File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
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 secured or 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 ("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 ("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, (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.
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 secured or
unsecured 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 of NU may be in the form of secured
or 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. Any Long-term
Debt issued by NU which will be secured debt will not be
secured by shares of stock or other securities or property
of any of the utility subsidiaries of NU. NU's Declaration
of Trust requires shareholder approval before placing liens
on substantially all of its assets. To the extent needed, NU
will obtain shareholder approval of any secured borrowings.
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
9. Interest Rate Hedges. NU request authorization to
enter into Interest Rate Hedges, subject to certain
limitations and restrictions set forth herein, in order to
manage interest rate cost. Interest Rate Hedges would only
be entered into with counterparties ("Approved
Counterparties") whose senior unsecured debt ratings, or the
senior unsecured debt ratings of the parent companies of the
counterparties, 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.
10. 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. 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.
11. Anticipatory Hedges. In addition, NU requests
authorization to enter into Anticipatory Hedges, 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 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.
12. 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.
13. The Applicant represents that each Interest Rate
Hedge and Anticipatory Hedge will be accounted for using
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.
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 April 15, 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 September 30, 2001, NU's
"aggregate investment," as defined in Rule 53(a)(1), in EWGs
and FUCOs was approximately $469.5 million, or approximately
80% of NU's average "consolidated retained earnings," also
as defined in Rule 53(a)(1), for the four quarters ended
September 30, 2001 ($586 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 September 30, 2001 (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
September 30, 2001, with consolidated debt including all
short-term debt and non-recourse debt of the EWG, were as
follows:
As of September 30, 2001
(thousands
of dollars) %
Common shareholders' equity 2,133,851 31.6
Preferred stock 116,200 1.7
Long-term and short-term debt 2,391,557 35.4
Rate Reduction Bonds 2,118,400 31.3
6,760,008 100.0
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 $149 million through the three
quarters ended September 30, 2001. NGC has made a positive
contribution to earnings by contributing $207 million in
revenues from inception (March 2000) through September 30,
2001 and net income of $57.5 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
(b) Financial Statements
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, 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: February 7, 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 expires 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 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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