FILE NO. 70-9755
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
(AMENDMENT NO. 5)
TO FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Northeast Utilities Holyoke Water Power Company
Western Massachusetts Electric Company One Canal Street
174 Brush Hill Avenue Holyoke, MA 01040
West Springfield, MA 01090-0010
The Connecticut Light and Power Company Public Service Company
NU Enterprises, Inc. of New Hampshire
Northeast Generation Service Company North Atlantic Energy
E.S. Boulos Company Corporation
Woods Network Services, Inc. Energy Park
Woods Electrical Co., Inc. 780 North Commercial Street
Northeast Generation Company Manchester, NH 03101
Select Energy, Inc.
Select Energy New York, Inc. Select Energy Services, Inc.
Mode 1 Communications, Inc. 24 Prime Parkway
Northeast Utilities Service Company Natick, MA 01760
107 Selden Street
Berlin, CT 06037
Yankee Energy System, Inc. The Rocky River Realty
Yankee Gas Services Company Company
Yankee Energy Financial Services Company The Quinnehtuk Company
NorConn Properties, Inc. Northeast Nuclear Energy
Yankee Energy Services Company Company
107 Selden Street 107 Selden Street
Berlin, CT 06037 Berlin, CT 06037
(Name of companies filing this statement and addresses of
principal executive offices)
NORTHEAST UTILITIES
(Name of top registered holding company)
Gregory B. Butler, Esq.
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
Jeffrey C. Miller David R. McHale
Assistant General Counsel Vice President and Treasurer
Northeast Utilities Northeast Utilities
Service Company Service Company
P.O. Box 270 P.O. Box 270
Hartford, CT 06141-0270 Hartford, CT 06141-0270
ITEM 6
EXHIBITS AND FINANCIAL STATEMENTS
1. The following additional exhibits and financial statements
are filed herewith:
(a) Exhibits (exhibits marked with an asterisk (*)
previously filed, exhibits marked #, to be filed by
amendment)
*A.2 Proposed Terms of the NU Money Pool (Revised
April 2003)
*D.1 New Hampshire Public Utilities Commission Order
20,416 Approving Participation of PSNH in NU Money
Pool (March 19, 1992)
#D.2 MDTE Order Authorizing Participation by WMECO in
NU Money Pool
D.3 New Hampshire Public Utilities Commission Order
23,841 Approving $100 million of Short-term Debt
for PSNH
F.2 Opinion of Counsel
*H.2 Form of Notice
(b) Financial Statements
1 Northeast Utilities and Subsidiaries Consolidated
1.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
1.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for
the 12 Months ended December 31, 2002
2. Northeast Utilities (Parent)
2.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
2.2 Pro Forma Income Statement, Statement of
Retained Earnings and Capital Structure and
Adjustment for the 12 Months ended December 31, 2002
3. The Connecticut Light and Power Company
3.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
3.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
4. Public Service Company of New Hampshire
4.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
4.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
5. Western Massachusetts Electric Company
5.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
5.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
6. North Atlantic Energy Corporation
6.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
6 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
7. Holyoke Water Power Company
7.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
7.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
8. Northeast Nuclear Energy Corporation
8.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
8.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
9. Yankee Energy System, Inc.
9.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
9.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
10. Yankee Gas Services Company
10.1 Pro Forma Balance Sheet - Assets, Liabilities
and Capitalization as of December 31, 2002
10.2 Pro Forma Income Statement, Statement of Retained
Earnings and Capital Structure and Adjustment for the
12 Months ended December 31, 2002
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the Applicants have duly caused this
Application-Declaration to be signed on their behalf by the
undersigned thereunto duly authorized.
May 7, 2003
Northeast Utilities
Northeast Utilities Service Company
The Connecticut Light and Power Company
Western Massachusetts Electric Company
Public Service Company of New Hampshire
North Atlantic Energy Corporation
Holyoke Water Power Company
Northeast Nuclear Energy Company
Yankee Energy System, Inc.
Yankee Gas Services Company
The Rocky River Realty Company
The Quinnehtuk Company
NU Enterprises, Inc.
Northeast Generation Company
Northeast Generation Service Company
Woods Electrical Co., Inc.
Woods Network Services, Inc.
E.S. Boulos Company
Select Energy, Inc.
Select Energy New York, Inc.
Mode 1 Communications, Inc.
Select Energy Services, Inc.
Yankee Energy Financial Services Company
Yankee Energy Services Company
NorConn Properties, Inc.
By: /s/ Randy A. Shoop
Name: Randy A. Shoop
Title: Assistant Treasurer-Finance
Northeast Utilities Service Company as Agent
for all of the above-named Applicants
D.3 New Hampshire Public Utilities Commission Order 23,841
DE 01-168
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
Petition for Approval of Refinancing of Series A, B and C
Pollution Control Revenue Bonds, Including an Increase in the
Short Term Debt Limit, Issuance of First Mortgage Bonds and
Utilization of Derivative Instruments
Order Approving Petition Subject to Certain Conditions
ORDER NO. 23,843
November 9, 2001
APPEARANCES: Catherine E. Shively, Esq. for Public Service
Company of New Hampshire; Office of Consumer Advocate by Kenneth
E. Traum on behalf of residential ratepayers; and Edward N.
Damon, Esq. and Donald M. Kreis, Esq. for the Staff of the New
Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On August 31, 2001, Public Service Company of New Hampshire
(PSNH) filed with the New Hampshire Public Utilities Commission
(Commission) a petition seeking the Commission's approval of the
refinancing of PSNH's Series A, B and C pollution control bonds,
including an increase in its short term debt limit, the issuance
of first mortgage bonds and the utilization of derivative
instruments. An Order of Notice dated September 7, 2001 was
issued, establishing a procedural schedule, and requiring, among
other things, PSNH to publish a copy of the Order of Notice in a
statewide newspaper.
By letter dated September 10, 2001, Michael W. Holmes, Esq.,
Consumer Advocate, notified the Commission that the office of
Consumer Advocate (OCA) would participate in this docket on
behalf of residential ratepayers consistent with RSA 363:28.
PSNH submitted the prefiled testimonies of Randy A. Shoop,
Assistant Treasurer-Finance of PSNH and certain related
companies, and Stephen R. Hall, Rate and Regulatory Services
Manager for PSNH on September 14, 2001. Certain Attachments to
the Company's petition were also submitted on September 14, 2001.
On September 25, 2001, the Company submitted Attachment 5 to the
petition, and supplemental direct testimony of Stephen R. Hall.
As provided in the Order of Notice, a Prehearing Conference was
held on September 27, 2001, commencing at 10:00 a.m. at the
offices of the Commission. The Clerk confirmed that newspaper
publication was made in accordance with the Order of Notice. The
parties held a technical session immediately following the
prehearing conference. A prehearing conference order confirming
the procedural schedule was issued on October 4, 2001.
The Commission Staff filed its first set of data requests on
October 5, 2001. PSNH responses to Staff's data requests were
filed with the Commission on October 12, 2001. In addition, PSNH
submitted current drafts of the Loan and Trust Agreements for the
proposed auction rate securities and fixed rate securities. The
Commission Staff filed supplemental data requests on October 17,
2001. PSNH responded to Staff's supplemental data requests on
October 19, 2001.
The Commission Staff filed the testimony of Mark A. Naylor,
Finance Director, and Maureen L. Sirois, Economist II, in the
proceeding on October 22, 2001.
A hearing on the merits of the case was held on October 24, 2001.
II. POSITIONS OF THE PARTIES AND STAFF
A. Public Service Companv of New Hampshire
PSNH, through its witness Mr. Shoop, requested that the
Commission approve its refinancing proposal as being in the
public good. According to Mr. Shoop, refinancing the Company's
existing $66,000,000 Series A Pollution Control Revenue Bonds
(PCRBs), $108,985,000 Series B PCRBs and $112,500,000 Series C
PCRBs will result in substantial savings to both the Company and
its customers.
Mr. Shoop supplemented and modified his pre-filed testimony and
indicated that the Company was still considering whether to
refinance all three series of bonds as variable, auction rate
bonds if the necessary insurance is available, or whether to
refinance the Series A and C bonds as variable auction rate
securities, and the Series B non-alternative minimum tax bonds as
fixed rate securities. He indicated that insurance was needed to
access the variable auction rate securities market, and that the
Company was still in negotiations with the insurer. He also noted
that the issuance of First Mortgage Bonds to evidence and secure
the Company's repayment obligations related to the new bonds
would be required.
The Loan and Trust Agreements would generally provide for the
following transactions: (1) the issue of the new PCRBs by the New
Hampshire Business Finance Authority (BFA), (2) the BFA's loan of
the proceeds of the new bonds to PSNH to refund the existing
Series A, B, and C PCRBs, (3) PSNH's repayment of the loan of the
bond proceeds from the BFA through payment to the Trustee, State
Street Bank and Trust Company, of all amounts necessary to pay
the new PCRBs, (4) PSNH's agreement to evidence and secure its
repayment obligations by the issuance of its First Mortgage
Bonds, and (5) the BFA's assignment to the Trustee in trust for
the bondowners of the BFA's rights, including repayment of the
loan to be received from PSNH. The new PCRBs would have a
maturity date of May 1, 2021.
In connection with the transfer by NAEC of its interest in
Seabrook Station, where the pollution control facilities
originally financed by PCRB funding are located, the buyer will
need to assume certain obligations regarding continued qualifying
use of the financed pollution control facilities. Going forward,
PSNH is prepared to oversee compliance with the loan terms
necessary to ensure the continuing tax exempt status of the new
PCRBs. If all three series of new bonds are issued as variable rate
securities, approximately 30 per cent of PSNH's long term debt
would be at fixed rates and 70 per cent would be at variable
rates. If two of the three series are issued as variable rate
securities and the third is fixed, as originally proposed, then
the ratio of fixed to floating long term debt would be
approximately 56 per cent to 44 per cent.
Mr. Shoop indicated that refinancing the $287,485,000 aggregate
principal amount of the bonds at a fixed rate of 5.95 percent
would result in estimated annual savings of approximately $4
million. Refinancing the $66,000,000 Series A Bonds and the
$112,500,000 Series C Bonds as Dutch auction bonds at an
estimated variable rate of 3.32 percent and the $108,985,000 non-
alternative minimum tax Series B at an estimated fixed rate of
5.95 percent would result in an estimated annual savings of
approximately $7.655 million. Mr. Shoop indicated that if the
Series A and C Bonds were refinanced as variable rate bonds, and
the Series B Bond were refinanced as 5.95 percent fixed rate
bonds, short term variable interest rates, currently around 2.5
to 3.0 percent, would have to approach 5.37 percent before
savings would be reduced to the approximately $4 million achieved
by refinancing the $287,485,000 aggregate principal amount at a
fixed rate of 5.95 percent. See Exhibit 5, Response to Q-Staff-
005.
The above savings are coupon to coupon figures and do not include
a base case for expected present value in savings over the life
of the bonds. In a response to Staff's data request number 8,
PSNH states that "using a discount rate of 10 percent, the result
of this analysis yields a present value of $65.5 million."
However, a similar analysis was not conducted for the case if all
the series A, B, and C bonds are at a fixed interest rate of 5.95
percent. Therefore, a comparison of savings between the completed
fixed interest rate refinancing scenario and the variable/fixed
interest rate refinancing was not conducted.
The variable interest rates on the Series A and C PCRBs will be
determined via a Dutch Auction. Mr. Shoop's pre-filed testimony
outlines the mechanism behind the Dutch Auction as follows:
"[pursuant to the Dutch Auction Procedures, Broker Dealers submit
bids to the Auction Agent on behalf of holders or potential
holders of the bonds. Assuming sufficient bids at less than the
stated maximum interest rate have been placed for the principal
amount of bonds available for sale, the interest rate is
established as the lowest rate at which all bonds will either be
held by existing holders at the specified rate, or sold to new
purchasers." Since 1989, the Dutch Auction Rate has been
approximately 70 percent to 80 percent of the London InterBank
Offering Rate (LIBOR), and has been slightly higher than the Bond
Market Auction rate by about 25 to 30 basis points. Such
relationships are evidenced by historical experience and market
characteristics, not by loan document requirements. Although the
Company has not participated in this Dutch Auction before, other
utilities have. Therefore, the Company will seek the aid of two
third-party advisors with respect to auction rate securities.
Mr. Shoop discussed the options available to the Company for
managing the interest rate risk associated with the bonds,
including changing modes and fixing the bonds in accordance with
the terms and conditions of the Loan and Trust Agreement(s),
refinancing the bonds, retiring them, or entering into derivative
instruments. Mode changes, at the discretion of the Company, do
not require payment of premiums or fees but variable rate modes
are expensive because of credit enhancements. Mr. Shoop indicated
that the Company's request for approval to enter into derivative
instruments such as swaps, caps, floors, and collars is critical
to the Company's refinancing proposal, as such authority would
enable the Company to manage its interest rate risk. With
interest rates at a recent low, Mr. Shoop stated the Company may
need to act quickly when interest rates begin to rise to preserve
the benefits of low interest rates for the Company and its
customers. Mr. Shoop noted that while there are a number of
options for controlling interest rate risk, options other than
derivative instruments all require some time to effectuate, and
would not be appropriate if the Company needed to act quickly.
Mr. Shoop pointed out that while everyone agrees interest rates
will begin to rise at some point in time, no one knows exactly
when and how quickly any increases will occur. In the past, PSNH
has not used derivative instruments to manage interest rate risk.
Mr. Shoop noted that while the Company has not established any
written guidelines or benchmarks to determine when it would act
to fix interest rates on the bonds, the Company would closely
monitor the financial markets and consult with its financial
advisors to determine when to enter into any derivative
transactions. Mr. Shoop also mentioned that if such a protocol
were developed it must be approved by senior management and would
not require a significant amount of effort. During cross-
examination, Mr. Shoop stated that the Company would be willing
to develop such a protocol.
Mr. Shoop also discussed the Company's request for a short term
debt limit of $387,485,000, noting that it consisted of (i) $100
million of short term debt for general corporate purposes,
including bridging the proposed rate reduction bond financing
required to buy out certain small power producers, and (ii) up to
$287,485,000 of short term debt, such short term debt to be
incurred only to the extent necessary in connection with the
issuance or subsequent conversion of the new bonds.
Mr. Hall described how the financing will benefit the Company's
customers. He indicated two ways that savings will flow to
customers. First, the return applied to Part 3 stranded costs
(the "Stipulated Rate of Return" as defined in the Settlement
Agreement) will be reduced at the time of the refinancing, and
second, during the next rate case, PSNH's cost of capital and
therefore return on rate base will be lower (all other things
being equal). Mr. Hall estimated that the lower cost of debt will
result in an immediate increase in the rate of recovery of Part 3
stranded costs of approximately $1.7 million, and that the entire
savings would benefit the Company's customers following the next
rate case. Furthermore, Mr. Hall acknowledged that if the cost of
debt is higher under proposed refinancing than if all the series
PCRBs were at a fixed interest rate, the Company would be
accountable during the next rate case. However, he stated that
the Company's actions should not be judged with the benefit of
hindsight.
B. Office of Consumer Advocate
The Office of Consumer Advocate attended the technical session
and participated in the hearing on the merits. The OCA supported
the Company's refinancing proposal while sharing the concerns of
the Staff witnesses. The OCA suggested that the Commission should
now determine a trigger by which PSNH would fix the interest
rates or hedge as opposed to later getting into the issue of
hindsight. Among the possibilities suggested would be to fix the
rates as soon as possible after an increase in the Federal Funds
or Discount rate, or to have PSNH now propose a trigger mechanism
for Commission approval. The OCA alternatively suggested the
Commission consider using the actual interest costs incurred by
PSNH for these debt issues during the fixed rate period to
determine the cost of these debt issues as the basis for the
input in the cost of capital calculation in the next rate case in
order to ensure that customers obtain their fair share of the
lower interest rates.
The OCA also recommended that the Commission terminate the $100
million short term debt limit for general corporate purposes
proposed by the Company when PSNH sells its generating assets,
and that the Commission make it clear the $287,485,000 short term
debt limit proposed by the Company was authorized only if and to
the extent necessary in connection with the new bonds, and was
not to be employed for other purposes.
C. Staff
Mr. Naylor's testimony indicated support of PSNH's filing, with
the caveat that PSNH should be held accountable for the prudence
of its decisions with respect to the extent of variable rate
financing it seeks in connection with the PCRB refinancings. Ms.
Sirois's testimony indicated an area of concern. Before she can
extend support for utilizing derivative instruments, she
testified PSNH must develop protocol identifying interest rate
benchmarks and procedures addressing actions to be taken when
interest rate benchmarks are reached. Furthermore, the Company
must conduct risk management analysis.
Ms. Sirois extended her support for refinancing because both long-
term and short-term interest rates are near recent lows, and this
reduces the cost of debt. Furthermore, the Federal Open Market
Committee (FOMC) was expected to further lower the Federal Funds
rate on November 6, 2001. According to J.P. Morgan, the Federal
Funds Rate may reach 2.0 percent during the fourth quarter of
this year. Ms. Sirois's prefiled testimony outlines the
possibility of interest rates increasing in the near future. Due
to aggressive fiscal policy, the money supply has increased
significantly within the last month, she testified. Since the
economy is declining in terms of growth, inflation may start to
become an issue, she argued. Since it is the goal of the FOMC to
maintain an inflation rate within target levels, the FOMC may
attempt to fight off inflation via increasing the Federal Funds
Rate and the Discount Rate, she stated. During cross-examination,
she noted that current and potential levels of inflation would
have to increase by a substantial amount to cause concern, when
compared to the inflation levels in the 1970s, but that expected
inflation is already visible in bond markets.
Ms. Sirois stated that the possibility of interest rate increases
are significant to her testimony because if PSNH later decides to
use interest rate swaps or caps to exchange variable interest
rates for fixed rates, it may have to do so at higher fixed rates
and/or costs than could be obtained at the present. Also, if the
Company must deal with a high cost of debt due to applying
variable rates instead of fixed rates, it may be held accountable
through its rate of return.
Mr. Naylor's testimony indicated that with PSNH's T&D rates fixed
for 33 months, none of the benefits of lower interest rate
charges can be passed through to ratepayers until the T&D rate
case occurs under the Settlement provisions in DE 99-099.
In addition, while acknowledging that Part 3 stranded costs will
be lower due to the fact that lower debt costs help reduce the
Stipulated Rate of Return per the Settlement Agreement, Mr.
Naylor pointed out that this benefit to customers is delayed
until such time as the stranded cost charge is actually reduced.
In addition, PSNH also realizes additional benefits not
contemplated under the Settlement: its risk of full recovery of
Part 3 costs is also reduced.
In the next rate case, Staff will look very closely at the cost
of debt that PSNH proposes in the T&D rate case. If Staff feels
that PSNH has improperly caused the cost of debt to be higher
than it might have been had it chosen fixed rates at this time
for the PCRBs, or was unable to utilize derivative instruments or
the cost thereof were such that overall debt costs were higher
than they otherwise would have been had fixed rates for the
refinancing been chosen, Staff will urge the Commission to
penalize PSNH accordingly through its rate of return.
III. COMMISSION ANALYSIS
Pursuant to RSA 369:1, public utilities engaged in business in
this State may issue and sell bonds and other evidences of
indebtedness payable more than 12 months after the date thereof
only if the Commission finds the proposed issue and sale to be
"consistent with the public good." The provisions of RSA 369:1
further specify that the Commission may attach "such reasonable
terms and conditions [to its approval] as the commission may find
to be necessary in the public interest." Moreover, in Appeal of
Easton, 125 N.H. 205 (1984), the New Hampshire Supreme Court held
that the Commission must "determine whether, under all the
circumstances the financing is in the public good - a
determination which includes considerations beyond the terms of
the proposed borrowing." Id. at 213.
Based on our review of testimony and exhibits, we conclude that
the Company's proposal in regards to refinancing the Series A, B,
and C PCRBs is in the public good. Interest rates are approaching
historical lows and refinancing would reduce the cost of long
term debt. Such savings will reduce the return applied to Part 3
stranded costs and this lower cost of debt will result in an
immediate increase in the rate of recovery of Part 3 stranded
costs. The Company's required return on rate base is also
expected to decrease, and this savings would benefit the
Company's customers following the next rate case.
PSNH's use of First Mortgage Bonds in connection with the
refinancing is reasonable and is consistent with the structuring
of previous PCRB issues.
With respect to the short term debt limit of PSNH, the $100
million of short term debt financing requested for general
corporate purposes is $25 million more than PSNH is entitled to
without our specific approval. We conclude such $100 million
amount is reasonable and should be approved so long as PSNH
maintains its current capital structure. However, we will
reconsider the reasonableness of continuing to carry this level
of short term indebtedness at such time as PSNH sells its
generating assets.
With respect to the short term debt limit of PSNH, we do not
share PSNH's view that the $287,485,000 requested in order to
accomplish the variable rate financing of all three issues is
indebtedness "payable less than 12 months after the date thereof"
within the meaning of RSA 369:7. Therefore, we do not require
approval of such amount under that statute. As to the remaining
$100 million of short term debt financing requested for general
corporate purposes, we note that under our rules this is $25
million more than PSNH is entitled to without our specific
approval. We conclude such $100 million amount is reasonable and
should be approved so long as PSNH maintains its current capital
structure. However, we may reconsider the reasonableness of
continuing to carry this level of short term indebtedness at such
time as PSNH sells its generating assets.
With respect to the proposed long term debt financing, the
Commission shares the concerns raised by Staff regarding PSNH's
use of variable rate bond issues and derivative instruments to
protect against the interest rate risks associated with such
issues. The Company's proposal is novel, in that this is the
first instance in which a utility in New Hampshire has proposed
to engage in long term financing using variable rates with
hedging opportunities, and this is the Company's first foray into
Dutch Auction financing vehicles. The Company's proposal is also
unique in that if all three series of PCRBs were redeemed and if
variable rate instruments were substituted, a substantial part of
the Company's capital structure (i.e., 70 percent of its long term
debt) will be subject to interest rate variations, thus exposing
the Company and its customers to the risk that applicable rates
will increase to levels that are uneconomic relative to fixed
rates that could be obtained in today's low-yield bond markets.
These risks are put in relief by the unavoidable reality that the
Company will be making its decisions about the mix of fixed and
variable instruments and about whether to seek hedges against
anticipated upward rate movement in a context, at least in the
near term, in which it will have an incentive to maximize short
term gains, possibly at the expense of longer term savings, given
the operation of the fixed rate period.
The Company is persuasive that it makes economic sense to take
advantage, at least to some extent, of the present climate of
extraordinarily low interest rates, and we will permit the
Company the flexibility to enter into these arrangements.
However, given the considerations enumerated above, certain
customer protections and financing limitations are warranted.
First, PSNH must supply to the Commission the same information it
must supply to the Securities and Exchange Commission for any
transaction entered into under this Order. Second, at such time
as PSNH decides to use derivative instruments to turn variable
interest rate vehicles into fixed rate instruments, it must
provide the Commission with the information on which it relied in
determining that such action is prudent and in the public
interest.
Third, we will not permit the Company to use fixed rates for all
three financings. Rather, the Company may use variable rates for
series A and C PCRBs, but must seek long term fixed rate
financing for the series B PCRBs, consistent with its original
proposal. This limitation on Company flexibility will ensure that
a more conservative approach is taken in this first venture into
variable rate long term indebtedness than would be represented by
a decision to use variable rate financing for all three series,
while still permitting the Company to explore and take advantage
of opportunities for variable rate financing with respect to a
significant portion of its long term debt portfolio.
At the same time, however, we put the Company on notice that in
any later relevant proceeding, the Company will bear the burden
of demonstrating that any determination to use variable rate
instruments was made according to sound management protocols. We
will look to the rate that the Company could have obtained for
comparable fixed rate securities as a benchmark against which to
evaluate the soundness of the arrangements actually entered into
by the Company. We note further that we will consider in any such
proceeding the extent to which the Company took steps to ensure
that it and its customers are protected against serious downside
events. Thus, for example, we will look to see whether the
Company has leveraged its derivative transactions, failed to
hedge its derivative transactions, entered into swap transactions
with counterparties that do not meet adequate credit rating
requirements, or entered into assignable derivative transactions.
See, e.g., Re National Fuel Gas Distribution Corporation, Case
No. 99-G-0541 (New York Public Service Commission, July 28,
1999), PUR 4th 111294, at 7-8.
Based upon the foregoing, it is hereby
ORDERED, that pursuant to RSA Chapter 369:1-4, the Commission
finds that the proposed financing, upon the terms and conditions
proposed in the Company's petition and testimony, as supplemented
and modified, and subject to the terms and conditions specified
in this order, is consistent with the public good; and it is
FURTHER ORDERED, that the Commission hereby approves and
authorizes, pursuant to RSA 369:1,3 and 4, PSNH's redemption and
refinancing of $178,500,000 principal amount of currently
outstanding Series A and C PCRBs, through the issuance and sale
by the Business Finance Authority of the State of New Hampshire
("BFA") of up to $178,500,000 aggregate principal amount of fixed
or variable rate Pollution Control Revenue Refunding Bonds (the
"New Fixed or Variable Rate Bonds") in one or more series,
payable more than 12 months after the date thereof, upon the
terms and conditions proposed in the Company's petition and
testimony as supplemented and modified, and subject to the terms
and conditions specified in this order, and to take all actions
necessary for and in connection with the issuance of such bonds
and conversion of the bonds to other modes in accordance with the
loan documentation, including but not limited to (i) entry into
one or more Loan and Trust Agreement(s) with the Business Finance
Authority of the State of New Hampshire and the Trustee, (ii) the
purchase of insurance to secure repayment of the New Fixed or
Variable Rate Bonds, and (iii) the issuance of First Mortgage
Bonds payable more than 12 months after the date thereof to
evidence and secure certain of the Company's repayment
obligations related to the New Fixed or Variable Rate Bonds, all
as described in the petition and testimony of PSNH, as
supplemented and modified, and substantially as contemplated by
the documentation submitted by PSNH to the Commission and subject
to the terms and conditions specified in this order; and it is
FURTHER ORDERED, that the Commission hereby approves and
authorizes, pursuant to RSA 369:1,3 and 4, PSNH's redemption and
refinancing of $108,985,000 principal amount of currently
outstanding Series B PCRBs, through the issuance and sale by the
Business Finance Authority of the State of New Hampshire ("BFA")
of up to $108,985,000 aggregate principal amount of fixed rate
Pollution Control Revenue Refunding Bonds (the "New Fixed Rate
Bonds") in one or more series, payable more than 12 months after
the date thereof, upon the terms and conditions proposed in the
Company's petition and testimony as supplemented and modified,
and subject to the terms and conditions specified in this order,
and to take all actions necessary for and in connection with the
issuance of such bonds, including but not limited to (i) entry
into one or more Loan and Trust Agreement(s) with the Business
Finance Authority of the State of New Hampshire and the Trustee,
(ii) the purchase of insurance to secure repayment of the New
Fixed Rate Bonds, and (iii) the issuance of First Mortgage Bonds
payable more than 12 months after the date thereof to evidence
and secure certain of the Company's repayment obligations related
to the New Fixed Rate Bonds, all as described in the petition and
testimony of PSNH, as supplemented and modified, and
substantially as contemplated by the documentation submitted by
PSNH to the Commission, and subject to the terms and conditions
specified in this Order; and it is
FURTHER ORDERED, that the Commission hereby approves and
authorizes PSNH, pursuant to RSA 369:1-4, to mortgage its
properties and franchises and to issue a principal amount of its
fixed or variable rate First Mortgage Bonds, in one or more
series, equal or substantially similar in amount to the amount of
New Fixed or Variable Rate Bonds issued by the Company, to
evidence and secure certain of the Company's repayment
obligations related to the New Fixed or Variable Rate Bonds
and/or any insurance policy or other credit enhancement securing
the New Fixed or Variable Rate Bonds, with principal, interest,
payment and other related terms the same as or substantially
similar to those of the New Fixed or Variable Rate Bonds, all as
described in the petition and testimony of PSNH, as supplemented
and modified, and substantially as contemplated by the
documentation submitted by PSNH to the Commission and subject to
the terms and conditions specified in this Order; and it is
FURTHER ORDERED, that the Commission hereby approves and
authorizes PSNH, pursuant to RSA 369:1-4, to mortgage its
properties and franchises and to issue a principal amount of its
fixed rate First Mortgage Bonds, in one or more series, equal or
substantially similar in amount to the amount of New Fixed Rate
Bonds issued by the Company, to evidence and secure certain of
the Company's repayment obligations related to the New Fixed Rate
Bonds and/or any insurance policy or other credit enhancement
securing the New Fixed Rate Bonds, with principal, interest,
payment and other related terms the same as or substantially
similar to those of the New Fixed Rate Bonds, all as described in
the petition and testimony of PSNH, as supplemented and modified,
and substantially as contemplated by the documentation submitted
by PSNH to the Commission and subject to the terms and conditions
specified in this order; and it is
FURTHER ORDERED, that the proceeds from the issuance of the New
Fixed or Variable Rate Bonds be used for the purposes of
refunding the Company's outstanding 1991 $66,000,000 Series A
PCRBs and $112,500,000 Series C Pollution Control Revenue
Refunding Bonds; and it is
FURTHER ORDERED, that the proceeds from the issuance of the New
Fixed Rate Bonds be used for the purposes of refunding the
Company's outstanding 1991 $108,985,000 Series B Pollution
Control Revenue Refunding Bonds; and it is
FURTHER ORDERED, that the Company is authorized, upon meeting the
amended conditions listed above, from time to time during the
term that the New Fixed or Variable Rate Bonds remain
outstanding, to enter into interest rate swaps, caps, collars,
floors or other similar derivative instruments in a notional
amount not exceeding $178,500,000 to manage financial impacts
from interest rate fluctuations associated with the New Fixed or
Variable Rate Bonds; and it is
FURTHER ORDERED, that pursuant to RSA 369:7 and N.H.. Admin. Rule
Puc 307.05 the Commission hereby approves and authorizes a $100
million short term debt limit for general corporate purposes, to
be applicable until further order of the Commission; and it is
FURTHER ORDERED, that the Company file true copies of the loan
documents executed or otherwise finally issued in connection with
the closing of the transactions contemplated hereby.
By order of the Public Utilities Commission of New
Hampshire this ninth day of November, 2001.
________________ _________________ _______________
Thomas B. Getz Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
_____________________
Claire D. DiCicco
Assistant Secretary