subject to certain limitations and
restrictions set forth herein, in order to reduce or manage its
own interest rate cost and risk and to generate 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 its subsidiaries, 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 subsidiaries 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
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 March 31, 2002, CL&P's consolidated capitalization
consisted of 25.4 common equity, 3.8% preferred stock, 44.1% of
Rate Reduction Bonds issued pursuant to state law, and 26.7% of
long-term and short-term debt. The credit rating for senior debt
of CL&P is BBB by Standard and Poor's and A3 by Moody's.
WMECO
As of March 31, 2002, WMECO's consolidated capitalization
consisted of 32.8 common equity, 32% of Rate Reduction Bonds
issued pursuant to state law, and 35.2% of long-term and short-
term debt. The credit rating for senior debt of WMECO is BBB+ by
Standard and Poor's and A3 by Moody's.
PSNH
As of March 31, 2002, PSNH's consolidated capitalization
consisted of 25.8 common equity, 41.8% of Rate Reduction Bonds
issued pursuant to state law, and 32.4% of long-term and short-
term debt. The credit rating for senior 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, as 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 March 31, 2002, NU's "aggregate
investment," as defined in Rule 53(a)(1), in EWGs and FUCOs was
approximately $448.2 million, or approximately 69% of NU's
average "consolidated retained earnings," also as defined in Rule
53(a)(1), for the four quarters ended March 31, 2002 ($653.6
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
March 31, 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 2,138,845 31.1
Preferred stock 116,200 1.7
Long-term and short-term debt 2,566,968 37.3
Rate Reduction Bonds 2,051,807 29.9
6,873,820 100.0
6. NU's consolidated retained earnings decreased from
$581.8 million as of December 31, 1999 to $495.9 million as of
December 31, 2000, mainly as a result of an after-tax write-off
of $225 million by Public Service Company of New Hampshire as
part of a restructuring settlement and also recognition of a loss
due to a decision by the FERC lowering the price for acquiring
installed generating capacity in New England but increased by
$185 million through the quarter ended March 31, 2002. NGC has
made a positive contribution to earnings by contributing $128.7
million in revenues in the 12-month period ending March 31, 2002
and net income of $38.3 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 (To be filed by amendment)
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 PAGE FOLLOWS]
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: August 13, 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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