File No. 70-9849
United States Securities and Exchange Commission
Washington, D.C. 20549
----------------------------------------
Post-Effective
Amendment No. 1 to
Form U-1
Application/Declaration
Under the
Public Utility Holding Company Act of 1935
----------------------------------------
National Grid Group plc New England Power Company
(to be renamed National Massachusetts Electric Company
Grid Holdings One plc) The Narragansett Electric Company
New National Grid plc Granite State Electric Company
(to be renamed National Nantucket Electric Company
Grid Group plc) New England Electric Transmission Corporation
National Grid (US) New England Hydro-Transmission Corporation
Holdings Limited New England Hydro-Transmission Electric Co. Inc.
National Grid (US) Vermont Yankee Nuclear Power Corporation
Investments 4 Wayfinder Group, Inc.
National Grid (US) NEES Energy, Inc.
Partner 1 Limited EUA Energy Investments Corp.
National Grid (US) National Grid Transmission Services Corp.
Partner 2 Limited National Grid USA Service Company Inc.
NGG Finance plc Metrowest Realty LLC
15 Marylebone Road National Grid USA
London NW15JD National Grid Holdings Inc.
United Kingdom 25 Research Drive
Westborough, MA 01582
National Grid General
Partnership Niagara Mohawk Holdings, Inc.
c/o RL&F Service Corp. Niagara Mohawk Power Corporation
One Rodney Square Opinac North America, Inc.
Wilmington, 300 Erie Boulevard West
New Castle County, Syracuse, New York 13202
DE 19801
(Names of companies filing this statement
and addresses of principal executive offices)
----------------------------------------
New National Grid plc
(Name of top registered holding company)
----------------------------------------
1
Kirk L. Ramsauer Gary J. Lavine
Deputy General Counsel Senior Vice President and Chief Legal
National Grid USA Officer
25 Research Drive Niagara Mohawk Holdings, Inc.
Westborough, Massachusetts 01582 300 Erie Boulevard West
Telephone: (508) 389-2972 Syracuse, New York 13202
Facsimile: (508) 389-3518 Telephone: (315) 428-6947
Facsimile: (315) 428-5746
(Names and addresses of agents for service)
The Commission is also requested to send copies
of any communication in connection with this matter to:
Markian M. W. Melnyk Steven Agresta
Thomas B. Reems Swidler Berlin Shereff Friedman, LLP
LeBoeuf, Lamb, Greene & MacRae, L.L.P. 3000 K Street. N.W.
1875 Connecticut Ave., N.W. Washington, D.C. 20007
Washington, D.C. 20009-5728 Telephone: (202) 424-7500
Telephone: (202) 986-8000 Facsimile: (202) 424-7643
Facsimile: (202) 986-8102
Janet Geldzahler
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498
Telephone: (212) 558-4000
Facsimile: (212) 558-3588 or (212)
514-5706
2
Defined Terms
-------------------------------------- ---------------------------------------
Term Definition
-------------------------------------- ---------------------------------------
National Grid New National Grid plc (to be
renamed National Grid Group plc),
the proposed successor to NGG
according to the Restructuring.
-------------------------------------- ---------------------------------------
NGG National Grid Group plc., the current
registered holding company parent of the
system and, post-Restructuring, a
subsidiary of National Grid and top-level
FUCO holding company. Post-Restructuring
NGG will be renamed National Grid
Holdings One plc.
-------------------------------------- ---------------------------------------
NiMo Niagara Mohawk Holdings, Inc.
-------------------------------------- ---------------------------------------
Niagara Mohawk Niagara Mohawk Power Corporation.
-------------------------------------- ---------------------------------------
Utility Subsidiaries All current National Grid
USA public utility subsidiary companies
and Niagara Mohawk.
-------------------------------------- ---------------------------------------
Nonutility Subsidiaries All nonutility subsidiary companies
set forth in Exhibit L-1 (including
the nonutility subsidiaries of National
Grid USA, NiMo and its
nonutility subsidiaries, and
CNP Limited and CNP Inc). The term
Nonutility Subsidiaries also includes
other direct or indirect
subsidiaries of National Grid USA
that are formed or acquired in
accordance with an order of the
Commission or applicable exemption
subsequent to the issuance of an order
by the Commission in this file.
-------------------------------------- ---------------------------------------
Subsidiaries The Utility Subsidiaries and the
Nonutility Subsidiaries, collectively.
-------------------------------------- ---------------------------------------
National Grid System National Grid and all its associate
companies.
-------------------------------------- ---------------------------------------
National Grid USA Group National Grid USA and its direct and
indirect subsidiaries.
-------------------------------------- ---------------------------------------
Intermediate Companies All holding companies in the chain of
ownership of National Grid USA
that are direct or indirect subsidiaries
of NGG (currently) or National
Grid (post-Restructuring) including
National Grid (US) Holdings Limited,
National Grid (US) Investments 4,
National Grid (US) Partner 1 Limited,
National Grid (US) Partner 2 Limited,
National Grid General Partnership,
National Grid Holdings Inc. and any new
companies in the chain of
ownership as the structure may be
revised from time to time.
-------------------------------------- ---------------------------------------
3
This Post-effective Amendment No. 1 revises the Form U-1
Application-Declaration in File No. 70-9849, subsequent to the issuance by the
Commission of an order in this matter, National Grid Group plc, et al, Holding
Co. Act Release No. 27490 (January 16, 2002). This amendment revises Item
1.E.3.(h) of the filing, relating to Applicant's proposed tax allocation
agreement, by amending and restating such subsection as follows.
Item 1. Description of the Proposed Transaction
* * * * *
(h) Tax Allocation Agreement
In the NEES Acquisition Order, the Commission authorized NGGP and the
National Grid USA Group to enter into an agreement to allocate consolidated
taxes. The agreement permitted NGGP to retain the value of the tax deduction
associated with the debt incurred by NGG to finance the NEES and EUA
acquisitions. Applicants propose to amend the National Grid USA Group tax
allocation agreement to add NiMo and its subsidiaries as members. Consistent
with the relief granted in the NEES Acquisition Order, Applicants request that
the Commission authorize NGGP, its direct subsidiary, National Grid Holdings
Inc. ("NG Holdings"), or its agent, a direct special purpose subsidiary,
(collectively, "NGGP"), to retain: (a) the value of the tax deduction associated
with the debt incurred by National Grid to finance the Merger and; (b) the value
of deductions for merger and acquisition related expenses that are prohibited
from being charged or allocated to National Grid USA's subsidiaries
(collectively, the "Tax Benefits")./1/ Such merger and acquisition related
expenses include various costs allocated to merger and acquisition projects that
failed to result in a completed transaction. Applicants request that the
Commission reserve jurisdiction over the retention of the value of the expenses
described in (b) above, until the record is complete with respect to this
matter.
----------
/1/ The NEES Acquisition Order provides that "charges associated with future
mergers and acquisitions may be allocated to NEES [now, National Grid USA]
and/or to other National Grid Group companies, but not to the NEES
Subsidiaries." NEES Acquisition Order Appendix C at C-2. Because these charges
are not borne by the subsidiaries they are in all relevant respects equivalent
to the acquisition-related debt interest expense.
----------
The Tax Allocation Agreement provides for the retention by NGGP of the Tax
Benefits, rather than the allocation of such Tax Benefits to subsidiary
companies without payment as would otherwise be required by Rule 45(c)(5). The
form of proposed Tax Allocation Agreement is attached as Exhibit Q-1. If not
reinvested in National Grid USA or another business, National Grid expects that
funds retained by NGGP under the tax allocation agreement will flow up the chain
of Intermediate Companies to National Grid through dividends, interest payments,
share repurchases and the repayment of principal. On an annual basis, subsequent
to the filing of the consolidated tax return and the remittance of payment from
associate companies participating in the consolidated filing to NG Holdings for
the value of the tax deduction associated with the debt incurred directly or
indirectly by National Grid to finance the Merger, National Grid will use such
amount for the sole purpose of paying debt service on the Merger debt and the
reduction of the outstanding principal of such Merger debt.
Provisions in a tax allocation agreement between a registered holding
company and its subsidiaries must comply with Section 12 of the Act and Rule 45
thereunder. Rule 45(a) of the Act generally prohibits any registered holding
company or subsidiary company from, directly or indirectly, lending or in any
manner extending its credit to or indemnifying, or making any donation or
capital contribution to, any company in the same holding company system, except
pursuant to a Commission order. Rule 45(c) provides that no approval is required
for a tax allocation agreement between eligible associate companies in a
registered holding company system, that "provides for allocation among such
associate companies of the liabilities and benefits arising from such
consolidated tax return for each tax year in a manner not inconsistent with" the
conditions of the rule. Of interest here, Rule 45(c)(5) provides that:
The agreement may, instead of excluding members as provided in
paragraph (c)(4), include all members of the group in the tax
allocation, recognizing negative corporate taxable income or a
negative corporate tax, according to the allocation method chosen. An
agreement under this paragraph shall provide that those associate
companies with a positive allocation will pay the amount allocated and
those subsidiary companies with a negative allocation will receive
current payment of their corporate tax credits. The agreement shall
provide a method for apportioning such payments, and for carrying over
uncompensated benefits, if the consolidated loss is too large to be
used in full. Such method may assign priorities to specified kinds of
benefits. (Emphasis added.)
5
Under the rule, only "subsidiary companies," as opposed to "associate companies"
(which includes the holding company in a holding company system), are entitled
to be paid for corporate tax credits. However, if a tax allocation agreement
does not fully comply with the provisions of Rule 45(c), it may nonetheless be
approved by the Commission under Section 12(b) and Rule 45(a).
In connection with the 1981 amendments to Rule 45, the Commission explained
that the distinction between associate companies, on the one hand, and
subsidiary companies, on the other, represented a policy decision to preclude
the holding company from sharing in consolidated return savings. The Commission
noted that exploitation of utility companies by holding companies through the
misallocation of consolidated tax return benefits was among the abuses examined
in the investigations underlying the enactment of the 1935 Act. Holding Co. Act
Release No. 21968 (March 25, 1981), citing Sen. Doc. 92, Part 72A, 70th
Congress, 1st Sess. at 477-482. It must be noted, however, that the result in
Rule 45(c)(5) is not dictated by the statute and, as the Commission has
recognized, there is discretion on the part of the agency to approve tax
allocation agreements that do not, by their terms, comply with Rule 45(c) -- so
long as the policies and provisions of the Act are otherwise satisfied. In this
matter, where the holding company (i.e., NGGP) is seeking only to receive
payment for Tax Benefits that have been generated by it, in the limited and
discrete circumstances where the benefits arose in connection with
acquisition-related debt and merger and acquisition expenses, the proposed
arrangement will not give rise to the types of problems (e.g., upstream loans)
that the Act was intended to address. Compare Section 12(a) of the Act. It is
also important to note that the tax allocation agreement provides that "under no
circumstances shall the amount of tax allocated to a Member exceed its separate
tax liability." Consequently, the National Grid USA group is effectively
insulated from the financial abuses targeted by the Act. For these reasons, the
Applicants request that the Commission approve the Tax Allocation Agreement. A
memorandum included as Exhibit Q-2 to the Application provides further arguments
in support of the proposed tax allocation relief.
* * * * *
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, Applicants have duly caused this Application-Declaration to be signed on
their behalf by the undersigned thereunto duly authorized.
Date: January 25, 2002 National Grid Group plc
New National Grid plc
National Grid (US) Holdings Limited
National Grid (US) Investments 4
National Grid (US) Partner 1 Limited
National Grid (US) Partner 2 Limited
NGG Finance plc
New England Power Company
Massachusetts Electric Company
The Narragansett Electric Company
Granite State Electric Company
Nantucket Electric Company
New England Electric Transmission Corporation
New England Hydro-Transmission Corporation
New England Hydro-Transmission Electric Co. Inc.
Vermont Yankee Nuclear Power Corporation
Wayfinder Group, Inc.
NEES Energy, Inc.
EUA Energy Investments Corp.
National Grid Transmission Services Corp.
National Grid USA Service Company Inc.
Metrowest Realty LLC
National Grid USA
National Grid General Partnership
National Grid Holdings Inc.
By: /s/ John G. Cochrane
--------------------
John G. Cochrane
Vice President
National Grid USA
Date: January 25, 2002 Niagara Mohawk Holdings, Inc.
Niagara Mohawk Power Company
By: /s/ Gary J. Lavine
------------------
Gary J. Lavine
Senior Vice President and Chief Legal Officer
Niagara Mohawk Holdings, Inc.
7